President Muhammadu Buhari appears to be held captive by the fear of bold economic reforms and continues to be indifferent to sound economics, thus pushing Nigeria along a dark alley of power, foreign exchange and fuel shortages which threaten to throw the country into a recession.
Africa’s biggest economy has the continent’s largest gas reserves, yet suffers daily electricity blackouts, is the largest oil producer but is currently enmeshed in petrol shortages, has a huge market that should in theory attract investment flows but now deals with dollar shortages.
GDP growth has slowed considerably, the misery index is worsening and the non-performing loan situation of banks and creating a new pressure point in the economy as beleaguered firms fail to service their credit obligations.
In a note yesterday dated “one year after Nigeria’s elections”, Bank of America said, “approximately one year has passed since President Buhari was elected. Since then, the oil price has fallen by 32%, the equity market is down 26% and spreads on the 2023 Eurobond are 220bp higher. Policy uncertainty continues to weigh on the markets. The Naira peg is overshadowing some significant reforms that have been made.”
Analysts say behind all these problems is the fear of letting market forces allocate resources efficiently and a stubborn fixation on discredited government command and control policies.
“President Buhari must take responsibility for the results of his actions,” a senior investment banking source speaking anonymously, told BusinessDay.
“The government has to take some decisions promptly. Removal of FX controls has to be one and fuel subsidies have to go.”
Business sources say a recession (two consecutive quarters of negative growth) may be unavoidable for Nigeria due to the damage being done by ongoing energy and forex shortages and there is also the real likelihood of inflation ramping up to 12% this month say economists.
Signs of the slowdown are evident everywhere in the megacity of Lagos that drives most of Nigeria’s economic output.
International flights into the city are recording half filled seats; while imports that drive consumption were down by 9.2 percent last year, data from the National Bureau of Statistics (NBS), show.
The manufacturing sector contracted again in March, as the Purchasing Managers Index (PMI) printed at 45.9 percent, according to a March 31 report from the Central Bank of Nigeria (CBN). A reading below 50 indicates contraction.
Some 80,000 manufacturing jobs are set to disappear in Nigeria, mostly as a result of the President’s FX policies, according to the Lagos Chamber of Commerce and Industry (LCCI).
“Across manufacturing people are beginning to shut down. It is happening across the sector” said Babatunde Odunayo, a former CEO of Nigerian conglomerate Honeywell Group.
“Family owned businesses are shutting down,” Odunayo said.
President Buhari’s policy of pegging the naira at N199 per dollar has exacerbated inflation and unemployment as traders and retailers base prices on the black market rate hovering near N320/$1.
Nigeria’s inflation rose by 11.4 percent in February and its unemployment rate pushed into double digits at 10.4 percent in the fourth quarter of 2015.
Economic growth dropped to 2.8 percent last year, the slowest since 1999 and will decelerate further to 2.3 percent in 2016, the International Monetary Fund (IMF) said March 31.
By comparison, the World Bank forecasts that Kenya’s gross domestic product (GDP) would expand 5.9 percent in 2016 nearly double Nigeria’s expected growth rate.
Across the vast country, fuel queues are now the norm as the President refuses to deregulate prices, while blackouts have returned with a vengeance.
“Lower oil prices should provide an ideal backdrop to deal with the fuel subsidy regime. Subsidies benefit the rich (who consume more fuel) disproportionately,’’ said Razia Khan, Managing Director, and Chief Economist for Africa, at Standard Chartered Bank.
The dollar shortage is linked to the ongoing fuel shortage because most major oil marketers cannot source dollars to import products, leaving state owned NNPC as the only major importer.
This weekend, the President heads to China which has devalued its currency four times in the last one year but Buhari insists on holding the Naira at an artificial rate and fixing the pump price of petrol in Nigeria at N86.5 per litre, even as no one outside the main cities of Lagos and Abuja is able to get it to buy it at that price.
The latest PMS watch from the NBS shows that the average price Nigerians purchased PMS in January was N109.59 per litter.
Today, with the ongoing scarcity, the retail price has shot up astronomically, making nonsense of the government’s policy choices.
“It’s N1, 500 last price for five litres,” a black market dealer tells BusinessDay in Lagos.
The calculations come to N300 per litre or more than 240 percent above the Government official price.
Government interference in the upstream oil sector through price fixing for gas and NNPCs ineffectiveness and inability to finance its gas JV stakes has made the country with Africa’s largest gas reserves of about 187 trillion scf, unable to generate more than 5,000 Mw leading to daily blackouts.
Actual power generation for some time last week hit a low zero megawatts for the entire country of 180 million people.
Investors have fled Nigeria as a result of the confusion and flawed policy choices.
JPMorgan Chase and Barclays have taken Nigeria off their emerging market bond indices; while the country’s benchmark stock index (NSEASI) has returned negative 11.04 percent ytd with N1.094 trillion in market capitalisation wiped off.