Nigeria’s distressed fiscal state faces five risks

With the dust yet to settle more than one month after the presidential election, Nigeria is at risk of deeper crises as it grapples with a deteriorating fiscal position and unsustainable subsidies, experts have warned.

President-elect Bola Tinubu is expected to inherit an uphill task of fixing an economy in turmoil.

“The election may be over but there are more economic risks facing Nigeria’s fragile state in post-election business activities,” Bismarck Rewane, CEO of Financial Derivatives Company Limited, said on Monday at Nigerian-Indonesia Chamber of Commerce and Industry’s breakfast meeting.

Rewane listed policy backlash, religious backlash, judicial miscarriages and possible riots and civil unrest as major risks facing Africa’s biggest economy in post-election economic activities.

“With electoral malpractices, thuggery and voter suppression witnessed during the last election, the chances of protests and civil unrest across states are high,” Rewane said at the event titled ‘Nigerian economic outlook post-2023 election’.

Rewane said Nigeria’s economy faces high religious backlash with Christians expressing dissatisfaction due to the Muslim-Muslim administration.

“The outcome of the judicial proceedings may favour the already declared winner despite substantial evidence; this may increase Nigeria’s risk profile,” he said.

He said how Nigeria’s next president handles the controversial petrol subsidy, which has cost the cash-strapped federal government N10.9 trillion, will be very decisive for post-election business activities.

“The country is at risk of a possible policy backlash – naira redesign and subsidy removal,” Rewane said.

Marvin Fisher, a foreign investor exposed to the Nigerian market, identified weak legal institutions as major risks facing investors operating in the country.

“You can spend 10 to 20 years in Nigerian courts trying to get justice,” Fisher said. “Nigeria needs serious judicial reforms for business.”

Nere Emiko, CEO of Kian Smith Trade & Co, said the issue of rent-seeking in ministries, departments and agencies is a big concern for investors in Nigeria’s mining sector.

“Fighting for private sector credit is high,” Emiko said.

For Ishmael Balogun, president of Nigerian-Indonesian Chamber of Commerce & Industry, Nigeria is at risk of a fresh cost-of-doing business crisis, which requires the urgent attention of Nigeria’s policy administrators.

“From my daily interactions with business owners and investors at the chamber, rising cost of production tops the lists of complaints,” Balogun said.

“Indeed, Nigeria should invest resources in building and scaling similar arrangements with countries that can offer mutual benefits from increased trade and investment. One such country is Indonesia,” Balogun said.

Nigeria is no Indonesia, but findings showed the world’s fourth most populous country does have a lesson for Africa’s most populous nation on how to diversify its economy, boost growth rates and reduce poverty.

Even with a much higher population than Nigeria, Indonesia has been able to attain lower poverty rates, which declined to the lowest level ever in 2022 to 9.8 percent (based on latest data from Indonesia’s Central Statistics Agency) and a more diversified economy, with more sectors contributing to its growth.

The expansion of Indonesia’s industrial sector did not happen by coincidence as BusinessDay’s finding showed deliberate actions were taken by the government in line with the provisions of national and sectoral plans to create a friendly business environment and attract investments into priority sectors of the economy.

When President Joko Widodo took office in 2014, he inherited an economy under pressure. Growth was slowing, a large current account deficit had opened up, and the fiscal deficit was rapidly approaching the legal limit.

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Decisive early action by Widodo to cut wasteful fuel subsidies successfully arrested the situation. He further launched an ambitious pro-growth agenda focused on large-scale infrastructure development, fiscal reform, and dramatically improving the business climate.

To deliver his infrastructure drive, his strategy entailed increasing budgetary allocations (particularly by cutting energy subsidies), a heavy reliance on state-owned enterprises (including through capital injections and directly allocating major projects), and progressing previously stalled projects (in particular by expediting land acquisition).

Widodo also dramatically improved Indonesia’s difficult business climate to improve its pro-growth agenda, which was achieved through a series of reform packages aimed principally at cutting red tape and attracting foreign direct investment.

“One thing that is clear to any discerning person is that Nigeria’s next president must find a way to initiate key policy reforms such as institutional reforms, fiscal consolidation and subsidy removal, all of which could increase investors’ confidence that can boost growth post-inauguration,” Rewane said.