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It is three years today since Muhammadu Buhari was sworn in as president after a tension soaked campaign in which he emerged victorious against an incumbent president.
Nigerians had very high hopes that their economic situation will improve with his election but three years after, the personal living circumstances of many Nigerians have deteriorated as rising inflation and unemployment has weakened their purchasing power and forced many to readjust their lifestyle downwards.
There have been a few positives such as Nigeria’s improvement on the 2018 ease of doing business ranking to 145th position out of 190 countries, boost in agricultural production and increase in taxation.
The gains are however few and much outweighed by the negatives.
For the first time in two decades, the Nigerian economy contracted in 2016, a situation that is largely a culmination of several wrong steps taken by the Buhari administration.
The unemployment rate has doubled from 9.9 percent in the third quarter (Q3) of 2015 to 18.8 percent in Q3 2017, according to data from the National Bureau of Statistics (NBS).
The number of unemployed Nigerians also increased to 15.99 million in Q3 2017 from 11.9 million in Q3 2016, NBS data shows.
First key misstep was the refusal to name a cabinet six months after being sworn-in as president. Buhari was sworn-in as president on May 29 but he did not swear in his ministers until November 11.
Analysts say the delay in appointing ministers cost the economy the growth momentum that is usually seen after elections and possibly set the stage for the economic slowdown that resulted in the recession of 2016.
While speaking to France 24, a French television station on September 16, 2015 during a visit to France, when asked why he was yet to have a cabinet more than three months after being sworn-in, Buhari described Ministers as ‘noise makers’ saying that those who really do the work are the civil servants and ‘technocrats.’
But many analysts believe that the lack of ministers led to a vacuum that created policy inertia which the country paid for dearly in the eventual impact on economic growth.
The second major mistake was the stubborn refusal to devalue the naira despite a significant decline in foreign exchange earnings from oil sales, Nigeria’s major export, which put pressure on external reserves. Instead of allowing the naira to depreciate, President Buhari insisted that the Naira must not be ‘killed’ under his watch.
In a statement issued by Garba Shehu on 27 January 2016, the Senior Special Adviser to the President on Media & Publicity quoted Buhari as saying, while addressing Nigerians during a visit to Kenya, that he was not convinced that Nigeria and its people will derive any tangible benefit from the devaluation of the currency. He also insisted that the Central Bank of Nigeria should not sell dollars to BDCs saying that they have become a scam and drain on the economy.
But the refusal to allow the Central Bank of Nigeria (CBN) to devalue the naira meant that the apex bank had to introduce several unorthodox foreign exchange policies including; dollar rationalisation, outright ban on 41 items from accessing CBN dollar for imports, restrictions on international payments, policies that eventually crimped liquidity in the foreign exchange market and spooked foreign portfolio investors.
Disruption of the macroeconomic environment came at a high cost as the inflation rate grew to a double digit of 11.38 in February 2016 when the nation’s economy plunged into recession and rose to 12-year high at 18.72 percent in January 2017. Since then, the rate has taken a downward trend largely coinciding with the somewhat liberalisation of the FX rate, decreasing to 12.48 per cent in April.
The foreign exchange controls eventually forced international investment banking firm JP Morgan to announce on 8 September 2015 that it is going to phase the country out of its Emerging Market Government Bond Index (GBI-EM) by the end of October that year ‘due to alleged lack of liquidity and transparency in the nation’s foreign exchange market.’ The decision to expel Nigeria from the index, which the country has been part of since 2012, is said to have led to a cumulative outflow of about US$2.5 billion invested in government bonds putting further pressure on the exchange rate.
Faced with an undue pressure on the naira arising from demand for dollars that it could not meet, the CBN was forced to abandon its N197/US$ exchange rate peg on May 24, taking a decision to introduce a ‘controlled float’ of the naira in the official market leading to a devaluation of the currency in the official inter-bank market to about N305 to US$.
But this still did not stem the pressure on the naira, with the pressure on the currency leading it to weaken to as low as N500 in the black market on 31 January 2017.
The weakening of the currency in the black market was mainly driven by the huge demand from manufacturers of 41 items that were locked of the official market after the CBN placed a restriction on manufacturers accessing dollars from the official market for those items.
While the FX restrictions also helped the CBN to restart rebuilding reserves, it led to a significant slowdown in the formal manufacturing sector as many companies struggled to access dollars to meet their import needs. Figures from the National Bureau of Statistics shows that economic growth was negative for each quarter all through 2016, the first full year of Buhari’s administration.
The economy experienced its first recession in two years in 2016 with a negative growth rate of -1.58%.
The economy also had a negative growth in the first quarter of 2017 before returning to positive growth in the second quarter of the same year. Since then, the highest growth the country has recorded is the 2.11 percent growth recorded in the last quarter of 2017. Growth has returned to below two percent, coming at 1.95 percent in the first quarter of 2018, a growth rate that is not enough to put a dent on the poverty numbers in the country.
According to Moody’s the current growth rates are still not sufficient to improve Nigerians’ living standards and the current recovery remains mainly cyclical, coinciding with a recovery in the oil sector.
“Absent further reforms to strengthen the economy’s growth potential, Nigeria is likely to grow at around 3% in real terms in the next few years,” Moody’s said recently.
The lack of reforms can be seen by a hesitation to end corrupt fuel subsidy payments for petroleum products, thoughts around the resurrection of bankrupt Nigerian airways, the banal ritual of continuing to throw good money after bad by refusing to privatise Nigeria’s old and decrepit refineries, and the resistance to have one exchange rate and let market forces determine its level.
The International Monetary Fund (IMF) in its latest article IV report on the country has noted that real GDP per capita has declined and may continue to decline unless critical reforms are implemented.
Real Gross Domestic Product (GDP) per capita grew 104.5 percent between 2000 and 2014 rising from $1253 in 2000 to a high of $2563 in 2014, while real GDP grew over the period growing from $157.5 Billion in 2000 to a peak of $452.3 Billion in 2014.
Since then both have begun to decline as the economy fails to expand faster than population growth.
Rafiq Raji, Chief Economist at Lagos-based Macroafricaintel also agrees with the IMF warning that the progress the country has made so far is as a result of higher oil prices.
“I think the administration deserve some credit but things can certainly be better,” Raji said by phone.
In the banking sector, which performs financial intermediation for the economy, Nigerian Banks have not been growing their loan books to the private sector, even as they expand loans to the public sector.
Following the 2016 recession, Nigerian banks’ loan books contracted 15.4 percent in 2017. Credit to the private sector stood at N22.4 trillion in March, 2018, flat from the N22.37 trillion it was a year ago in March 2017, Central Bank of Nigeria (CBN), data shows.
But the banks are also struggling from a difficult macroeconomic environment. Moody’s expects bank earnings to come under pressure. Capital metrics will also decline marginally over the 12 to 18-month outlook period. Additionally, asset quality will remain weak, but a further deterioration in loan performance will be marginal as operating conditions slowly improve. Four Nigerian banks are classified as vulnerable with one of the four vulnerable banks classified as insolvent.
“Operating conditions for the Nigeria’s banks will continue to gradually improve over the next 12 to 18 months, but remain challenging,” said Akin Majekodunmi a Vice President and Senior Credit Officer, at Moody’s. “Nigeria’s growth prospects remain vulnerable to global oil prices, as crude oil will remain the nation’s largest export commodity and its main generator of foreign currency for the foreseeable future.”
A top economic analyst in a Lagos based investment firm agrees that Buhari has not really performed very well on the economic front so there is nothing to celebrate or be optimistic about his last three years in power.
“During the country’s last recession period, it was higher oil prices that bought us out not government policies; the government has not done anything significant to drive economic development,” the analyst who wants to remain anonymous said.
“Maybe on security and agriculture he might have done relatively well compared to others; however, for economy he has performed badly.”
Ayodeji Ebo, managing director of Afrinvest securities limited said the Buhari administration started on a very slow pace and made some critical mistakes especially in the handling of the FX market which lingered for a while and took the economy into a recession for more than a year.
“The introduction of the Economic Growth Recovery Plan (EGRP) has helped in terms of giving a direction on what the government is looking at. There has been improvement in terms of stability of power,” Ebo said by phone.
The FX market has been very stable in providing enough liquidity which has boosted manufacturing activities. However, we should record more economic growth, boost confidence in the FX market and manage political risk especially as we approach elections,” Ebo concluded.
A financial analyst who wants to remain anonymous said the performance of this government in the last three years has been business as usual so there is really no improvement.
“We have not seen anything tangible since he came to office. Running an economy requires more deliberate actions than what we have seen in the last three years.”
MICHEAL ANI, BUNMI BAILEY OLALEKAN IPELE & DIPO OLADEHINDE
