Economy: Is Nigeria stuck in ‘progress illusion’?

Afrinvest West Africa Limited provided the above headline in its maiden ‘Afrinvest Monthly Update’ for 2025, as a rider to the main title of the publication. The headline suggests that there is an illusion about Nigeria’s economic progress; and goes on to question whether the nation is now stuck in this illusion of making progress.

It therefore becomes necessary to probe whether Nigeria has actually been making any economic progress, specifically in the past close to two years under the current Bola Ahmed Tinubu-led administration. This investigation is best done via an assessment of the state of a number of key economic indicators. 

In May 2023, when President Tinubu was inaugurated, the inflation rate stood at 22.40 percent; it rose steadily to stand at 28.92 percent in December, 2023. It continued spiraling until July and August 2024 when the rate dropped marginally to 33.40 percent and 32.15 percent respectively. The rate resumed its surge, and closed 2024 at 34.82 percent.

In its pursuit of the illusion of economic progress, however, the federal government seems bent on re-basing the measure of inflation — the Consumer Price Index (CPI). This, apparently, is to come up with an inflation figure that will give credence to a stable and growing economy. The National Bureau of Statistics (NBS) has, in the past couple of weeks, been working assiduously to realise the ‘desired’ result. We wait!

On its own part, the Central Bank of Nigeria (CBN), since May 2023, has deployed everything in its armory of monetary policies to ‘tame’ the rampaging hyper-inflationary trend. Unfortunately, rather than depressing the inflation rate, the continued hike of the Monetary Policy Rate (MPR), which the CBN adopted, has caused unintended collateral damage to the economy.

The benchmark or indicative interest rate —MPR— that was at 18 percent by May 2023, has been hiked to 27.50 percent by end-2024; a jump of almost 10 percent. One of the upshots of this is the prevalence of outrageously high interest rates charged by the Deposit Money Banks (DMBs) for all their (credit) facilities.

These interest rates have been ranging between 30 and 35 percent per annum: rates that have pushed bank credits beyond the reach of most businesses, especially the Micro, Small and Medium-scale Enterprises (MSMEs). The CBN has also gone ahead to hike the Cash Reserve Ratio (CRR) from about 30 percent to 50 percent during the same period.

CRR is the percentage of deposits that banks (DMBs) must keep with the CBN, rather than lending out to customers. Fifty percent CRR means that for every 100 naira deposited into any DMB, the bank is required to hold 50 naira in reserve with the CBN, and can only lend out the remaining 50 naira to customers.

So, both the high MPR and CRR pose a very tight constraint on the credit creation capacity and other functions of the DMBs, especially in a weak economy. Although the CBN has deployed the hiked MPR in structuring such facilities as the Treasury Bills to attract massive patronage, the gains remain too short-lived and disruptive to the economy.

Specifically, the highly priced (handsome yields) Treasury Bills have been attracting some quantum of foreign portfolio investments (FPIs) — but this is ‘hot money’ that has no capacity to bring stability to the volatile macro-economy. This market environment has also enabled the government (via debt instruments) to remain dominant in the capital/money market; thus, crowding out a good number of private sector participants.

It has therefore remained an illusion that the CBN has generated a huge foreign exchange (FX) inflow to strengthen and stabilise the naira. The ‘hot money’ generated through the FPIs have been leaving the Nigerian shores shortly after they came in. Their impact has been largely on paper, as captured in the Nigerian Exchange (NGX) periodic ‘Capital Importation’ reports.

The state of the naira exchange rate vis-à-vis the dollar and other hard currencies in the past 21 months is even more worrisome. From an official level of below N500/US$ in May 2023, the naira had crashed to a level of almost N2000/US$ before inching up to about N1500/US$ currently. The full floatation of the local currency in mid-June 2023 practically rang the death knell for the Nigerian legal tender.

The policy of exchange rate determination by market forces (demand and supply) exposed the acute shortage of FX — leading to lingering excess demand over supply in the market. Although the CBN has tried so many initiatives to arrest the situation, the naira exchange rate has remained sticky at between N1500-N1700/US$.

Again, the battle (by the CBN) to strengthen the naira and stabilise the FX market is yet to be won. The minimal gains of the naira (though unstable) in recent weeks have remained shrouded in propaganda and self-adulation by the monetary authorities. For a currency exchange rate that dropped from N475/US$ to N1560/US$ in 20 months, any perceived progress (or gain) is certainly an illusion.

Another indicator (the price of fuel) presents even a more woeful and pathetic picture of illusion about so-called economic progress of Nigeria in recent times. From below N200 per litre at end-May 2023, the price of Premium Motor Spirit (PMS) has shot up to over N1000 per litre. On May 29, 2023, President Tinubu announced the fuel subsidy removal, and PMS’ price jumped instantaneously to about N700 per liter. This trajectory has been sustained.

The catastrophic impact of the subsidy withdrawal on the economic wellbeing of Nigerians is yet permeating all nooks and crannies of the country. Unprecedented level of high inflation; hunger and penury unleashed on the citizenry. Government’s resort to dispensing of palliatives at all levels of the polity to assuage the pains has proved ineffective and unsustainable.

Institutions like the IMF and the World Bank have been alerting Nigeria on the number of its citizens that have been pushed into poverty trap by the impacts of government policies. Food insecurity has become an existential threat to millions of Nigerians that have been pauperised by the fallouts of economic policies. Staple food has gone out of the reach of millions — pushing the government to ‘toy with’ the idea of ‘tax-free’ importation of some food items. But almost one year on, this policy is yet to yield any results!

In handling the ‘volcanic eruption’ caused by the unplanned fuel subsidy withdrawal, the government, rather than expediting action in improving local refining, had resorted to issuing licenses to many more people to be importing PMS and other refined products. This is such that Nigeria has continued to depend almost hundred percent on imported PMS for its local needs. 

Efforts of private concerns like Dangote Refinery to improve the bad situation met with deadly intrigues, chicanery, and even sabotage by the officialdom. Today, although Dangote Refinery has recorded a pyrrhic victory, the refining industry has been made scary for other discerning investors. Numerous hidden obstacles and landmines are set up for existing and intending investors in spite of liberalisation. 

Even the much-publicised repair and re-streaming of some government-owned refineries are yet to improve the horrible PMS supply situation in the country. The pricing of the commodity has gotten linked to the vagaries of oil price movement in the international market, and as such, local players (like Dangote) remain perpetually exposed to external headwinds.

This is why recent celebrations of the return of the Port-Harcourt and Warri refineries were only part of the economic ‘progress illusion’. The issues (corruption) that saw the collapse of those national assets (refineries) over the years are yet to disappear. In point of fact, since the publicised repair, those refineries have remained in fits and starts. 

Government remains undecided as to whether to privatise those refineries or to keep on sinking huge public funds, running into billions of dollars, into endless maintenance of the ‘dead’ refineries. Or, perhaps the government is only content with parading the repairs of those refineries as part of its ‘illusory progress.’ Whichever way, every gauge of the economy reveals the nadir of hope.

This has become most obvious in the Federation Account Allocation Committee (FAAC) monthly (national) income sharing by the three tiers of government. From some hundreds of billions of naira usually shared by the Federal Government and the sub-nationals every month in the past, the amount has ballooned to trillions of naira in recent times.

But this seeming ‘bumper harvest’ is a mere ‘money illusion’—where the ‘huge’ sums doled out to the tiers of government are not worth much. Money, in Economics, is what money can buy. Therefore the thoroughly devalued and inflation-deflated naira being shared by FAAC has little value to tangibly improve the wellbeing of the people.

It is illusion, all over!

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