Nigeria's economic woes: what went wrong for African nation

Nigeria is experiencing its worst economic crisis in almost 30 years, with widespread unrest and anger over soaring prices and stagnant wages.

Annual inflation is "nearing 30%" and the currency is "in freefall", said CNBC, prompting "protests across the country over the weekend" against the government's reforms.

Nigeria is Africa's largest economy but half of its population of 210 million "is younger than 18", said the Financial Times (FT). If the difficulties for working Nigerians continue then further "social unrest could follow", with the country's largest confederation of trade unions threatening a nationwide strike.

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How did Nigeria get here?

Though inflation is affecting economies around the world, Nigeria's economic hardship was exacerbated by reforms brought in by President Bola Tinubu, who took office in May last year.

Nigerians have long paid "some of the cheapest petrol prices in the world" thanks to subsidies, something the International Monetary Fund (IMF) and other "international pressure" encouraged the new government to scrap and replace them with a "market-based pricing mechanism", said the FT.

Tinubu scrapped the fuel subsidy immediately after becoming president to "general surprise but plaudits from the international community", the paper said. In his "attempt to embrace economic orthodoxy", he also removed the naira currency peg against the dollar.

The president argued the subsidy was a "huge drain on public finances", said the BBC, and that the money (15% of the country's budget) could be "better used elsewhere". 

However, the sudden removal of the subsidy caused fuel prices to soar, while other costs rose as companies passed on the now inflated "transportation and energy costs to the consumer". The removal of the currency peg also proved disastrous. The naira has lost 70% of its value against the dollar since Tinubu took office. It means the cost of imported goods has rocketed, and Nigeria "relies heavily on imports to meet the needs of its rapidly growing population", said CNBC.

The president has also partly blamed the legacy of the previous government for the economic catastrophe, the BBC said, having asked the "country's central bank for short-term loans to cover spending amounting to $19bn", which further fuelled inflation.

What is the government doing to fix it?

Though the IMF called for the end of the fuel subsidy, a lack of "measures to cushion the effect of shock therapy" has resulted in the turmoil in which Nigeria now finds itself, said the FT.

With inflation "fueling widespread hardship", the government is risking mass strikes as it is "yet to implement cost-of-living adjustments" it promised last October, said Alexander Onukwue on Semafor.

It has implemented some emergency measures to try to relieve some of the suffering, including "the establishment of a board charged with controlling and regulating food prices", the BBC said. It is also distributing widely from the national grain reserve, though critics have suggested the "method of food distribution" means that "much of it does not reach poor families". Poorer households additionally receive "a cash transfer of 25,000 naira ($16; £13) a month", though given inflation it is an amount that "doesn't go very far".

President Tinubu continues to argue that Nigeria will benefit economically in the long run, but there are signs that "government resolve is wobbling" on the fuel subsidy, said the FT. Petrol pump prices are still below the cost of importing petrol, pointing to what the IMF suggests is "the quiet reintroduction of 'an implicit subsidy'". The government, however, has "not publicly acknowledged the move".

"Violence and insecurity in many rural areas" are compounding the pressures, said CNBC, and there looks to be no quick solution, with inflation predicted to peak in the second quarter of 2024.