Business
Nigeria: Whoever wins the presidential elections will need to robustly deal with the economy
Nigerian businesses from small operations to the huge Dangote Group, run by Africa’s richest man, Aliko Dangote, are being battered by a weak naira and low oil prices before elections on March 28 that analysts expect to be the closest since the end of military rule in 1999.
Whether incumbent President Goodluck Jonathan, 57, secures re-election or his main rival, former military ruler Muhammadu Buhari, 72, wins, the next leader of Africa’s top oil producer will find public finances squeezed and much needed capital infrastructure projects frozen.
As a major exporter of oil, Nigeria will face tough times ahead. With a 50 percent slump since June in global prices for oil, which provides two-thirds of government revenue and 90 percent of foreign income, the naira has lost 18 percent against the dollar in the past 6 months, the second-steepest decline among 24 African currencies tracked by Bloomberg.
The International Monetary Fund (IMF) cut its 2015 growth forecast for Nigeria to 4.8 percent, about half the average rate over the past 15 years.
The downturn has struck across the social divide of Africa’s largest economy. Nnanna Agbaso, owner of three Grand Cantina Wine & Spirits stores in the upmarket Victoria Island and Lekki districts of Lagos, home to some of the most expensive real estate in Africa, will have to raise prices as much as 13 percent for his next shipment of Italian wine and Prosecco.
“With oil prices dropping and the political uncertainty, everyone is being very careful with their expenditure,” the 29-year-old Agbaso said in an interview. “When times are not good, people wonder whether they really need a fancy bottle of wine.”
At the top, Dangote, who controls Africa’s biggest cement maker and has interests in food, oil, salt and sugar, has lost US$5.3 billion of his fortune this year, more than anyone else globally, according to the Bloomberg Billionaires Index. He is now worth US$13.1 billion.
In import-dependent Nigeria, a weaker currency means higher prices goods ranging from mobile phones to food. Inflation will probably accelerate to 10 percent or more in the second half of this year because of a weaker naira. Prices climbed for the third consecutive month in February by an annual rate of 8.4 percent.
Investors have also felt the impact. South Africa’s Tiger Brands Ltd., which bought a stake in Dangote’s flour milling business three years ago, does not expect to turn a profit from its Nigeria operation until 2017. “We anticipate more challenging times rather than less challenging times,” CEO Peter Matlare said on a conference call last month.
Nigeria’s economic turbulence is being amplified by continued attacks by the al-Qaeda-linked Islamist militant group Boko Haram and a tight election battle.
Jonathan’s ruling People’s Democratic Party (PDP) faces Buhari’s All Progressives Congress (APC), formed by the merger of the main opposition parties. For the first time since the end of military rule, there is a strong chance the PDP will lose power, with both candidates level at 42 percent support in a December poll by Afrobarometer.
The parties have promised to boost spending on health care and security, increase employment and improve access to education.
Yet the new government will find its room for maneuver limited. Nigeria’s source of government income is not diversified enough away from oil, Finance Minister Ngozi Okonjo-Iweala said last month. Domestic debt will rise to meet the shortfall and pay salaries of government employees, she said.
Cuts to Nigeria’s budget may force the government to freeze a large percentage of infrastructure projects, with no money for maintenance, Minister of Works Mike Onolememen told lawmakers in the capital, Abuja, on March 9. This year’s proposed budget will reduce capital spending for the public works ministry to 11 billion naira (US$55.3 million), down from 98 billion naira (US$492 million) last year, he said.
The oil-price shock may be a “blessing in disguise” if it forces fiscal and economic reforms, said Kingsley Moghalu, a former deputy governor at Nigeria’s central bank.
“It is a resource curse,” Moghalu, who will take up a post in July as professor of international business and public policy at Tufts University in Medford, Massachusetts, said by phone from Washington. “I would like to think we learnt from the oil price crash of 2008. Maybe I was too optimistic.”
Many Nigerians are skeptical that the politicians are interested in turning around the economy in a country with a reputation of graft. Nigeria is ranked 136 of 175 countries in Transparency International’s 2014 Corruption Perceptions Index, on par with Russia and Iran.
On a Sunday evening this month at the warehouse sized New Afrika Shrine music venue in Lagos, Femi Kuti, the musician and son of the late Afrobeat pioneer and political activist Fela Kuti, said corruption is Nigeria’s biggest affliction.
“There are many roads in Lagos that are not repaired,” Kuti said in between performing songs such as “Politics Na Big Business”. “There is corruption at all levels of government.”
Source: Bloomberg