After the Bell: Bola Tinubu’s wild bet on the Nigerian naira

13 Mar 2024

Nigerians plainly got sick of the volatility of the naira and its absurdly over-valued character, and voted in President Bola Tinubu despite — or perhaps because of — his promise to allow the currency to float.

Years ago I went to hear a speech given by the global business consultant Vijay Mahajan based on his book Africa Rising. At precisely the moment the book was published, Africa stopped rising. Years before that, The Economist magazine famously ran on its cover the words “Hopeless Africa”. At precisely that moment, in the year 2000, Africa started to grow aggressively. C’est la vie.

The essential problem is that Africa is not a singular place; it comprises 54 very different countries, for heaven’s sake. And yet it’s still considered and referred to as a single entity all over the world. Many Africans (I’m doing it too) get touchy about the generalisation, but I believe it is much less of a crime against humanity than they seem to think it is. We, Africans, talk of “Europeans” plenty, and although I suspect 2% of Americans could locate Sierra Leone, I doubt whether 2% of Africans could locate Iowa on a map.

Still, you can’t help sensing a tinge of racism in the characterisation of “sub-Saharan Africa”. I’ve heard people point out tetchily that “Africa is not a country” in response to people saying they are going to visit “Africa”. You wouldn’t say, “I’m going to Asia”, would you? You would name the country in Asia where you were going, surely.

Anyway, whatever. The point is that when you are talking about so many countries, it is genuinely hard to generalise. But, then again, let me just go ahead and do it because, fun. And significance, as it happens. We are over the idea of a sudden, grand African renaissance in which the continent becomes Wakanda.

Progress

On the other hand, I think only the blind would claim that on average, progress is not being made; in some places, remarkable strides are being taken.

You can see this very clearly in one surprising statistic: if the IMF’s predictions are right (they never are), the average African GDP growth will surpass Asian growth for the first time next year outside of a very short period in the early 2000s. Of course, it’s not quite as simple as that, because African countries are growing off a low base and Asia’s base is now so strong. African growth is also massively uneven, with a handful of powerhouse countries pulling up the average.

But there is other concurring evidence: MTN is probably the most African-specific company out there. It is present in 20 African countries, but of course, Nigeria and SA are the most crucial. It’s an imperfect proxy, but it does tell us something — a lot, actually — about the continent. If you look at the revenue line, it’s quite amazing. In 2010, MTN’s revenue was about R115-billion; it’s about double that now. Outside of Silicon Valley’s tech icons, how many very large companies around the world can say that?

But MTN’s share price has been appalling and is not much higher than it was circa 2010. Both the share price and, as it happens, revenue, have been all over the place. And while the volatility has been incredible, there have been periods of very high growth. It has been the bad news that dogs MTN, like sudden Nigerian fines, which turn investors off. Isn’t that just the African investment story for you? Plenty of potential coupled with heaps of disappointment.

The Nigerian naira

But you know, I do think the kind of change taking place in Africa now is different to that which marked other periods of high growth. A good example is the travails of Nigeria’s currency, the naira. Nigerians plainly got sick of the volatility of the naira and its absurdly over-valued character and voted in President Bola Tinubu despite — or perhaps because of — his promise to allow the currency to float.

The result was, as expected, a huge devaluation, combined with an enormous bump in inflation and rocketing interest rates. The extent of the impact is just gobsmacking: the exchange rate before the float was around 460 naira to the US dollar in April last year; it’s now 1,600 and will probably go lower.

Not many countries could manage a change that big and that fast. Interest rates are through the roof, as they have to be in times of a collapsing currency, to try to help stabilise the current account. Just last month, the Nigerian central bank delivered a four percentage point increase to 22.75%. There are now food riots, as you would expect.

But the hard part seems to be more or less over. Economists say that the market rate is more or less where it should be. Expectations were that the fall would not be nearly this precipitous, but Nigeria struggled to attract capital inflows to cover the pent-up demand for foreign currency. Inevitable. However, over the past few months, this has turned around. The central bank has reported that portfolio investment in the first two months of this year, at around $2.3-billion, was more than half what the country attracted during the whole of last year.

The large point is this: Nigeria has taken this huge hit on the chin and has, more or less, stayed with its decision to adhere to economic orthodoxy. The switch to voluntary, publicly supported economic conventionality is something new there and I see it in many other African countries too.

The boom in the early 2000s was caused largely because African governments were constrained by high levels of debt and were forced to adopt IMF structural adjustment programmes. The second decade of the new century was marked by a rebellion against these programmes, which can be brutal.

But the third decade is different: we are seeing more African countries willing to experiment with economic orthodoxy, and those that do will succeed. Nothing illustrates that better than Tinubu’s risky, wild bet on freeing the currency.

I hope it works out for him — it’s touch and go, but I think it will. DM

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Progress

The Nigerian naira