Elevated political tensions could delay necessary policy adjustments and dampen investor and consumer confidence in Africa’s largest economy, tipped by the International Monetary Fund (IMF) to expand 0.8 percent in 2017, the slowest growth rate in 18 years.
With the presidential and sub-national elections barely 16 months away, the race for political points is on and spending is expected to begin to facilitate electioneering.
Analysts say these periods are historically the ones when political correctness supersedes economic logic, government spending is misdirected and stokes price inflation and there is a reversal in foreign capital inflows as investors pause amid political uncertainty.
“Uncertainty in the build-up to 2019 general elections will exacerbate capital flow reversal, the war between the ruling party and the Villa kitchen cabinet will intensify and the party caucus will overrun the technocrats and presidential handlers,” said Bismarck Rewane, CEO of advisory firm, Financial Derivatives Company.
Demand for foreign exchange is also expected to spike on the back of huge capital expenditure, taking inflation with it, while ministries will intensify spending and contract awards, according to Rewane.
Also, “Look out for huge social intervention programs…and a shift from “anti-corruption to open season. Delays in implementing policy adjustments present major downside risk,” Rewane said.
Meanwhile, member infighting within the ruling party has only made matters worse for the economy, in need of a predictable political environment to attract private investment, analysts say.
When President Muhammadu Buhari was elected in 2015, he promised to diversify the oil-reliant economy, create job opportunities and fight corruption.
The economy would be transformed, but not as the 74-year old had planned.
Nigeria slumped into its first economic recession in a quarter of a century last year. It brought business activity to a screeching halt even as Nigerians grew poorer and suffered massive lay-offs by private organisations hard hit by the economic lull.
Average per capital income slumped to a seven-year low of $2,171 in 2016, and will probably dip some 10 percent to $1,937, according to estimates by Renaissance Capital.
Unemployment hit a six-year high of 14 percent in the three months through December 2016, according to the National Bureau of Statistics (NBS).
Inflation hit an 11-year high of 18 percent, as the naira weakened by as much as 40 percent against the dollar, even though Buhari had initially resisted devaluation, likening it to murder.
Enter 2017 and the economy is gradually turning the corner, largely as a result of a rebound in oil prices which have stabilised above $50 per barrel from as low as $38 per barrel in January 2016, and the relative stability in the Niger-delta that has helped production recover to some 1.7 million barrels daily this year from 1.2 million barrels daily last year.
Brent crude was up 1.37 percent to $61 per barrel Friday, according to Bloomberg data.
The naira has strengthened a s a result trading at N360 per US dollar Friday at the Investors and Exporters window, according to data by trading platform, FMDQ.
Inflation also declined for the eight straight month in September and the economy exited recession in Q2 2017 after five successive quarters of contraction, following a modest growth of 0.5 percent.
Yet there is still much work to be done and painful decisions to be made, whether it’s to achieve a convergence in the three separate fx rates, or to follow through on full liberalisation of the downstream petroleum sector.
The need to jettison a peg on the retail price of fuel (N145 per litre) has raged on amid the growing inability to sustain subsidy payments to petrol marketers.
In the power sector the reform process remains hamstrung with 10 National Independent Power Plants (NIPP) slated for privatisation yet to be sold.
However, scared to get political push back, Buhari is unlikely to move on any of these needed reforms any time soon, analysts say.
Buhari’s announcement last week during the All Progressive Congress (APC) National Working Committee (NEC) meeting in Abuja that he will soon name more ministers in addition to the current 36 mirrors the emerging shift towards political spending at the expense of capital spending.
Analysts are of the view that the government needs to spend more on capital projects, rather than squander scare resources on a larger cabinet for personal political advantage.
“At the point of our economy, it is illogical and not viable for a responsible government to be talking about appointment of ministers. I think we will get our fingers burnt if political patronage drives spending,” Chris Nwokobia, 2011 presidential candidate under the platform of Liberal Democratic Party of Nigeria (LDPN), told BusinessDay.
“We have a major economic challenge ahead of us, because the reality is the fact that sooner than later oil prices may drop again. Buhari is trying to sacrifice business in governance on the altar of political correctness,” Nwokobia said.
Buhari is scheduled to present the 2018 budget to the National Assembly on Tuesday.
Each of Buhari’s budgets has set a record high level of spending, but implementation of capital expenditure has been lacking.
At the same time, previous budgets have been beset by wrangling with lawmakers over line items. The 2017 budget was not signed into law until halfway through the year, and even then certain spending was still being debated.
Although Buhari did not disclose details of the budget, the government last month published a document that said the budget would be a record N8.6 trillion ($27.3 billion) in 2018, up 15.5 percent from this year’s N7.4 trillion.
Of the N7.4 trillion lined up for 2017, NGN3.1trillion (2.5% of GDP) was spent in the first seven months of the year.
Expenditure in the period was 30 percent below the (pro-rata) target and was entirely made up of recurrent spending.
There were no capital releases from the budget because of its late approval. However, capital releases did take place in the seven month period, as the 2016 budget continued to be implemented into the first quarter of 2017.
LOLADE AKINMURELE & NATHANIEL AKHIGBE
