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Nigeria | Economic concerns as policy announcements delayed

Nigeria | Economic concerns as policy announcements delayed

Since coming to power in late May, President Buhari has moved slowly in setting out his plans and policies. This week, the government indicated that Buhari will not form a cabinet until September.

We understand that this is leading to concerns about the economic environment, the ease of doing business in Nigeria, and the prospects for an improvement in security. Positively however, Buhari has taken some early steps towards improving regional cooperation on fighting Boko Haram.

Buhari has said that the government is heavily indebted and short on liquidity. He has explained that dealing with this and ‘cleaning-up corruption’ are the reasons for not announcing his cabinet sooner. But, the government’s poor fiscal position, together with a weak and unstable currency, will probably add to its problems as it tries to address insecurity and falling confidence in the country’s position as a leading regional business hub.

Uncertainty about policy is putting additional pressure on the value of the Naira. This increases the likelihood of another devaluation later this year, or more restrictive regulations on foreign exchange transactions. The central bank had to devalue the currency earlier this year after it started running out of foreign exchange reserves with which it could defend the Naira’s value against the dollar. In another attempt to support the currency, the bank has implemented regulations restricting access to foreign currencies for importers – a move that businesses have criticised as being overly disruptive to their operations.

The delay in setting out a cabinet and a clear plan for government policies is exacerbating these financial risks. Some economists have warned that it increases the chance that government revenue will ‘collapse’. With lower oil prices, government revenue has dropped significantly over the past year, putting a strain on plans to increase funding, training and supplies for the security forces. The performance of the new leadership of the oil and finance ministries will be particularly important in averting such a scenario.

Buhari has indicated that he will take the lead in the oil ministry. But he has provided no concrete answers to questions about whether he will cut fuel subsidies, continue a Niger Delta amnesty programme, and pass a long-overdue petroleum bill. These issues will directly affect security risks. We are watching for signs that criminal and militant groups will step up attacks against the oil sector in an attempt to put pressure on the government to continue the amnesty programme and financial support to former MEND members. Meanwhile, as has previously occurred, attempts to cut or remove fuel subsidies would probably prompt protests in major cities.

The unstable and concerning financial position of the Nigerian government at this time also raises questions about its ability to continue the offensive against Boko Haram at its current level. The Nigerian military has been struggling with a lack of suitable equipment as well as low morale. During his election campaign, Buhari focused heavily on security, and said that he would provide better support to the military. Currency and revenue problems would undermine his ability to do so. This would probably allow Boko Haram more room to regroup and reestablish supply routes in the northeast.

Nevertheless, there have been some positive developments regarding the military operations against Boko Haram. Buhari has held talks with both Chad and Niger about how they can improve cooperation between their militaries. So far, the Nigerian authorities have been reluctant to allow soldiers from Chad or Niger soldiers to pursue Boko Haram across borders into Nigeria. Instead, Chad and Niger have focused on securing their borders with Nigeria.

We have yet to see any clear signs that the talks have led to military collaboration improvements, but the talks are a positive early step. Holding similar meetings with Cameroon will be key in establishing an effective regional military force against Boko Haram. However, a trusted source with good access to the new government has told us that he is sceptical about Buhari’s chances of improving military relations with Cameroon. He said that this is due to personal problems, resulting in part from Buhari’s role in a territorial and military dispute between the two countries in the 1980s.

Image: President Buhari; US State Department, Creative Commons

Published: 3rd July 2015
Categories: Company News