Dear Subscriber,

Barely two weeks after the inauguration of Nigeria’s 16th president, Mr. Bola A. Tinubu, a series of bold reforms many considered long overdue, was unveiled. Ranging from subsidy removal to some “housecleaning” at critical institutions to exchange rate unification, the market has responded positively. The Nigerian equities market has outperformed its peers, gaining 13% in the past two weeks.

Exchange rate unification is not everything!

The adoption of a single exchange rate and the “willing buyer-willing seller model” by the CBN is, no doubt, cheery news for the market. This new exchange rate framework is expected to increase transparency in the forex market, reduce exchange rate misalignment and transaction costs, and buoy investor confidence.

However, exchange rate management goes beyond exchange rate unification. It must address issues surrounding market structure, easy access and adequate supply. This means effectively dismantling forex rationing, administrative controls, and reviewing import restrictions. As Barack Obama declared, “Africa doesn’t need strongmen, it needs strong institutions.”

Accelerated growth is achievable

With strong institutions and a market-driven exchange rate regime, President Tinubu’s target of higher GDP growth (6%) may not be a pipe dream. Under Obasanjo, Yar’Adua, and Jonathan, Nigeria achieved an annual rate of 7.6%, 7.6%, and 6.4% respectively. This means that a 6% growth is within reach if the right policies and structures are put in place. However, a haphazard approach and failure to remove the structural rigidities will leave the country with pale growth (1.4%) and possible heightened insecurity.

In this edition of the FDC bi-monthly bulletin, the FDC Think Tank unpacks these issues and more, providing their economic implications.

Enjoy your read!