Nigerian Politics: Slowly does it?

The Nigerian business community backed the election of President Muhammadu Buhari, but its goodwill has been slipping away since he took office in late May. Buhari’s four-month delay in nominating his cabinet, announced on 6 October, added to investors’ fears that the economy is sliding toward recession. Buhari’s supporters argue that the absence of a cabinet has allowed the president to work directly with the civil service, enabling him to guide policies when ministers take their posts. His critics say that decisions are taking too long and he is trying to run the country like a sole administrator.

The president’s decision to prop up the value of the naira with foreign exchange controls and other measures, despite the continuing decline in the price of oil, is unsustainable and is leading the economy towards a currency crisis, businesses warn. 

His protectionist exchange rate policy is a reminder to Nigerians that, although their new president has been converted to democracy since he was a military ruler in the 1980s, his views on the economy may be less modern. His decision to govern initially without ministers highlights another characteristic of the retired general: he likes to be in control.

Buhari campaigned on two main promises: that he would rein in high-level corruption and that he would restore security in Nigeria’s most troubled areas, particularly the north-east, much of which fell into the hands of the Islamist militant group Boko Haram under the previous government. Whilst there are signs of progress on both these issues, the looming crisis over the naira is a warning to the government that restoring confidence in the economy is also a matter of urgency.

PRESSURE ON THE NAIRA AND THE BANKS

JP Morgan underlined the point in September when it announced that it was phasing Nigerian government debt out of its key emerging markets bond index, the GBI-EM, triggering a sell-off in naira debt. The US bank said Nigeria’s lack of liquidity, transparency and a fully functional two-way foreign exchange market had made it difficult for investors to transact bond deals in naira. Barclays is considering following suit, citing the same lack of liquidity and currency restrictions as JP Morgan. Local bankers say that the capital controls enforced by the Central Bank of Nigeria (CBN) and the refusal to devalue the currency in line with the country’s loss of revenue from oil and gas exports have undermined both local and international investors’ confidence in the government. International investors say that there is also a high risk of a further downgrade by international credit rating agencies, underlining the need for Buhari to appoint a strong finance minister when he announces the portfolios of his cabinet ministers.

Buhari has inherited a central bank governor in whom the market has little confidence. Godwin Emefiele was appointed by the last government and is the protégé of Zenith Bank’s main shareholder Jim Ovia, a key ally of the former president, Goodluck Jonathan. Emefiele’s authority will be tested in the coming months when the CBN will require the banks to reveal and make provisions for the bad loans to power and oil companies approved when the market was strong.

The banks’ business is already being squeezed by the government’s decision to close most of the commercial bank accounts held by ministries and parastatals and move them to a Treasury Single Account or other accounts as directed by the CBN, as part of the drive to curb the misuse of state funds.

ENERGY SECTOR

There has also been some good news for the economy since Buhari took over. There has been praise for the newly-appointed board and management of the Nigerian National Petroleum Company (NNPC), whose opaque accounts and offshore transactions lay at the centre of the corruption and hidden party funding that contributed to the downfall of the last government. The private sector credentials of the new managing director, Emmanuel Kachikwu, raised hopes that the NNPC will spur much-needed investment in the industry. However, government policy in the oil and gas sector is still unclear. The fate of the long-delayed Petroleum Industry Bill is uncertain, and Buhari has yet to explain how and when he proposes to separate NNPC’s regulatory and commercial functions, nor whether the government is ready to sell some of its massive stake in the onshore upstream industry. Kachikwu is amongst the cabinet nominated by Buhari, making it unclear whether he will continue at the NNPC.

In the downstream sector, the government has ended the fuel shortages which gripped the country when it took over, ending an unofficial boycott of importers who claimed outstanding debts for subsidised imports. However, the government has decided to maintain an inefficient fuel subsidy that costs an estimated $2 billion a year, against the advice of most of the private sector and despite the worsening budget deficit caused by the drop in oil and gas exports, which account for most state revenue. The subsidy is also delaying private investment in a new oil refining industry that requires market-led pricing. Power supply has also picked up sharply in recent months, partly through improved security at the gas pipeline that supplies big power stations’ generators, but aided by a seasonal rise in hydroelectric power generated after the rainy season. However, generation capacity is held back by a lack of natural gas production, for which the main remedy is deregulation of the gas price, still the preserve of the oil ministry.

WAR ON CORRUPTION, BOKO HARAM

Buhari’s anti-corruption campaign has produced few substantial results, although reports of investigations into government agencies appear regularly in the press. It is unclear whether the government intends to prosecute the culprits of alleged multi-billion dollar theft and fraud under the last government, mostly involving opaque oil deals, or to recover the proceeds of crime in full in return for impunity for the culprits. So far, at least one high-profile oil tycoon has been arrested, but confidence in the ability of the police and judiciary to bring about successful prosecutions remains low. However, Diezani Alison-Madueke, the petroleum minister between 2010 and 2015, was arrested by the UK’s National Crime Agency in October. (The level of co-operation between the Nigerian authorities and the British is unclear.) Nigeria’s Economic and Financial Crimes Commission (EFCC) has detained or summoned high-profile politicians or their families but their actions are widely regarded as political score-settling rather than the pursuit of justice.

The campaign against Boko Haram has been more decisive, as befits a government led by a former army commander. Within weeks Buhari replaced the military hierarchy and moved its command and control centre from Abuja to the north-east’s main city, Maiduguri, a clear sign that the war against Boko Haram was a priority. He was also quick to form close cooperation with Nigeria’s neighbours affected by the insurgency with a joint command centre in Chad, whose French-backed troops have had the most success against the insurgents in the region. Buhari’s government is seeking direct lines of communication with Boko Haram to find factions or leaders with whom it can negotiate a way out of the conflict, an approach rejected by the Jonathan government.

Buhari’s determination to defeat Boko Haram has been welcomed by all Nigeria’s western allies but practical support has come mainly from France, whose permanent military base in Chad provides logistical support to the counter-terrorism operations of its former colonies in the region.

Buhari’s new cabinet is the result of a tradeoff between his election backers and factions within his own APC party, an uneasy coalition of formerly regionally-based political parties. Apart from three highly-rated former state governors—Babatunde Fashola (Lagos), Rotimi Amaechi (Rivers), Kayode Fayemi (Ekiti)—there are few well-known names in the list. There are no obvious and experienced candidates for the key portfolio of finance minister. The jury is still out on the quality of the new cabinet. Even when the portfolios of the cabinet are announced over the next few weeks, it will take some time for policies to emerge. This will be an interesting test of Buhari’s presidential style, as he transitions from an episode of personal rule to governing through a cabinet.