General Muhammadu Buhari will be a terrific
boost to democrats in Nigeria and across the African continent. But, at the
home front, he may be hamstrung from the start by an economy that relies
massively on oil revenue.
Since March 31, 2015, after
Nigeria’s President Goodluck Jonathan conceded defeat in a hard-fought
presidential election – the most free and fair election ever to take place in
Nigeria – I have been reading and watching media reports about the election.
Though the conversations have been as diverse as the media houses themselves,
there’s been three notable areas of concurrence: First, Buhari won the
presidential election due to the incumbent government’s dishonesty and failure
to end Boko Haram Islamist insurgency in the north-east Nigeria – an insurgency
that has cost at least 15,000 lives. Second, Nigerians put enormous faith in
Buhari due to his reputation for honesty, his fierce denunciation of corruption
and his frugal lifestyle – a lifestyle that appeal to the poor who make up the majority
of Nigerians. Third, many Nigerians think that as a Muslim, a northerner, and a
former soldier, Buhari has a better chance of restoring the morale of Nigeria’s
miserable army. This is important because it is only a reformed and
re-energized Nigerian Army that can defeat Boko Haram.1
Buhari seems to be keenly
attuned to these problems and concerns, unlike President Jonathan whose past
six years of governance has been a story of too little, too late. And, based on
Buharis’s past records as the ex-military leader of Nigeria and on his campaign
manifesto, he also seems to have the right priorities and the right experience
to realize them. However, he will need more than his reputation for running a
clean government and getting things done to achieve the colossal undertaking of
solving Nigeria’s problems. Luckily for him, Nigeria has numerous skilled,
experienced technocrats with proven track records and the energy and ambition
to take on the challenges of the country. Unfortunately, most of these able
technocrats lives abroad and Buhari had to find a way to lure them back to
Nigeria.
Nigeria’ economy: a bull diminished
Archimedes once explained the
power of levers in the physical world this way: “Give me a place to stand on,
and I will move the Earth.”2 The Nigerian political realm has an
important lever of its own: the Presidency, the political fulcrum upon which
Nigeria’s economy and future can be built. Yet the economy soon to be inherited
by Mohammadu Buhari, the president elect, is in a very bad shape.
Although Nigeria is one of
Africa’s richest countries, its wealth owes more to an accident of geology than
to creativity and innovation: the country has huge oil and gas deposits (in
addition to other solid minerals such as coal and limestone) and a land that is
very suitable for agriculture. On the positive side, Nigeria can currently
boast of having an attractive market of up to 170 million people3
and a fast-growing services sector.4 However, the country has
continued to depend mainly on oil revenue, which is a big problem. Oil still
accounts for two-thirds of Nigerian government revenue as well as 95 percent of
its foreign earnings.5 Since last year, the decline in oil price has
not only drained the government’s coffers but has also revealed the failure of
the outgoing government to save during the boom years.
The unhappy truth is that the
plunge in oil’s price has also sent Nigeria’s currency, the naira, into a free
fall. Over the past seven months, the naira has fallen by as much as 18 percent
against the dollar.6 For Nigerians, this is a grim news given that
the country imports almost everything from cars, electronics, milk and other
food items. In 2014, Godwin Emefiele, the governor of the Central Bank of
Nigeria, talked so much about interest-rate cuts. Instead of doing as he said,
he hiked the rates to a record 13 percent in November of that year. His
argument was that the high rates will defend the plunging currency.7
In spite of this, the country is facing high inflation rate which, as of last
April, stood at 8.4 percent, according to official figures. Evidence from
several analysts, including Merrill Lynch (an investment bank), indicates that
rates could reach 15 percent before the end of the year. The IMF projects that
Nigeria’s economy will expand by just 4.8 percent this year, even though it has
grown by an average of 7 percent a year over the past decade.8
Since oil prices started to fall
last year, jittery international investors have pulled out in their droves,
wiping almost a third off the Lagos Stock Exchange’s main index. Many big
Nigerian businessmen has lost billions of dollars as the stock exchange
plunges. A good example is Aliko Dangote, whose conglomerates accounts for
almost a quarter of Lagos exchange’s market capitalization.9 Just
before the country’s Presidential election, the S & P, a bond rating
agency, downgraded Nigeria’s credit rating to B+, which is a value that is four levels beneath
investment grade.
Upon what meat will this our “Caesar” feed?
During his election campaign,
General Buhari pledged to crack down on corruption. In a country like Nigeria,
this is definitely a mammoth ambition. But corruption is just one among many of
Nigeria’s problems. Chronic underinvestment in infrastructure has left the
country with clogged roads and epileptic power supply. One important concern is
that Buhari’s government may have little wriggle room. First, to make up for
the shortfall in oil revenue, he may have to borrow more money from IMF. Note
that, at 12 percent of GDP, Nigeria’s public debt is actually low. However, the
country equally has very low non-oil revenue to service this debt. As of last
month, Nigeria is spending about 9 percent of its revenue to service the
interest on the public debt alone.
Second, while the cost of fuel
subsidy has fallen along with the price of oil thereby reducing government
expenditure a little bit, Buhari may have to make more budget cuts to free some
money for government projects. This is very important because road-building and
other construction may be frozen if there is no money to pay the contractors.
Buhari should realize that he
will, whether he likes it or not, find a way to pay for his campaign promise of
eradicating Boko Haram , the Islamist insurgency that is plaguing north-east
Nigeria. He may also need to extend a costly amnesty in the country’s Niger
Delta area – an amnesty that will expire this year. This amnesty has helped to
maintain a relative calm in the region – a region that is the source of much of
Nigeria’s oil wealth. Finally, since Buhari wanted this job, he should know
that his success will definitely be determined by his ability to reform Nigeria’s
ossified, corrupt political system.
References
1Nigeria’s Election – Three Cheers for
Democracy. The Economist (2015,
April). Retrieved April 30, 2015 from http://www.economist.com/news/leaders/21647616-muhammadu-buhari-was-least-bad-presidential-candidate-nigeria-may-he-rise-his
2Ancient Greece (2012): Archimedes. Retrieved April 30, 2015 from http://www.ancientgreece.com/s/People/Archimedes/
3Ibukun Y. (2014): Nigeria’s Changing Diet
Unveils a 170-Million-Strong Market. Bloomberg
Business. Retrieved April 30, 2015 from http://www.bloomberg.com/news/articles/2014-06-30/one-nigerian-s-changing-diet-unveils-a-170-million-strong-market
4Nigeria – A Dynamic and Diversifying Economy.
BNP Paribas (2012, December).
Retrieved April 30, 2015 from http://economic-research.bnpparibas.com/Views/DisplayPublication.aspx?type=document&IdPdf=21423
5Nigeria’s Economy – To the Victor the Toils. The Economist (2015, April). Retrieved
April 30, 2015 from http://www.economist.com/news/finance-and-economics/21647666-low-oil-price-has-revealed-grave-problems-africas-biggest-economy
6Ighomwenghiam K. (2015): Inter-Bank Market
Shuts as Naira Falls to N205/$. Daily
Independent. Retrieved May 2, 2015 from http://dailyindependentnig.com/2015/02/inter-bank-market-shut-naira-falls-n205/
7Financial Times (n.d.): Nigerian Central Bank Devalues Naira, Hikes Rates. Retrieved May 2,
2015 from http://www.ft.com/intl/fastft/241362/nigerian-central-bank-devalues-naira-hikes-rates
8Nigeria’s Economy – To the Victor the Toils. The Economist (2015, April), op. cit.,
para. 4.
9Nsehe M. (2014): Africa’s Richest Man Aliko
Dangote Loses $7.8 Billion as Naira, Stock Exchange Plunge. Forbes. Retrieved May 3, 2015 from http://www.forbes.com/sites/mfonobongnsehe/2014/12/23/africas-richest-man-aliko-dangote-loses-7-8-billion-as-naira-stocks-plunge/
