On Apr. 2, the Nigerian Stock Exchange reached its high for the year at around 36,000, the day after Muhammadu Buhari was declared winner of the 2015 general elections. Since then, it has declined by 22%, now trading at below 28,000, its lowest since February.
Back in April, the stock peak was called a ‘Buhari Bounce’, optimism at the successful completion of a highly contentious general election cycle, and hopes of improved governance.
Now, it’s a bust, or so it seems. That initial optimism has gradually seeped away as a result of the lengthy period of time it took to put together a cabinet, a lack of clear economic policy direction, and a monetary policy that has gradually made it harder and harder for firms to conduct business.
The Central Bank of Nigeria’s (CBN) current monetary policy has been criticized by the last two CBN governors. Sanusi Lamido Sanusi, now emir of Kano, while giving his acceptance speech at an award ceremony, appealed to the CBN to opt for a flexible exchange rate regime in the face of falling oil prices . Chukwuma Soludo, his predecessor, also took aim at the policy at even greater length in late November. Doubling down on a fixed exchange rate policy and imposing capital controls is partly the reason that growth slowed in the third quarter to 2.84%, and there are no obvious signs that this position will change.
The administration’s focus on tackling graft and plugging leakages in government spending have all been duly noted. A number of prominent figures in the Jonathan administration like former Petroleum Minister Diezani Allison-Madueke and former national security adviser Sambo Dasuki are being investigated on corruption allegations. Dasuki has been implicated in a probe concerning the purchase of weapons. However, there have not yet been any trials. There has also been a lot of talk about the return of stolen money, with no word as to the amount returned.
A more transparent NNPC under Ibe Kachikwu has been a welcome development, but persistent petrol scarcity over the last several weeks has seen Buhari come in for criticism. That is because the president doubles as the minister of petroleum, a controversial appointment though it is not without precedent.
The scarcity has also coincided with a number of foreign trips by Buhari, with some of the opinion that there are more pressing problems at home. Earlier this week, Nigeria’s legislature approved extra spending in order to settle subsidy claims by petrol importers. Nigeria has run an expensive and often controversial programme of petrol subsidies for decades. This should see the queues disappear in time for the Christmas holidays, but the handling of the subsidy itself beginning from next year is also back on the front burner.
Security bonafides
One of Buhari’s strongest points in his campaign were his security credentials, especially regarding the fight against Boko Haram. The very early days of his presidency were spent engaging Nigeria’s neighbors to the north (Chad, Niger and Cameroon), as well as the G7 nations to secure cooperation. By all accounts, the army’s capacity to fight has been improving, but Boko Haram’s relentless campaign of suicide bombings has kept the death tolls high. It’s also now clear the Nigerian army is unlikely to meet Buhari’s December deadline of defeating the insurgents.
As the year comes to a close, it is true that he did not create the problems he now faces, but having spent over six months as president, any deterioration will now be seen as his fault. References to previous administrations will sound hollow.
The Buhari administration released its medium term economic framework on Monday, detailing the broad outlines of its expenditure profile and priorities. Despite a precipitous fall in oil prices—the oil benchmark is set at $38—and no obvious timeline for a rebound, the proposed 2016 budget comes in at 6 trillion naira ($30 billion), an increase of 1 trillion naira ($500 billion) above the 2015 budget, and all of that increase will be spent on infrastructure projects.
This has led to questions about how the budget will be funded, and the extent of borrowing that will be required. The administration seems very confident that an increased focus on tax compliance, increase in value added tax (Nigeria has one of the lowest in the world), improved efficiency in the operation of revenue collection agencies, will bridge most of the gap. The extent to which that will be the case remains to be seen.There is also the issue of petrol subsidies, which make up a significant chunk of expenditure. Whether or not the subsidy remains, and how a possible removal will be handled, will be crucial issues in 2016. The removal of subsidies was the cause of widespread protests in 2012, called ‘Occupy Nigeria’, but low oil prices mean that the expected price of imported petrol is currently 93 naira per liter, less than the 97 naira it was prior to January 18th, when prices were arbitrarily reduced by the Jonathan administration as elections approached, which itself caused a petrol scarcity that lingered for three months.
The result is that the Buhari administration can kill three birds with one stone. Funds can be freed up for infrastructure, subsidy can be removed with minimal impact on prices and political capital, and the corruption associated with the downstream sector can be dealt with once and for all. The hope is that this opportunity is taken with both hands.
In his first run as leader of Nigeria in the eighties, Buhari’s economic record was poor because restrictions on imports and foreign exchange did not work. Ending those restrictions now is one of the best industrialization policies his administration can pursue, because it will encourage exports and provide jobs.
The anti-corruption fight is an important one, but success on that front will not be enough. With sensible economic policies, Nigeria can ride out the storm of low oil prices and truly diversify its economy. The power, works and housing portfolios under Babatunde Fashola will be among the most watched, because those ministries are crucial to providing the backbone for growth. Making a dent in even one of those areas will be remarkable, and in Fashola, Buhari has appointed one of the people with the ability to make it happen.
When he assumed office, Buhari asked for time to assess and clear some of the damage. He took all the time he needed, and now observers within and outside Nigeria are getting impatient. The time has come for a roadmap. The time has come for results.