Fresh opportunity in Nigeria
Nigeria’s economy is expected to recover from the 2016 recession, but a meaningful improvement in the lives of its citizens will depend on drastic action by a government with little record of success
Halfway into Muhammadu Buhari’s tenure, Nigeria’s government has published an economic recovery plan to return its struggling economy to growth: diversifying its focus away from oil and ensuring the security of energy and food supplies.
The Economic Recovery & Growth Plan provides the country with a comprehensive economic strategy, but it follows on the heels of past plans and lofty promises that previous administrations failed to implement.
This time, government claims, things will be different. It has established a delivery unit in the presidency to co-ordinate the implementation of the strategy, and has emphasised that its role will be restricted to removing the impediments to innovation and market-based solutions.
Nigeria’s economy slipped into recession last year. Though it is forecast to recover this year, the situation is fragile. The government has only partially relaxed its control of the overvalued naira, and it is desperately short of funds. This has been compounded by the collapse in oil prices.
The recovery plan has a number of broad objectives, including inclusive and sustainable growth, investing in people and building a globally competitive economy.
The International Monetary Fund has endorsed the plan and welcomed its fiscal and tax policies, but says "stronger policies" are needed to achieve its objectives.
Buhari’s administration — which has a questionable policy record, as is illustrated by its handling of the country’s foreign exchange shortage — is banking on the strategy to recover some of the support it has lost.
Ayo Teriba, CEO of Lagos-based consultancy Economic Associates, argues that the recovery plan, which is really the sum of existing plans and policy roadmaps of ministries and government departments, should not be the focus. Instead, he says, the country should tackle its two biggest crises: the shortage of foreign exchange and a severe infrastructure deficit. "Putting the foreign exchange and infrastructure crisis on the same pedestal as all other problems worries me. By trying to do everything, you run the risk of not doing anything," says Teriba. "The objectives of the [recovery plan] are too busy, and I would have preferred that we focus narrowly on the show stoppers."
To address the foreign exchange shortage, Nigeria’s central bank created a forex window for investors and exporters last month. It hopes that by creating a market for some transactions, policy makers can satisfy calls to float the naira without risking an inflationary spiral that may come from devaluation.
Standard Chartered chief economist for Africa Razia Khan says the jury is still out about whether a full shift will be effected. The new window "may well be the precursor to a more meaningful move when foreign exchange reserves and oil output have increased further — but for now, it is difficult to tell". A fixed exchange rate is not helping, she says, and it isn’t clear whether authorities have the appetite for the complete liberalisation that investors are hoping for.
With barely two years left of his tenure, and even less than that to implement meaningful change, Buhari’s time is running out.
The precarious state of Nigeria’s finances prevented the country from spending its capital investment budget in 2016. The government sought to plug the budget deficit with loans from lenders such as the African Development Bank and the World Bank, but their help was contingent on the publication of an economic roadmap. With that condition satisfied, the administration will now have to pick up the pace.
Officials concede that the administration is under pressure to deliver results. Power minister Babatunde Fashola recently said government had urged lenders to adjust their schedules so that loans could be disbursed more quickly.
This funding will be essential. Nigeria has a deficit of N2.4trillion (R98bn) in its 2017 budget, which has only just been passed by parliament and is yet to be signed into law.
The total budget is N7.44trillion (US$23.62bn).
The good news is that lenders still have the appetite to lend to Nigeria. Khan confirms this, saying: "There is a willingness to support Nigeria’s efforts and I think we will see more loan approvals over time."
The country’s coffers recently received a boost as a result of greater oil production after dialogue with rebel groups in the oil-producing Niger Delta put a stop to sabotage.
With the financial winds seemingly in its favour after a calamitous 2016, the onus is on the administration of Buhari, who, due to illness, has barely governed this year, to deliver on its promises before its time is up.