Lost year in Nigeria under Buhari leaves economy on knees' - Bloomberg magazine writes
Looks like Bloomberg
likes to analyze and criticize our government and president. Found this new
posted on their site today. Please read the article below
President Buhari took
office as Nigeria’s president a year ago on a wave of optimism that the
ex-military ruler could revive a nation battered by falling oil prices and
decades of corruption. Now, Africa’s biggest economy is on its knees and Buhari
has been forced to throw in the towel on a central pillar of his economic
policy -- a currency peg.
“It was difficult to
imagine a scenario in which things got worse,” said Malte Liewerscheidt, a
Nigeria analyst at Bath, U.K.-based consultant Verisk Maplecroft. “But it’s
been a lost year. What’s missing is sound macroeconomic policies.”
Nigeria will soon enter a recession, according to the
central bank, and an upsurge of militant attacks since February has sent crude
production, which usually accounts for 70 percent of government revenue,
plummeting to an almost 30-year low. Delays in approving a budget
and a cabinet as well as Buhari’s refusal to
weaken an overvalued currency -- until he relented this week -- have caused
foreign investors to flee.
Foreign investors,
fearing a devaluation, are staying away. Foreign direct investment was the
lowest last year since the 2007-08 global financial crisis, and Citigroup Inc.
said deals have ground to a halt. Capital controls prompted
JPMorgan Chase & Co. in September to kick Nigeria out of its local-currency
emerging-market bond indexes, tracked by more than $200 billion of funds.
Bond Losses
This year, Nigeria’s
local-bond yields have climbed 276 basis points to 13.46 percent, leaving them
as the only such securities among 31 emerging markets tracked by Bloomberg to
make losses. Electricity output has plunged to about a 30th of that of South
Africa, Africa’s second-biggest economy, as attacks on pipelines cut supplies
of natural gas to power plants.
When Buhari beat
then-President Goodluck Jonathan in the first election victory by an opposition
candidate, U.S. President Barack Obama’s administration called it an “historic
step for Nigeria and Africa.” A 73-year-old retired major-general who ruled
from 1983 to 1985, Buhari campaigned to end the corruption he said was
“killing” his country. He and his All Progressives Congress party promised
to crush Boko Haram, whose Islamist insurgency has led to thousands of deaths
in the northeast since 2009, and foster economic growth of as much as 10
percent.
Naira Peg
Now recession looms. The
economy contracted in the first quarter by 0.4 percent, the first decline since
2004. If Buhari doesn’t alter his stance on the naira and loosen the
restrictions used to defend its peg to the dollar, output will probably sink
further, according to Mark Bohlund, an Africa economist with Bloomberg
Intelligence in London.
“The Nigerian economy is
at high risk of experiencing its first full-year recession since 1987,” Bohlund
said. An improvement next year depends on security being restored in the
oil-rich Niger River delta region and “a shift toward more market-based
economic policy.”
Buhari was dealt a tough
hand. He inherited a virtually empty treasury and Jonathan’s administration did
little to diversify the economy, leaving it vulnerable to the crash in oil
prices since 2014. A rainy-day fund known as the Excess Crude Account was
whittled down to barely $2 billion when Buhari took office, from $21 billion in
2008.
Boko Haram
The president has won
plaudits from investors for beating back Boko Haram and trying to
overhaul graft-ridden institutions, including the Nigerian National Petroleum
Corp., the management of which he sacked. Yet they have been left bemused by
his economic policies.
He opted to keep
gasoline prices capped at 87 naira ($0.44) a liter ($1.76 a gallon) until
months of shortages and unrest over long fuel lines forced him to increase them
by 67 percent in mid-May. He has also clung to the naira peg even as evidence
showed a dollar shortage was strangling the economy. Buhari continues to oppose
devaluation, though he has given the central bank leeway to implement a more flexible
currency regime, his spokesman, Garba Shehu, said on Monday.
Under Governor Godwin
Emefiele, the central bank began to fix the naira at 197-199 against the dollar
in late February 2015, even as other oil exporters from Russia to Colombia and
Kazakhstan let their currencies drop. Buhari has backed that stance since
coming to power.
Businesses are
struggling to operate as the central bank, whose reserves have fallen to a more
than 10-year low, runs out of the dollars they need to import raw materials and
equipment. Many are forced to turn to the black market, where the naira value
has plunged to around 350 per dollar. That’s pushed the inflation rate to 13.7
percent, the highest in almost six years.
Currency Squeeze
U.S. carrier United
Airlines said would it stop flying to Nigeria next month, in
part because of the hard-currency squeeze. Foreign airlines have the
naira-equivalent of $575 million trapped in the country that they can’t
repatriate, according to the International Air Traffic Association. The Africa
president of Unilever, whose Nigerian unit has seen its shares drop 29 percent
since Buhari became president, called the currency policy “very insane.”
The central bank’s
Monetary Policy Committee voted on May 24 to allow “greater flexibility” in the
foreign-exchange market, which investors hoped meant that banks would be
allowed to trade the naira more freely. Yet, while Emefiele said a new system
would be unveiled “in the coming days,” no changes have been made.
Policy Failure
It was an “admission of
the inevitable failure of the policy, which created a black market economy,”
said Kingsley Moghalu, a former deputy governor at the central bank who now
teaches at Tufts University in Boston. “The exchange-rate policy contributed
quite significantly to creating a recessionary situation. It hit manufacturers,
who could not access forex. It has created unemployment.”
The economy is so weak
that Finance Minister Kemi Adeosun says officials probably won’t be able
to collect enough taxes to meet the revenue
target in this year’s record 6.1 trillion naira budget, which was only passed
this month after senators said Buhari’s team made mistakes in the first version
sent to them.
Nigeria’s 36 states,
most of which depend on monthly handouts from the federal
government, are on average three to four months late with salary payments to
teachers, doctors and other civil servants, according to the oil minister.
“There’s a sense of
exasperation among investors,” Ronak Gopaldas, a Johannesburg-based analyst at
Rand Merchant Bank, said. “There’s still a level of goodwill toward Buhari and
his government but it’s dissipating. The man on the street is really
struggling.”
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