ON the back of peaceful presidential elections, the business community has predicted a relatively stable capital and foreign exchange market prior to the May 29 official transfer of power at the centre.
They, however, advised the President-elect, Major-Gen. Muhammadu Buhari (rtd), to focus on economic reconstruction and revival, taking cognisance of Nigeria’s competitive edge. This came as the Central Bank of Nigeria (CBN) yesterday, said it is ready to work with the Economic and Financial Crimes Commission (EFCC) to enforce criminal proceedings against illegal dollar transactions and payments.
In its correspondence with The Guardian, the Economics and Politics Research team of the Renaissance Capital specifically noted that ‘‘a Muhammadu Buhari win” implies reformist policies, including austere fiscal policy and a clampdown on graft. But leading a coalition, the Renaissance Capital, added, might undermine his ability to make difficult decisions.
Buhari of the All Progressives Congress (APC) won Nigeria’s March 28, 2015 presidential election with more than 15 million votes against President Jonathan’s (of the Peoples Democratic Party) over 12 million votes.
X-raying the upside of ‘Buhari win,’ Renaissance Capital likened the situation to that of Pakistan in 2013 when for the first time there was a transfer of power from one party to another under a civilian democracy.
“We think Buhari would likely be a reformist. In addition to a crackdown on corruption and more effective handling of the Boko Haram insurgency, we expect austere fiscal policy to be imposed. Less corruption could lower the cost of doing business, particularly for small businesses, and a more secure Nigeria would allow isolated regions to re-engage with the rest of the economy,” the report stated.
But it also identified the downside of APC victory to include “the stalling of economic activity under a first-term president (which) tends to be protracted, as it implies a mostly new cabinet and potential restructuring of ministries and departments.
“As government tends to be the biggest economic entity in developing economies, this transition implies economic activity will remain subdued for most of 2015. The fact that Buhari would head up a coalition may stall decision-making and add to pressure on fiscal resources, as he tries to reward the coalition’s constituents for their support. That said, we expect he would be constrained by limited fiscal resources.”
It stated that Buhari would be coming into office at a time when Nigeria’s fiscal and external buffers are at their lowest in several years.
For instance, the drop of the FY15E (full year earning in 2015) budget oil price to $53.0/bl, from $77.5/bl in FY14, implies that the Federal Government’s FY15E fiscal revenue is likely to drop by one third. The near-depleted excess crude account implies no access to savings to offset the decline in revenue.
Renaissance Capital, therefore, concludes: “Buhari’s administration will…have to work with very limited resources, which will significantly constrain its ability to fulfill its election promises.
“In Buhari’s previous stint in office, he administered austere policies; his administration cut spending by 15 per cent, temporarily banned hiring, hiked interest rates, froze capital projects, and cut imports to reduce the balance of payments deficit. This time around, Buhari is heading up a coalition, which may weaken his ability to make difficult policy decisions.
Consequently, Professor of Political Economy, Pat Okedinachi Utomi, warns against undue focus on political exigencies, urging Gen. Buhari to create zones of development with special attention paid to proactive sectors of the economy. “There are many perspectives; I am obsessed with production,” he told The Guardian in a telephone conversation.
Utomi noted with disgust that for 30 years, every budget speech has been riddled with rhetoric about diversifying the economy without real action. “What I have tried to do is to have a real practical approach to doing that; get everybody involved in producing Nigeria out of poverty; create six zones of development considering the natural endowments that are specific to each of the zones.
Already, the International Monetary Fund (IMF) has cut its 2015 growth forecast for Nigeria to 4.8 per cent, about half the average rate over the past 15 years, with the Standard & Poor’s downgrading the country on March 20, 2015, by one level to B+, four levels below investment grade.
According to the IMF, Nigeria requires an oil price of $123 per barrel to balance its budget, compared to Qatar, which requires $77; Kuwait, $78; and United Arab Emirate, $81.
Nigeria’s total debt profile as at December 31, 2014, put at $67.7 billion (N11.2 trillion), had earlier in the year, elicited a debt service proposal of N943 billion, with paltry provisioning of about N700 billion for capital expenditure.
A Bloomberg report recently quoted analysts as saying that the next leader will find public finances squeezed and much-needed capital infrastructure projects frozen.
“As a major exporter of oil, Nigeria will face tough times ahead. Whoever wins will have to recalibrate their policies to this new reality,” a sub-Saharan Africa economist at JPMorgan Chase & Co., Giulia Pellegrini, said shortly before the elections.
Indeed, the monetary policy environment has been projected to remain tight post 2015 elections, with the authorities facing the dilemma to either preserve foreign portfolio investments or ease the hawkish stance to encourage lending.
Granted, there is a deliberate effort to contain inflationary pressure of the current election spending, but the outlook has not been without implications of concomitant increased debt obligations in the system by politicians, which would further erode the confidence on public finance management.
Besides, the new concern over the rising level of election spending, which allegedly was dollar-denominated- the rare commodity that has stoked several speculations against the naira, is still present.
An economist and Chief Executive Officer of Financial Derivatives Limited, Bismack Rewane, had at the last devaluation, said that the three-tier government would have more naira to spend at the instance of the policy. However, the drawing down on the foreign currencies by politicians and the resultant liquidity issues in the system may pose another challenge for the economy managers very soon.
In over 13 months, the nation’s apex bank had defied the inflation-rate theory on the backdrop of anticipated election spending, as it portends a backlash on the economy with reduced Monetary Policy Rate (MPR).
According to Afrinvest Securities Limited’s report, as a result of the huge participation of the foreign portfolio investors in the Nigerian capital market, the need to attract capital inflow as well as save the depleting external reserves, may compel the Central Bank of Nigeria (CBN) to keep the rate steady at 13 per cent (or +1 per cent) till the end of 2015, which is still, not palatable for real sector development and its operators.
Additionally, the persistent decline in crude oil prices, which exposed the weak revenue structure of the Nigerian economy, has increased the country’s risk premium, hence requires higher returns on investment.
An Abuja Development Consultant, Jide Ojo, while commenting on the challenge of reversing the negative economic trend, noted that while the winners have emerged from the general elections for the President, Senators and House of Representatives members, the common thread remained that some of them have presided over the country while it plunged into the current crisis.
According to him, “the bitter truth” is that the economy of this country is presently in shambles and a lot needs to be done to revamp it from the comatose state and must be done fast.
Citing a report, Ojo pointed out that Nigeria ranked 147 out of 189 countries surveyed, in the Ease of Doing Business Report 2014, a nine-point drop from the 138th position it achieved in 2013.
Also, in the Business Confidence Index Report prepared by the Lagos Chamber of Commerce and Industry, aggregate confidence by investors in Nigeria’s economy in the first quarter of 2015 dropped to 22.3 per cent, compared to 30 per cent in the corresponding period of 2014, the largest quarter-on-quarter drop in the last three years.
“Nigeria is also still unable to curtail the about 400,000 bpd of oil being lost daily to illegal bunkering, despite contracting the pipeline surveillance to some ethnic militias. With the dwindling revenue, the government is cutting back sharply on capital spending, which was only raised by the National Assembly from the paltry N633 billion (22 per cent) to N700 billion for 2015, compared to N1.1 trillion in 2014 and N1.6 trillion in 2013. Indeed, the capital budget of many of the critical sectors such as road network was cut from about N100 billion to a paltry N11 billion.
“Inflation has also risen from about eight per cent in December 2014, to 8.4 per cent now, as poverty and unemployment have been on the increase. Indeed, in November 2014, the Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala had officially declared austerity measures in the country. This is indicative that all is not well with the country’s economy,” he said.
Ojo noted that with the dwindling oil price, soaring inflation, and lack of funding for the critical sector of the economy, the way out of the doldrums remains genuine diversification of the economy, which is a major challenge for the new leadership.
“We need to really fix the energy sector and encourage public-private partnership to fund some critical sectors such as roads and other transport sectors like aviation and waterways. This is part of the bulk on the table now, he said.
But the Lead Director of Centre for Social Justice, Eze Onyekpre, had lamented that the economy suffered neglect during this period of politicking and campaigns, as governance, including fiscal governance, was relegated to the background.
According to him, although the campaigns coincided with the period of dwindling oil price, it was clear that necessary measures to stem the economic decline were neglected, as the Federal Government devalued twice the naira, while many states of the federation owe workers many months’ salaries, but investing huge sums in politics and re-election bids.
Meanwhile, the CBN may is ready to enforce criminal proceeding, in conjunction with the EFCC against transactions and payments in dollars.
In a statement signed by the Director of Corporate Communications, CBN, Ibrahim Mu’azu, it noted that it has been observed that some institutions price their goods and services in foreign currencies and demand payments in foreign currencies rather than the domestic currency – naira.
According to CBN, the general public is hereby advised to report any contravention of the provision of this Act to the Economic and Financial Crimes Commission (EFCC) and the Central Bank of Nigeria (CBN) for appropriate action.
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