Nigeria over the years continues to grapple with the dilemmic choice of principle versus populist choice of policy formulation and implementation. Populist choices embedded in welfarism are most preferred by the political class because it is a vote-catching strategy for the electorate and the populace at large. It is quiet expenseful to deal with the latter because of the consequential outcome on the overall economy. Although, I am in perfect agreement with economists on the issues and matters raised as it concerns our collective survival as a people (Welfarism). However, my interest lies primarily in the economic argument itself, rather than in perspectives driven by populism or neo-welfarist activism.

The persistence and deepening of poverty in Nigeria can be largely attributed to wrong policy choices over the years. These policy missteps have contributed significantly to the ever-widening gap between the rich and the poor, as well as the uneven distribution of wealth across the country. Rather than addressing structural inefficiencies and promoting inclusive growth, many of these policies have inadvertently reinforced inequality, limited productive capacity, and constrained broad-based economic participation. Consequently, the issue is not merely one of individual moral failure or elite excess, but a systemic problem rooted in flawed economic decisions and institutional weaknesses that have shaped outcomes over time. The pressing challenge is non-continuity of policy implementation and inconsistency of will to bring to reality policies based on principle and long term benefits. Below are a few key points expressing the ever quagmirish situation of Nigeria’s economic system.

1. The failure to align monetary and fiscal policy instruments

Over the years, Nigeria has struggled to chart a coherent macroeconomic course due to the lack of proper alignment between monetary and fiscal policy instruments. In many economies across the world, the private sector serves as the primary engine of growth, driving innovation, employment, and productivity. However, in Nigeria, the reverse appears to be the case. What has consistently played out is a pattern where government borrowing and spending have, over time, squeezed out the private sector. In economic terms, this phenomenon is referred to as crowding-out. When the government dominates the credit market through excessive borrowing, it leaves limited financial resources available for private investors, thereby constraining their ability to expand and operate efficiently.

If we reflect on past economic trends, it becomes evident that government has often competed unfavorably with the private sector by borrowing heavily and sustaining high levels of expenditure. This has created an environment where the private sector is left with little room to thrive. The persistently high monetary policy rate, alongside elevated lending interest rates, has further weakened the capacity of businesses to access affordable credit, thereby limiting growth and competitiveness within the business space.

In addition to this, the private sector in Nigeria appears to be one of the most heavily taxed within Sub-Saharan Africa. The burden of corporate income tax, alongside other statutory obligations such as the Education Tax, places significant financial pressure on businesses. This not only reduces profitability but also discourages investment and expansion, further undermining the role of the private sector as a driver of economic development.

2. Foreign Exchange Policy.

From a macroeconomic standpoint, a polarized foreign exchange regime remains one of the most critical challenges Nigeria is currently confronted with. It sits at the core of many of the country’s economic distortions and has far-reaching implications for inflation, investment flows, and overall economic stability. The persistent fixation on fixed exchange rates and managed pegs has, over time, driven the system into a multiplicity of exchange rates, creating fragmentation and inefficiencies within the foreign exchange market.

The implication of this is clear: the artificial pegging of the Naira only projects a superficial sense of strength that is not supported by underlying economic fundamentals. Rather than stabilizing the economy, such policies distort price signals and weaken investor confidence. In both theory and practice, when a country fails to allow its domestic currency, in this case the Naira, to adjust gradually to economic realities, particularly in the face of external shocks, the eventual correction becomes not only inevitable but also abrupt and aggressive. This is precisely what has played out in Nigeria. Years of delayed adjustment and policy inconsistency have culminated in a situation where the Naira is now undergoing a sporadic and sharp depreciation. What is being witnessed is less of a sudden collapse and more of a long-overdue correction of accumulated imbalances that had been suppressed under an unsustainable exchange rate regime.

Over the years, Nigeria operated a fixed exchange rate system, and at different points, a managed or adjusted peg. However, these rates were often set far away from prevailing economic fundamentals. While the government and monetary authorities justified this approach on the grounds of controlling inflation and preserving the perceived strength of the currency, the policy only created an artificial stability that could not be sustained. In reality, the Naira was already adjusting outside the official framework through the parallel market, where exchange rates more accurately reflected market conditions. This disconnect between the official and unofficial markets created opportunities for arbitrage and speculation. It is therefore not surprising that platforms such as “Aboki Forex” gained prominence; effectively outpacing formal regulatory mechanisms and making the Central Bank appear reactive rather than in control of the foreign exchange space.

What has now become evident is that sustaining an unrealistic exchange rate regime is counterproductive. The shift toward a more market-determined or floating exchange rate is an acknowledgment of this reality. However, because the adjustment was delayed for so long, the transition has been accompanied by a significant depreciation of the Naira. The current plunge, therefore, is not merely a policy outcome, but a correction of long-standing imbalances that had been suppressed over time.

Is the floated exchange rate bad or good?

It is a good policy choice. However, its current painful outcome is largely a consequence of delayed adjustment caused by the unwillingness of previous governments to adopt a market-reflective exchange rate system over the years. What we are witnessing now is not simply the effect of floating the currency, but the correction of accumulated distortions. The Naira was never truly strong; it was merely fixed and artificially pegged. That perceived strength was sustained by administrative controls rather than underlying economic fundamentals. As a result, the eventual adjustment was inevitable, and because it was postponed for so long, it has now occurred in a more abrupt and disruptive manner.

A properly managed floating exchange rate allows a currency to respond gradually to economic realities such as inflation differentials, trade imbalances, and external shocks. In contrast, maintaining an unrealistic fixed rate only suppresses these pressures temporarily, until they eventually surface in a more severe form, as Nigeria is currently experiencing. Looking at global practice, countries like China adopted a more strategic and controlled approach through mechanisms such as the Real Effective Exchange Rate (REER), which ensures that the currency reflects competitiveness rather than artificial strength. China did not rigidly fix its currency in defiance of market realities; instead, it managed it in a way that supported exports, industrial growth, and macroeconomic stability.

This raises a critical question about Nigeria’s long-standing decision to fix or loosely peg its currency despite weak economic fundamentals. The assumption of currency strength, without the productive base to support it, created vulnerabilities that are now being exposed. In essence, the floating of the Naira is not the problem; rather, it is a necessary correction. The real issue lies in the delay, inconsistency, and lack of complementary policies that should have accompanied such a transition.

3. The policy of banning imports and subsidy payments for PMS.

In macroeconomics, external shocks do not, in themselves, destroy an economy; rather, it is the nature of policy responses to those shocks that determines outcomes. Nigeria has experienced several shocks over the years, exchange rate shocks, trade shocks, oil price volatility, and fluctuations in foreign direct investment (FDI). However, the policy response adopted in many of these instances has been both reactive and, in some cases, counterproductive.

One of such responses was the decision to ban certain imports in an attempt to conserve foreign exchange. The underlying argument was that restricting imports would reduce pressure on the Naira and preserve scarce dollar reserves. While this may appear logical on the surface, history and economic theory suggest otherwise. No country has successfully banned its way to prosperity. Such measures often distort markets, encourage smuggling, reduce competition, and ultimately lead to inefficiencies within the domestic economy. A more appropriate response under such circumstances would have been the use of calibrated import tariffs to discourage excessive imports while still allowing market mechanisms to function. In addition, tightening access to foreign exchange through formal channels, particularly within the import-export window, could have served as a more effective control mechanism without completely disrupting trade flows.

Furthermore, encouraging FDI inflows by harmonizing the official and parallel exchange rates would have reduced arbitrage opportunities and curtailed the practice of round-tripping, where individuals exploit the gap between multiple exchange rates for profit. This distortion not only undermines investor confidence but also weakens the integrity of the financial system. The fundamental issue here is that previous administrations operated a fragile and inefficient public finance system, within which round-tripping became normalized. This created leakages, reduced transparency, and further compounded the country’s macroeconomic challenges. Instead of addressing these structural weaknesses, policy choices often focused on short-term fixes that failed to tackle the root causes of the problem. As for subsidizing PMS, this remains one of the major burdens on the Nigerian economy.

It is often maintained that government in business is bad business. The more sustainable policy direction, in this regard, is the full deregulation of the downstream petroleum sector. That is the path that aligns with economic efficiency and long-term stability. Successive administrations lacked the political will to decisively end subsidy payments, even as the fiscal burden continued to mount. Over time, subsidy has consumed trillions of naira from Nigeria’s public finances, with significant leakages occurring in the process. In many instances, funds were reportedly diverted, with institutions such as the Nigerian National Petroleum Corporation (NNPC) serving as channels through which these inefficiencies and abuses were sustained. What is most concerning is that these warning signs were evident early enough, yet insufficient action was taken. The economy was gradually being pushed toward a fiscal cul-de-sac, where government obligations continued to rise without a corresponding increase in sustainable revenue.

The way forward, as I have consistently argued, is to fully deregulate the downstream sector. This involves opening up the space to multiple private sector participants through transparent licensing, thereby encouraging competition. Increased competition would, over time, improve efficiency, stabilize supply, and exert downward pressure on PMS prices. In addition, government-owned refineries should be privatized, as their continued public ownership has not translated into operational efficiency or value creation. Creating an enabling environment for private investment in refining and distribution is critical to transforming the sector.

There is ample awareness that much of the public discourse focuses on the immediate pain and cost of subsidy removal on the masses. While this concern is valid, there is far less attention given to the long-term consequences of maintaining the subsidy regime. The fiscal strain, rising debt burden, and distortionary effects on the economy would ultimately impose an even greater cost in the future. It is therefore important to weigh short-term discomfort against long-term sustainability. Reports suggesting that the Nigerian government may have partially reintroduced subsidy indicate that the pressure on fiscal space is likely to persist over time, thereby prolonging the very challenges the policy was meant to resolve.

Drastic situations warrant drastic solutions. If Nigeria must genuinely pull its people out of poverty in this trying period, it must be willing to take bold and, at times, uncomfortable policy decisions. These are not choices that yield immediate applause, but they are necessary for long-term economic stability and shared prosperity. The reality is that sustainable growth is not built on sentiment, but on disciplined, coherent, and forward-looking economic reforms. Those driven by populist or neo-welfarist sentiments must come to terms with this reality and allow the government of the day the policy space required to implement these difficult but necessary reforms. Economic recovery and transformation demand sacrifice, patience, and a clear understanding that short-term pain is often the price for long-term gain.

Nigeria stands at a critical juncture where the cost of inaction far outweighs the discomfort of reform. The choices made now will determine whether the nation breaks free from the cycle of structural inefficiencies or remains trapped within it. What is required, therefore, is not hesitation, but courage; not populism, but pragmatism; not delay, but decisive action.

Innocent Ogonna Obidaju

(Education Economist)

December 9, 2023