Africa’s largest economy needs urgent reforms to stabilize the country’s fiscal situation and attract investment.
Some two weeks after ruling-party candidate Bola Tinubu claimed victory in Nigeria’s presidential elections, controversy is still swirling around the vote, delaying follow-up elections for state governors. But even if President-elect Tinubu takes office in May, as expected, he will quickly face an even bigger problem: restoring economic stability and growth, without which Nigeria’s overlapping challenges will be all the more difficult to resolve.
He’ll have his work cut out for him. Between killings by Islamist militants and criminal gangs, a re-emerging separatist movement, and clashes between farmers and nomadic herders, violence claimed the lives of roughly 10,000 Nigerians last year. Almost two-thirds of the country’s more than 200 million people now lack access to basic necessities.
Economic trends are grim. Inflation roughly doubled over the course of incumbent President Muhammadu Buhari’s eight years in office, while crude-oil production — which accounts for the vast majority of export revenue — nearly halved. GDP growth between 2015 and 2021 averaged just 1.1% annually. Two-thirds of young Nigerians are either unemployed or underemployed. A botched attempt to replace old currency notes before the polls spurred a severe cash crunch.
If Tinubu cannot turn things around, the consequences will reverberate well beyond Nigeria. The country is Africa’s biggest economy and a key influence on its neighbors. Its youthful population is slated to become the world’s third-largest by 2050. A vibrant Nigeria could serve as a growth engine for the whole continent; a failed one would be a source of instability, violence and desperately poor refugees.
As daunting as the task may seem, there’s reason for hope. As the World Bank has pointed out, structural reforms and a focus on macroeconomic fundamentals — as well as rising oil prices — made Nigeria one of the world’s fastest-growing economies between 2001 and 2010. If the new government can implement key reforms, a return to a high-growth trajectory should be possible.
Where to start? The new government urgently needs to reverse a rapidly deteriorating fiscal situation, not least to free up money to invest in critical infrastructure — almost half of all Nigerians lack electricity — as well as health and education. Tinubu, like his rivals, pledged during the campaign to phase out petrol subsidies that cost almost $10 billion last year. He should keep his promise, setting aside a portion of the savings for cash transfers to cushion the impact on the poorest.
Although Nigeria’s debt — at less than 40% of GDP — isn’t excessive, the government takes in so little money that servicing it will exceed revenue by the end of this year. Tinubu’s administration will need to broaden the tax base, raise the value-added tax rate, and crack down on evasion. In the medium term, it should also look at selling off government assets, such as inefficient oil refineries and the Ajaokuta steel complex, which might be better revived in private hands.
Just as important, the government must improve conditions for investment, which is needed to generate jobs for the 3.5 million Nigerians who enter the workforce every year. The central bank still maintains multiple exchange rates and limits access to hard currency for certain imports, fueling inflation and discouraging manufacturing. The rates should be unified, and the naira eventually allowed to float freely. The government should also promote greater competition and trade by lowering tariffs and eliminating import bans and local content rules, which should in turn help attract more foreign investment.
Growth alone will not solve all of Nigeria’s problems. But improving living standards and productivity can stabilize the country and give its entrepreneurial citizens the opportunities they deserve. As president, Tinubu should have no higher priority.