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October 24, 2023

Subsidy removal, exchange rate unification have achieved desired objectives — Tinubu

Subsidy removal, exchange rate unification have achieved desired objectives — Tinubu

Tinubu

*Says $1trn economy achievable by 2026

By Emeka Anaeto Emma Ujah and Emmanuel Elebeke  

Amidst the inflationary impact of the removal of petrol subsidy, President Bola Tinubu has indicated that the measure has achieved desired objectives. 

 

But leading economists and investment analysts faulted the position of the President, saying the economy is still struggling as the measures are yet to yield the desired positive impact on the economy.
 

Speaking at the opening ceremony of the 29th edition of the annual Nigeria Economic Summit Group (NESG) Tinubu stated that in addition to the removal of the subsidy the regime directed the unification of foreign exchange rates to stimulate economic growth.  

He said,   “To stimulate economic growth, we announced the end of a crippling fuel subsidy regime and the unification of foreign exchange rates.  

“Combined with the effects of an unsustainable fiscal deficit and hidden subsidies, these factors distorted the money supply and created an unfair playing field for an elite crop of unpatriotic forces. But that is no more. These changes have been tackled head on.”

President Tinubu also said his government has introduced several other measures to revive the economy including the N500 billion intervention to support small businesses and the agricultural sector, adding “by January 2024, the new student loan program and consumer credit schemes will have come into effect; New and affordable homes will also be built at record pace.”  

Tinubu however, added, “We have all felt the pain of these reforms; soon, we shall begin to reap the rewards. It is my hope that this summit will deliberate and proffer yet more solutions to complement the programs mentioned above.”

Further on his regime’s economic recovery efforts, Tinubu said, “To mobilise finance for sustainable development, we have simultaneously commenced an aggressive domestic and external mobilisation of financial resources and capital from a wide range of partners.  

“Amongst several initiatives, we are progressing forward with the development of wide-ranging reforms to our fiscal and tax policies to ensure an efficient, fair and growth-friendly fiscal environment.

“To harness our Human Capital, we must protect the socio-economically vulnerable and vanquish forever the crippling multidimensional poverty affecting our land as we move aggressively to end hunger and protect all Nigerian children.

“Consistent with our commitment to enshrining fairness and the rule of law in our country, this government will uphold the sanctity of every legitimate contract. Specifically, as it relates to foreign exchange obligations of the government, all forward contracts that the government has entered will be honoured and a framework has been put in place to ensure that these obligations are met in due course.

“My government is not blind to the challenges several of you are facing in the financial markets. I can allay these concerns by revealing that we have a good line of sight for the additional foreign exchange liquidity that is required to restore market confidence.

“Further details elaborating on the specifics of these far-ranging initiatives to deepen foreign exchange liquidity and improve confidence across all stakeholders would be shared by the Coordinating Minister of the Economy and the Governor, Central Bank of Nigeria”.

$1trn economy achievable  

On the general economic outlook, Tinubu stated: “A One Trillion Dollar Nigerian Economy is possible by 2026, and a Three Trillion Dollar Economy is possible within this decade. We can do it with double-digit, inclusive, sustainable and competitive growth.  

“This is our agenda, and I would like to charge you, the captains of industry here present, to commit and redouble your commitment to our vision of a Renewed and more Prosperous Nigeria, a better Nigeria for all.

“I am confident that by working closely with all of you in the private sector, financing our   $3 trillion National Infrastructure Stock can be achieved in 10 years and not in 300 years. Building megacities in every geopolitical zone of the size and scale of Lagos must not take us another six decades. We can do it in one decade.”  

No strike under my watch

President Tinubu also   assured that there will be no more strikes under   his administration for the sake of protecting the future of Nigerian youths and students.

To this effect, he said, all agreements entered into by his administration will be honoured.

According to the President, the government would focus on enduring poverty alleviation programmes, food security, economic growth and job creation; inclusive growth, security of lives and property, anti-corruption and implementation of sound economic policies.

The president equally charged NESG and the private sector for a prosperous Nigeria saying that his administration will deliver on its promises.

CEOs to President: No positive impact, economy still struggling

By Babajide Komolafe, Economy Editor, Udeme Akpan, Peter Egwuatu & Nkiru Nnorom

Meanwhile,   Chief 

Executive Officers of financial sector firms have faulted the assessment of the President on the impact of the reforms measures, stressing that removal of fuel subsidy and exchange rate unification are yet to yield a positive impact on the economy.  

Subsidy removal has caused massive dislocation

Commenting Andrew Uviase, Managing Partner of Ecovis Nigeria, “On the issue of fuel subsidy removal, it has helped to shore up naira revenue of the government by removing the drain that subsidy payments have on government resources. However, it has caused massive dislocation to various economic agents because of inflationary pressures. More so, it is doubtful if   subsidy removal has been able to solve the issue of government intervention. This is so because the present cost structure of a litre appears to be higher than the selling price of PMS.

“On the issue of exchange rate unification, I am afraid I appear not to know the objective of the government in this regard. Before the unification, the spread between the official and unofficial rates was 71%. Today the gap is about 56% and it is growing. So if economic agents were behaving badly before the unification, It is doubtful if their behaviour will be altered now.

“Personally, I believe what has happened is not unification but rather it is devaluation. Unification can only happen if people can get forex at the official rate from official sources.

“If the official sources cannot meet demand, then black market, which is driven by scarcity, will thrive and the gap between the two rates can only widen. Othordox approach will not work now as the exchange rate crises borders on structural issue arising from the poor productive base of the economy.”

Policy done with no clear direction  

On his part, Nnamdi Nwizu, Co Founder, Comercio Partners Limited, said: “I think it depends on which perspective. If you are looking at reducing subsidy payments, then yes it has, though there have been articles in the press saying that petrol is still being subsidised.

“My challenge with some of the policies is that they were done without any clear direction on how to tackle the consequences or resultant effect. For instance, we have seen the parallel market exchange rate move from $/N750 to $/N1,200, and we will have a 20% spread over the official market.

“Part of this is because we have not received direction on the monetary policy of the Central Bank of Nigeria, CBN. We also have not gotten any clear fiscal policy direction and to cap it all, we still have the unsettled forwards by the CBN.”

Reforms partially successful    

David Adonri, Vice Chairman, Highcap Securities, said the reforms have been partially successful.

“Partially, because of the non-convergence of exchange rate between the official market and the parallel market, the changing dynamics of the foreign exchange market has now made it possible for the Naira to assume its true value at any point in time.  

“Secondly, there are indications that some form of fuel subsidy is still going on as fuel pump prices are not adjusting automatically to changes in exchange rate since Nigeria is totally import dependent on petroleum products.”

On the other hand, he said that the reforms have achieved desired results in boosting government’s revenue, while simultaneously eliminating the haemorrhage from petroleum subsidy.  

He said: “the reforms have set the tone for correction of economic imbalances and at the fullness of time; its main objective which is to facilitate the allocative efficiency of the economy will be realized.  

“Also, enterprises that require FX under free market conditions can forecast the movement of FX more correctly and formulate appropriate plans. The allocative efficiency of markets enables scarce resources to flow to more efficient enterprises with higher internal rates of return.  

“It prevents rent seeking and shady deals that characterized the previous administrative method of resource allocation.  

“Although there are initial pains associated with market liberalisation, the long term benefits will facilitate the full mobilisation of the factors of production and make the economy self reliant.”

Economy is still struggling  

Also faulting the assessment of the President,   Tajudeen Olayinka, CEO,Wyoming Capital and Partners said: “ The fact that economy has not attained a satisfactory level of equilibrium position, means that the president was probably looking at short-term objectives of the policies, which clearly focus more on Naira revenue generation or Naira expenditure avoidance. To that extent, yes. But to a large extent, no. Economy is still struggling.”

The National President, Oil and Gas Services Providers Association of Nigeria, Colman Obasi, said: “It has achieved the desired results by sending many citizens to their early graves. A bag of beans is now above N100, 000. A bag of rice is N48, 000. A bag of gari is N28, 000. Everything is now out of reach of an average Nigerian. Millions of families in Nigeria can no longer feed.

“I hear that for months now drilling has not been going on in the oil and gas industry in Nigeria.”