Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited
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- Financial Market
- Fiscal Policy
2020: The year of the known unknowns 09 Jan 2020
President Muhammadu Buhari defused much of the political tension in the country, going into the new year. On Christmas Eve, he ordered the release of the political activist, Omoyele Sowore, from detention. A longer-term political detainee, Sambo Dasuki, who like Sowore was being held in disobedience to court orders granting him bail, was also released.
This should be helpful for the President, if he wants to improve his local and international public image in 2020. Since his controversial reelection last year, strong public disapproval has greeted many political actions of his government, especially its contempt for the rule of law.
On the economic front, the government also needs to revise its policy strategies. For instance, the Finance Bill 2019 will, all things considered, increase the incidence of taxation on individual and corporate Nigerians if signed into law. And the plan to borrow additional $29.96 billion will stretch the country’s public debt sustainability and, consequently, further deter foreign investments. After borrowing over $26 billion since June 2015, it has become apparent that the administration’s debt strategy has a weak correlation to employment and economic growth.
In 2019, the country’s political and economic outlook dampened investor confidence, causing the main index of the Nigerian Stock Exchange to fall by 14.5 per cent. Real GDP growth rate also flattened at circa 2 per cent. Among other negative macroeconomic indicators, inflation rose to 11.85 per cent in November; additional 3.1 million Nigerians fell below the extreme poverty line, based on trend data; and unemployment continued to rise.
The release of Sowore and Dasuki from detention was a sudden departure by the government that seemed to be hardening its stances in the face of growing criticism. It is, therefore, uncertain how far President Buhari would go to reverse the damaging political trends of the past four years and the economic setbacks. He will be up against his predilections, while also contending with the new notion that he can be overwhelmed by popular resistance and external pressure that influenced Sowore’s release.
However, the belief that the President is set in his ways and that things are unlikely to get better is a major risk for the country in 2020. On the concern over continued insecurity, the state governors of the South-West plan to press ahead with a joint security arrangement for the region. This indicates the extent of the fears that President Buhari needs to allay in the polity or the recourse that various groups may explore. Whether he will rise to the occasion remains to be seen.
It is also unclear if the ruling party, All Progressives Congress (APC), will remain resilient to its propensity for internal crisis. Whereas the President is well-regarded, or feared, by members of the party as both its rallying point and final arbiter, APC has nevertheless remained in a perpetual state of internal conflict. Yet, in 2020, the party will have to start to address the issue of Buhari’s likely successor. This will be the biggest challenge the APC would have to confront since it, as the main opposition party, took on the incumbent president in the 2015 presidential election.
Whereas zoning the APC presidential ticket to the South may be an acceptable geopolitical compromise, to not do so, and efforts to elongate the Buhari administration beyond the constitutional limit of two terms ending in May 2023, would be very contentious. How the APC, and indeed the country, would start to react to lack of clarity on a nationally-acceptable compromise for the succession of Buhari’s administration would also be anyone’s guess.
The foregoing are Nigeria’s key contributions to uncertainties around the world in 2020. Similar to Nigeria’s, the global political, economic and environmental risks this year are known. What is uncertain is whether they would crystallise or to what degree they might be.
In Africa, a new trading regime among 54, out of the 55, countries of the continent will start on July 1, 2020, under the aegis of the African Continental Free Trade Area (AfCFTA). Even with Eritrea still refusing to sign the agreement, Africa is about to launch the world’s largest free trade area by the number of countries participating in it. In three years, intra-Africa trade is projected to increase by 52 per cent.
But it is unknown whether trading under AfCFTA would remain as clumsy as the acronym of the trade agreement. Infrastructures to support cross-border trade in Africa remain chronically inadequate, if existent. As trade agreements go, their benefits are impossible to be evenly – or equitably – shared among the trading partners. AfCFTA may also soon become acrimonious in respect of its “rules of origin.”
However, relations between the United States and China will remain the frontier of global trade tension in 2020, despite the limited trade deal the countries reached in December. The prospect for trade pact between the world’s two largest economies is complicated by domestic politics, geopolitical interests, and the race to dominate the 5G wireless technology. In spite of these issues, Presidents Donald Trump and Xi Jinping want a comprehensive trade deal between the US and China to happen.
What is unknown is whether Trump will remain in office after a year from now, even if, as expected, he would not be removed from office this month by the Senate following his impeachment last month in the House of Representatives. This uncertainty is likely to weigh negatively on the negotiations for US trade pacts with China, “Brexit Britain” and the European Union, and finding agreement to relax economic sanctions against nuclear-armed North Korea.
With regard to Brexit, the United Kingdom will remain in the EU single market till December 2020, following the expected approval of the Withdrawal Agreement at the end of this January. But uncertainties will return before the end of the year as both sides start a geopolitically-fraught negotiation for a new and long-term trade relationship.
One other major geopolitical risk that is likely to straddle 2020 is the US-Iran conflict. We already know that Iran is capable of brinkmanship against the US and its allies. Last year, Iran shot down a US drone, seized a British vessel, and (allegedly) attacked Saudi Arabia’s oil facilities. As President Trump makes the political calculations to avoid direct US military confrontation with Iran in an election year, already-desperate Tehran may take more risk. However, serious escalation in the US-Iran conflict now seems more likely with the attack on US embassy in Baghdad by Iran-backed militias in late December and US assassination of the influential Iranian military chief, Qasem Soleimani, on January 2.
Known unknowns denote appreciable risk awareness, but they don’t guarantee absolute risk control. While the world will not sleep-walk into a major crisis in 2020, the question is whether it can avoid the potential crises on the horizon.
Balancing the possibilities, the US and China will help stave off a global recession in 2020. But global climate risk will persist. Economic weakness will also persist in Nigeria and South Africa to define Africa’s economic prospects.
I wish you a happy and prosperous 2020!