At a time when government revenues are falling and Nigerians are yearning for improvement in governance and the economy, the broad outlook for the current administration is being shaped by two developments. First, Nigeria faces economic headwinds from falling oil prices. This constrains the new administration’s finances and acts as a break on much-needed diversification and development spending. The bad news is that the global oil downturn is in its early stages, with commodity prices likely to fall even further in the longer term. This is also exerting pressure on Nigeria’s devaluing currency, and saps both government and business of much-needed foreign exchange. If the administration does not act more proactively to strengthen the fiscal and other buffers, it risks allowing the drift in economic decision-making to store up problems that will eventually compromise national economic wellbeing and job creation. The otherwise commendable reform achievements of the government will pale in such a dire economic situation.
Second, and in response to these constraints, the building blocks for more sustainable public finance are now being put in place, most notably in the emphasis on increasing the share of capital expenditure in Nigeria’s budget. Also, there is a growing transparency around the management of external reserves. Between May and June 2015, the once depleting reserves grew by nearly $3bn (from $29 billion to $31.89 billion). In August/September, average Brent crude stood at $48.51 per barrel (8.47 percent below the benchmark of $53), leading to zero accrual into the Excess Crude Account and decline in external reserves by 3.03 percent to $30.3bn. Some credited the momentary uptick in reserves to a partial rejuvenation of Nigeria’s comatose refineries after Buhari’s inauguration, but outputs from local refineries have since fallen. The momentary improvement in electricity output (to nearly 4,000 megawatts from the average of about 2,000 megawatts generated during the preceding administration) is unlikely to be sustainable unless the government facilitates investments in gas to power, not to export LNG.
Buhari is undoubtedly committed to setting a new standard for governance and transparency in Nigeria. Yet, this needs a robust economic spine and he does not have the luxury of time. If Nigerians are ultimately to benefit from the dividends of their governance revolution, Buhari will need to couple focused economic stewardship to his political and institutional reform efforts. His administration has introduced a number of noteworthy tweaks in public administration. Several commentators have commended his directive on all federal revenues being paid into a Treasury Single Account. To avoid an administrative logjam, this transparency-enhancing move requires expanded capacity at the Central Bank.
His determined push to clean up the Nigerian National Petroleum Corporation (NNPC) is also picking up pace with the state company’s monthly revenue now being published. The first NNPC tendering on live television also took place recently, among other developments. Also, the president’s appointment of Ibe Kachikwu, former senior executive for ExxonMobil, to the helm of NNPC, and latterly, as state minister for petroleum, bodes well for reform in this lifeline sector. Kachikwu shows good signs of being able to shepherd components of the reform-focused Petroleum Industry Bill through parliament as smaller, more manageable legislative packages. He will also likely champion reform of the overall taxation of the sector.
Yet, on broader economic policy, the president has pretty much taken the cautious line many observers expected. Instinctively, he rejects the notion of devaluing the naira (a position that is ultimately unsustainable), and he seems unsure when to phase in the removal of subsidy on petrol, which most mainstream analysts think necessary. It is on these fiscal, economic policy issues that he most needs help. If he really looks, he would find balanced economic advice from technocrats outside government, and from his own close aides including Babatunde Fashola, who did a decent job running Lagos State.
What all these point to is the need for more effective mobilisation of shrinking resources. Handled correctly, the constraints may portend reform opportunities, but this will require government to fully seize the broader economic initiative. Some of the more imaginative solutions will come from bolder governance innovations, for example through a greater application of information technology and other progressive ideas in public administration to bolster transparency. Buhari has commendably declared support for zero budgeting, which should help cut waste and improve governance effectiveness overall. Applying e-government astutely can even provide some of the needed solutions to Nigeria’s petrol subsidy conundrum, allowing targeted redistribution to the most economically vulnerable. The government is right to argue that whilst FDI and the economy grew significantly under Jonathan’s administration, this did not translate into perceptible improvement in the life of the masses. Yet, it helps if government understands its own limitations and role, which is not to supplant businesses as employment creator but to support inclusive, private sector-led growth. To this end, government itself must understand the direction it wants to go on productivity, through appropriate trade, investment and other policies. Some measures adopted so far, including on forex, have obfuscated more than clarified the overall policy direction. And indeed, Okonjo-Iweala, the out-gone coordinating minister for the economy, embarked on the boldest structural transformation of public finance ever attempted in Nigeria, which Buhari’s government would do well to deepen where appropriate.
Our own newly established Good Governance Africa (GGA) office in Lagos will focus on public policy and reform issues and help to foster result-oriented dialogues and collaborations among stakeholders. We will also help to identify, nurture and upscale locally-inspired governance and sustainable development innovations. Nigeria needs at least three full presidential terms of the Buhari type, coupled with a hands-on approach to the economy, to significantly reverse the rot and reset governance. Interesting days ahead.
Ola Bello
Dr. Bello earned a first class degree from Obafemi Awolowo University and holds an MPhil and a doctorate in International Relations from Cambridge. He is the director of the Lagos office of Good Governance Africa (GGA).
