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Nigeria’s Economy: Unintended Consequences Of Buhari’s Lethargy

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By Aminu Imam
As the President Muhammadu Buhari administration grapples with Nigeria’s hydra-headed problems which it inherited from the previous government, pundits are lamenting on the capacity of the President to steer the economy, which appears to be nose-diving, alluding that he is largely inexperienced and lacks any strategy towards confronting it headlong; Aminu Imam, in this analysis, examines the plausibility of this assertion and its potentially alarming consequences.

After being sworn-in as Nigeria’s President on May 29, President Muhammadu Buhari inherited not only a deeply-divided country but one that faces a highly uncertain economic future.

Oil, on which Nigeria’s economy depends for the lion’s share of its revenues and foreign exchange earning, has decrease by over seventy percent in price since July 2014.

Available data indicate that he price of oil fell from a high of US$ 116 per barrel in June, 2014 to $33 per barrel in January, 2016, representing a decline of almost 50 percent. The Naira has also lost about 20 percent of its value since October 2014. Earlier in January, it crashed to as low as N320 to the dollar on the parallel market.

The grim picture of the economy was laid bare by Vice-President, Prof Yemi Osinbajo, last year in Abuja, where he stated that the Nigeria’s economy ‘is perhaps in its worst moment in history’.

While Nigeria may have surged past South Africa to become the continent’s biggest economy last year, however that growth has slowed as not less than 110 million Nigerians are feeling the pangs of poverty, with $60billion debt being inherited by this administration just as 21% of 2015 budget had been spent on servicing debts.

The International Monetary Fund (IMF) estimates that economic growth will slow to 4.8%this year, down from 6.1% in 2014, and the Naira is down 17% against the dollar.

A report by the National Bureau of Statistics (NBS) estimates that the final figure of GDP’s growth for the year 2015 is +2.97% only. Inflation is on the rise, and foreign reserves are at a historic low, largely due to the decline in oil and gas prices, which provide nearly 70% of government income.

The steep decline in oil prices and fall in exchange rates have posed immediate challenges for foreign reserves, fiscal budgets and economic growth, while the obvious solutions such as export diversification, industrialisation and economic transformation are long-term challenges.

However, as the country is struggling to adapt to living in new conditions of cheap crude oil, of pressing concern to many stakeholders in Nigeria and beyond is that when it comes to economics, a field that is intelligible only to the initiated, the President is largely inexperienced, and has not selected cabinet members with strong economic and business backgrounds. As Nobel laureate Wole Soyinka summarised, “I think, like me, he’s an economic illiterate”, while speaking to Bloomberg TV.

While President Buhari inherited the sobriquet nickname “Baba Go-Slow and Steady”, his unhurried style in addressing the issue of the economy has many potential downsides, according to many industry watchers.  His reform agenda appears to be fast sauntering out of the gates, according to the Lagos-based civil society organisation, Buharimeter.

Although most Nigerians have hailed Buhari’s choice of Yemi Osinbajo as his running mate as part of the election success, other commentators have lamented that the new finance minister, an accountant who is credited with cleaning up the books of one of the nation’s smaller states, is poorly qualified for the job. Her counterpart in the investment ministry is a respected businessman, but many say he may lack the clout to stand up to a president with socialist leanings.

Many observers have also expressed worry that the nation’s economic policy has been adrift since President Buhari came to power, and investors, particularly foreign ones, are complaining about the Central Bank of Nigeria (CBN)’s use of trade controls and import restrictions all pointers that the present administration is ill- equipped to respond to the gargantuan economic challenges at hand.

For instance, many experts have decried the lack of an Economic Management Team in this administration. According to a Chartered Accountant, Leke Fakayode, “If he is able to put a credible team in place, people would not judge him as an individual but the collective capabilities of the team around him. The focus would not be on one man but the team. Where the man himself has a weakness, the rest of the team can cover that; and you need to have your A-players in charge.” While there are arguably A-players in the cabinet, few are economy-savvy.

When the price of oil (on which Nigeria depends for more than 70 percent of its revenues) was soaring, tens of billions of dollars were squandered through subsidy scams, oil theft and other fraud. These were funds that could have sustained the country through the leaner times ahead, through the well-thought out vehicles like the Excess Crude Account (ECA) and the Sovereign Wealth Fund (SWF) but are now, glaring in their absence, as the Naira tumbles and the nation’s foreign reserves heavily depleted.

If the country’s fiscal buffer, like the ECA, had been kept intact, it would have been a stabiliser for the economy in the face of the now very-low oil price. While the country literally ‘binged’ on oil, the less-fancied but lucrative mining sector has been left virtually neglected and unregulated.

Some top bankers as well as other public commentators are encouraging the drastic devaluation of the Naira because, according to them, the dwindling value of crude oil proceeds is putting too much strain on the economy and affecting their business. However, Buhari has said repeatedly that he will not devalue the Naira.

If implemented, this would mean embarking on additional and expectedly painful spending cuts with significant consequences on the future development prospects of the country.

Just this week, the Emir of Kano and immediate past Governor of the CBN, Muhammadu Sanusi II, was quoted by Financial Times as saying that President Buhari risked exacerbating the country’s economic woes and undermining his government’s achievements on security and corruption by endorsing exchange rate policies that were doomed to fail.

Indeed, many concerned Nigerians are of the view that if President Buhari is to leave a legacy equal to his history-making election victory, he will have to pro-actively tackle these challenges by not only squarely focusing on taming the insurgency and tackling corruption, (both wars that have thankfully taken a dramatic positive face under his present watch), but critically that of the fast-plummeting economy.

Furthermore, as the Government struggles to put Nigeria’s public finances back in order, the balance sheets of the country’s 36 states, whose budgets typically affect the lives of ordinary citizens more than federal spending does, are sinking deeper into the red.  However, all but a few among them generate any significant revenue outside of their monthly allocation from the nation’s oil income.

Since taking office, Buhari has already bailed out 27 cash-strapped states to the tune of N 413.7billion ($2.1bn).States’ borrowing trends are risky and need to be addressed, according to a recent report by the African Development Bank (AfDB).

While Nigeria’s national debt is still relatively low by global standards, fiscal federalism means that if states default on their debts, the federal government foots the bill and therefore the present local debt of N11bn,according to the Debt Management Office (DMO) is not only depressing, but unsustainable.

The good news on the horizon is that a bigger budget has been presented for this year, which shows that recurrent spending has been pruned back.  More heartening is the president’s crusade against corruption. Many workers have been fired from the Nigerian National Petroleum Corporation (NNPC), as well as the Nigeria Customs Service. Officials are now tackling smuggling along leaky borders.

To reduce fraud, an opaque network of government bank accounts has been replaced by a centralised system. Several politicians, including the current Senate President, a former oil minister and an ex-national security adviser, are under investigation.

Meanwhile, bio-metric registration at banks has exposed more money laundered by civil servants and their stooges. Hitherto high-rollers are now on their best behaviour. But, government must not rest on its oars.

“These measures are good for the economy and display strong political will to change the system. But getting monetary and fiscal policies right will be crucial for broader progress in structural reform,” the Emir of Kano, Sanusi added.

Nigeria will need to feel the “Buhari Effect” long after the president’s tenure is over.  As has been canvassed by many, the best way for him to protect his legacy is to partner with the National Assembly to enact legislation enshrining key economic reforms.  With few other politicians like him on the horizon, Buhari’s legacy would, as millions of his supporters who voted him into power are hoping, become indelible.

Aminu Imam contributed this piece from Abuja and can be reached at amin…@gmail.com