About 30 odd years ago when the Shagari-led Nigerian government had embarked on its 2nd term in office, the BBC aired a documentary with the above title. The documentary regaled the viewer with tales of conspicuous consumption, the private jet, Rolls Royce-owning privileged few and the lavish spending of the legislature juxtaposed against the poverty of the teeming masses.
The background to all of this was: a weak and ineffectual president unable to check his ministers’ excesses; an oil price that doubled, then halved; a profligate government that continued its lavish spending in the face of dwindling revenues; a country whose political landscape was dominated by a seemingly all-powerful domineering and arrogant ruling party; a population initially euphoric with the government when it started its term in office, now disillusioned; outbreaks of religious upheaval in the North (Maitatsine).
Once again history repeats itself with all the above in play, except this time in 2015 the numbers are bigger, far bigger. Now the avarice is in billions of dollars, not millions. The population has more than doubled, the conspicuous consumption even more lavish, the jets are more, the mansions larger and gaudier, the religious upheaval much more violent and much more widespread.
Today the stakes are higher, the contrasts starker. Throw in the continued degradation of the environment not just of the oil producing regions but also the urban cities with increased pollution from vehicles and generators and sheer volume of refuse generated by the uncontrolled mass and it would appear that we have a literal and figurative cauldron brewing.
Now as then, we have a domineering political party in government fully expecting to be returned to power regardless of whether they have delivered on their election promises (but then again what, if anything was promised). Add to this religious and ethnic irredentists (egged on by the principle of zoning) waiting in the wings vowing to foment strife should things not go their way.
Now as it was then, several prominent politicians in the ruling party having had their ambitions thwarted and having been spurned, left the ruling party and joined the “other” party with the intention of bringing their former political co-travellers to grief.
On the economic front, the government, instead of reining in their profligacy in line with dwindling revenues, embarked on a borrowing binge. It was easy to borrow from the international creditors. Nigerians were fooled into thinking they had a strong economy. Indeed on paper, with a low GDP-to-debt ratio, they were credit-worthy. By the time it was over, a huge dollar-denominated debt had been accumulated which sunk the country. Unfortunately, the debt had been incurred not in productive investment like education, power generation, LNG trains, polyethylene and fertilizer plants, but mainly in recurrent expenditure.
Sound familiar? Then as now, the first reaction of the Nigerian government faced with dwindling income was to borrow. This time we have even borrowed a billion dollars to engage an amorphous adversary who we cannot seem to locate!
As 2015 progresses, the following are likely. Oil prices will continue to fall to a level of $40. Even if they don’t and rise to $65 level, which is the perceived wisdom taking into account the average price over the last 35 odd years adjusted for inflation, the budget deficit will be huge unless the government slashes its unsustainable recurrent expenditure. Unfortunately, the current government and legislature will lack the political will to curb their profligacy.
In order to maintain its current level of expenditure, the naira will be further devalued. Even if the government does not formally devalue the currency, the private sector and banks who have issued euro or dollar bonds, anxious to meet their liabilities, will pay whatever they need to for the dwindling supply of forex.
The CBN/economic management team, unable to curb government spending, will panic and introduce un-innovative measures to counter this, leading to even more skittishness on the part of foreign speculators (investors in the NSE are speculators, not investors. Nestle building a factory is an investor).
Should the US Fed T-bill yields improve, this coupled with the increased FGN borrowing to cover the budget deficit will mean that yields on Nigerian treasuries would have to increase to a point at which it would crowd out domestic borrowing leading to higher domestic interest rates. As a result of this, the NSE will remain anaemic as the preference would be for the higher-yielding Nigerian treasuries.
Bank credit to the wider economy will be constrained due to the heavy bets made in the oil and gas as well as power sectors. Should these loans come under pressure, the banks will have to buoy their capital with offers which would need to be more attractive to investors and hence will certainly be more expensive (convertible bonds replacing rights issues). If the CBN continues with its current thinking (read the MPC meeting minutes), doggedly following the US example of enabling the government to continue unabated spending, i.e., a Nigerian version of QE (usually developing countries simply print the currency rather than engage in the clever financial obfuscation the Fed employed), we will end up with the twin-headed hydra of excess naira chasing a dwindling dollar supply. The resulting inflation coupled with high interest rates will be catastrophic.
This sets the scene for the upcoming presidential elections. On the one hand we have an ineffectual academic, and on the other an ascetic, un-corrupt ex-soldier. Given the prevailing economic headwinds, the choice the nation will have to make is which of the two gentlemen is more likely to be better able to steer the ship of state. Which of them will be able to curb government profligacy by, for example, getting rid of the presidential jet fleet, reducing the number of special advisers and agencies, encourage the governors to do same as well as set the tone for the legislators to rein in their exorbitant emoluments.
Based on past antecedents, I know where I would place my bet. Unfortunately, a large percentage of those coming up to vote are too young or ignorant of the past to make an informed choice. They will as usual be swayed by the usual sentiments.
Unless we get a government that can do this, I would posit that Nigeria is in for a repeat of the SAP eighties. Ah! I hear you say. It won’t happen. Things are different; they have changed. The economy is more robust. It’s the largest on the continent. Really! Well, I would respond: The more things seem to change, the more they stay the same.
Taiwo Ajose-Alatishe
