The economy matters more than party politics

The Americans do not buy its oil. The crash in oil prices has weakened its economy compared to a year ago. There have been deals with the Chinese aimed at strengthening trade and the economy. The country’s currency and reserves have fallen in value and there have been moves by its central bank to restrict capital from leaving the country and the president has gone on TV to argue that the country will survive the crisis. There has been a suggestion that all civil servants take a 5 percent pay cut as a new budget reflects the lower revenues the government will get in 2015.

That is Russia. Almost exactly like Nigeria, except the last part. Our prospective leaders have not told us what they will do in the face of falling oil prices.

For Nigeria, 2015 is an election year and so there are the usual threats that unless one person or the other gets into power, the country would suffer. As election day approaches, more threats from disgruntled local politicians are still being aired.

Some people argue that to (re)elect an Igbo, Christian, southern leader is wrong. Others argue that a Sharia-supporting, Hausa, ex-military dictator from the north would be a disaster.

Both are wrong. Goodluck Ebele Jonathan (GEJ) is not Igbo; he is Ijaw and is not even supported by some Igbo – including a former vice president, Alex Ekwueme. And Muhammadu Buhari (GMB) is not Hausa; he is Fulani facing scepticism and hostility from many Hausas – including a fellow former military dictator, Ibrahim Babangida.

In the confusion that continues, there has been too little attention given to Nigeria’s economy and the changing global economic environment.

The bigger picture

In 2013 Jim O’Neill of Goldman Sachs created a group called ‘MINT’ countries, which stands for Mexico, Indonesia, Nigeria and Turkey.

Nigeria stood out. Buoyed by high oil prices, the future appeared to be full of massive surpluses and a new sovereign wealth fund was launched to steer our ‘excess crude account’ savings into a more stable and balanced future.

However, by the end of 2014, the price of oil unexpectedly crashed from a peak of $110 a barrel to less than $60 a barrel. While the world remains transfixed on the unfolding horror of Boko Haram and Islamic terrorists across West Africa, the new reality is that some offshore oil platforms in Nigeria (those that need $70 a barrel to break even) are now a loss-making industry.

Business people and investors are grumbling that a sustained drop in oil price may cause Nigeria’s surpluses to evaporate.

Over the past 12 months, the Central Bank of Nigeria (CBN) has spent nearly $8bn in defence of the naira, according to official figures. In November 2014 it devalued the naira by 8.4 percent officially (from N155 to N168 to the dollar). And according to official figures, Nigeria’s gross foreign exchange reserves have fallen to less than $34.5bn, the lowest level in three years. The cause may be that the CBN said the $73 a barrel earlier assumed for the federal budget “may be overly optimistic”.

With oil prices firmly below that now, our excess crude account and sovereign wealth fund are also potentially non-functional.

On the record

The uncertainty over the potential action of GEJ or GMB isn’t helping. Ross Alabo-George recently wrote that GMB faced an oil price crash during his tenure because “after taking over in December 1983, the oil glut happened and oil prices fell from $35 to circa $10”. He recalled that GMB “ordered military men into markets to regulate food prices, closed the country’s borders and placed a reckless ban on importation without safety nets”.

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If GMB has the same reaction in 2016, it would be devastating. Nigeria today is a $562bn economy with a young and growing population and it needs to create millions of jobs just to stand still. Faced with falling revenue and rising prices again, would GMB impose another round of price controls? Or attempt to militarise real estate development, Nollywood or banking?

The current international reaction

As at Monday, 13 January, 2014, the Financial Times reported that (according to naira non-deliverable forwards) international investors expect the currency to fall to N234 per dollar in 12 months. Effectively, people expect a 50 percent devaluation of the naira by the end of 2015. If this happens, investors would instantly lose half the value of their investment and imported goods would double in price.

This kind of disaster can be averted, but only if it is addressed. However, O’Neill admitted to a Bloomberg reporter that he had no idea what the APC economic plan is. A development plan and policies for the next five years are needed urgently, from both parties.

NN2020 sent the presidency a rail plan last year. It has not been fully implemented and not all the benefits are evident today. There is another plan to build a new city that might help bring billions of dollars to Nigeria. But whether GEJ’s government can do the right thing is yet to be seen.

Like some, I have declined to support either party. Nigerians must demand that both PDP and APC talk clearly about their competing visions for economic development now. Only then can we choose wisely.

In 2015, it’s the economy that really matters, not politics as usual.Oil

Chidi Oti Obihara