Nigeria’s economy is in crisis. The naira has fallen over 50% in the last year alone. Oil revenues, the mainstay of Nigeria’s foreign earnings are at their lowest in the last two decades. Buhari did not create this situation – but he is Nigeria’s president, and it is his duty to fix it. Nigerians recognize that the missteps and actions of past governments are largely responsible for the current economic crisis (, but soon, they will stop looking backward and start asking harder questions of the Buhari government. This economy is now Buhari’s economy. An economy in crisis requires urgent measures and it is not clear that the Buhari government is addressing Nigeria’s economic crisis with the urgency that is required.  Malcolm Fabiyi

This lack of clarity is only in the economic sphere. The Buhari government has been clear on its intentions on the Boko Haram crisis. A new set of military leaders were rolled out. Clear guidelines were set for how the war was to be prosecuted. Troop morale was boosted with a clear set of welfare policies. New state of the art weapons have been procured. No one is in doubt that the Buhari government has a clear path to victory. It is the same for the anticorruption effort, where the government has outlined a clear and unambiguous strategy. The EFCC, ICPC and CCB are firing on all cylinders. The Professor Itse Sagay led committee on anticorruption and judicial reform has come up with a plan for how to enhance prosecutorial success by the anticorruption agencies. A clear set of policy recommendations aimed at addressing the weak and corruption-prone judicial system is being rolled out, and the results of this effort are becoming clear to all Nigerians.  Why then has nothing similar been done for the economy? The anticorruption drive is important, but it cannot replace a clear and structured economic strategy. Surely, the government is not thinking it can fund Nigeria out of economic despair simply by retrieving stolen funds? 

For those who would argue that the government has been clear in its economic objectives, this much can be conceded. Yes – the government has proclaimed the usual generalities that every government indulges itself in about diversifying the economy, raising agricultural output, encouraging foreign investment, and all that jazz.  But in terms of concrete steps and well thought through action plans, nothing of substance has been rolled out yet. 9 months into the life of this government, it is still not clear what the economic goals of the Buhari government are. What are its strategic imperatives?  No milestones have been announced for where the Buhari government aims for its economic plans to place Nigeria in the next 1, 4, 10 or 20 years. Sadly, whatever we know of this government’s economic plans have been pieced together by researching what the administration’s key players have been saying over the last few months. This is not how the 26th largest economy in the world should be run. 

Since those of us who are not in government cannot claim to know all of the activities taking place behind the scenes, we cannot say for certain that the government does not have some unannounced emergency committees thinking through the economic issues at this very moment. However, the evidence of activity is action, and so far, we have not seen any sustained strategic action on the economic front. Sure, there have been some tactical moves, such as the CBN ban on dollar-denominated cash deposits at commercial banks, which was subsequently reversed; and the elimination of dollar purchase privileges for importers of 40 items such as – rice, cement, toothpicks, private planes, poultry, meats, margarine, wheelbarrows, textiles and soaps. These, cannot seriously be termed strategic plans. 

The Buhari Government’s Tactical Plan on the Economy

In brief, the Buhari government appears to have a four-pronged tactical plan for the Nigerian economy: (i) protect the Naira and strive to maintain a dollar – Naira exchange rate of less than N200 to the dollar as a means of controlling inflation (ii) promote import substitution to reduce inflationary and devaluation pressures on the naira (iii) diversify the economy to promote exports and grow jobs and (iv) increase capital investment in the economy through the fiscal budgetary process to drive growth   

I have deliberately called this a tactical plan because it is designed for a very specific battle – that of managing the dollar – Naira exchange race. It is not a strategic plan. A strategy, by definition, is a long-range effort. It is a plan for winning a war, not a single battle. It sets targets, identifies milestones by which progress will be measured and identifies policy areas that need to be addressed to achieve the growth objectives. To become a strategic plan, the government must be able to articulate the growth targets for different sectors of the economy, the infrastructural improvement inherent in the plan, as well as the concrete gains that Nigerians can expect in areas like job growth, economic growth, healthcare, transportation, and power as a result of the proposed policies.   

Background of Nigeria’s Economic Problems (Why the Naira has fallen by 50%)

The Naira – dollar exchange rate is not some arbitrary number determined by bankers or governments. It is not set by diabolical traders in dingy rooms, or by “greedy” Bureau de Change (BDC) currency dealers. It is set by the laws of demand and supply on the streets of Lagos, Port Harcourt, Aba, and Kaduna. Just like the price of bread is determined by the total number of loaves of bread baked (supply) and the total number of people wishing to purchase and eat bread (demand), the dollar exchange rate is fixed by the total amount of dollars available in the Nigerian economy (supply) and the total amount of dollars demanded within Nigeria. 

Nigeria gets all its dollars from four main sources – remittances from overseas-based Nigerians; earnings from oil exports; earnings from non-oil exports; and Foreign Direct Investment. To understand the problem we are in, we must begin the story from 2013 – the last time oil was $100 per barrel. 

In 2013, the total dollar earnings coming into Nigeria was about $70 billion dollars a year, made up of  $21 Billion from remittances; $40 billion from net petroleum earnings; $3 billion from non-oil exports and about $6 billion from Foreign Direct Investments. This was the dollar supply as of 2013. What about the demand side? Well, we know that story well. Nigeria’s official imports came to about $54 billion in 2013. Add to that, non-recordable transactions such as – homes purchased overseas, school fees for students in overseas institutions, dollar demand for travel and vacations, which we estimate at about $6 billion per year and the total dollar demand in Nigeria is approximately $60 billion per year. As of 2013 therefore, the difference between the dollar supply and dollar demand was about $10 billion dollars. We had a healthy surplus of $10 billion per year which we could save as reserves. 

For those who will do the math and wonder why Nigeria’s earnings from oil in 2013 were stated as $40 billion and not $84 billion per year (which is what you get by multiplying $100 per barrel by 2.3 million barrels per day), here is the reason: Nigeria does not produce oil directly. We do it through joint venture partners like ExxonMobil, Shell, Chevron, and AGIP. Their production cost per barrel is about $20. After deducting production costs, the profits are then shared 60:40 between Nigeria and the oil majors. So, here is the math: at $100/barrel, with a production cost of $20/barrel; the gross profit left after the oil companies deduct their cost is $80 per barrel, which would then be split between the companies and Nigeria at a 60:40 ratio. This means that at $100 per barrel, Nigeria gets about $48/barrel (60% of the $80 gross profit per barrel) – which translates to about $40 billion per year. 

At the current oil price of $30 per barrel, the gross profit is only $10 per barrel after deducting the $20 per barrel production cost. Remember that Nigeria takes only 60% of the gross profit? Well, what that means is that Nigeria gets $6 per barrel, which translates to about $5 billion per year at 2.3 million barrels per day. This simple math lies at the heart of all of our exchange rate challenges because we now have an acute dollar supply problem. If we repeat the math on dollar supply, remittances are still about $21 billion per year, FDI is still about $6 billion per year, non-oil exports are still about $3 billion per year but oil based export earnings have now dropped from $40 billion per year to $5 billion per year. The total dollar supply is now $35 billion, half of what it used to be in 2013. 

Because the dollar demand has not changed, we have now gone from having surplus dollars of about $10 billion per year, to a deficit of about $25 billion per year (i.e., dollar supply of $35 billion less the dollar demand of $60 billion per year). This means there is more Naira chasing fewer dollars. Nigeria’s dollar supply, therefore, dropped from about $70 billion per year to $35 billion per year – a 50% drop. In a perfectly elastic market, we should, therefore, see a corresponding devaluation of the Naira – which is what has happened. The rate has gone from N195 per dollar to about N300 per dollar, a change of about 53%. 

Proposing Six Strategic Levers for Growth

The vulnerability of the value of Nigeria’s currency to oil prices is a symptom of the structural imbalance in the Nigerian economy. The six levers that are discussed in the balance of this article, address this imbalance in the short, medium and long term. The proposed strategy aims to boost exports and unhinge naira from oil dependency, while at the same time, reducing Nigeria’s import dependency. A second strategic lever addressed in the proposals is the development of credit as a platform for stimulating the Nigerian economy, and the third lever is the transformation of Nigeria’s infrastructural deficit into a platform for enhancing foreign direct investment and driving economic growth. 

Platform 1: Drive OPEC (and the world) towards supply cuts 

Long before the debilitating effect on oil prices reached the current $30 per barrel mark, warning had been sounded that the Saudi-driven OPEC strategy that precipitated the crisis would lead to economic challenges for Nigeria ( It is time for Nigeria to step up to the plate and help guide OPEC back to sanity.  Nigeria will need to seriously challenge the current Saudi-led oversupply strategy that OPEC is pursuing, which is aimed primarily at killing off US shale producers and protecting Saudi Arabia’s market shares in the US. Saudi Arabia with production costs of between $5-10 per barrel and a sovereign wealth fund of $1 trillion dollars can afford to play a long game with low oil prices. Nigeria simply cannot afford to play such a debilitating game. OPEC is an administratively clumsy organization. Agreements must be unanimous, and as long as the Saudis are committed to this value destroying path, regrettably, nothing will change. Nigeria must seriously reconsider its role within OPEC, and strategically assess the continued relevance of the organization in the new global energy reality in which non-conventional sources like Shale and Oil sands are redefining supply options. Nigeria is the most prominent non-Arab OPEC country, and this gives us a much larger sphere of influence than our oil production volumes would suggest. Our politics on the global stage will not be viewed with the same geo-political suspicions and concerns that characterize actions by OPEC players like the Arab states and Venezuela.  OPEC needs Nigeria for balance and credibility, more than Nigeria needs it. If pushing for supply cuts means that Nigeria must take a lead role in finding new global partners to join it in this quest, then it should do so.

Platform 2: Localize refining of petroleum products 

Nigeria spends about $10 billion (about 19% of annual official import spending of $54 billion) on the importation of about 300,000 barrels per day of refined petroleum products. This is simply absurd. Why does a nation that produces about 2.3 million barrels of oil a day and sells it a price of $30 per barrel, need to import about 10% of its exports at the effective cost of about $100 per barrel? Why doesn’t any oil producing company have a single refinery in Nigeria, even though they refine extensively in other countries?   The reason is simple. There is no policy that spells out the rules of engagement in the petroleum sector in Nigeria. Why should ExxonMobil, Shell, AGIP and other firms refine petroleum products in Nigeria if the government will turn around and force them to sell at “subsidized” rates? The Petroleum Industry Bill (PIB) which should effectively establish the ground rules for how to conduct business across the petroleum value chain in Nigeria has languished for over a decade in the National Assembly. The Buhari government should make the passage of the PIB a priority, and should go further by amending the bill to require that all oil production companies in Nigeria refine at least 10% of their production locally, with the guarantees that whatever they produce within Nigeria will not be subject to price caps, or other sales restrictions. They should also be given the right to sell their refined output in the global markets should they so choose. Market forces will dictate that local sales within Nigeria will make the most sense. In return, all of the benefits of the $60 per barrel value created in the refinery process can be retained within Nigeria in the form of new jobs and retained earnings. Additionally, local production would mean that Nigeria would have effectively eliminated about 17% of its annual dollar demand, easing the pressures on the Naira by about $10 billion per year. 

Platform 3: Enhance access to credit. 

Total consumer credit in Nigeria stands at less than $10 billion dollars in a $500 billion economy, this corresponds to a paltry 2% of GDP.  In most major economies, consumer credit ranges from about 20% (USA) to 50% of GDP (Brazil). South Africa, Africa’s second largest economy has a consumer spending to GDP ratio of 66%. Nigeria should aim for a consumer credit to GDP ratio of about 10% over the next 5 years. This would be the equivalent of injecting a stimulus of $50 billion per year into the economy. This is a great way to cushion the effects of the economic downturn. It is outrageous that a Nigerian will have to pay cash to buy a house, a TV set, a refrigerator or Microwave oven. Nigerians even pay cash to buy land and to build a home. They pay cash to send their children to school. To minimize the risk that the new-found access to credit will simply be diverted towards foreign goods, it can be eased in gradually, starting with local agricultural, automobile and appliance manufacturers (e.g., Peugeot, etc.) and the mortgage market.  The major condition for a healthy credit market is the ability to set credit ratings and track consumer activity. Nigeria has five biometric databases that can be used as a basis for establishing a viable consumer credit market. These biometric datasets are from NCC (cellphone registration), BVN (Bank verification), INEC (polling cards), FRSC (driver’s license) and the National ID card scheme. There is enough information in these databases to serve as the foundation for developing computational algorithms for the comprehensive credit rating and tracking of individuals. 

Platform 4: Promote agricultural policies to drive self-reliance and reduce imports 

Nigeria spends about $10 billion a year on the importation of agricultural and forest products. This is about 19% of our total imports. While it is noble for the Buhari government to be making the case for Nigerians to look inwards, talk alone will not do the job. We cannot eliminate the $2.2 billion per year we spend on animal products and derivatives if we rely exclusively on Fulani herdsmen that have to walk across the whole country looking for grass for their cattle. We cannot eliminate the $1.5 billion per year we spend on the importation of wheat alone if we do not resuscitate this sector. Wheat farmers in Northern Nigeria can produce all the wheat Nigeria needs if the policy is enacted to support them by introducing varieties that can enhance yields from the current 2 tons per hectare to global benchmarks of 4-5 tons per hectare. Financing has to be provided to the farmers to support the mechanization of their farms. The government will have to step in albeit temporarily, to create marketing boards that will help establish market exchanges that will ensure that farmers are matched up with purchasers. Instead of creating “grazing corridors” across all of Nigeria as the Agriculture Minister recently announced, Nigeria should be working to mechanize and commercialize the work of Fulani nomads. The nomads roam the country looking for grass for their cattle. However, grass can be farmed year-round along the banks of the Niger and Benue, in Northern Nigeria. And by the way, those millions of youth that the government plans on giving N5,000 per month as unemployment payments can be gainfully deployed to support these agricultural initiatives. 

Platform 5: Leverage infrastructure deficit financing to boost the economy 

Nigeria has a significant shortfall in many areas of infrastructure – housing, roads, power, and sanitation (drinking water and wastewater treatment). To fix the power sector deficit of about 15,000 MW alone would cost about $100 billion. Solving and fixing the housing deficit of about 20 million housing units will cost another $80-100 billion. Nigeria does not have the money to fund this by itself. However, the good news is that Nigeria does not need to pony up the money to fund these areas. Nigeria simply needs to leverage public-private partnerships (PPP) as a means for financing infrastructural growth ( Power equipment manufacturing companies like GE, ABB, and Siemens can finance the purchase and installation of their own equipment in return for long term contracts (10-20 years) during which they manage and operate those assets under Build – Operate – Transfer (BOT) contracts. After the contractual period, the asset is turned over to the state. Nigeria does not need to pay a dime if it negotiates these deals well. With the right policy framework in place, the Nigerian consumer will be protected as well. 

Housing is another area of significant opportunity. The Nigerian constitution vests ownership of all lands in the government. In order to kick start the growth and development of the housing sector and draw in foreign investment, the government can decide to strategically address about 50% of the housing shortfall within the next ten years (about 10 million housing units). The government can establish a fund (call it the Nigerian Housing Fund) and transfer equity in the form of 10 million plots of land to this fund. At about N2 million per plot ($10,000), this will amount to about $100 billion dollars of equity. This fund can then be floated on the global markets. Because the built homes themselves will add further value (say another N 2 – 3 million per home for the construction and supporting infrastructure value), the total value of this fund will be about $200-300 billion. The portion of this fund ($100-200 billion) that comes from overseas subscriptions to the fund will yield immediate foreign exchange for the country. The construction effort of building about 500,000 to 1 million housing units a year will lead to jobs and economic growth. This model can be replicated in other areas of infrastructural deficit in the country. 

Platform 6: Stop Protecting the Naira – let it fall.  

The Naira – dollar exchange rate has become the symbolic representation of all that is currently wrong with the Nigerian economy. The way the Buhari government is handling the issue demonstrates the absence of a long-range strategic plan for redressing the structural imbalances in the Nigerian economy that have led to this crisis.  President Buhari has to recognize that in a real market economy, a currency’s exchange rate is not set by the government. It can be influenced by the government through fiscal policy, economic policy, and monetary policy – but ultimately it is the markets that determine the exchange rate. Countries like China that manipulate their currency do it to artificially keep their currency cheap and low because they expect that the high volume of exports and the corresponding benefits of sustaining the jobs associated with those exports will offset whatever short term pains the country will feel. Nigeria is no China – at least not yet. We have a negative trade balance because we import more than we export. In fact, outside of oil, we have no exports to speak of. Our total non-oil exports are a paltry $3 billion dollars in an economy with a GDP of over $500 billion – less than 1%.  

The biggest risk that Nigeria faces in accepting to devalue the Naira is from our dependence on imports of refined petroleum products ($10 billion dollars) and wheat ($1.5 billion). These products are used daily for fueling cars and baking bread. Other products that we import have readily available local substitutes and are unlikely to have as direct an impact on inflation as petroleum products and wheat. By allowing the Naira to devalue to its real market value, we might likely see a corresponding increase of up to 50% in the costs for petroleum products and bread. There might also be a rollover effect that increasing transportation costs would have on prices generally. The government’s concerns about inflation are therefore well noted. 

However, here is the problem. In order to maintain the Naira at a value of less than N200 per year, Nigeria must do one of two things: (i) Nigeria can plug the $25 billion per year shortfall by using its reserves. The problem is our reserves are only about $27 billion currently, so we can only do this for one year at the most before we completely exhaust our reserves. Besides, this year’s budget will already be in deficit to the tune of N2.2 trillion or about $10 billion dollars at the official exchange rate – so, without borrowing, the government will have to use part of the reserves to fund the budget (ii) Nigeria can try to reduce the dollar demand for imports by at least the amount of the deficit to ease the pressure on the Naira. Well, if the dollar deficit is $25 billion, then we will need to reduce imports by about $25 out of $60 billion i.e., 40% to stabilize the exchange rate. This is what the government is trying to do by banning allocations of forex for certain types of imports and encouraging the patronage of local goods. Anybody that thinks Nigerians can curb 40% of their forex demand in the absence of a comprehensive policy framework that seriously develops local manufacturing and production cannot be serious

In the long run, Nigeria must allow the Naira to float. Instead of the knee-jerk policies that the government is rolling out, the government should be working on measures for staving off inflation and cushioning the potential impact on the masses of allowing a market dictated exchange rate. The government can decide to restore subsidies for petroleum products. Currently, petroleum imports make up about $10 billion per year. At the official exchange rate of N197 per dollar, this amounts to about N 2 trillion per year.  At the real exchange rate of about N300 per dollar, this cost is about N 3 trillion. A subsidy of N1 trillion will offset any inflationary pressures related to petroleum products. This is much cheaper than the current price tag of $25 billion per year that will be required if the government attempts to maintain the official and parallel exchange rates at about N200 per dollar. 

Devaluation is not the end of the world. A weak naira will spur local substitution for imported goods, which is exactly what the government should be aiming for. Making the dollar artificially scarce, as is currently being done, will simply serve to drive the divergence between the official and parallel market rates higher. An artificially strong naira encourages mindless importation. 

By selling at N197 per dollar, the government is effectively subsidizing the banks and BDCs. With the high arbitrage opportunities (the N100 difference between the official exchange rate of about N200 and the parallel market rate of N300 per dollar) most financial institutions would rather sell at the parallel market rate than the official rate. Someone somewhere is being made very rich today, by using their preferential access to sit between the CBN and the final buyers of forex – this is the type of policy that breeds corruption. At the artificially low rate that the CBN sells at, it is not able to mop up excess liquidity and too much money ends up floating around – again imposing inflationary pressures on the economy. Besides, since the people who are purchasing dollars at N300 per dollar are the actual ones importing goods, they will ultimately be passing the increased costs on to their suppliers – while round tripping bankers and BDC operators smile to the bank.  

Buhari – the economy is your biggest task

Buhari’s commitment to the anticorruption war and to resolving the security menace from Boko Haram is obvious. The President needs to show a similar commitment to the economy. Clearly the president is not as comfortable in economic matters as he is in military matters – but Presidents are not expected to be experts on every subject. They are merely expected to be skilled at expending the great powers of their office to finding the right men and women for the task at hand. Nigeria does not lack for competent people.  

The economy affects Nigeria in many profound ways. The ranks of Boko Haram are filled with jobless youth. The tolerance and celebration of corruption is aided by a citizenry that is economically deprived. An economically vibrant country is, therefore, necessary for winning the war on corruption as well as solving the security menace of Boko Haram. 

Nigeria’s economic reform team – if one exists - has to prepare a comprehensive plan for resuscitating and ultimately growing the economy. Once such a plan exists, they must then articulate their strategy to the Nigerian people. In the same way, that the government publicly announced its strategies for winning the war against the Boko Haram insurgents and prosecuting the anticorruption war – it must be public about its plans for resuscitating the Nigerian economy and leave no one guessing about its vision for Nigeria’s economic future. 


Dr. Malcolm Fabiyi coordinates the Governance Accountability Initiative of Nigeria (GAIN) poll. He has served as a Visiting Professor at Lagos Business School and previously worked as a managing consultant with McKinsey & Company. 

Follow me on twitter @malcolmfabiyi ([email protected])

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