In a bid to rise from decades-old economic challenges, Nigeria, Africa’s largest economy, is undergoing significant reforms under its new president, Bola Tinubu.
Six months into his tenure, Tinubu’s multi-sectoral reforms have garnered global commendation for taking “painful but necessary steps.” Key among these is the removal of long-standing petroleum subsidies and the unification of the Investors and Exporters FX window. These moves aimed to plug government fund leakages and curb arbitrage, but they have not been without consequences.
The immediate economic distress, reflected in rising costs and liquidity challenges, is a short-term effect of removing petroleum subsidies and unifying the exchange window. These actions have exposed the Nigerian economy to skyrocketing inflation, a weakening currency, a labour crisis, and an increase in crime rates, creating a survival-of-the-fittest ecosystem.
Despite these challenges, the path to economic stability seems to hinge on substantial infrastructure investment, spurring growth and long-term development. The big question is: how will Nigeria fund these critical investments, given its current financial constraints?
Significant savings have been made since the removal of petroleum subsidies. According to the Federal Account Allocation Committee papers from the National Bureau of Statistics and the Nigeria Governors’ Forum, the Nigerian government has saved approximately $1.84 billion.
According to a report by The Guardian, President Tinubu announced in August a saving of over $1.32 billion in less than two months post-subsidy. Further, the government amassed substantial monthly contributions to the Non-Oil Revenue (Savings) account.
However, these savings pale in comparison to Nigeria’s vast infrastructural needs. The Revised National Integrated Infrastructure Master Plan estimates a requirement of $2.3 trillion over the next three decades, or about $150 billion annually. Agusto & Co, a pan-African credit ratings agency, suggests an even higher figure of up to $3 trillion over the same period.
To finance these ambitious plans, Nigeria might consider or enhance three strategies:
Public-Private Partnerships (PPPs): Given public finance constraints, PPPs can effectively deliver infrastructure projects. The strategy involves identifying viable projects, establishing a robust legal framework, creating an enabling environment with incentives, and strengthening institutions like the Infrastructure Concession Regulatory Commission.
Diaspora Bonds: Nigeria’s large diaspora, which remitted $168.33 billion between 2015 and 2023, offers a potential investment source. Diaspora bonds, targeting national community members abroad, need a proactive engagement strategy, competitive returns, links to impactful projects, and transparent management.
Green Bonds: Tapping into global sustainable investment trends, green bonds finance environmentally beneficial projects. Success in this area requires establishing clear standards, independent verification, global marketing, and regular impact reporting.
The Tinubu administration must maintain fiscal discipline while pursuing these initiatives. Each strategy should align with a comprehensive economic plan focusing on productivity enhancement, improved tax collection, and reduced wasteful expenditure. Balancing fiscal responsibility with innovative financing can help Nigeria bridge its infrastructure gap and lay the foundation for sustainable growth.
