“As of now, available statistics do not support any significant dividends borne by the reforms.”
I had always laughed at some concepts in economic demand theory because of their apparent impracticability. Some of the concepts relate to aspects of the basic economic demand theory studied in Economics 101. It runs thus: that the demand for a good or service will rise if the price falls, holding all other factors constant, and will fall if the price rises, still holding all other factors constant. Yes, we all know this one. There is also the concept of demand elasticity, which is about the extent demand will rise when the price falls or falls when the price rises. But the concept that has frightened me the most lately is the concept of demand inelasticity. Demand is said to be inelastic if a huge increase in price brings about a small decrease in demand or when a big decrease in price brings about a small increase in demand. Elasticity measures the proportionality of change in demand with variation in price. This writer has but a little knowledge of economics and claims no expertise in teaching the subject.
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The myriads of professors in the economics departments in Nigerian universities, including the mushroom universities, will manage to explain it. However, Nigeria is faced with a massive economic crisis the likes of which none of us has seen in our lifetime. The crisis we face has arisen from the reforms initiated by President Tinubu within 30 days of taking over the reins of power, and they now need reformatting.
“Since the subsidy removal on May 29, 2023, and the deep devaluation of the local currency, three weeks later, to align with the black-market rate, the economy has remained comatose.”
At present Nigeria is overwhelmed by a phenomenon known as perfect inelasticity of demand. It means no matter the hike in price, we must buy garri. Consumers are now only able to buy whatever quantity of goods they need for survival. The demand for the survival products defies the rate of price changes. Procuring these survival products is a life-or-death matter. The massive price increases that have visited the economy from the combined reforms of fuel subsidy removal, which is applauded by all, and the deep devaluation of the local currency, which has confused everyone, have transformed basic food products into luxury items. Thus, all goods in Nigeria have become luxury goods, and in economics, only luxury goods can be said to have perfect inelasticity. Consumers will purchase the same quantity of goods or services regardless of the price, even if the price changes significantly. Food items like garri, beans, yam, bread, plantain, cassava, cocoyam, rice, pepper, tomatoes, etc., are the Nigerian staples. Nigerians will manage to buy the quantity that is required to stay alive. Remember, demand is said to be ‘perfectly inelastic if the demand for that product will remain consistent regardless of any price changes. Nigerians have been boxed into a do-or-die corner in the last two years of current government reforms, and it is not about to get better. Hunger, deprivation, sunken eyes, dry skin, stares of desperation and gazes of death have become common. Prices of medicines are even worse than the high food prices. Drugs which sold for less than N10,000 per pack in April 2023 now go as high as N55,000 per pack. A packet of malaria drugs which cost N500 in April 2023 now costs as much as N6,000, and a box of 100 tablets of Panadol now costs as much as N5000 from N1,000 in April 2023. A 20-plastic-bottle pack of Nestlé water, which sold for ₦800 in April 2023, now sells for ₦4,000, and a crate of 30 eggs, which sold for ₦750 in April 2023, now sells for ₦8,000. Junior management staff who now earn ₦450,000 monthly cannot meet the cost of food, transportation, rent and children’s education because prices have gone beyond their earnings capacity. Junior to middle-level civil/public servants are financially breathless.
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The retirees on fixed income die daily by the dozen. A small-sized car that takes 40 litres to fill its tank costs N35,000 weekly for fuel. It is little or no comfort that the minimum wage is now ₦70,000 monthly. Vehicle prices have also been impacted. A basic SUV now costs N250 million per unit, while a saloon car goes for over N60 million per unit. The Nigerian consumer has been driven out of the market, as they now only struggle to meet their physiological needs. The president may wish to mandate a study to verify this.
The edges of the current reforms initiated by this government since 2023 now need to be smoothened. Once the reforms are subject to people-orientated modification, the positive impact on the economy will be tremendous. As of now, available statistics do not support any significant dividends borne by the reforms. Since the subsidy removal on May 29, 2023, and the deep devaluation of the local currency, three weeks later, to align with the black-market rate, the economy has remained comatose. For example, in 2023, the gross domestic product (GDP) growth rate was 2.74 percent pa, while in 2024, the GDP growth rate was 3.4 percent, and it is projected to rise by 3.5 percent in 2025, according to the World Bank, and by 3 percent according to the IMF. However, the Nigerian government projects a GDP growth rate of 4.7 percent in 2025. Conversely, the population growth rate of an average of 2.33 percent annually makes a joke of even the minimal GDP growth projections, making the real growth rate of no consequence for the Nigerian. The economic growth rate Nigeria desires is a 10 percent GDP growth rate per annum for the next 10 years. The growth of the economy has been truncated by a lack of demand and the inability of consumers to make the usual daily purchases. Local manufacturing companies have closed, and multinationals have exited the country. Nigerian skilled personnel have fled to other countries as economic migrants. The raising of the price of fuel from N165 per litre to the current N890 per litre and devaluing the local currency from the prevailing exchange rate of N460/$ at the Central Bank of Nigeria (CBN) to meet the black market rate at N750/$ at first and subsequently to move in tandem with the black market rate until both rates converged at over N1,800/$ dramatically changed the pricing structure of the economy. After two years of reforms, CBN should be mandated to strengthen the exchange rate of the Naira. The economy cannot respond to the reform measures as things stand. The true position is that the Nigerian economy cannot survive with an exchange rate of above N1,000/$. The currency needs an immediate revaluation by fiat just as it was devalued by fiat. In fact, an existing study confirms that the true exchange rate of the naira is N780/$. An arbitrage of 10 percent to 15 percent is acceptable for a developing economy. The effort to strengthen the exchange rate is too slow. The statement by Mohammed Idris, the Information and National Orientation Minister, that current reforms have started bearing fruit must be his opinion. Similarly, the statement by the Financial Times of London that President Tinubu must hold steady on the reforms without let or hindrance, despite the upcoming 2027 elections, is an invitation to chaos. The writers of Financial Times do not live in Nigeria. Furthermore, the statement by the World Bank that President Bola Tinubu should impose more taxes on the Nigerian people is akin to the inglorious ‘Counsel of Ahithophel’. Nigerians want the reforms to be modified.
For the reforms to achieve their desired outcome, the federal government needs to make sure that food production resumes fully in various states of the federation. The government must be more sensitive in addressing the issue of the farmers’/herders’ clashes across the federation. Nigeria is a country whose army liberated war-ravaged Liberia and Sierra Leone, and that same army cannot be defeated by Boko Haram, ISWAP and the Sahelian bandits. We must wage war on Fulani terrorism, banditry and kidnapping and ensure a safe movement of goods and persons. The federal government must protect Benue, Plateau, Taraba, Yobe, Borno and Kogi states. Simultaneously, the government must aggressively police the Nigerian borders so that the influx of both livestock and human traffic is brought under control in a supervised manner. As we speak, crude oil theft may not be fully over because illegal tapping of pipelines and the use of foreign vessels to steal our crude oil still constitute a nuisance and account for a low production rate of 1.5 mb/d. Until crude oil exports ramp up to the 2.2 mb/day target and rig count in their hundreds is achieved, the target will remain unrealised. The country needs foreign earnings to stabilise the economy, not foreign loans. A revolutionary vehicle to properly exploit and manage the mineral wealth of the country and funnel the foreign exchange earnings into the CBN must be created. The opportunity to earn foreign exchange for the local economy abounds. Beyond oil and gas, where are the billions of dollars of annual earnings from the export of mineral resources? Nigeria has billions of dollars’ worth of mineral deposits. Nigeria has gold, uranium, lithium, copper, diamonds, tin, zinc, and several other minerals. A focus on the exploitation of lithium, uranium, gold and tin can earn Nigeria over $50 billion in just one year. In the past two years Burkina Faso is said to have earned $18 billion from their gold exploitation. The recent statement by Dele Alake, the Mineral Resources Development minister, that four lithium mining plants with a total investment of $800 million from Chinese investors would begin operation in Nigeria before the end of 2025 is good news. But it is just a tip of the iceberg. The foreign exchange earnings from these mines will help Nigeria to stabilise its currency value at N1000/S or better. To allow greedy and selfish artisanal miners to exploit our gold deposits is unconscionable. However, it must be noted Dele Alake has been quite progressive in initiating mining reforms that have been approved by the president. The creation of mining marshals, pursuit of illegal miners, the setting of mining cooperatives and a host of others have been heartwarming. But a lot more is needed.
The federal government should revoke the mining licences of artisanal miners and aggregate the mines under a federal government-owned mining company. In this way the federal government can zero in on its gold deposits and build a minimum of three gold mining and processing companies in Nigeria in the next six months. In this new mining company, the artisanal miners will be part shareholders with the government. Regular reports of the production levels of these mines and dollar earnings received should be published. The government should mandate all established companies in the gold mining business in Nigeria to recapitalise their operations with US$1.5 billion for large mines, US$750 million for medium-sized mines and US$500 million for small-sized mines, and properly begin the exploitation and processing of gold instead of the current situation where unknown jets fly the gold bars out from clandestine airports in Zamfara and Kogi states. The miners that fail to recapitalise within one year will lose their mining licences, and the mines are taken over by the federal government. All earnings from the mining companies will be paid into the federation account in the Central Bank of Nigeria for appropriate allocation, as is the case with oil and gas production in the Niger Delta. We cannot behave as if the mineral resources in northern Nigeria are only for the residents. Once these reforms yield huge dollar earnings, the exchange rate will strengthen, food production will improve, and the buying power of the Nigerian will be restored.
Right now, the buying power of the Nigerian consumers has all but disappeared. Prices have sprung uncontrollably beyond the ability of the Nigerian buyer. The role of the poorly valued Nigerian exchange rate is now so evident for all to see. As things stand, the Nigerian economy is being suffocated. There is an economic standstill. An economic growth rate of 3.3 percent and a population growth rate of 2.3 percent is a calamity for the Nigerian. This economy must grow at a rate of 10 percent per annum for the next ten years for a true recovery to emerge. The economy needs an exchange rate of N1000/$ or better, and the price of fuel will adjust in line with a revamped exchange rate. In all of these, the independent variable is the exchange rate. It is too critical for any economy. That is why the multilateral development banks like the World Bank and the ADB are very cautious in dabbling in the foreign management of developing African economies. It is the central nervous system of a national economy. Foreign earnings from gold, lithium, uranium and copper are good grounds for diversifying sources of foreign exchange in Nigeria and will help to stabilise the currency. A strategic review of how we determine our exchange rate will be the catalyst for a renewed economic revival. We support the presidential economic reforms, but we can now ask for realignment.
Chief Omokhodion, KSM, was the Pro-Chancellor/Chairman, Governing Council, Ambrose Alli University, Ekpoma.
