Buhari’s statist leaning leaves ministers effectiveness in doubt

Three weeks after President Muhammadu Buhari swore in his cabinet with key positions going largely to technocrats with private sector background, questions are arising about how effective the new ministers will be if they cannot influence the more state inclined Buhari.

During Buhari’s first stint as Nigeria’s leader some 30 years ago, the young military Head of State, full of patriotic zeal, tended towards a state led economic model, complete with shortages of essential commodities, resistance to devaluing the local currency despite a collapse in oil prices, and a failed attempt at diversifying the economy by import bans that instead, led to most manufacturers closing shop.

Today, the older Buhari as civilian President, has questioned the privatisation of government owned power plants by former President Goodluck Jonathan, hesitated to end corrupt fuel subsidy payments for petroleum products, mulled the resurrection of the bankrupt national airline, Nigeria Airways and ruled out the privatisation of the country’s old and decrepit refineries.

There is also resistance to devaluing the naira and letting market forces determine its role, despite the near 60 percent fall in oil prices.

“The interplay between market efficiency and state regulation is an old concept. It is a very difficult policy, managing market efficiency and social regulation,” Olisa Agbakoba, a senior advocate of Nigeria (SAN) and former national president of the Nigerian Bar Association (NBA), said in response to questions.

The first role for Kemi Adeosun, a former investment banker and now finance minister, expected to revive growth in Africa’s largest economy, has been to pony up N522.2 billion naira ($2.6 billion) for subsidy payments to oil marketers after fuel queues re-appeared on Nigerian roads.

The payments are in stark contrast to the finance minister’s recently stated goals of reducing wasteful government spending and refocusing on capital projects.

“We are determined to change the balance between capital and recurrent expenditure to release funds for investment in infrastructure that we need. To do so, we must be more efficient in how we spend,” Adeosun said on Monday, while inaugurating the Efficiency Unit (E-UNIT) in her office.

Eliminating the regressive subsidies would be a low hanging fruit for the government to pursue to achieve its aims. However, there is no indication of this happening anytime soon.

The money paid to oil marketers ($2.6 billion) is twice the amount Nigeria has in its Sovereign Wealth Fund savings, a part of which is used to protect the country from oil price shocks.

The lack of movement on reforms by the government is exacerbating an economic crisis caused by plunging oil prices.

Nigerian unemployment jumped to 9.9 percent in the third quarter (Q3) of 2015 up from 8.2 percent, as growth slowed to the lowest levels in more than a decade.

The $502 billion economy expanded by just 2.84 percent in Q3 2015, less than the population growth rate and implying negative per capita income growth, even as inflation remains high at 9.3 percent.

Nigeria’s benchmark stock index has returned – 21.2 percent this year, as investors sell on fears that a worsening macro – environment will negatively impact earnings.

The fact that key ministries like Power, Trade and Investment, Finance, Petroleum and Solid minerals were left to private sector inclined individuals may suggest flexibility of the President and willingness to accommodate ideas that appear non-socialist, according to Abiodun Keripe, head of research at Elixir Investment Partners.

“Politicking, structural bottlenecks and lack of clear operating policy guidelines might negatively impact the effectiveness of these ministers,” Keripe said.

In the power ministry headed by Babatunde Fashola, a former governor of Lagos, who helped to transform Nigeria’s financial capital, privatisation of the government built National Independent Power Plants (NIPPs) with capacity to produce up to 5,000 megawatts have stalled and the plants mothballed even as blackouts become the norm across the country.

In the oil and gas sector which has seen several years of contraction from a lack of private sector investments, Emmanuel Ibe Kachikwu, the new junior minister of Petroleum,  a former Executive Vice Chairman of ExxonMobil Africa, has had to walk back talks on privatising the refineries and ending fuel subsidies.

“Personally, I would have chosen to sell the refineries, but President Buhari has instructed that they should be fixed… After they are fixed, if they still operate below 60 per cent, then we will know what to do,” Kachikwu said in his former role as Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) after examining the existing state owned refineries.

Data from the NNPC shows that capacity utilisation for Nigeria’s four refineries fell to zero percent in October 2015, down from 2 percent in September.

The highest utilisation rate for the refineries achieved this year was a low 24.1 percent recorded in August.

A proposed 2016 budget of N8 trillion ($35-$40 billion), up from N4.4 trillion this year, has also left investors pondering where the money will come from, as government revenues have collapsed.

“It is clear at this point, that weakened government revenues do not economically support a large socialist balance sheet and government will be forced (if it truly intends to deliver the “CHANGE” it promised) to accept and work with private sector-led ideas,” Keripe said.

PATRICK ATUANYA & CHRIS AKOR