Nigeria is expected to go to the polls in about four weeks to elect a president, several governors and about 460 legislators. Some of the economic issues expected to hit the new elected officials include the recent fall in oil prices, a lack of diversified revenue stream, poor business environment, flailing power privatisation and stalled reforms.
Crude oil prices slid almost 50 percent last year, the most since the 2008 financial crisis, as the Organisation of Petroleum Exporting Countries (OPEC) resisted cuts to output amid the U.S. shale boom. Prices are down some 18 percent so far this year. Nigeria gets 70 percent of its federal budget and up to 95 percent of foreign exchange earnings from crude oil sales.
The implications of oils fall for Nigeria are profound and include a possible ratings downgrade, increased naira pressure and fiscal constraints at the federal and state levels that may lead to unrest, according to Meristem Securities analysts. Brent for March settlement slid as much as $1.74 to $48.12 a barrel on the London-based ICE Futures Europe exchange last Thursday.
While oil continues to dominate FX inflows and federation account receipts, its share of GDP at market prices in Q3 2014 amounted to just 10.3 percent, meaning the Finance Ministry has yet to fully tap Nigeria’s non-oil GDP of N70 trillion for revenues even as the government celebrated the GDP rebasing that saw Nigeria overtake South Africa as the largest economy in Africa.
The lack of a diversified revenue stream for the country’s budget means that while government revenues are equivalent to 25 percent of GDP in South Africa, and 24.5 percent in Morocco, they make up only 12.2 percent of Nigeria’s $464 billion economy.
“The fiscal purse of the government has been failing the resilience test on account of lower crude oil export and prices. Over reliance of State Governments on FAAC allocation is likely to trigger protests at the state level,” Meristem said in a recent economic commentary.
The country ranks poorly on global indices; red tape and corruption slow businesses down, especially at the ports; the power reforms have yet to improve lives, while only 31 percent of students passed Maths and English in a recent high school final year exam, showing the rot in the education system.
Nigeria, now Africa’s largest economy, fell by seven places to 127th last year on the World Economic Forum (WEF) Global Competitiveness report as its institutions remain weak with insufficiently protected property rights, high corruption, and undue influence, according to WEF.
The NSE-ASI is down 17 percent year to date, while the CBN struggles to defend the naira. There is too much dependence on oil revenues for the federal and state budgets as reforms to build counter-cyclical rainy-day fiscal buffers are slowed by politics.
Nigerian employers and businesses deal daily with inadequate infrastructure that raises business costs and regulators that hurt companies with unfriendly practices such as multiple taxation and fines. Nigeria must also move forward with reforms of its oil and gas sector to boost production.
Renaissance Capital’s global chief economist, Charles Robertson, summed up the difficulties the next Nigerian president, governors and legislators would face by noting that “this is one election most politicians would probably want to lose”.
It is against this difficult economic background that the 2015 elections are being held. We therefore hope that all candidates vying for a position, whether at the presidential, legislative or governorship level, understand what the stakes are and prepare themselves accordingly for the difficult road that lies ahead. Winning the election is just the beginning.