Jan 30th 2016 | LAGOS
MORE than 30 years ago, a young general
swept to power in the fifth of Nigeria’s military coups since
independence in 1960. The country he inherited was a mess: bled dry by
pilfering politicians within and hammered by falling oil prices without.
Last year that general, Muhammadu Buhari, became president again—this
time in a democratic vote. The problems he has inherited are almost
identical. So are many of his responses.
In the eight months since Mr
Buhari arrived at Aso Rock, the presidential digs, the homicidal
jihadists of Boko Haram have been pushed back into the bush along
Nigeria’s borders. The government has cracked down on corruption,
which had flourished under the previous president, Goodluck Jonathan, an
ineffectual buffoon who let politicians and their cronies fill their
pockets with impunity. Lai Mohammed, a minister, reckons that just 55 people stole $6.8 billion from the public purse over seven recent years.
Mr
Buhari, who—unusually among Nigeria’s political grandees—is said to
have just $150,000 and a couple of hundred cattle to his name, abhors
such excess. As military ruler he jailed, fired or forced into
retirement thousands of bureaucrats whose fingers had been in the till.
This time, the Economic and Financial Crimes Commission (EFCC) has
arrested dozens of bigwigs, including a former national security chief
accused of diverting $2.2 billion. The EFCC has a poor record of
securing convictions; but a single treasury account has been introduced
to try to stop civil servants siphoning off cash. And agencies which may
not be remitting their fair share to the state are having their books
trawled by Kemi Adeosun, the finance minister.
Such measures are
doubly important because the economy is swooning along with the oil
price. The sticky stuff directly accounts for only 10% of GDP, but for
70% of government revenue and almost all of Nigeria’s foreign earnings.
Oil’s
price has fallen by half, to $32 a barrel, in the months since the new
government came to power, sending its revenues plummeting. Income for
the third quarter of 2015 was almost 30% lower than for the same period
the year before, and foreign reserves have dwindled by $9 billion in 18
months. Ordinarily there would be buffers to cushion against such
shocks, but Mr Jonathan’s cronies have largely squandered them. Growth
was about 3% in 2015, almost half the rate of the year before and barely
enough to keep pace with the population. The stockmarket is down by
half from its peak in 2014.
Domestic oil producers are feeling the
pinch worst. Many borrowed heavily to buy oilfields when crude was worth
more than $100 a barrel, and are now struggling to pay the interest on
loans, says Kola Karim, the founder of Shoreline Group, a Nigerian
conglomerate. This, in turn, threatens to create a banking crisis. About
20% of Nigerian banks’ loans were made to oil and gas producers (along
with another 4% to underperforming power companies). Capital cushions
are plumper than they were during an earlier banking crisis in 2009;
but, even so, bad debts are mounting and banks that are exposed to oil
producers may find themselves in trouble. “It wouldn’t surprise me if
one or two went down,” says a senior banker in Nigeria.
The
government’s response to the crisis has been three-pronged. First, it is
trying to stimulate the economy with a mildly expansionary budget. At
the same time, it is trying to protect its dwindling hard-currency
reserves by blocking imports. Third, it is trying to suppress inflation
by keeping the currency, the naira, pegged at 197-199 to the dollar.
Only the first of these policies seems likely to work.
The budget,
which includes a plan to spend more on badly needed infrastructure, is a
step in the right direction. Although government revenues are under
pressure from the falling oil price, Mr Buhari hopes to offset that by
plugging “leakages” (a polite term for theft) and taxing people and
businesses more. That seems reasonable. At 7%, Nigeria’s tax-to-GDP
ratio is pitifully low. Every percentage point increase could yield $5
billion of extra cash for the coffers, reckons Kayode Akindele of TIA
Capital, an investment firm. Mr Buhari also plans to save some $5
billion-$7 billion a year by ending fuel subsidies—a crucial reform, if
he sticks with it. Even so he will be left with a deficit of $15 billion
(3% of GDP) that will have to be filled by domestic and foreign
borrowing.
Yet his policies on the currency seem likely to stymie
that. The central bank has frozen the naira at its current overvalued
official rate for almost a year. The various import bans (on everything
from soap to ballpoint pens) are supposed to reduce demand for dollars,
but have little effect. Businesses that have to import essential
supplies to keep their factories running complain that they have been
forced into the black market, where the naira currently trades at 300 or
more to the dollar. Several local manufacturers have suspended
operations. International investors, knowing that the value of their
assets could tumble, have slammed on the brakes and some have pulled
money out of the country just as their dollars are most needed (see
chart).
Nigeria is fortunate in having low levels of public debt
(less than 20% of GDP), but it is not helped by high interest rates,
which mean that 35% of government revenue goes straight out of the door
again to service its borrowings. It would not take much to push it into a
debt crisis.
http://www.economist.com/news/middle-east-and-africa/21689584-cheap-oil-causing-currency-crisis-nigeria-banning-imports-no
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