The Implications of Recent Policy Shifts on Nigeria’s Economic Stability - Ola Olateju

                                                                                           Political Panorama Issue No 2

John Maynard Keynes once remarked, “The difficulty lies not so much in developing new ideas as in escaping from old ones.” This statement aptly captures Nigeria’s economic reality, where policymakers wrestle with restructuring while contending with deeply entrenched challenges. The recent wave of economic reforms—currency liberalization, fuel subsidy removal, heightened taxation, and mounting external debt—has sent shockwaves through the country, reshaping its economic landscape and profoundly affecting the daily lives of millions.

 Thomas Sowell, in the second edition of Economic Facts and Fallacies, reminds us that “The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it, while the first lesson of politics is to disregard the first lesson of economics.” Nigeria stands at a crossroads, where sweeping policy changes, though presented as necessary for long-term stability, have triggered immediate hardships. While government officials argue that these reforms will yield sustainable growth, the reality for many citizens is an increasing struggle to afford basic necessities.

Aristotle once observed, “The good of the many outweighs the good of the few.” Yet, in Nigeria’s case, the many appear to be bearing the burden of policies that seem to favor the few. This analysis critically examines how these economic shifts impact Nigeria’s stability and the livelihoods of its people, questioning whether the nation is truly moving toward inclusive prosperity or deepening socio-economic divides.

President Bola Tinubu

                                                       The Naira’s Decline and Nigeria’s Economic Struggles

“A nation's currency is the mirror of its economy,” a notion often echoed in economic thought, holds particular relevance for Nigeria today. The Central Bank of Nigeria’s (CBN) recent shift toward a market-driven exchange rate system was intended to curb currency arbitrage and enhance transparency. However, as stated earlier, Sowell warns,  “The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

Following this policy shift, the naira has suffered severe depreciation, unleashing inflationary pressures that have eroded the purchasing power of ordinary Nigerians. Essential goods—many of which are imported—have become unaffordable, and businesses now grapple with exchange rate volatility that discourages investment and fuels capital flight. For those earning fixed incomes, survival has become a daily struggle, with skyrocketing costs of food, school fees, and medical care placing immense strain on households.

John Maynard Keynes, in The General Theory of Employment, Interest, and Money, emphasized the role of currency stability in economic prosperity. Yet, Nigeria’s current reality paints a grim picture: capital flight is rampant, investor confidence is waning, and inflation continues to soar. Parents struggle to afford education for their children, businesses face uncertain futures, and even medical treatments abroad—once accessible to the middle class—are now out of reach for many.

As Adam Smith aptly stated, “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” If Nigeria fails to arrest the naira’s freefall with deliberate and effective economic planning, the nation risks descending into prolonged monetary and economic turmoil

Fuel Subsidy Removal: A Necessary Evil or a Harsh Reality?

The removal of the fuel subsidy was framed as a necessary step to ease fiscal strain and free up resources for national development. However, in a country where fuel is not just a commodity but a lifeline for transportation, small businesses, and households, the immediate consequences have been devastating. Transportation costs have more than doubled, food prices have surged due to higher logistics expenses, and small businesses reliant on petrol-powered generators now struggle to survive amid an unreliable electricity supply.

Ha-Joon Chang’s insight that "People who see free markets as free as in ‘free speech’ rather than free as in ‘free lunch’ do not understand the true nature of the market" is particularly relevant here. While market efficiency may be an economic ideal, the reality for ordinary Nigerians is far more distressing. Public transit is now a luxury for many, workers trek long distances to save on transport fares, and parents are forced to skip meals so their children can eat. Without effective social safety nets, fiscal discipline has come at a severe cost to immediate welfare.

As Joseph Stiglitz cautions, “Markets, left to their own devices, often produce inefficient and unjust outcomes.” The absence of well-structured cushioning measures has turned everyday survival into a privilege for many Nigerians. While competition may fuel capitalism, as Ha-Joon Chang notes, its true oxygen is affordability. Without deliberate policies to mitigate the hardship, the gap between survival and despair continues to widen, leaving millions to bear the weight of reforms designed in the name of economic efficiency

Fiscal and Taxation Policies: The Expanding Burden on Nigerians

In an effort to boost government revenue, Nigeria has tightened tax administration, expanded its tax net, and introduced higher levies. While taxation is a fundamental tool for national development, its impact on struggling households and businesses cannot be ignored. As John Maynard Keynes wryly noted, "The avoidance of taxes is the only intellectual pursuit that carries any reward." This sentiment resonates in Nigeria, where inefficient tax administration and corruption have fueled public skepticism about compliance.

For small businesses—the backbone of Nigeria’s economy—higher taxes mean reduced profit margins, stifled expansion, and in some cases, complete closure. The cost of goods and services has risen as businesses pass tax burdens onto consumers, leaving many Nigerians with less disposable income for essentials like food, education, and healthcare. The newly introduced tax regime, which includes higher Value Added Tax (VAT) and multiple levies, has further strained household finances, disproportionately affecting low-income earners.

Yet, the pressing question remains: How effectively are these taxes being utilized? Unlike in developed economies where taxation guarantees quality public services, in Nigeria, higher taxes rarely translate into improved infrastructure, healthcare, or education. Instead, widespread corruption and mismanagement have eroded public trust in the system, making taxation feel more like an imposed hardship than a shared civic duty. Albert Einstein once remarked, "The hardest thing in the world to understand is income tax," but in Nigeria, the difficulty lies not just in understanding taxation but in justifying it amidst failing public services.

As Jean-Jacques Rousseau observed, “The fruits of the earth belong to all and the earth itself to no one.” Yet, in Nigeria, it often seems that the fruits belong to the few while the burdens fall on the many. If tax policies are not restructured to support economic growth rather than stifle it, the country risks deepening its wealth disparities and further alienating an already weary populace.

Trade and Industrial Policies: The Neglect of SMEs and Local Production

Nigeria’s trade policies aim to encourage local production through import restrictions and incentives. However, the unintended consequences have been supply chain disruptions, inflationary pressures, and an increasingly hostile environment for Small and Medium Enterprises (SMEs)—the backbone of the economy. Despite their crucial role in job creation and GDP growth, SMEs remain largely neglected in the country’s industrial strategy.

With high operational costs, multiple taxation regimes, and limited access to credit, many small businesses struggle to survive. Ha-Joon Chang critiques free-market fundamentalism by arguing that "A country’s economic development is determined by how it nurtures and protects its industries, not by how freely it opens them to external competition." Nigeria’s failure to create an enabling environment for SMEs has led to widespread business closures and job losses, exacerbating poverty and economic stagnation.

"A great economy is built on the backs of small businesses," as Barack Obama once noted. Yet, Nigeria’s industrial policies have prioritized large-scale industries and foreign investments while offering little support to grassroots entrepreneurs. Without targeted incentives, accessible funding, and a business-friendly regulatory framework, SMEs cannot compete with large corporations or navigate an import-driven market.

Friedrich Hayek’s observation rings true: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” A top-heavy approach to industrial policy, focused on large enterprises while sidelining SMEs, weakens the economic foundation of the country. If Nigeria is to achieve sustainable industrialization, it must shift focus to nurturing small businesses, ensuring they receive the protection, support, and opportunities needed to drive national growth

 

Debt Management and External Borrowing: A Threat to Sovereignty?

Nigeria’s increasing reliance on external borrowing is raising serious concerns about economic sovereignty. While borrowing is often justified as necessary for infrastructure and development, the country’s rising debt-service ratio has placed immense strain on fiscal resources. A significant portion of government revenue is now allocated to debt repayment, leaving little for critical sectors like healthcare, education, and social welfare.

As Proverbs 22:7 warns, “The borrower is slave to the lender.” Excessive external debt exposes Nigeria to currency risks, policy constraints, and financial instability, particularly in the face of global downturns. More alarmingly, international creditors often impose conditions that influence domestic policies, limiting the government’s ability to make independent economic decisions. If this trend continues unchecked, Nigeria risks falling into a cycle of perpetual debt, where foreign interests dictate national priorities.

Thomas Sowell’s observation is particularly relevant: "There are no solutions, only trade-offs." The trade-off for borrowing without a sustainable repayment plan is the erosion of economic autonomy. Similarly, economist Paul Krugman cautioned that “Debt is the money of slaves.” If Nigeria does not develop clear strategies for debt repayment and economic self-sufficiency, it may find itself shackled by the very loans intended to fuel progress.

To break free from this cycle, Nigeria must prioritize fiscal discipline, enhance domestic revenue generation, and ensure that borrowed funds are invested in projects that yield long-term economic benefits. Without a deliberate shift towards self-reliance, the nation risks compromising its sovereignty in exchange for temporary financial relief

 

Policy Consistency and Investor Confidence: The Need for Stability

One of Nigeria’s greatest economic challenges is policy inconsistency. Frequent reversals, unclear regulations, and abrupt shifts in economic policies have created an unpredictable business environment that deters both foreign and domestic investors. As John Maynard Keynes famously warned, “The market can remain irrational longer than you can remain solvent.” Investors require stability to make long-term commitments, and when policies fluctuate without clear direction, capital flight becomes inevitable, stifling economic growth.

Helen Keller once remarked, “The only thing worse than being blind is having sight but no vision.” This aptly describes the economic uncertainty created by inconsistent policies. From fluctuating trade regulations to sudden changes in taxation and foreign exchange policies, businesses operating in Nigeria often find themselves navigating a landscape riddled with uncertainty. This unpredictability discourages investment, reduces employment opportunities, and undermines industrial growth.

Nigeria’s economic history is littered with examples of policy reversals that have discouraged investment. Restrictions on certain imports are suddenly lifted, currency controls are tightened and then relaxed, and tax regimes are frequently altered—all without adequate consultation or transition plans. This lack of coherence signals to investors that Nigeria’s economic policies are driven by short-term political considerations rather than a well-structured development strategy.

Renowned economist Dani Rodrik argues that “Economic growth requires not only sound policies but also credible and stable institutions.” Stability fosters confidence, allowing businesses to plan ahead, create jobs, and drive economic progress. Without a clear and consistent roadmap, even the best-intentioned policies will fail to deliver long-term prosperity.

A nation that seeks to attract investment and promote sustainable development must prioritize policy clarity and predictability. Nigeria must adopt a long-term approach to economic governance—one that minimizes abrupt regulatory changes and ensures that economic policies are not dictated by political expediency. As Warren Buffett wisely noted, “The stock market is designed to transfer money from the Active to the Patient.” Likewise, Nigeria’s economic success depends not on frequent policy overhauls but on a steady and predictable framework that nurtures investor confidence and fosters economic resilience.

By instituting policy stability, strengthening institutions, and ensuring transparent regulatory frameworks, Nigeria can create an investment-friendly environment that supports sustainable growth, reduces unemployment, and builds long-term economic resilience.

Conclusion: The Human Cost of Economic Policies and the Need for People-Centered Planning

"The ultimate purpose of economics is to understand and improve human well-being." — Amartya Sen

Nigeria’s economic policies, though often framed as necessary for structural transformation, have disproportionately burdened its citizens. The naira’s depreciation, rising inflation, high taxation, and mounting debt obligations have created an economic environment where survival is a daily struggle for millions. While the government seeks to increase revenue, attract investment, and stimulate growth, the unintended consequences—worsening poverty, declining purchasing power, and business closures—highlight a critical flaw: economic policies that prioritize fiscal metrics over human welfare.

John Maynard Keynes observed that “Ideas shape the course of history.” If Nigeria’s policymakers do not adopt a more balanced and pragmatic approach, the policies shaping today’s economy could create an irreversible crisis for future generations. The nation’s economic trajectory cannot be determined solely by textbook prescriptions or short-term fiscal targets; it must be rooted in an understanding of Nigeria’s social realities, ensuring that reforms do not come at the cost of widespread hardship.

A sustainable economic future requires a shift in approach—one that balances economic liberalization with social protection. Instead of hasty, one-size-fits-all reforms, Nigeria needs policies tailored to its unique economic and social landscape. Trade policies should support local industries rather than inadvertently stifle them. Taxation should be structured to ease the burden on small businesses and low-income earners. Debt management should prioritize self-sufficiency over perpetual borrowing. Above all, policy consistency must be maintained to restore investor confidence and foster long-term stability.

Nigeria stands at a crossroads: it can either continue down a path of reactive, inconsistent, and burdensome policies or chart a new course based on foresight, stability, and compassion. A pragmatic, people-centered approach—grounded in economic resilience and inclusive growth—is the only way to ensure that Nigeria’s policies serve not just economic indices but the well-being of its people.

 

 

 www.politicalpanorama.com.ng