President Tinubu steering Nigeria away from Venezuela-like crisis — IMPI

The Independent Media and Policy Initiative (IMPI) has stated that President Bola Tinubu’s economic reforms are part of a clear strategy to prevent Nigeria from following the same troubled path as Venezuela, a country similarly rich in oil but burdened by years of economic mismanagement.

In a statement issued by its Chairman, Dr. Niyi Akinsiju, IMPI explained that Nigeria’s economy had reached a critical juncture after years of populist policies that hindered growth. According to IMPI, the country had little choice but to shift course to avoid economic collapse.

“We have observed ongoing criticisms of the reforms initiated by President Tinubu’s administration. Some critics view these changes as a ‘wreckage’ of recent years, while others call the government ‘insensitive and strategy-deficient,’ accusing it of failing to deliver on welfare and security,” IMPI noted.

While acknowledging that these criticisms reflect concerns over rising costs, IMPI argued that Nigeria’s current economic situation is a result of long-standing issues that previous policies neglected to address.

“The macroeconomic conditions we face today stem from decades of poor policy choices, beginning with the discovery of oil in the 1960s,” IMPI said.

According to IMPI, Nigeria’s economy has historically fluctuated between booms and busts, with periods of high oil revenue followed by severe financial downturns. This cycle has fostered a pattern of over-spending during good times without saving for the bad, leaving Nigeria vulnerable to shocks.

The organization drew comparisons to Venezuela, whose economy has also been weakened by “macroeconomic populism” and a similar reliance on oil.

“Like Venezuela, Nigeria has ridden a dangerous boom-and-bust wave,” the statement read. “In both countries, years of unsustainable spending, underpinned by excessive borrowing and subsidized fuel and electricity prices, led to economic decline. Venezuela, once among Latin America’s wealthiest nations, now faces significant economic and political instability.”

IMPI highlighted the similarities between Nigeria and Venezuela’s economic policies, particularly between 2000 and 2015. During these years, both countries pursued aggressive spending sprees without legislative oversight or sustainable fiscal planning.

Venezuela’s oil production plummeted while Nigeria, lacking adequate reserves, saw its Excess Crude Account depleted from $20 billion to $2.4 billion by 2015. Rising foreign debt further strained both economies.

“In Nigeria, as in Venezuela, subsidized fuel prices led to rampant smuggling, while vast electricity subsidies discouraged investment in the sector,” IMPI continued. The policy group also pointed out how both countries had resorted to complex foreign exchange systems that ultimately fueled black market activity and significant currency losses. Between 2021 and 2023 alone, Nigeria lost N13.2 trillion in revenue due to these policies, according to the World Bank.

IMPI attributed Tinubu’s recent reforms—including the removal of fuel subsidies and consolidation of multiple foreign exchange rates—as measures to avert further economic decline. “Had the administration opted for continued populism, Nigeria might have found itself in an economic crisis akin to Venezuela’s. The difficult but necessary reforms are intended to stabilize the economy,” the organization asserted.

Although these reforms have raised living costs, IMPI noted early signs of success, citing a rise in government revenues from Value Added Tax (VAT) and Company Income Tax (CIT). Combined, CIT and VAT revenues increased by 85% year-on-year to N6.44 trillion in the first half of 2024. In addition, foreign exchange inflows from International Money Transfer Operators (IMTOs) grew by 47%, reflecting increased confidence in Nigeria’s economic direction.

Companies are also adapting, with the manufacturing sector reducing its debt burden by N1.62 trillion between February and June 2024—a 14.85% decline. This adaptability, IMPI noted, is evident in stronger corporate performances, such as Transcorp Hotels, which reported a 191.1% increase in profit before tax for the first nine months of 2024 compared to the same period in 2023.

Looking ahead, Flour Mills of Nigeria Plc has announced plans to invest $1 billion over the next four years to expand and restructure its operations. This decision, along with other planned investments totaling N427 billion in the manufacturing sector, signals confidence in Nigeria’s economic outlook.

“Overall, the response of macroeconomic indicators to these reforms suggests an economy on the rise, with the potential for job creation and wealth generation,” IMPI concluded.