• NIGERIA

Days of rage protests test Tinubu’s economic plans

With handouts, political co-option and force of arms, the government aims to face down mounting public anger

A month after Kenyan activists forced President William Ruto to drop plans for sweeping tax hikes, President Bola Ahmed Tinubu’s government has organised a comprehensive pre-emption campaign against the ‘Days of Rage’ protests in Nigerian cities due to run from 1-10 August.

Tinubu’s response is taking some cues from Ruto’s mix of tactical concessions and securitised repression. Presiding over the more than doubling of the minimum wage to 70,000 naira (US$46) from N30,000, Tinubu promised the government was working on financial packages to lessen the burden of spiralling prices and a weakening currency on the citizenry.

He also pledged to halve his official salary in solidarity. Given that he is one of the richest contractors in the country, that did little to appease activists. Likewise, they dismissed an offer by the National Assembly members, among the best remunerated lawmakers in the world, to give half their salaries to charity. The activists pointed out that the bulk of the lawmakers’ remuneration packages consisted of special allocations which they didn’t publicly disclose.

Beyond that the Tinubu government has organised some of the most senior imams, bishops, traditional leaders and retired military officers to deter those planning to protest. They warn that social unrest in Nigeria could be exploited by insurgents such as the Islamic State West Africa Province.

Military spokesman Major General Edward Buba said the army would be taking to the streets to forestall any protests that threatened to breach public order. He said the military wouldn’t allow any repeat of the #EndSARS protests against police brutality in October 2020. Their smart organisation, digitally convened, surprised and outmanoeuvred the previous government. But they ended in Lagos in what activists insist was a massacre by government soldiers.

Fraught reforms
The socio-economic drivers of the planned protests in August are the consequences of President Tinubu’s economic reforms, or rather the sequencing and management of them. Many businesses applaud the phasing out of capital controls and the floating of the naira. But they argue that to do as the government vowed to end fuel subsidies would make a lethal cocktail: severe food insecurity, inflation at 30-year highs, weakening naira, rising deficit pressures, hefty wage demands, and zero economic growth in per capita terms.

Finance Minister Wale Edun, Central Bank of Nigeria (CBN) governor Olayemi Cardoso and other Tinubu appointees insist that the reforms are on track. Yet the entire government is on alert for prolonged unrest (AC Vol 65 No 11, Tinubu weighs politics vs competence andVol 65 No 14,Tinubu’s government braces for Kenya-style protests). 

Concerns emanate from many sources: national and international economists; the IMF sounding the alarm on rising fuel subsidies, while also issuing qualified praise in its latest Nigeria Article IV; multinational companies selling assets or leaving Nigeria, wary investors, and Nigerians across society including a frustrated middle class.

Tinubu is fortunate that criticism from Atiku Abubakar’s People’s Democratic Party and reform-minded Labour Party presidential candidate Peter Obi lacks the punch it had before February 2023’s presidential polls. Some analysts argue that Nigeria might need to request an IMF programme, an even more politically contentious choice.

Tinubu’s economy policy-makers, and his recently inaugurated Presidential Economic Coordination Council, have to make difficult trade-offs as they try to balance fiscal, monetary and growth objectives. The IMF- and World Bank-recommended devaluation of the naira has turbo-charged import prices and inflation, just like last year’s removal of fuel subsidies raised prices across the economy.

Higher prices have driven increased public sector wages (by 25% or more) and union demands for minimum wage multiplication, while rising spending pressures – together with the need to finance last year’s delayed infrastructure spending – raise the likelihood of reversion to the CBN’s Ways and Means financing of the budget deficit, and CBN rate hikes.

Critics say that Tinubu’s social cash transfers, backed by the Bretton Woods institutions and intended to compensate Nigeria’s poorest for costlier fuel, have been far less effective than advertised (AC Vol 65 No 4, How the poor help the rich). And it remains to be seen whether Tinubu’s fiscal and tax reforms committee will boost tax revenues, or whether the promised unified tax authority is created.

The political tensions between policy objectives are increasing. The self-styled development central bank governor and would-be presidential candidate Godwin Emefiele faces a corruption trial.

His successor Cardoso is almost 100% technocrat with a public commitment to fighting inflation, but he also ends up in political fights. One of his priorities is to safeguard the independence the central bank. The IMF, and others, warn against attempts to revise the 2007 CBN Act to reduce its autonomy.

Further exacerbating fiscal pressures, as Edun recently observed, is oil production far below the 1.78 million b/d assumed by the 2024 federal budget – even though the weaker naira significantly boosts dollar revenues.

The Federal Inland Revenue Service (FIRS) indicates that first-quarter tax revenues were much lower than expected. And the national statistics agency numbers show declining corporate tax revenues from a struggling manufacturing sector battling with high production costs.

This, combined with Nigeria’s relatively high cost of domestic and external borrowing, explains IMF projections that the federal government’s interest payments/revenue ratio will not dip below 70% until 2026. And then only temporarily.

Recent announcements from Tinubu and Finance Minister Edun that an economic stimulus and stabilisation plan is on its way – perhaps similar in magnitude to former President Muhammadu Buhari’s N2.3 trillion 2020 Covid-response – points to government concern about the risks of unrest.

The plan is meant to address food shortages via boosting agriculture and implementing special food distribution measures. It will favour some sectors via tax and import duty exemptions and build more. Infrastructure. The poorest citizens are to get cash transfers to alleviate the costs of inflation.

Agriculture and Food Security Minister Abubakar Kyari, has announced plans for duty-free imports of food staples. Since late 2020, according to IMF estimates, Nigeria’s food insecure have roughly quintupled to over 18 million. The domestic price of rice and wheat has more than trebled that of January 2018. The proportion of a worker’s minimum wage required for a satisfactory diet has almost doubled in less than three years.

No one is clear over the size of Tinubu’s planned stimulus plan. particularly whether it would be capped at N2trn, or would be large enough to drive the over N7trn in additional 2024 borrowing contemplated during recent finance ministry discussions. This would almost double the N7.8trn borrowing currently assumed in the 2024 federal budget.

In late June ratings agency Moody’s – which reaffirmed Nigeria’s Caa1 sovereign rating with a ‘positive’ outlook – warned the deficit could reach 7% this year due to ‘multiple obstacles to the government’s fiscal consolidation plans’. Even though rivals Fitch and S&P, and the IMF, all previously forecast a below 5% deficit still exceeding Nigeria’s 3% fiscal rule, the direction of travel is heading towards a higher deficit.

Higher deficits will mean increased borrowing not long after Nigeria’s Debt Management Office reassured Nigerians that the 25% jump in the national debt to N121.7trn (US$91.5 billion) by March 2024, was driven by the greater burden of external dollar debts in devalued naira terms, and only partly due to N2.81trn of new borrowing already provided for in the Budget.

With borrowing on domestic markets relatively expensive because of CBN rate hikes, ministers are likely to seek more external borrowing to complement the $2.25bn in concessional financing recently approved by the World Bank under two development initiatives. The federal government has also received another disbursement from its $3.3bn Afreximbank lending facility, from which $2.25bn was released in December. This one is backed by around 90,000 b/d of Nigerian National Petroleum Corporation (NNPC) oil and will be repaid out of future oil sales.

Nigeria does not yet face Angola’s problem of massive loan collateralisation, based on its oil production, but its policy makers have to decide whether, and at what cost, they would return to the international bond markets this year (AC Vol 65 No 14,Tinubu’s government braces for Kenya-style protests). With current yields on Nigeria’s existing Eurobonds of six or more years to maturity close to 10%, market re-entry will not come cheap, particularly as United States' Federal Reserve rates cuts may now be more distant than hoped.

Officials at the NNPC and federal government concede that fuel subsidies have been reintroduced, albeit covertly, in a desperate attempt to cap spiralling local prices.

The National Bureau of Statistics numbers report average national May prices of N770/litre are more than treble a year ago when the full subsidy was still in place. There are vast inequities in the reliability of supply and availability across the country. In better-supplied Lagos State, prices are around N600; in north-eastern Jigawa State, where prices exceed N900.

Adding to Nigerians’ woes are planned increases in power tariffs, though the trebling of tariffs announced in April by the Nigerian Electricity Regulatory Commission only affects the largest (15%) of power users, many of whom still face significant disruption to reliable electric power.

The longer-term impact of the 650,000 b/d capacity Dangote refinery is still set to be positive Its prospects were undermined by difficulties in securing crude oil, and by tensions between Dangote and Tinubu. The NNPC’s reversal of its earlier opposition to supplying the refinery should help Dangote. On 30 July NNPC officials announced they would be allocating 450,000 barrels a day of Nigerian crude directly to the refinery and priced in naira.

Dangote’s deal in May with French oil major TotalEnergies, for the supply of crude oil feedstock, should alleviate the drag on refinery output, although ramping up the Lekki refinery towards its capacity remains a gradual process. According to NNPC officials, TotalEnergies plans to construct a new gas processing facility on the Ubeta onshore gas field.

Like other international oil companies in Nigeria, TotalEnergies has tried to shift oil production towards safer deepwater offshore assets. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and President Tinubu, who is also Petroleum Minister, have approved sales of oil assets owned by Eni/Nigerian Agip and Equinor ASA to local companies Oando and Chappal Energies Mauritius respectively. They have also approved the sale of ExxonMobil assets to Seplat, but are yet to approve a proposed sale by Shell to local consortium Renaissance.

In the context of last November’s withdrawal by the federal government of the civil Milan court claims against Eni, we can expect more pragmatism from Tinubu’s team as Nigeria seeks to boost oil and gas investment, production, refining, processing, and to preserve the hydrocarbons portion of its revenue base.

NUPRC chief Gbenga Komolafe claims that interest from oil companies and investors in a major onshore and offshore licensing round that began in April, has been ‘tremendous’. The process appears to have been helped by increased transparency and data provision to potential purchasers, albeit at the cost of lower bid and signing fees.

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