‘Could Nigeria Be Heading For Economic Crisis?’ Forbes Analyses

Tonye Cole looks up to the heavens in mock prayer. “We can’t go back,” he says. “I can’t think of anyone who would say ‘we prefer it the way it was.’ We’ve come too far forward.”

Cole, a Nigerian businessman who has run Sahara Group, an energy and power group since 1996, is heavily invested in his home country. Over the last few years, his company has pumped millions into building power stations and transmission infrastructure, taking advantage of a rare period of economic liberalisation.

The dismantling of the power monopolies is one of the few unsullied triumphs of Goodluck Jonathan’s government, snapping decades of underinvestment and raising hopes among the public and business community that the acute electricity shortages that undermine growth in Africa’s biggest economy.

The fact that even that reform is being questioned shows how dimly Nigeria’s star has waned in recent months, as political turmoil, security failures and short-sighted economic planning weigh on domestic and international confidence.

Nigeria’s Independent National Electoral Commission announced that the elections – previously scheduled for February 14 – would be held back by six weeks, ostensibly to allow voters to register in the states currently gripped by a Boko Haram insurgency that has lasted six years and killed tens of thousands.

Boko Haram — which is trying to establish an independent state, run on its own interpretation of Shariah law, in the north of Nigeria — had threatened to disrupt the elections, and has shown no compunction over attacking civilian targets.

The Nigerian army had precious few successes in the field against the insurgents until recently, when a multinational force from Chad and Cameroon – alongside, reportedly, a few South African mercenaries – entered the fray. Before that,, who have routinely overrun major towns and, at times, captured materiel from government forces. Analysts are sceptical that the insurgency will be any more under control by the end of March.

“It is obvious that the fight against Boko Haram is not going to happen cleanly in six weeks,” says Sebastien Spio-Garbrah, chief frontier markets analyst at risk consultancy Damina Advisors.

Supporters of President Goodluck Jonathan’s opponent, Muhammadu Buhari, have cried foul, claiming that the delay is a ploy to give the incumbent more time to skew the voting in his favour.

The race was always likely to be close, and Jonathan’s People’s Democratic Party, which has won every election since Nigeria’s return to civilian rule in 1999, had seemed to be losing ground to Buhari. High profile concerns about security and corruption, in particular, have undermined the PDP’s credibility.

Insiders fear that the military — which retains a significant role in public life in Nigeria — is in part behind the delay, and that its leaders have thrown their lot behind Jonathan in order to protect their financial interests.

Buhari, himself a former general, has promised a forensic audit of the Nigerian military’s expenditures, should he become president.

Nigeria’s constitution dictates that presidential candidates must win a majority of the popular vote and 25 percent of the vote in two-thirds of the states — an attempt to ensure that the victor must have a national mandate in a country which has longstanding religious and cultural divides. With the insurgency still raging, the election is unlikely to end with a landslide, and a close result is likely to lead to disputes.

“The problem is that I can’t see it producing a result that everyone agrees with,” Spio-Garbrah says.
“The postponement, while there were good reasons for it, it has poisoned the well. Even if Jonathan were to win, he would have a tainted mandate, because there would be a sense that he delayed the election to gain more advantage.”

Control Risks, a political consultancy, warned earlier in March that regardless of the result, political violence is likely.

The political crisis comes against a nightmarish economic backdrop for Nigeria. With upwards of 70% of the country’s government revenues derived from the oil and gas business, public sector spending will have to be cut dramatically following the global slump in prices.

In March, the government shifted the benchmark price oil in its budget down to $53 per barrel, down from $65. Capital expenditure will need to be cut, as will subsidies on fuel.

The currency, the naira, has been battered as a result. The Central Bank of Nigeria runs a dirty float, using oil funds to maintain a target rate of between N160-176 to the dollar. Trying to keep that peg in place has cost the country dearly. On just one day in February — Friday 13 — the CBN sold more than $400m to support the currency. Ultimately that has failed, with the naira stabilising at close to N200 to the dollar. On the black market, that is often higher, at around N214 to the dollar.

This has caused huge problems for companies who have borrowed in dollars but earn their revenues in naira.

Speaking privately, a number of senior Nigerian bankers and businesspeople say they are hoping for the best — but preparing for disaster. In the oil sector, executives say they have gone into survival mode, and several previous darlings of international investors have come close to the wall.

The government has had to slash billions in capital expenditure to try to plug the hole in its budget — meaning that there have been precious few pre-election giveaways, but equally slowing efforts to diversify and rebalance the economy by building infrastructure and encouraging import substitution.

With a new government taking up a weak or disputed mandate, an economy in need of reform, a moribund oil sector and stress in the banking sector, it is hard to find many positives in Nigeria’s immediate economic future. Cole, however, thinks the surprises will be to the upside.

“The international community, from an economic perspective, often reads Nigeria wrong,” he says. “The bottom line is that people have always underestimated the Nigerian economy and they have always underestimated the Nigerian people.

“When you ask Nigerian businesses, people who are invested in Nigeria today, who are going through an economic blip during this political transition, most of them are certain that they will overcome whatever is going on. It’s a readjustment of reality. Life continues.”