Economic policies of Nigeria’s President Muhammadu Buhari are failing to spur growth and instead leading to a rise in inflation and unemployment.
The country’s misery index, which combines the unemployment rate and year-over-year growth in its consumer price index recently, spiked to 21.3 level, a blow to the President’s economic philosophy or Buharinomics.
Nigeria’s inflation rose by 11.4 percent in February, and its unemployment rate is currently at 9.9 percent (but forecast to rise sharply), pushing the country closer to the top of the list of most miserable economies that include Venezuela, Argentina, South Africa, Greece and Ukraine.
Major indicators of the country’s move towards stagflation include the President’s refusal to entertain a flexible exchange rate regime that is now exacerbating the naira crises and putting an upwards pressure on prices, a lack of urgency towards diversification of the economy, despite collapse in oil prices, and a lack of market friendly reforms to attract private sector capital.
Also, lack of political will to effect the policy on gas flaring for the past seven years may have cost the Nigerian economy N2.027 trillion, as government continues to shift the deadlines for oil and gas companies to end gas flaring since 1983.
The flaring cost for the country is an average of N289.6 billion annually according to the Department of Petroleum Resources (DPR), as government has shifted the deadlines seven times.
“Nigeria as a member of the World Bank Global Gas Flaring Reduction (GCFR) will sign the United Nations Agreement of ‘Zero Routine Flaring by 2030,’ although the national target is 2020,” according to Yemi Osinbajo, Nigeria’s vice president, who represented President Buhari, at the sixth African Petroleum Congress and Exhibition organised in Abuja recently.
An estimated 80,000 manufacturing jobs are set to disappear as a result of ongoing dollar shortages, according to the Lagos Chamber of Commerce and Industry (LCCI), and the sector that has seen negative growth for three consecutive quarters (Q1 – Q3, 2015), grew by a meagre 0.38 percent (year-on-year) in Q4, 2015 from 13.47 percent growth recorded in the Q4 2014.
Across the vast country that is Africa’s largest oil producer, fuel queues have become the norm because the President refuses to let consumers pay market prices for petrol, and while electricity blackouts have returned with a vengeance, the government has yet to properly constitute members for the electricity regulator, NERC.
“These are no doubt precarious times for the nation and a difficult one for the President. We have had years of plenty out of which nothing was saved for the rainy days, and in addition there was no economic diversification,” said Abiodun Keripe, head of research at Lagos-based Elixir Investment Partners Limited, in response to questions.
“The President’s doggedness to maintaining the current exchange rate regime would have been justified if plans to revive critical infrastructure and other sectors of the economy are working. Repositioning the NNPC, fixing the power and transport conundrum are more critical issues that should get equal attention,” Keripe said further.
Nigeria’s benchmark stock index is down 15.8 percent in the past year, as investors flee the worsening macro environment and a government seen as being indecisive in dealing with mounting economic problems in Africa’s largest economy.
Global funds were net sellers of Nigerian stocks for the seventh consecutive month in January 2016, pulling about $46 million (N9.2bn) from the nation’s equity markets.
The last time foreign investors put more money into the Nigerian Stock Exchange (NSE) than they pulled out was in June 2015, the month following Buhari’s swearing in.
“The excitement caused by the important development in Nigeria’s political landscape last year has given way to some apprehension surrounding whether a populist government can take the tough economic policy actions necessary to restore confidence and stimulate badly needed new investment,” Atedo Peterside, chairman of Nigerian Tier-2 lender, Stanbic IBTC Holdings plc, said at an investment conference.
Buhari’s plans to kick start Nigeria’s $500 billion economy with $11 billion (N2.2 trillion) in deficit spending has hit a brick wall as legislators found the draft budget proposal riddled with errors and fraudulent expense items, which has delayed its passage.
The Central Bank of Nigeria (CBN) in January held its benchmark interest rate at 11 percent in a bid to stimulate the domestic economy.
Nigeria’s economy grew 2.8 percent in 2015, the slowest place in 16 years as crude revenue fell and manufacturers struggled amid a shortage of foreign exchange for imports.
Data from the CBN show that with inflation rising faster than aggregate disposable income, a ‘real’ contraction in disposable income of almost 5 percent was recorded last year.
The volume of new credit extended by banks at N5.78 trillion also dropped almost 30 percent in 2015 compared to a year earlier, despite the CBN’s easing of monetary policy.
The CBN with the President’s approval has rationed dollars and virtually closed the interbank foreign exchange (FX) market since 2015, in a bid to prevent the naira depreciation by pegging the currency at N197 to N199/$.
With dollar becoming scarcer and inflows nonexistent, the black-market exchange rate has collapsed, trading at about N320/$ on Friday, according to BusinessDay’s market research.
As inflation spikes, even some members of the CBN monetary policy committee (MPC) are questioning the rationale behind the current set of policies.
“Prices are already rising in response to the supply shortages arising from difficulty of accessing forex officially and the resort to non-CBN markets where exchange rates are significantly higher. There is a sense in which it appears the CBN may have lost control of the ‘market’ exchange rate and perhaps inflation management,” Doyin Salami, an economist said in recently released MPC minutes.
“I am increasingly concerned that we are unwilling to recognise the new realities and meaningfully deal with them. In consequence, we are, unnecessarily, paying – in the form of eroding confidence, slowing growth and increasing joblessness of our population – a needlessly heavy price,” Salami said.