By PAUL WALLACE Bloomberg News
Muhammadu Buhari took office as Nigeria’s president a year ago on a wave of optimism that the ex-military ruler could revive a nation battered by falling oil prices and decades of corruption.
Now, Africa’s biggest economy is on its knees, forcing Buhari to throw in the towel on a central pillar of his economic policy – a currency peg.
“It was difficult to imagine a scenario in which things got worse,” said Malte Liewerscheidt, a Nigeria analyst at Bath, U.K.-based consultant Verisk Maplecroft. “But it’s been a lost year. What’s missing is sound macroeconomic policies.”
Nigeria will soon enter a recession, according to the central bank, and an upsurge of militant attacks since February has sent crude production, which usually accounts for 70 percent of government revenue, plummeting to an almost 30-year low.
Delays in approving a budget and a Cabinet as well as Buhari’s refusal to weaken an overvalued currency — until he hinted at relenting last week — have caused foreign investors to flee.
Foreign investors, fearing a devaluation, are staying away. Foreign direct investment was the lowest last year since the 2007-08 global financial crisis, and Citigroup Inc. said deals have ground to a halt.
Capital controls prompted JPMorgan Chase & Co. in September to kick Nigeria out of its local-currency emerging-market bond indexes, tracked by more than $200 billion of funds.
This year, Nigeria’s local-bond yields have climbed 276 basis points to 13.46 percent, leaving them as the only such securities among 31 emerging markets tracked by Bloomberg to make losses.
Electricity output has plunged to about a 30th of that of South Africa, sub-Saharan Africa’s second-biggest economy, as attacks on pipelines cut supplies of natural gas to power plants.
When Buhari beat then-President Goodluck Jonathan in the first election victory by an opposition candidate, U.S. President Barack Obama’s administration called it an “historic step for Nigeria and Africa.”
A 73-year-old retired major-general who ruled from 1983 to 1985, Buhari campaigned to end the corruption he said was “killing” his country.
He and his All Progressives Congress party promised to crush Boko Haram, whose Islamist insurgency has led to thousands of deaths in the northeast since 2009, and boost economic growth to as much as 10 percent.
Now recession looms.
The economy contracted in the first quarter by 0.4 percent, the first decline since 2004.
If Buhari doesn’t alter his stance on the naira and loosen the restrictions used to defend its peg to the dollar, output will probably sink further, according to Mark Bohlund, an Africa economist with Bloomberg Intelligence in London.
“The Nigerian economy is at high risk of experiencing its first full-year recession since 1987,” Bohlund said. An improvement next year depends on security being restored in the oil-rich Niger River delta region and “a shift toward more market-based economic policy.”
Buhari was dealt a tough hand. He inherited a virtually empty treasury and Jonathan’s administration did little to diversify the economy, leaving it vulnerable to the crash in oil prices since 2014.
A rainy-day fund known as the Excess Crude Account was whittled down to barely $2 billion when Buhari took office, from $21 billion in 2008.