Nigeria: Buhari’s multiple challenges

Nigeria: Buhari’s multiple challenges

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Nigeria’s newly elected President Muhammadu Buhari, who was sworn in on May 29, has signalled his intention to restore confidence in the country’s economy, but as he takes office, a number of pressing issues are demanding his attention, including slowing oil revenues, fuel shortages and rising inflation.
Nigeria, Africa’s largest economy with a GDP of more than $500bn, is one of the continent’s biggest oil producers, but a lack of downstream capacity has left the country with limited access to refined fuels. The situation came to the fore in May, when distributors withheld supplies of imported fuel after the state failed to pay for earlier orders. According to local press, national oil marketers claimed they were owed about $1bn in outstanding payments.
The fuel shortage hit a range of sectors including banks, internet operators and radio stations. Mobile phone operator MTN warned that a lack of diesel, combined with rolling power cuts on the national grid in many regions, could see its services disrupted, since the company would no longer be able to run back-up generators to maintain power supplies. The fuel shortages also caused disruptions to domestic airline services and forced international carriers to re-route flights and refuel in neighbouring countries, rather than make scheduled stops in Nigeria.
The lack of fuel supply is a particularly significant challenge for Nigeria, as the 170 million-person country’s limited power generating capacity – at under 4000 MW, equivalent to a medium-sized European city – means that private consumers are heavily dependent on diesel-fuelled generators.
Fuel distributors agreed on May 26 to resume deliveries to petrol stations, after the finance ministry said it would reduce its bill by making payments of N159bn ($797m). However, the part payment represents little more than a stop-gap as the country grapples with structural issues in the sector, such as an inefficient fuel subsidy system and corruption in the private and public sector.
With its old and limited refining capacity − domestic output meets only 9 percent of daily consumption of petrol, according to the Nigerian National Petroleum Corporation − the country needs to continue importing processed oil products at a time when its primary source of revenue is declining. Earnings from hydrocarbons currently account for 75-80 percent of government revenues in 2014, according to the National Bureau of Statistics (NBS). A dip in production has also seen output ease to 2.18 million barrels per day in the first quarter, down from almost 2.3m a year ago.
The new administration also finds itself facing sizeable existing obligations, with much of its revenue earmarked for servicing debt. Speaking ahead of his swearing in, the vice president-elect Yemi Osinbajo said that Nigeria’s domestic and international debt levels had risen to N11.9 trillion ($60bn), with repayments for the current year standing at N953.6bn ($4.7bn), roughly one-fifth of the government budget.
In line with depressed global oil prices, the pace of growth eased in Nigeria in the first quarter, with GDP expanding by 3.96 percent year-on-year, according to an NBS statement issued in May. This compares to 5.94 percent growth in the previous quarter, and 6.21 percent growth a year earlier. Growth in the hydrocarbons sector stood at -8.1 percent in real terms, though this was offset by a stronger performance from the non-oil segment, which expanded 5.59 percent in the first quarter.
In addition, inflation remains stubbornly high, running at 8.7 percent year-on-year (y-o-y) in April, the highest rate since July 2013, according to the latest report from the NBS. In response to a slump in oil prices, the government also plans to phase out subsidies on fuel, which is set to impact consumer prices further.
The new administration will also have to contend with a sharp downturn in foreign investment. Inflows dipped by 31.6 percent y-o-y in the first quarter to $1.2bn thanks to high levels of uncertainty in the period. Foreign investment totalled $2.64bn in the first quarter of 2015, the lowest value observed in the last two years of review.
The decision to delay voting, which was taken so that the Nigerian military could conduct a surge against the militant group Boko Haram, had been one of the main sources of uncertainty, according to the report. The NBS added that depressed oil prices have acted as a disincentive to investors in the energy field.
While the country’s long-term prospects are very encouraging, with Africa’s largest population, its biggest economy, and both financial and energy sectors that rank among the continent’s top three in size, the general direction of Nigeria’s trajectory is not in any doubt – but managing the short-term turbulence will certainly test the abilities of the incoming administration.
Buhari’s administration will have to institute measures to curb poverty by creating jobs and setting up social welfare schemes that cater to the poorest Nigerians. One of these schemes is a Conditional Cash Transfer that pays N5000 – N7500 (about $25-$38) monthly to 25 million of the poorest Nigerians over the next four years as long as they send their children to school and get them immunised. Another provides free meals to children in primary schools nationwide, while there are plans to stimulate the agricultural sector and institute a National Health Insurance Scheme that provides healthcare cover for poor people for just N500-N1000 yearly contribution.
Analysts believe agriculture is a sector that will benefit from diversification efforts. ‘For many years, the agricultural sector has suffered from a lack of investment. But it still remains a key foundation of the Nigerian economy representing 22 percent of GDP in 2012. Moreover, the sector is benefiting from more interest from the government, which is looking to revitalise it and to increase the diversification of its economy. This is part of the Vision 2020 plan which aims to modernise the agricultural sector and to ensure self-sufficiency in key food crops,’ says Axelle Fofana, a researcher at Ecobank.
Looking at the overall economic outlook, the fall in oil prices represents an opportunity in the long term to diversify the economy. ‘The service sector is growing very strongly, particularly in finance, telecoms, also trade and film industry, so there is a lot of other activities that are developing and growing,’ says Edward George, Ecobank head of research.
Fofana thinks it would take time for a new government to settle in, and therefore swift, wholescale policy change is rather unlikely. But as Buhari’s campaign slogan was “Change”, people expect him to make a difference in the way the country is run, from tackling corruption, to facing up to Boko Haram, to putting Nigeria on a stronger growth path.

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