Nigeria’s newly inaugurated President, Bola Tinubu, has initiated a series of bold reforms aimed at invigorating investment in the West African nation, according to Gail Anderson, Director of Research for Upstream Sub-Saharan Africa at Wood Mackenzie, a global insights business specializing in renewables, energy, and natural resources.
President Tinubu outlined his reform agenda in his inauguration address on May 29th, which included a commitment to review taxation policies to enhance Nigeria’s appeal to investors, unify the exchange rate for the Naira, and phase out petrol subsidies.
On June 1st, petrol subsidies were abolished, resulting in a significant increase in petrol prices. The current selling price is between 500-600 Naira per liter (approximately US$1.00-US$1.30), compared to the previous range of 180-200 Naira (US$0.38 to US$0.43). This move is expected to save the Nigerian government over US$10 billion this year.
Gail Anderson highlights the importance of ending petrol subsidies in driving Nigeria’s transition to a low-carbon economy. By removing subsidies, consumers are incentivized to explore cleaner and more cost-effective alternatives like gas, solar energy, or increased reliance on the electricity grid.
President Tinubu’s next step was to eliminate state controls on the Naira, aiming to address multiple exchange rates, dollar shortages, and black market trading. This change is particularly significant for gas producers who have been experiencing currency losses alongside risks associated with the power sector.
Wood Mackenzie predicts that the reforms will lead to an increase in gas prices, which will have a ripple effect on the power sector. Currently, tariffs along the gas-to-power value chain are regulated below the cost of supply. If the Naira cost of gas rises for generators, the power sector regulator would need to pass these costs down to end users. Consequently, electricity tariffs have already risen by 40% in July. Gail Anderson suggests that government intervention may be necessary to mitigate the impact on Nigerians already grappling with soaring food prices.
Despite the risks associated with President Tinubu’s economic reforms, Gail Anderson believes that his decisive actions will immediately improve Nigeria’s financial situation, making the country more attractive to foreign capital and enhancing its competitiveness for inward investment.
Wood Mackenzie’s analysis highlights the potential benefits and challenges these reforms present, underscoring their impact on Nigeria’s economy and the need for strategic measures to mitigate potential hardships for citizens.
