LAGOS — Nigeria’s private sector should work with the government to develop welfare initiatives after economic reforms left people struggling with the cost of living, the country’s top business leaders told Semafor Africa.
President Bola Tinubu scrapped a popular fuel subsidy and attempted to unify the exchange rate in his first few days in office. Petrol prices have roughly tripled since Tinubu announced the subsidy removal at his inauguration on May 29, this week hitting a record high of 617 naira ($0.78) per liter. Meanwhile, the naira lost 40% of its value after the currency was allowed to be traded freely against the dollar.
The changes have contributed to rising food prices. Tinubu last week declared a state of emergency to tackle rising food prices and shortages. It involves initiatives that include allocating money saved by the fuel subsidy removal to provide fertilizer and grain to farmers. The president also announced a plan to give 8,000 naira ($10) a month to 12 million low-income households for six months. But on Wednesday the government backtracked on the plan after widespread criticism that the proposed offer falls short of the level needed to ease the pains of vulnerable Nigerians.
“The private sector can help. It’s not only the responsibility of the government,” billionaire tycoon Aliko Dangote told Semafor Africa. Dangote, who reportedly lost his position as Africa’s wealthiest person after 12 years due to the naira’s devaluation, added that companies could employ more people.
Dangote joined forces with Access Bank, Nigeria’s biggest lender by assets, to provide treatment and isolation centers during the COVID-19 pandemic, in partnership with the government. Herbert Wigwe, the bank’s group CEO, said the private sector should again provide support to those hardest hit by the skyrocketing cost of living. However, he said it was important to “avoid anything that is inflationary or encourages arbitrage.”
Some business leaders suggested focusing on reducing the cost of public transport. John Momoh, chairman of Channels TV, Nigeria’s biggest independent TV network, said a scheme to provide more buses could “help the poorest of the poor who commute every day” and now “can’t even go to work.” Momoh also said funds could be pumped into the food industry to “make sure that food is available and easily affordable.”
“The government needs the private sector to make this happen,” he said.
Removing the petrol subsidy, which cost the nation $10 billion in 2022, was a bold step that could enable Tinubu’s administration, and others in the future, to allocate more funds to health and education. But the pain caused by its removal threatens to be deeper and more long lasting than the short, sharp shock he may have hoped for.
We spent this week in Lagos, the country’s commercial capital, and the cost of petrol — the highest ever seen in Nigeria — was mentioned in most conversations. It affects everyone in some way, from the cost of transport and the generators that many people rely on for power, to the higher food prices after importers and wholesalers passed on their ballooning costs to consumers. The change is even obvious in the unusually quiet streets, an oddity in a city renowned for its traffic, that many told me was due to the inability of motorists to afford the new prices.
The other subject raised by every businessperson was the makeup of Tinubu’s cabinet, which he is expected to name within days. His ministerial team, with the right figures and a willingness to delegate, could offer solutions.
The challenge faced by Tinubu and his team is that attempts to provide assistance, through cash handouts for example, are likely to be inflationary. The same is likely to be true of help provided by the private sector.
Nigeria has many dynamic business leaders who showed they can use their acumen to support the most vulnerable people in society during the pandemic. But the risk of driving more price rises is high.
Room for Disagreement
Bismarck Rewane, an economist, said efforts to reduce the pain felt by Nigerians struggling financially would largely be undone by a measure announced by the central bank on Friday. The central bank said it would cut the cash reserve ratio — the amount lenders must keep with the central bank — for banks that lend exclusively to companies. It said it would reduce the ratio to 10% from 32.5%, effective from Aug.1, in an attempt to boost the availability of credit.
Rewane, chief executive of Lagos consultancy Financial Derivatives, said the move was “fundamentally counterproductive” because it would encourage the banks affected to lend more, which would stoke inflation.
The View From Kano
In the northern Nigeria city of Kano, consumers and small business owners told Semafor Africa they are struggling with the severe economic aftershocks of the fuel subsidy removal.”The hike in the price of petrol will cause unimaginable problems in the country,” said Aminu Muhammad, 42, a local businessman. Muhammad warned that the unintended consequence of the decision could be an increase in insecurity. “How can there be security with massive joblessness? It is not possible.”
The transport sector has been one of the hardest-hit by the fuel price rises. “Before the increase, 7,000 naira (less than $10) fuel was enough to take me to Kaduna from Kano (over 200 kilometers), but now it is 23000 naira (nearly $30) and our customer numbers have dropped,” said Abdurrahman Tasiu Shuaibu, a commercial mini truck driver.
— Hamza Ibrahim in Kano, Nigeria
- Lagosians recount their struggles to make ends meet in a story by U.S. broadcaster NPR. Cost-cutting tactics include sleeping in offices midweek to avoid spending money on travel and splitting the cost of a seat by sitting on the lap of another passenger.