Nigeria’s economic reform agenda loses steam as elections loom

As Nigeria’s President Goodluck Jonathan moves to seek re-election in five months, his reform agenda pursued for the past four years is gradually losing steam.

While Jonathan who was recently named as sole candidate for the People’s Democratic Party (PDP) in next year’s presidential election has already attained some goals since launching the transformation agenda in 2010, achievements have fallen short of expectation in most other areas.

There has been some movement on infrastructure (roads, rail), and investments have poured in, as multinationals expand operations in the country.

The major cities of Lagos and Abuja are booming and agriculture output is up, on new government policies that discourage imports.

However, 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 Math 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 this 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 year to date, even as other frontier markets soar, while the CBN struggles to defend the naira.

There is too much dependence on oil revenues for the Federal and States budget, as reforms to build counter-cyclical rainy day fiscal buffers slow.

“The weaker oil price, expected normalisation in US monetary policy in 2015 and uncertain pre-electoral political outlook, are likely to weigh negatively on the fortunes of the naira in coming months,” said Samir Gadio, “Head of Africa Strategy” at Standard Chartered Bank’s FICC research team.

“The drop in the oil price in recent weeks (to sub-USD 100 pbl levels in Sept) is certainly a concern, given the lack of fiscal buffer in Nigeria.”

Jonathan’s economic plan involves diversifying Africa’s largest economy beyond oil and gas.

In the second quarter of 2014, gross domestic product (GDP) increased 6.54 percent, surpassing the 5.4 percent recorded a year earlier, according to National Bureau of Statistics (NBS) data.

The non-oil sector drove most of that growth. Per capita gross national income rose to $3,001 last year, post rebasing pushing the country into middle income status.

Blackouts have however continued to be the norm, even after a privatisation exercise was concluded last year, in which companies including Transcorp, Sahara Power and Forte Oil Plc paid more than $3 billion for controlling interests in 15 power generators (Gencos) and distributors (Discos).

The country’s peak power generation averaged 2,206.4 megawatts on Friday, down from a peak of 4,000 megawatts reached in 2012, as gas shortages hit output.

Demand may be close to 20,000 megawatts, even as the transmission lines can only move 5,500 megawatts, less than a third of what the country needs to end the blackouts, according to the Power Ministry.

The seeming failure of the power privatisation exercise is a symptom of slowing reforms.

“The country can end these blackouts by simply liberalising gas prices and going to a willing buyer – willing seller model, based on market prices,” said a former head of  the state owned oil company, the Nigerian National Petroleum Corporation (NNPC) speaking to BusinessDay anonymously.

Nigeria moved down nine spots to No. 147 in the World Bank’s “Doing Business 2014” report and was ranked 144 out of 177 countries on Transparency International’s Corruption Perception Index last year.

Nigeria’s declining perceptions are based on models and collection methodology that do not meet face validity, according to Anietie Effiong, an associate of the National Competitiveness Council of Nigeria (NCCN), set up by Jonathan to improve the economy’s efficiency and productivity.

“The reality is that as it is, the latest GCI does not tell Nigeria how competitive it really is, but how 106 respondents , sometimes personal assistants of CEOs , view Nigeria, and to a lesser extent, empirical (if sometimes antiquated) data,” said Effiong.

The country will run a post rebasing current account (C/A) surplus this year, estimated at five percent of GDP, compared to South Africa’s estimated current account deficit of 4.5 percent.

The budget deficit to GDP and public debt to GDP is estimated at 1 percent and 11 percent respectively.

Jonathan wants to improve home ownership, increase small business loans through a developmental Finance Institution, cut food imports by creating jobs in agriculture and spend $3.05 trillion over 30 years on a national infrastructure master plan.

However, he has to win an election first ,and analysts say his chances of re-election hinge on the ability to convince the population that touted reforms are not empty promises.

Businessday