Between Buhari’s ‘Change’ and Nigeria’s Weakening Economy

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Just as the huge optimism that trailed the election of President Muhammadu Buhari a year ago continues to wane, Nigeria’s major economic indicators have also headed south since he was sworn-in, writes Obinna Chima

Economic indicators always have huge impact on markets. They are always there, staring you in the face. Indeed, these set of economic data are like signs along the road. They give direction to investors and to a large extend influence the amount of capital a country can attract. Policy makers would always showcase these data when they are positive, but would keep mum on them if they are not favourable to them.

Unfortunately, just as the huge optimism that trailed the election of President Muhammadu Buhari a year ago has continued to dwindle, Nigeria’s major economic indicators have also weakened since May 29, 2015, when he was sworn-in.

The decline in major macroeconomic indicators in the country between May 29, 2015 and May this year show that Nigeria’s economy has fallen into a double dip slowdown. There are also concerns that the economy might slide into a recession if the situation persists.

For instance, the country’s Gross Domestic Product (GDP) which recorded growth of 2.57 per cent at the end of the second quarter 2015 fell to a historic low of -0.36 per cent at the end of the first quarter. Also, power supply which was at about 3,900mw a year ago, fell to about 3,144 at the end of May 2016, just as inflation climbed to 13.72 per cent at the end of April 2016, from the nine per cent it was as at May 2015. Also, under president Buhari’s watch in the last one year, the external reserves has plummeted by $3,088 billion, from $29.595 billion as at May 28, 2015, to $26.507 billion as at May 23 this year.

In terms of exchange rate, although the Central Bank of Nigeria (CBN) firmly held the official exchange rate at N197 to a dollar, the level of gyration recorded on the parallel market has been unprecedented. The naira has depreciated by 57 per cent on the parallel market in the past one year, from N220 to a dollar last May, to about N345 to a dollar.

In the same vein, with the exit of foreign portfolio investors (FPIs) as a result of concerns about the country’s forex policy, as well as the inability of the government in the past one year to attract foreign direct investments (FDIs), the Nigerian Stock Exchange (NSE) market capitalisation which was at N11.659 trillion as at May 28, 2015, fell by 15 per cent to N9.926 trillion as at May 27 2016. This is just as the Federation Account Allocation Committee (FAAC) funds dropped by 28 per cent from N388 billion as at May 2015, when the president was sworn-in, to N281 billion at the end of May this year.

In addition, the CBN’s monetary policy rate (MPR) decreased by one per cent to 12 per cent, from 13 per cent as at May last year, while the benchmark Brent crude price fell from $64 per barrel as at May last year, to $47 per barrel at the end of May this year. The price of petrol has also risen in the past one year from N86 per litre to N145 per litre.

With unemployment rate currently at 12.1 per cent as well as the inflationary pressure which saw the country’s CPI up to 13.72 per cent in April, the country’s misery index is currently at 25.8 per cent.
A recent report by the Financial Derivatives Company Limited had ranked Nigeria as the sixth most miserable states in the world.

Misery index is a measure of economic well-being for a specified economy, computed by taking the sum of the unemployment rate and the inflation rate for a given period. An increasing index means a worsening economic climate for the economy, and vice versa. A recent survey had placed Venezuela top spot on the 2015 misery index. The report had also shown that Venezuela was closely followed by Argentina, South Africa, Greece, Ukraine, in that other.

Effect of Policy Delays
Clearly, the delay by the president in making appointments after he assumed office as well as the delay in taking critical policy decisions severely affected investor confidence in the economic. This greatly contributed to the deterioration of the country’s economic indicators. The cost of the vacuum created by the absence of an economic team several months after the president was sworn-in was huge on the economy.

As result of that, there a lot of turns and twist were seen in the economic space as there was no clear direction. This, even saw the central bank, in its bid to fill the vacuum created, taking up some of the responsibilities that ought to have been handled by the fiscal authorities. In addition, there was also delay in taking a decision about adjusting the pump price of petrol; despite advice even before he was sworn-in, that he should deregulate the sector.

No doubt, some of the challenges that faced the economy in the past on year are exogenous, like the issue of falling price of crude oil. Nonetheless, the country has made a lot of progress in its fight against terrorism in the north-eastern part of the country, even though the resurgence of the Niger Delta militants as well as cases of kidnapping call for concerns. In terms of the anti-corruption, the president needs to do more to convince a lot of Nigerians that he is not deploying the security agencies to fight only his perceived political enemies. For the anti-corruption fight to be successful, there is need to make it difficult for corrupt people to walk away free. We also need to eliminate the avenues for corruption in our system which corrupt people exploit to achieve their nefarious acts.

The president has also been commended for the courage in enforcing the Treasury Single Account (TSA). The TSA is an efficient cash management tool that the government can use for effective management of its finances, banking and cash position. Prior to the implementation of the TSA what used to obtain was that different agencies of government would have different balance, some may be positive and others negative.

2016 Budget as Game Changer
To analysts at Afrinvest West Africa Limited, the burden on government remains the need to rejuvenate the Nigerian economy which has suffered from the declining global oil prices, poor governance structure, sub-optimal fiscal crisis and monetary policy actions.

“However, many view the implementation of the 2016 budget as a catalyst for reflating the economy and resetting it on a growth pedestal. To hasten infrastructural development and reflate the economy, the Buhari-led administration sought to employ a new approach to budget formation and implementation.

“Nonetheless, the structure of the 2016 budget is a significant deviation from the previous years as the anticipated revenue was less tilted towards oil receipts (21.2%) and more skewed towards tax revenue as well as intensified efforts to reduce leakages across Ministries, Departments and Agencies (MDAs).

“Whilst we hold the view that the 2016 budget has the potentials to reflate the economy if properly implemented, the required funding of the budget for optimal performance could be a drag. We note that the specific provisions for capital spending will boost infrastructure projects and investments while the recurrent expenditure would have a multiplier effect on private consumption expenditure component of the GDP.

“We see the recent liberalisation of the downstream petroleum sector and the interbank foreign exchange market as a seeming synergy of fiscal-monetary policy synchronisation,” Afrinvest analysts stated.
To the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismark Rewane, the contraction of economic activity has its genesis in a misaligned exchange rate, a consequence of sharply lower oil prices as well as the deteriorating terms of trade. This, he said was compounded by chronic shortages of inputs of power, fuel and forex.

Rewane also listed other factors that have curtailed growth of the Nigerian economy to include price control contradictions in the downstream petroleum sector, chronic underinvestment in the power sector, strategic acts of economic sabotage by vested interest groups aided by collusion with insiders and policy making collaborators.

The Lagos Chamber of Commerce and Industry (LCCI) also pointed out that the absence of well structured, broad-based and synergised economic blueprint with clearly stated goals, plans, policies and strategies to drive the economy was largely responsible for the current economic challenges and policy ambiguity the nation is undergoing.

“Economic policy space remains unclear. Policy conception is faulty, hence, policy coordination and implementation suffer serious setback. There is, therefore, urgent need for central policy strategy with detailed and well-designed policy direction. This is critical to effective and efficient coordination and implementation of policy.

“While the policy goal of eliminating corruption is laudable, the need for concerted effort on the side of the government with respect to policy, legal and regulatory environments in order to boost private sector participation is highly desirable,” the Director-General of the LCCI, Mr. Muda Yusuf stated.
He noted that inflation record was worsening, adding that policy attention should be focused on monthly developments in general price level.

“We also noted the negative trends in the general macroeconomic outlook such as GDP, interest rate, fiscal deficit (debt profile) and FDI and their consequences on business and the economy as a whole.
“Given the critical role of adequate electricity supply to the development of nations, the abysmal situation of energy infrastructure (electricity, petrol and natural gas) in the country is of great concern. For instance, the current state of electricity generation, transmission and distribution calls for serious attention.

“The damning situation of electricity supply is traceable to epileptic performance of most key power plants in the country and the security challenge in the Niger Delta region. Hence, there is need for government to get it right with respect to energy infrastructure and power/electricity situation in the country,” he added.

On her part, the LCCI President, Mrs Nike Akande, called for sacrifice on the part of everybody in country, just as among other things, she called for an acceleration of public private partnership programmes to support the government in the provision of infrastructure.