After the inauguration fanfare, huge economic challenges await Tinubu from Nigeria

MacDonald Dzirutwe and Libby George

LAGOS (Reuters) – Nigeria’s future president Bola Tinubu will inherit anemic economic growth, record debt and shrinking oil production, but he will need to secure public support for painful decisions before he can tackle these pressing issues.

Life is hard for citizens of Africa’s largest economy, and the confluence of protectionist economic policies and currency interventions has spooked investors.

Nigeria’s attempt to reduce its extremely costly fuel subsidies a decade ago met with massive social protests and had to be abandoned.

Tinubu, a member of President Muhammadu Buhari’s All Progressives Congress, helped bring the outgoing president to power in 2015.

Now, companies, international investors and citizens hope he can use his experience as Governor of Lagos State to revitalize Nigeria’s struggling economy and finally tackle its toughest challenges.


Nigeria’s debt has increased by almost 60% since 2015, reaching $103 billion last year, according to the Bureau of Debt Management. Its growth exceeds GDP expansion, and the government has warned that it could reach 77 trillion naira ($167 billion) when adding off-book loans from the central bank.

While Nigeria’s debt-to-GDP ratio stands at a modest 23.2%, compared with 60% in Angola, another oil producer, experts say the proportion of revenue needed to service the debt is alarming.

In January, Moody’s downgraded Nigeria’s credit rating, citing the data. According to some calculations, debt servicing costs exceeded revenues last year.

Gregory Smith, emerging markets fund manager at M&G Investments, said Nigeria’s “shockingly low government revenues” also cast doubt on its ability to spend money to spur growth.

“The debt pressure is symptomatic of this lack of government revenue,” Smith said.

Smith said increasing tax collection will be crucial for Tinubu.


Some of the revenue problems stem from rampant industrial-scale theft, which last year slashed oil production to its lowest level in more than 30 years. Oil and gas typically finance half of Nigeria’s budget and 90% of its foreign exchange. Constant theft, underinvestment and industrial disputes hamper production.

What’s more, crippling fuel subsidies are sucking up what’s left of oil sales. Fitch Ratings estimates that hidden gasoline subsidies cost the government about 2.4% of GDP in lost revenue. Experts say cutting subsidies and increasing oil production is crucial.

“The market seems quite short-sighted, focusing on these two things in particular: currency policy and the removal of fuel subsidies, in addition to broader changes to CBN,” said Yvette Babb of fund manager William Blair.

The Buhari government created an intricate network of official and parallel exchange rates in an effort to support the struggling naira. He also created a long list of items that are not allowed to be used in the central bank’s foreign currency.

Companies say the resulting widespread dollar shortages are crushing, while investors say difficulties getting money out of the country have stifled investment.

Smith and Babb said naira bonds and local investment were virtually impossible as a result.

“The key issues are being able to exit the market, even when you feel like you can make a turnaround,” Smith said.

Government figures showed that foreign direct investment fell from $2.2 billion in 2014, the year before Buhari took office, to $468 million last year.


Convincing Nigerians to abolish painful reforms depends on convincing them that they will improve lives – and that will be a hard sell.

Inflation is at its highest level in nearly two decades, eating up savings and salaries. Unemployment hit a record high of 33%, causing a brain drain. In addition, Tinubu’s 8.79 million votes are the fewest votes won by a Nigerian president since the country’s return to democracy in 1999, limiting his goodwill.

“He may have to demonstrate what he can provide for Nigerians before he can take something that will obviously lower the cost of living for a large part of the population,” Babb said of fuel subsidies. Allowing the naira to weaken, she added, also “has a price.”

($1 = 460.0000 naira)

(Edited by Toby Chopra)

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