The First Year of President Tinubu's Vision ( Renewed Hope) for Nigeria

President Tinubu's economic vision for Nigeria, aptly named "Renewed Hope," has unfolded over the first year of his administration. This analysis delves into key policy initiatives that shape the economic landscape, exploring the impacts of significant reforms in fuel subsidy removal, the Electricity Act of 2023, foreign exchange unification, the National Infrastructure Master Plan, and the Medium-Term Expenditure Framework. Additionally, it scrutinizes strategic debt management and new loans as President Tinubu navigates the challenges inherited from the previous administration to propel Nigeria toward sustainable economic growth and development.

Economic Reforms: Current and Potential Impact on the Economy

1.??? Fuel Subsidy Removal

In a bold move to address the unsustainable fuel subsidy program, President Tinubu abolished the subsidy, paving the way for market-based pricing and potential savings for the government.

The removal of subsidy at the end of May 2023 led to a petrol consumption decline in the first half of June, decreasing from a daily average of 66.9 million liters in January- May 2023 to 48.43 million liters, due to the higher fuel prices, which have increased substantially. Petrol prices, for instance, surged to a record high of ?617 per liter in July 2023, representing a significant increase from the pre-subsidy removal price of ?195 per liter.

The total monthly consumption in June also decreased by 32.94%, from 2.16bn liters to 1.45bn liters. Currently, the price per liter is about N 630 and according to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), the country’s average domestic consumption of petrol has dropped to 44.3 million liters per day.

Despite the decline in consumption, fuel demand in Nigeria is still expected to grow in the long term, driven by factors such as population growth, urbanization, and increasing vehicle ownership. However, the pace of growth is likely to be slower due to various economic factors.

Nigeria's fuel supply remains largely reliant on imports, as the country's refineries have not been operating at full capacity.

The third quarter of 2023 witnessed a notable surge in imports despite a reduction in consumption volume, largely due to the upswing in oil prices during this period.

The decrease in the volume of Premium Motor Spirit (PMS), attributed to the rise in pump prices, suggests a challenging landscape for consumption. Considering current economic trends such as naira devaluation and fuel demand, it is plausible to anticipate a further increase in import volumes, potentially reaching 25% in Q4 2023 and fuel price increasing to N 700/liter in 2024.

The escalation in fuel prices may pose a counteracting force, potentially diminishing import demand in the anticipated full operational status of the Dangote Refinery by the first quarter of 2024. The refinery's operation is expected to substantially curtail the need for imports, exerting downward pressure on the import figures, which could reshape the importation landscape, marking a noteworthy transition in the energy sector.

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1.??? Electricity Act 2023

Recognizing the importance of a stable power supply for economic growth, President Tinubu signed the 2023 Electricity Bill into law, aiming to reform the electricity sector and promote competition.

The Bill acts as a?framework for Nigeria's Energy Sector, focused on guiding the operation of the electricity market and supporting sustainable initiatives to attract investments across the energy value chain. The bill has provided companies with incentives to invest in renewable energy projects, develop mini-grids, and more, which various companies have begun to leverage. Some of the key provisions of the Act include:

a)???? State Electricity Markets: States have the authority to license electricity operations, aiming to reduce reliance on the national grid.

b)???? Independent Systems Operator (ISO): The Transmission Company of Nigeria (TCN) is required to establish an Independent Systems Operator (ISO) for market functions.

c)???? Renewable Energy Development: The Act promotes the use of renewable energy, with the Nigerian Electricity Regulatory Commission (NERC) regulating and awarding licenses for renewable projects. Tax incentives from the Ministry of Finance are designed to make renewable energy more attractive.

d)???? National Hydroelectric Commission (N-HYPPADEC): This commission formulates policies for the development of hydroelectric power-producing areas and receives 10% of revenue from hydroelectric dams.

e)???? Integrated Electricity Policy (NIEPSIP): The Ministry of Power is mandated to create and publish an Integrated National Electricity Policy and Strategic Implementation Plan within one year of the Act's commencement. The plan undergoes periodic reviews, with updates expected at least every five years after approval by the Federal Executive Council.

These provisions offer a range of investment opportunities for companies. Firstly, there is a clear incentive for companies to engage in the development of renewable energy projects, particularly in the domains of solar and wind power, owing to the Act's supportive framework. Additionally, the Rural Electrification Agency is designated to oversee and finance the electrification of rural areas, presenting companies with prospects to provide energy services to underserved communities. Furthermore, the Act promotes private sector participation in electricity distribution and transmission infrastructure, opening avenues for investment in these critical components of the energy supply chain.

The Electricity Act 2023 not only facilitates private sector investment in Nigeria's electricity sector but also establishes a stable regulatory framework, reinforcing investor rights. Several companies are capitalizing on the Act, exemplified by:

·?????? Mainstream Renewable Power, developing a 50 MW solar power plant in Katsina State.

·?????? Sun Africa Energy, working on a 100 MW solar power plant in Bauchi State.

·?????? Azuri Technologies, providing off-grid solar solutions to rural communities.

·?????? Green Village Electricity, offering mini-grid solutions to rural areas.

·?????? Aradel Renewables Limited (The CESEL-Concerto JV), commissioning solar hybrid mini-grid projects in Osun State.

Nigeria has also formed partnerships, including one with the Netherlands for a solar marketplace, and engaged in deals such as the Siemens gas deal with Germany. Following the 2023 G20 Summit, the Minister of Foreign Affairs confirmed the continuation of the Siemens gas deal and anticipated improved electricity supply in 2024, with the completion of projects like the AKK and Ajaokuta-Abuja-Kaduna-Kano.

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1.??? Foreign Exchange Unification

By the directive of President Bola Tinubu, the Central Bank of Nigeria (CBN) announced changes to the country's foreign exchange (FX) market, merging of official and parallel market foreign exchange rates to adopt a floating exchange regime. The primary goal of the FX unification was to provide businesses and investors more stability and predictability, improving business planning and decision-making capacity, and thereby increasing the competitiveness of Nigeria in the global market.

However, this decision has significantly devalued the naira. Although the Investors and Exporters (I&E) FX window has adopted the market-determined exchange rate, the parallel market rate continues to persist trading at $1/N1,250 as opposed to the current official exchange rate of $1/N800. Various reasons are attributed to this situation such as the scarcity and restricted flow of foreign currency in the Nigerian economy, lower export revenue, external debt servicing, and importation of fuel, among others.

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In the initial stages following the unification, the Nigerian economy experienced:

·?????? Increase in Monetary Policy Rate (MPR) to 18.75%

·?????? Influx of Foreign Direct Investment.

·?????? Naira Devaluation

·?????? Increased Debt burden, and others

·?????? Increase in Inflation from 22.41% to 24.08% within the two months. With the continuous increase in food, transportation, and overall cost of living, the inflation rate is projected to reach the 30% range by Q1 2024.

The long-term impact of FX unification will be determined by how the general economic climate is managed. However, the current economy shows:

·?????? The Exit of Multinational Companies: Although the FX unification aimed for a stable & predictable exchange rate to attract foreign investment, the ongoing fall of the naira value has weighed heavy on the economy for a long time and several multinationals have suffered for it. Many multinational companies have begun to shift business models to import-only models, leaving the manufacturing sector out of over 20,000 jobs.

·?????? Low Export Revenue and High Export Competitiveness: Beyond oil, Nigeria's export basket is quite narrow, primarily consisting of raw materials and a few agricultural products. This lack of diversification significantly impacts overall export revenue. Exporters can now earn more naira per dollar earned, potentially making Nigerian exports more competitive in the international market and generating more foreign currency inflow. However, this competitive status will not happen without the right infrastructure to support exporters.

·?????? Foreign currency Scarcity: Access to Foreign currency at the official rate remains limited for many businesses and individuals, which hinders trade, investment, and economic activity. Initiatives to streamline forex allocation and address underlying issues, such as forex leakages, are crucial.

·?????? Diversification efforts: With the release of the 2024 National Budget, the focus on non-oil sectors like agriculture, manufacturing, health, infrastructure, and technology has increased as these sectors will be critical to reducing dependence on imports and creating sustainable job opportunities.

Nonetheless, despite all these seemingly negative impacts of the Unification of foreign exchange. If the government can properly capitalize on the transition to a free-market economy, potential benefits of the FX unification include:

·?????? Market Predictability

·?????? Increase in Foreign Reserve

·?????? Attractive Investment Climate

·?????? Market stability and growth

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1.??? National Infrastructure Master Plan and Infrastructure Support Fund (ISF)

To address Nigeria's infrastructure deficit, President Tinubu initiated the National Infrastructure Master Plan, outlining a comprehensive strategy for upgrading transportation, health, education, energy, and other critical sectors.

The National Infrastructure Master Plan outlines a comprehensive strategy for developing Nigeria's infrastructure over the next 15 years. It encompasses a wide range of sectors, including transportation, energy, and information and communication technology (ICT). The plan prioritizes projects that will have the most significant impact on economic growth and job creation. The ISF is expected to leverage private sector investment, attracting significant funding for infrastructure development. This initiative aims to secure improvements to the country's infrastructure deficit by:

·?????? Economic Growth - Increasing Trade

·?????? Job Creation

·?????? Improve Basic Infrastructural Landscape (Transportation, Electricity, Water, etc)

While the National Infrastructure Master Plan and Infrastructure Support Fund offer immense promise and there is much anticipation for numerous benefits for the Nigerian economy, several challenges and considerations should be given to these initiatives for successful implementation and sustainability:

·?????? Sustainable Funding and Management: The long-term sustainability of the ISF will be crucial to the continued implementation of infrastructure projects. Efforts directed toward how the available funds are spent are necessary.

·?????? Effective Project Execution (Set goals): Efficient and transparent project execution will be essential to maximize the impact of infrastructure investments and avoid delays or cost overruns. Set goals as the stages of development progress should be made to give clear direction to projects.

·?????? Private Sector Participation: Private sector participation in infrastructure development will be key to unlocking the full potential of the ISF and the National Infrastructure Master Plan.

·?????? Risk and Corruption Mitigation: Implementing robust anti-corruption measures, risk mitigation measures, promoting transparency, and enforcing accountability are essential for building investor confidence and ensuring funds are utilized efficiently.

·?????? Local Employment and Skills Development: The inclusion of the local population in infrastructure projects can stimulate economic development and create employment opportunities. Training local workers in modern construction and project management techniques enhances the workforce's capability and contributes to sustainable development.

·?????? Rural Development:? Focus on infrastructure development in rural areas is important for inclusive growth. Rural and urban community involvement can stimulate economic activities, reduce poverty, and bridge the regional development gap in Nigeria.

·?????? Fiscal Incentives: Implementation of tax incentives and progressive fiscal policies to attract investments, especially from multinationals.

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1.??? Medium-Term Expenditure Framework and Fiscal Strategy Paper 2024 – 2026

The Nigerian Senate approved the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) for 2024-2026, providing a roadmap for the country's economic trajectory. Key projections include crude oil production, oil price, exchange rate, GDP growth rate, and budget details for 2024.

The economic projections in Table 1 seem quite ambitious. These projections for 2024, however, do not match the current realities and anticipated trajectory of the economy. With the cautious inflation rate approvals for 2024-2026, the current inflation rate of 28.02% raises some skepticism about the feasibility of these goals. Nigeria has a continuous reliance on oil exports revenue and a crashing currency evaluation.

Although the new administration is geared towards growth and sustainable development, the target market values for 2024 seem unrealistic despite the large, proposed budget. To achieve these targets the government would be required to employ prudent implementation and management within a short amount of time.

The paper also emphasized tax collection efficiency and fiscal responsibility to improve financial management. Balancing fiscal and monetary policies is crucial. While the CBN has tried to reduce deficits and increased the MPR to 18.75% intending to control inflation, it has however led to higher borrowing costs, affecting both businesses and consumers and impacting investments and dampening business activity. The success of the transition to a free economy will depend on effective implementation and adaptability to these changing economic conditions.

The MTEF & FSP present ambitious plans and positive efforts towards economic growth and stability. However, realizing these goals requires navigating challenges like high inflation, dependence on revenue in the short term, and effective implementation of proposed measures.

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1.??? Strategic Debt Management and New Loans

President Tinubu's administration inherited a significant debt burden from his predecessor. As of September 2023, Nigeria's total public debt stood at roughly N77 trillion, with external debt accounting for about 35%. Since his inauguration, Tinubu has sought to manage this existing debt and secure new loans and fund infrastructure projects, provide support to businesses, and implement social welfare programs.

Nigeria's public debt stock which includes external and domestic debt stood at N87.38 trillion (US$113.42 billion) in Q2 2023 from N49.85 trillion (US$ 108.30 billion) in Q1 2023, indicating a growth rate of 75.27% on a quarter-on-quarter basis.

Total external debt stood at N33.25 trillion (US$43.16 billion) in Q2 2023, while total domestic debt was N54.13 trillion (US$70.26 billion).

Domestic Borrowing

??????????????????????? i.???????? Re-issuance of Federal Government (FGN) Bonds:

·?????? Amount: N1.2 trillion

·?????? Purpose: To finance the budget deficit and fund capital projects

?????????????????????? ii.???????? Issuance of Sovereign Sukuk:

·?????? Amount: N742.557 billion

·?????? Purpose: To finance infrastructure projects, particularly road construction and rehabilitation

External Borrowing

??????????????????????? i.???????? World Bank Loan for National Safety Net Programme:

·?????? Amount: $800 million

·?????? Purpose: To expand the Conditional Cash Transfer (CCT) program, providing monthly stipends to vulnerable households

?????????????????????? ii.???????? African Development Bank (AfDB) Loan for Energy Projects:

·?????? Amount: $500 million

·?????? Purpose: To finance renewable energy projects and improve grid infrastructure

???????????????????? iii.???????? China Exim Bank Loan for Transportation Projects:

·?????? Amount: $300 million

·?????? Purpose: To fund railway construction and rehabilitation projects

The Federal Government continues to explore many more financial options for loans and grants from entities such as the International Monetary Fund (IMF), European Investment Bank, and Green Climate Fund (GCF). Under President Tinubu's administration, Nigeria's borrowing has significantly increased intending to address infrastructure gaps, expand social safety nets, and stimulate economic growth. However, concerns remain about Nigeria's debt sustainability, as the country's debt-to-GDP ratio is approaching the IMF's recommended threshold.

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In the first year of President Tinubu's economic vision, Nigeria has witnessed a bold departure from traditional economic policies, with reforms aimed at fostering sustainability and growth. The removal of fuel subsidies, enactment of the Electricity Act, and foreign exchange unification reflect the administration's commitment to addressing long-standing challenges. Furthermore, the National Infrastructure Master Plan and the Medium-Term Expenditure Framework outline ambitious strategies to fortify critical sectors and propel economic growth. However, challenges such as inflation, currency devaluation, and debt sustainability pose formidable hurdles. The success of President Tinubu's economic vision hinges on adeptly navigating these challenges, fostering transparent project execution, and encouraging private sector participation. As Nigeria treads the path of economic transformation, the next chapters will reveal the efficacy of these measures in ushering in a new era of prosperity and development.