There’s a new sheriff in town: Nigeria’s President Tinubu addresses security and economic woes with sweeping reforms

In the initial two weeks of his presidency, Bola Tinubu removed petrol price caps and restrictions on the naira currency, implementing liberalisation measures that had been anticipated by investors for over a decade. In a welcome assertion of Tinubu’s authority as the Commander in Chief of the Armed Forces, the new President also dismissed the nation’s Service Chiefs, the Inspector General of Police, IGP Usman Baba Alkali, and the Comptroller General of the Nigeria Customs Service, Col. Hameed Ali (rtd.).

“President Tinubu has approved the immediate retirement of all Service Chiefs and the Inspector-General of Police, Advisers, Comptroller-General of Customs from Service as well as their replacements with immediate effect,” Senator George Akume, Secretary to the Government of the Federation (SGF) announced last week. Tinubu also demanded the immediate dissolution of the governing boards of all Federal Government Parastatals, Agencies, Institutions, and Government-Owned Enterprises (GOEs), including the Governor of the National Bank.

Observers either side of the political fence, from human rights associations to executives in the maritime industry, hail President Tinubu’s purge of the police, customs and government agencies as a most welcome and necessary mass firing to get Nigeria’s house in order on the security and economic front, as well as to tackle corruption.

As President Tinubu took office, Nigeria grapples with up to $3 billion in debt owed to trading houses such as Vitol and oil majors like BP (BP.L) for fuel supplies, a situation aggravated by being four to six months behind schedule in repayment through crude cargoes. This development was confirmed by four traders and executives who spoke to Reuters.

The resolution of this debt is expected to take several months, posing a significant challenge to the reform efforts of Nigeria’s new President, Bola Tinubu. His administration is seeking to move Africa’s largest economy and most populous nation away from expensive fuel subsidies, which have increased the country’s debt and caused foreign exchange shortages.

Part of Tinubu’s reforms includes plans to abolish a longstanding scheme where Nigeria swapped its crude for gasoline imports. The Nigerian government had been purchasing gasoline at market price and then selling it at a discount to its citizens. The government then paid the difference, a subsidy that cost an estimated $10 billion last year. The last attempt to terminate this scheme resulted in public protests. Due to a lack of refinery capacity, Nigeria is dependent on imports to satisfy domestic demand.

Earlier this month, Mele Kyari, head of Nigeria’s state oil firm NNPC, announced the cessation of these swaps, known as Direct Purchase Direct Sale (DSDP), following years of criticism from civil society groups, including the Nigerian Extractive Transparency Initiative, for lack of transparency and corruption.

However, there are reports that the NNPC is still importing gasoline via swaps for July delivery and has outstanding payments for previous months of swaps. This system, involving over a dozen foreign and local trading consortia, is expected to persist until at least October 2023.

Among those declining to comment on the situation are the NNPC, which claims the government owes it $6 billion for subsidised fuel sales, and several of the major swaps participants, including Vitol, Mercuria, BP, and TotalEnergies (TTEF.PA).

Nigeria’s fiscal troubles of are further exacerbated by a decline in oil production, which curtails revenue that could be used for debt repayment. From 1.8 million barrels per day of crude, the output has fallen to as little as 1.1 million, due to lack of investment. This decline in production means less revenue from exports for Nigeria and the NNPC.

President Tinubu has recently allowed the naira to depreciate sharply, also eliminating preferential naira rates. This move permits all potential importers to access the same forex costs and thus compete in fuel imports. However, uncertainty caused by naira volatility and possible difficulties in repatriating funds due to continued dollar shortages are currently discouraging private firms from importing fuel.

In addition to private importers, Nigeria’s fuel demand in the future will also depend on the operations of businessman Aliko Dangote’s refinery, the country’s first major oil plant, which is unlikely to commence full-scale operations before next year.