In the healthcare field, ICU stands for Intensive Care Unit; a specialized department in a hospital providing close monitoring and life-sustaining treatment to critically ill patients. The ICU is usually characterized by advanced equipment, highly trained staff, close monitoring of the patients; and life-sustaining interventions such as mechanical ventilation, vasopressors, and renal replacement therapy, among others. The critical care in the ICU is usually to stabilize the patient’s condition, prevent complications, and promote recovery.
Analogously, economically, Nigeria seems to have been taken into the World Bank’s ICU in the past sixteen months or so. More than ever before, it has gotten increasingly obvious that the country has been taking very ‘bitter pills’ from the Bretton Woods institutions (The World Bank and the International Monetary Fund, IMF) to ‘stabilize’ its ailing economy. Nowadays, more than ever, the World Bank and its top officials keep pontificating and prescribing arcane procedures for the country’s economic recovery.
Almost at the same time, as the global lender was releasing its ‘Nigeria’s Development Update’ (NDU) for October, 2024, the Bank’s Chief Economist and Senior Vice-President Dr. Indermit Gill at the Nigerian Economic Summit Group (NESG) event in Abuja, was dishing out the ‘drugs’, dosage and timeline prescriptions for Nigeria’s sick economy.
While impliedly endorsing President Bola Ahmed Tinubu-led government’s economic reforms so far, the World Bank chief said: “if these reforms are sustained for the next 10 to 15 years, Nigeria will transform its economy and become an engine of growth in sub-Saharan Africa. It is very difficult to implement such reforms, but the rewards are massive.”
Obviously, Dr. Gill was echoing the voice of the World Bank, which said in its October NDU that: “major reforms have been undertaken to restore macroeconomic stability since May 2023. The government started to move towards market-based pricing of gasoline to address the large fiscal cost of subsidized pricing. The CBN initiated major FX policy reforms that resulted in a unified, better regulated, and market-reflective official exchange rate.”
Noting that this policy direction was essential, the World Bank said in NDU that, “but in the short-term, it has added to already intense pressure on households and firms.” The global lender however concluded that “The indications that the macroeconomic situation is improving are encouraging, providing oxygen to the economy and the necessary condition for growth to ignite, with the help of additional, complementary measures.”
This prescription for “additional, complementary measures” by the World Bank is however coming at a time when the economy has suffered more disruption than reforms. If after almost a year-and-half of application of World Bank-approved reforms in Nigeria, the citizenry has nothing other than impoverishment, pain and destitution to show for it, any additional reform measures will attract nothing but strident opprobrium and resistance.
As a result of the series of reforms in Nigeria, practically all economic indicators are now at their worst state in the last two or three decades. Inflation rate shut up from about 22.5% in May 2023 to over 34% by June 2024; staying at 32.78% as at end-September 2024. Ten years ago, in June 2014, inflation rate was only eight per cent; 25 years ago, in June 1999, inflation rate was merely 6.62%.
Claiming to be fighting this rampaging inflation, the Central Bank of Nigeria (CBN) has adopted the tightest monetary stance ever; raising the indicative Monetary Policy Rate (MPR) from only 18% in May 2023 to 27.25% in October 2024. And itching to raise it further. This has induced the highest lending rates in the deposit money banks (DMBs)—at between 34 to 35% per annum.
This scenario has shut out most corporate borrowers from (access to) bank loans; but particularly, so many small and medium-scale enterprises (SMEs) have been asphyxiated. Shut out of bank loans or faced with very high cost of funds, businesses have been contending with unbearable operation costs. Some manage to transfer such huge costs to the consumer, reflecting in rising prices of many products.
Indeed, according to data from the Manufacturers Association of Nigeria (MAN), at least 767 manufacturers shut down operations and 335 became distressed in 2023. Unsold inventories amounted to N350 billion during the same period. Director-General of MAN, Segun Ajayi-Kadir has reportedly threatened that the association’s 2,500 members would shut operations “to protest the 250 per cent hike in electricity tariff” after manufacturers were “forcefully” placed on the controversial ‘Band A’—for high tariff payment.
Manufacturers have also complained about their inability to access foreign exchange (FX) to import raw materials and machinery as well as high import tariffs calculated at parallel market rates by the Nigeria Customs Service (NCS). They are also contending with so many other taxes and levies imposed by various state and local governments across the country.
However, the most disruptive of the reforms in the past 16 months has been the removal of fuel subsidy—a measure that shot the pump price of Premium Motor Spirit (PMS) from below N200 per liter in May 2023 to over N1000 per liter at present. This singular policy, though broadly taken as desirable initially, has translated into very high transportation cost, ever rising prices of foodstuffs, surging house rents: all leading to runaway inflation.
Allied to the ravaging effect of the fuel subsidy removal has been the full floatation of the Naira—an initiative that practically rendered the local currency ‘worthless’ vis-à-vis the dollar and other hard currencies. While the Naira exchange rate to the dollar in May 2023 was N500/$, it shot up to almost N2000/$ early this year, before hitting about N1700/$, around which it now hovers.
This unprecedented collapse of the Naira in the FX market has caused major distortions in the economy. It made nonsense of business projections, budgets and plans of all corporate entities; including jump in ‘imported inflation’ via inputs and machinery. Naira floatation which implied leaving to the vagaries of demand and supply interplay, the determination of the FX rates, led to the crash of the local currency.
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Till date, the FX market is characterized by shortage of FX supply, in the face of ever surging demand for forex. For Nigeria, a largely import-dependent economy, the Naira floatation was a death knell of sorts. As a mono-product economy—depending almost entirely on crude oil export—the weakened Naira embedded in its floatation could not generate the expected spike in demand for Nigeria’s non-oil export.
Unsurprisingly, rather than improving, crude oil production/sales has been dropping or at best stagnating. Thus, while year 2024 national budget is couched on assumed 1.78 million barrels per day (mbpd) oil production, actual production has remained at below 1.3 mbpd. The oil sector is being buffeted by a myriad of problems, including the bizarre phenomenon of oil theft, organized sabotage, dilapidated oil equipment, lack of new investments, etc. For a couple of years now, Nigeria has been supplying far below its OPEC-allocated quota.
However, apparently egged on by the World Bank and Co., the Nigerian Government has kept on with a series of reforms, especially the removal of subsidies—real or imagined. The removal of (perceived) subsidy in the electricity sector has led to over 200 to 300% increase in the tariff—particularly for so-called ‘Band A’ consumers of electricity. But rather that experiencing any appreciable improvement in power (electricity) supply, the national grid has kept collapsing—leading to the country being thrown into total darkness for days in every week.
In the face of all these, the World Bank insists that “the monetary policy stance needs to remain tighter until a sustained disinflation path is achieved, along with continued improvements in policy transmission.” Same goes for the Bank’s blanket approval and support for all other reforms that have been sporadically eliciting public protests in so many locations across the country.
Palliatives or no palliatives, millions of Nigerians are being pushed down the poverty line by the persistent runaway inflationary trend, and its concomitant rising cost of living. Indeed, the World Bank’s NDU reports that “over 129 million Nigerians who now live below the national poverty line represented a sharp rise from 40% in 2018 to 56% in 2024.”
Yet, as Indermit Gill, the World Bank chief said in Abuja, Nigeria’s “reforms need to be sustained for the next 10 to 15 years,” by which time 100% of Nigerians would have become poor! After all, Nigeria is already in their ICU, and really in critical condition.
- The author, Okeke, a practising Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: [email protected] (08033075697 SMS only
