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In early June, Wale Edun, a close economic adviser to Nigeria’s new president, indicated that market participants would not have to wait long for the country’s exchange rates to unify. But even he may have been surprised by the speed of events.

On June 15, just days after the former central bank governor Godwin Emefiel was suspended and subsequently arrested, the banks were informed that they could offer dollars at any exchange rate they wanted.

The impact was immediate. Naira noted it the biggest crash in history. At the end of the day, the official exchange rate fell to N600 to the dollar, down 23 percent. Traders said the currency was changing hands at N750, about the same as the parallel market rate – the unification promised by Edun.

It is too early to say what the new policy will be or whether the rate gap will reopen. “There is still considerable uncertainty about how the foreign exchange market will perform,” says Razia Khan, chief economist at Standard Chartered Bank. “Today’s price action may indicate free movement, although Nigeria has historically had a managed exchange rate.”

He predicts that the naira will trade at N695 to the dollar by the end of the year before strengthening slightly.

Nor is it certain what impact it will have on foreign exchange reserves or inflation, which is already at 22 percent. If dollars are freely available, there could, at least initially, be a huge rush of trapped hard currency leaving the country. For example, it has been less than a year since then Emirates has suspended flights to Nigeria because the airline could not repatriate the funds.

But along with the removal of fuel subsidies, the measures taken in the first weeks of Bola Tinubu’s presidency represent the biggest reform package in decades, says Dipo Salimonu, chief executive of oil and gas company Moteriba.

“This restoration of fiscal sanity – the boldness is unprecedented,” he tells Salimonu, adding that the “analytical paralysis” of previous governments, which knew they had to remove distortions in the economy but lacked the courage to do so, is over.

But Chidi Odinkalu of Tufts University’s Fletcher School of Law and Diplomacy cautions that investors should not get too excited about the rapid changes in Tinubu’s first weeks in office. The previous administration did not make any budgetary provision for fuel subsidy, he says, and rather forced Tinubu’s hand.

“The reason Tinubu cannot play is because the country is insolvent,” says Odinkalu. He adds that he would be more impressed if Tinubu – who has already been given permission to appoint 20 advisers – stopped the government’s notorious excesses and devoted his efforts to solving the problems of a country where an estimated 90 million people live on less than $1.90 a year. day. “This means not funding the lifestyle of politicians but addressing the social needs of ordinary Nigerians,” says Odinkalu.

The reason Tinubu cannot play is because the country is insolvent

After eight years of stagnant per capita income at best, the problems are deep indeed. On the social front, about a third of Nigerians are unemployed, according to official figures, while government figures classify 133 million people as “multidimensionally poor”.

Years of neglect of the hospital and school systems mean that Nigeria’s social indices are lower than expected for a middle-income oil producer. Unicef ​​estimates that 18.5 million Nigerian children are out of school. Expected life expectancy is only 53 years, according to the World Banknine years lower than Niger, its much poorer neighbor.

The macroeconomic picture was no less grim. Tax revenue was about 6 percent of gross domestic product, one of the lowest levels in the world, although it may have risen slightly in recent years, according to the OECD. Virtually all federal revenue goes to paying government debts and debt service, leaving almost nothing to invest in Nigeria’s future.

Oil theft has been commonplace, although there have been signs of recent improvement, with Bonny’s massive oil terminal reporting virtually no losses in May. The oil revenues that have come in mostly pay for the subsidy, which rises with the price of oil, thus depriving the treasury of a benefit.

A double “shock therapy,” as Salimonu calls it—subsidy removal and exchange rate liberalization—could help solve these structural problems in the medium term.

The big hope is that the government can fix its finances. A weaker naira apart from saving $10 billion in subsidies means that every dollar earned from oil translates into higher naira earnings.

Exports, hurt by an overvalued naira, should benefit as Nigerian goods become more competitive. Foreign investment, which had stalled under the previous currency regime, could recover. Because of the artificially high naira, investors say they have been reluctant to invest funds for fear of overpayment and are nervous that the dollar allocation could hinder their ability to repatriate profits and dividends. Confidence could now be built and with it invested, economists say.

“Nigeria has so much potential for growth, but it has been held back by bad policies,” says Abubakar Suleiman, CEO of Sterling Bank. He adds that a combination of decent government and a favorable environment could lead to a period of “hockey stick” growth — namely, when it was flat, it suddenly spiked.

For now, such a return to rapid growth and the policies needed to improve the lives of ordinary Nigerians is a chimera. But for the first time in years, people are actually talking about it.