You may have read in the news that Nigeria is going through an economic crisis. I feel most news agencies haven’t done a lot of due diligence, they have poured plenty of ink over the human interest stories of people unable to buy petrol, of the mass protests, and of the government’s response. But they haven’t done anything to explain the economic underpinnings of the crisis.

At best they may have given you a few basic facts. The president cut fuel subsidies and currency controls; the price of everything skyrocketed; the president says some pain is necessary. But they aren’t doing anything more than blaming the president’s actions for the crisis while also blandly repeating his assertions of “no pain, no gain.”

WHY did the president do what he did? Why does he think it’s necessary? What has it achieved? What has it *not* achieved? And what could he be doing differently?

Nigerian President Tinubu came into power only last year, amid an already languid economy. He comes from the same party as his predecessor, but was not content to be “Continuity Buhari,” he wanted to shake things up. At his inauguration, he announced the end of the fuel subsidy “with immediate effect.” People of course rushed out to buy the last of the subsidized fuel before prices skyrocketed. Not long after, he began loosening currency controls. The central bank had been artificially inflating the value of the Naira, and so without these controls it’s value came crashing down.

But I don’t think Tinubu did this because he hates poor people and doesn’t want to spend money on them. I think there were dire financial circumstances that demanded these actions, but not only do they demand *more* actions that Tinubu seems unwilling to entertain, but he himself has not been a great spokesman for why he did this.

To start with, the fuel subsidy was costing Nigeria an incredible amount each day. Nigeria maintains a relatively low tax environment thanks to a state monopoly on oil which is the government’s main source of revenue. The fuel subsidy hoovered up between 15 and 25 percent of this government revenue, a huge outflow that badly constrained government finances while also inhibiting a transition to renewable, perhaps even cheaper energy like wind and solar.

Meanwhile, the currency controls also costed Nigeria greatly. There are two ways to maintain an artificially powerful currency: buying currency on the local market and restricting the movement of currency into and out of the country.

The Nigerian central bank spent loads of dollars and euros from its vault buying up naira (Nigeria’s currency) on the global market, to raise the price of naira relative to these other currencies. But this was never enough to keep the value of the naira up, the central bank’s “official” exchange rate was always around 100 to 1000 times more expensive than what the naira was *actually* worth. The black market exchange rate pegged the naira as being worth way way less than what the central bank said.

In normal circumstances, this black market rate would quickly take over, obliterating the value of the naira as people trade naira for dollars at fair market prices, rather than the bank’s artificially set price. So currency controls were implemented to prevent this.

There were (and still somewhat are) huge restrictions on bringing dollars or foreign currency into Nigeria. It’s hard to bring cash on an airplane, and if you send money digitally through a bank, the Nigerian central bank will forcibly convert your dollars into naira at their set price, turning your 100 dollars into say 10,000 naira instead of the 1,000,000 naira they’re actually worth. This loses you a lot of money. And then there are crackdowns on any unofficial money changers, all this means that it’s very restrictive to move money into and out of the country.

But what if you’re a tourist, or a business that wants to invest in Nigeria? Then the central bank’s currency scheme is a certain way to fleece you for your dollars. Nigeria (like most countries) demands all transactions be in its local currency, the naira. So if you want to buy Nigerian yams, either because you’re a tourist who wants to eat yams or because you’re an exporter wanting to export them on the global market, you need to change your dollars into naira to do so. This either means losing 90% of your dollar’s value through the official exchange rate, or risking jail time by smuggling dollars into the country and using a black market money changer.

Either way, this makes investment *and* tourism a lot more precarious, and does even more to scare foreign money *out* of the country, at a time when Nigeria desperately needs money coming *in* to save its beleaguered industries.

To get back to Tinubu, he saw that Nigeria’s government finances were not good. The government deficit ran 5% of GDP, and was growing. It was difficult, and VERY expensive for Nigeria to borrow money on the world market because of this, so continuing the deficit-spending path was merely robbing future generations to pay for the present generation.

So he wanted to cut spending and boost investment. He cut the fuel subsidy, since it costed so much of the government’s revenue, and he loosened currency controls so that it’s easier to invest in Nigeria. In this way he hope to grow the economy and raise tax revenue. In the long run, this should provide *more* money to support the people.

Loosening currency controls however, led to triple digit inflation, as the naira’s official value finally caught up to its black market value. And combined with the end of the fuel subsidy this made everyone a lot poorer and made food and basic necessities a lot more expensive.

There’s a glimmer of hope that Tinubu’s plans are working, foreign investment is surging and perhaps after so much pain, Nigeria can come out the other side with a stronger economy that can actually spend more on its people, more on education, safety, and medical welfare instead of just subsidizing petrol. But it may also be far to little to save Tinubu’s presidency, and his successor can just undo it all to appease the populace.

I think the gains would come a lot faster for Tinubu if he were willing to be a truly radical reformer, and not just cut spending on the poor.

In addition to the fuel subsidy and currency restrictions which make investing in Nigeria difficult, the country also has a highly restrictive trade policy which isn’t making things any easier. Nigeria prohibits the import of a wide variety of products, from staple crops like cassava (related to the yam or sweet potato) to cement to eggs and meat. The only justification for this is to “protect domestic industry and farmers,” but let me rebut that:

First of all, people cannot afford food! The end of the fuel subsidy, the floating of the currency, these have put the price of food out of reach of many Nigerians. There are thousands of foreign companies, in West Africa and the rest of the world who can step in to provide more food if import restrictions are lifted. More food means a drop in the cost of food, through the laws of supply and demand, and so this increase in supply would go at least some way towards alleviating the hardships brought on by Tinubu’s other reforms.

And furthermore, importing food would create just as many jobs, if not more, than it “destroyed.” Markets need workers to staff them, trucks need drivers, loaders, unloaders and ports need all the same. Importing eggs so that people can afford to eat might make it harder to a poultry farmer to compete, but it would also create a number of jobs in logistics, supply, and customer-facing roles to get those eggs into people’s hands.

Furthermore, the unemployed farmer need not remain so. The high price of eggs makes it hard not only for customers to afford eggs, but also for any industry that uses eggs to afford them. Ice cream is very popular in Nigeria, but locally made ice cream is more expensive than it should be because the price of eggs remains high. But importing eggs would lower the price of eggs by driving up supply, and would allow ice cream manufacturers to buy more eggs, make more ice cream, and thus they’d need to hire more loaders and unloaders, more line workers, more mechanics for their ice cream machines, and so on. The loss of jobs in the poultry industry would easily be replaced by the gain of jobs in every manufacturing industry which uses eggs as an input.

And new industries could also be created. The thing about the government controlling the economy (as it does when it restricts the import and export of goods) is that the government doesn’t know as well as the market what a country’s competitive advantage is. And by stifling the import of so many goods, the Nigerian government makes it difficult for the economy to *find* those competitive advantages.

The USA eats far more pineapples than it produces, but imported pineapples are often packaged and canned in the USA, and that packaging and canning industry employs far more people than pineapple-growing alone ever could. And it’s not as if the USA *couldn’t* grow pineapples. California, and Florida all grow pineapples, but they have found competitive advantages in other products (like oranges or computer software) and the pineapple-growing jobs are instead pineapple-canning jobs, which are higher paid as well.

So if Nigeria ended its import restrictions, not only would individuals be able to afford groceries, but industries would be created and expanded, growing the economy. Nigeria would be able to find its competitive advantages, the things it does better than every country on earth, and would better exploit those advantages for growth and profit.

I will throw a bone to the populists who say that the fuel subsidies and currency controls may have been lifted *too fast*. I haven’t looked into it, but perhaps the pain would have been minimized, and the disruptions smoothed out, if these reforms were phased in such a way that the economy could better adjust. But if I were advising president Tinubu, my primary advice would be that he isn’t going far enough. End the trade restrictions, help the people afford basic goods, and help the industries grow through competitive advantage. The end result will be a much better economy than when you cut all the subsidies but still try to “protect” entrenched industries.