29.2 C
Lagos
Friday, March 29, 2024

For the President Tinubu Administration, it’s the Economy, Stupid

Must read

spot_img
- Advertisement -
Listen now

For the newly sworn-in President of Africa’s largest economy Bola Ahmed Tinubu, American political consultant James Carville’s 1992 adage, “It’s the economy, stupid,” is still very apt.

A largely stagnant economy in the past eight years that his ruling All Progressives Congress (APC), has been in power has seen Nigeria’s income per head slide from $2,693 in the year 2015 to $2,099 last year (2022) even as the Nigerian population crossed the 200 million mark.

When combined with the smallest popular vote since 1979, it leaves President Tinubu with a difficult mandate to govern Nigeria, (which has the biggest population in Africa), if economic growth does not pick up steam, to provide hope and jobs for a young and restless population.

One immediate area for a quick economic win for Tinubu would be eliminating Nigeria’s multiple foreign exchange (FX) rate regime and reforming an out of control Central Bank.

The Nigerian currency, the naira which officially trades at N464.5 in the investor & exporters (I&E) FX market, exchanges hands for a lowly N750 per dollar in the thinly traded parallel market, leading to a record high divergence between the official and parallel Market.

The presence of multiple FX rates has been particularly damaging to the Nigerian economy, leading to an inability to attract Foreign Direct Investments (FDI), ejection from sovereign bond indices, as well as engendering monumental corruption.

The International Monetary Fund (IMF) has recommended measures towards a unified and market-clearing exchange rate to help strengthen Nigeria’s external position and establish policy credibility.

According to the IMF, the current system creates uncertainties for the private sector because of multiple exchange rates and non-transparent rules for foreign exchange allocation.

“Sustained premiums in the parallel market and unmet foreign exchange demand indicate the need for further adjustment in the exchange rate to reduce the gap between supply and demand. An appropriately valued exchange rate and a clear exchange rate policy would also help instill confidence and private sector-led recovery. Policy clarity is also important to attract larger capital inflows, including foreign direct investments, which have dropped significantly in recent years and successful diversification,” the IMF said following a recent Article IV consultation with Nigeria.

Net Foreign Direct Investment (FDI) flows as a percentage of GDP stood at a tiny 0.6% in 2020, the same level as it was in 2015, and the lowest since 1998.

Nigeria’s Gross Domestic Product (GDP) growth slowed to 2.31 per cent in the first quarter (Q1) of 2023 from 3.52 per cent in the fourth quarter of 2022.

The output gap has widened markedly since Tinubu’s APC political party gained power in 2015, with the oil sector mostly in recession for the period. Oil GDP once again collapsed by -4.21% in Q1, 2023.

Nigeria’s oil sector which makes up some 10% of GDP and 40% of government revenues has shrunk by 26% since 2018 alone, according to data by Afrinvest West Africa.

Oil industry insiders tell MoneyCentral that it would be an uphill battle for Tinubu to tame oil theft by criminal gangs, which has haemorrhaged the Nigerian government’s revenues.

“It would be even more difficult than in 2006, when militants blew up pipelines at will…at that time, criminality, corruption and power weren’t as widespread and even the population was less,” an oil sector insider told MoneyCentral.

“Do you appreciate how they have democratised oil theft. The actual production is still around 1.8mbpd, but over 600k/bpd is “stolen” by cabals who back the Niger Delta militants from end to end till it gets exported and they are not even bringing back the money…only inflow trickles when they need it. It’s too big a racket that it would be tough to stop…it’s democratised and involve cabals from the oil region. That is why it is waste for IOCs to invest in further exploration and even production offshore.”

In 2006, young militants began to attack oil installations, kidnap oil workers and damage pipelines to demand compensation for oil spills.

Today in 2022, that has graduated into a sophisticated oil theft operation, resulting in a loss of crude oil export earnings valued at over $50 million per day ($1.5 billion a month), which also indicates a shortfall in government revenue from crude oil royalty.

Nigeria’s misery index, which sums inflation and unemployment outlooks, touched a high of 55.52, as inflation increased to 22.22 per cent (year-on-year) in April 2023, prompting the apex bank to hike interest rates to their highest levels in nearly two decades.

The country’s unemployment rate stood at an all-time high of 33.3 percent as at the fourth quarter (Q4) of 2020, according to the National Bureau of Statistics (NBS).

From hike in the prices of fuel to the over 100 percent rise in the prices of major food stuff, household utensils, rent, services and cost of building materials, over the past 8 years, Nigerians continued to fold under the burden of inflation.

Inflation could also get worse in the short term as President Tinubu has promised to end the petrol subsidy regime sapping the economy.

Assuming the subsidies continue all through 2023, 95 percent of government revenue will be spent on them, thereby limiting expenditure on crucial infrastructure needed to propel economic growth in the medium to long term, according to research firm Chapel Hill Denham Limited.

The immediate past Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed last year sounded the alarm bells when she revealed a total of N6.72 trillion as a full-year budget for petrol subsidy payments in 2023.

Another area of the economy for President Tinubu and his team to tackle into will be the fiscal health of the sovereign.

Nigeria’s debt profile hit N44.06 trillion in the third quarter of 2022 from N39.56 trillion at the end of 2021, according to data from Debt Management Office (DMO).

The country’s debt profile will however cross the N70 trillion mark with the inclusion of Central Bank of Nigeria (CBN), Ways and Means advances of N22.70 trillion.

Analysts say that the federal government action of borrowing from its Central Bank is leading to financial repression.

Financial repression is a term that describes measures by which governments channel funds from the private sector to themselves as a form of debt reduction.

A trend analysis by CSL Stockbrokers shows Ways and Means stood at N900 billion in 2015, N2.20 trillion in 2016, N3.3 trillion in 2017, N5.40 trillion in 2018, N8.70 trillion in 2019, N13.10 trillion in 2020, N17.90 trillion in 2021, and N22.70 trillion in 2022.

Lower government revenue due to volatility in the price of crude and theft of crude oil combined with the recessions of 2016 and pandemic malaise, forced the former president Buhari led administration to embark on a borrowing spree.

Of course, there are concerns about debt sustainability as Nigeria’s debt service to revenue ratio rose to 81 percent in 2022 as debt to GDP nears 40 percent.

The National Bureau of Statistics data shows that the poverty rate fell from 70% in 1999 (when President Olusegun Obasanjo took power) to 54% in 2004. Poverty, however, is on the rise again.

The World Bank said in June 2022 that the current inflationary pressure will push an additional one million Nigerians into extreme poverty by the end of the year.

The Bank in its Nigeria Development Update report, titled, “The continuing urgency of business unusual”, stated that the additional one million is different from the six million Nigerians that were already predicted to fall into poverty because of the rise in prices, particularly food prices.

Also driving poverty and unemployment is the dismal growth rate for Nigeria in recent years.

Nigeria’s growth rate has dropped from an average of 4.72% per annum between 2011 and 2015, to only 0.8% per annum between 2016 and 2021.

The elevated inflation rate, slow economic growth and high unemployment rate are some of the challenges facing Africa’s biggest economy as a new president assumes power today.

The success or otherwise of the Tinubu presidency has a lot riding on his ability to navigate these major economic issues facing Nigeria.

- Advertisement -

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

- Advertisement -spot_img

Latest article