Egypt’s message to Nigeria is a simple one: Tough times don’t last, tough economies do.
But that message comes unstuck when Nigerian politicians weigh the political cost of forcing painful reforms on people whose votes they need to stay in power.
However, it’s the economy and the same masses that have come to bear the brunt of a conspicuous absence of economy-stimulating reforms on the evidence of rising poverty levels and weak economic growth.
Since the two countries travelled different paths in 2016, it is Egypt’s economy that has flourished and that has once again beamed the spotlight on Nigeria.
From GDP growth to inflation and the exchange rate, some macroeconomic indicators suggest that Egypt did the right thing in 2016 when it kick-started a reform programme that allowed its currency float, reduced the budget deficit and gradually phased out energy subsidies.
Since following that path which brought short-term pain to Egyptians, the economy is now growing at over 5 percent and inflation has collapsed to a nine-year low of 3 percent in October from a peak of 30 percent when the Egyptian pound was first floated and energy subsidies reduced.
The Egyptian Central Bank cut interest rates again, by 1 percent this time to 12.25 percent from 16.75 percent a year ago. Egypt’s remarkable turnaround has earned it global plaudits.
“The tough reforms of 2016-17 are paying off,” said Charles Robertson, chief economist at Renaissance Capital, citing the country’s improved macro indicators.
Nigeria was in the same boat as Egypt in 2016 but shied away from the tough reforms Egypt undertook. The central bank turned to an unsustainable currency peg which belatedly gave way while the Federal Government has continued to maintain an expensive petrol subsidy that deters investment.
Inflation accelerated by the most in 17 months in October, rising to 11.61 percent on the back of higher food prices, according to the National Bureau of Statistics (NBS).
The economy is growing at 2 percent, lower than population growth rate. What’s worse is that the tepid growth rate may worsen in the third quarter when the numbers are published Nov. 25, as an abrupt border closure takes a toll on trade which contributes around 17 percent to GDP.
Sources close to the Nigerian government argue that the fear of falling out with largely poor and uneducated masses hinders the government from going down the route of Egypt.
“Egypt does not practise democracy so the prime minister can do what he likes without recourse to the people,” a senior government source said.
“In Nigeria, it’s different. The president relies on the people’s vote to govern and if you do things like end the petrol subsidy and float the currency, it would hurt the people and they can take power away from you,” said the source who did not want to be named to speak freely.
When Nigeria under the then President Goodluck Jonathan attempted to scrap the fuel subsidy, the backlash that followed saw the former president quickly restore status quo.
President Muhammadu Buhari, however, has a chance to implement reforms now that he is in for his second and last term. This means he wouldn’t be returning to the masses for votes at the next election.
Some people familiar with the matter, however, argue that Buhari’s political party would be the one to pay if the policies in his final term fail to sit well with the bulk of the people.
“One thing is clear in all of these: free-market policies are paying off for Egypt while Nigeria holds on to age-long socialist policies that have kept its economy crawling,” one economist told BusinessDay.
LOLADE AKINMURELE & MICHAEL ANI
