Chibuike Oguh, Frontier Markets Analyst, Financial Nigeria International Limited
Subjects of Interest
- Capital Market
- Finance and Investment
- Frontier and Emerging Markets
The gloomy outlook of Buhari's government 14 Sep 2016
With about a third of his four-year tenure gone, President Muhammadu Buhari is now in a race against time to deliver on his campaign promises. He also needs to reverse the current economic slump, which his administrations seem fated to. Middle age and older Nigerians remember the serious economic adversities they suffered, including food rationing, in the mid-1980s when Buhari was military head of state.
Although the president got off to a slow start since May last year, there are a few things that are already taking shape. Despite a sharp increase in the pump price of petrol, there appears to have been an end to the corruption-riddled fuel subsidy. The Central Bank of Nigeria (CBN) has introduced a floating exchange rate which many believe would encourage foreign investment inflows. Plans are now afoot to raise $1 billion Eurobond to improve the funding of the 2016 budget. However, there are indications that the president’s efforts will not dramatically alter the country’s economic woes before he runs out of time.
The biggest impediment to President Buhari’s ability to turnaround the economic doldrums is the outlook of the price of oil. Export proceeds from crude oil account for 70 percent of government revenues and 90 percent of foreign exchange income. The country’s current economic woes are largely attributable to the slump in global oil prices, which slashed government revenues and pushed the economy into a recession. Nigeria’s record average GDP growth rate of 6 percent over the last decade to 2014 is directly correlated with the rise in oil prices which rose from $37 a barrel in 2004 to over $100 in 2014.
It may be difficult to accept, but based on where we are now, Nigeria’s economic recovery – and hence the improvement in the approval rating of President Buhari – is tied to a near-term rebound in oil prices. But this is not likely to happen. The International Energy Agency projects oil prices will remain close to $50 a barrel until 2020 before rising gradually to $85 in 2040.
Given this bleak outlook of oil prices, President Buhari will likely continue to face challenges of low government revenues and, at best, slow accretion to CBN reserves – a cocktail for the continuation of weak macroeconomic conditions. This is in spite of his rhetoric and policy stance on the diversification of Nigeria’s economy. He will hardly enjoy a lease of revenue to help him deliver signature projects, unlike his predecessors. Thus President Buhari has lamented: “But I say why me? Why is it that it is when they have spent all the money, when they made the country insecure that I returned? Why didn’t I come when the treasury was full? Oil price was over $140 per barrel and when I came, it slipped down to $30. Why me? I keep on praying to God to pity Nigeria and its over 170 million people who are exposed to climate change, illiteracy, and poverty.”
The resurgence of socio-political tension in the country has further dampened the outlook of the administration. Social unrest is a destabilizing force to any civil government. But there is the feeling that Buhari’s dispositions and missteps have fueled sociopolitical strife in the country. Militants in the oil-producing Niger Delta have carried out large scale attacks on oil installations before the present effort at reconciliation. In the South East, the secessionist Biafra agitations – which had hitherto been in the shadows since the end of the civil war in 1970 – have reached unprecedented proportions in the last 12 months. Across the North and some parts of the South, Fulani herdsmen have gone on rampage, killing dozens of people and burning down villages.
Although it is not uncommon for Nigerian leaders to face varying degrees of social unrest, what is striking is his weak political response or the lack thereof.
On assumption of office, he stopped funding the Presidential Amnesty Programme, which had kept the peace in the Niger Delta region since 2009. This move spurred militants to take up arms against the government to sabotage its main source of income. The president has remained in Abuja when he was not making international trips and visits to the northern parts of the country to the chagrin of stakeholders in the southern parts of the country. A feeling of alienation, based on lopsided federal appointments in favour of the north, is palpable especially in the South East where Biafra agitators have become more emboldened. Perhaps one would say the president’s lack of disposition to promote unity either through his rhetorics or by virtue of his lopsided appointments has fostered the current environment where Nigeria’s social, tribal, and religious tensions have festered.
In addition to social unrest, the inability to fund the laudable social investment programmes in the 2016 budget will further erode support for the president as social conditions of the poor worsen. The budget proposal of N500 billion to fund school feeding, conditional cash transfers, and youth employment schemes is now imperiled due to low government revenue.
The difficult task of reviving Nigeria’s weakening economy would have been an uphill battle for any president, not just Buhari. But by starting on the wrong foot, the chances of remarkable successes for the current administration are greatly diminished. President Buhari and the country sure need a miracle. We should be praying for it.