President Muhammadu Buhari
President Buhari

…APC, Buhari have failed – HSBC; He will lose 2019 polls – EIU


Nigeria seems to be getting global attention in recent times but it appears for the wrong reasons. With the controversy over the $10 billion refund imposed on MTN still raging two global agencies released reports last week warning of the challenges facing the economy and the outlook going forward under a President Buhari government.

The reports, by HSBC and Economic Intelligence Unit of the Economist magazine, were not only timely but instructive and revealing, and contradict most of what the government has been saying and attributing as its achievements. Coming before Nigerians vote in another general election in February 2019, the reports collectively concluded that with this government, Nigerians should brace up for harder times because the economy, which recorded a decline in the first half of this year, will further plummet next year.

But they were short of endorsing the main opposition party, PDP, as a potential and better replacement in view of its disorgaised structure and unclear policies. The reports believe that Nigeria is in deep political and economic dilemma and trouble because though the ruling APC has virtually failed to project a united house and manage the economy, the change alternatives hardly inspire any confidence.

Although the reports only confirmed what Nigerian experts have been saying over time, they provide a validation of the criticisms of the government and refutations of its claimed successes. Obviously the government inherited a weak and troubled economy in 2015 but the tragedy is that it had failed woefully to improve on it and continues to embark on the blame game.

The reports are a mixture of potential good vitiated by the bad – a contradiction of developments reflecting the confused policies and their negative impacts on the economy.

Reports the HSBC, a global banking giant: “Higher oil prices have boosted Nigeria’s external position and provided a veneer of macro stability…but the economy’s oil dependency and structural shortcomings are evident in a tepid pace of growth and fiscal fault lines…while national elections pose a near-term risk to the outlook…”

On its part, The Economist Intelligence Unit (EIU), predicted that the opposition Peoples Democratic Party (PDP) will defeat the ruling All Progressives Congress (APC) candidate in the upcoming 2019 presidential election, noting that “policy reforms, particularly in the vital oil industry would be slow as a result of division in the political elite between advocates of tough, unpopular market reforms and those who prefer pandering to nationalistic and pro-subsidy interest groups.

According to the EIU, politicisation of economic policy would also slow reforms and at times actively decelerate economic growth.

“The Central Bank of Nigeria will not act completely independently, and the overall policy agenda will be pulled in differing directions by various powerful interest groups,” the report stated.

“Fiscal expenditure will remain dominant by recurrent spending despite attempts to boost capital investments. Efforts to boost non-oil tax revenue will be constraint by weak bureaucratic capacity and low economic growth. Constrained by a crippling infrastructure deficit, economic growth will be well beneath level needed to boost job creation and increasing living standard.

“Inflation will generally remain high over the forecast period (2018-2022) amid expansionary fiscal policy and high food prices stemming from government efforts to limit import and support local producers.

“The authorities will continue to interfere in the foreign exchange market although the degree of interference should eventually lessen with higher oil prices supporting reserves and broad economic confidence slowly improving. The naira will nonetheless depreciate over 2019-21 and be broadly stable in 2022,” the report explained.

It saidthat the 2019 elections will be completed without a widespread breakdown in stability with Nigeria’s democracy proving once again to be robust enough to endure.

“However, we expect major unrest to continue in 2020-2022 as comprehensive solutions prove too complex and costly to implement in the medium term.”

The reports identified 10 critical areas of concern and challenge, which leave the country vulnerable and in dire strait. These include the structure of the economy which has remained dependent on oil; high oil price now at over $80 per barrel with attendant high cost of import of petroleum products and consequently raising the cost of subsidy; contraction of the economy in spite of rising of price; budget delay and rising deficit, Election risk and inflation; falling real wages, rising unemployment; the reform plan and its problems; Doing Business survey; too close to call poll, and a second term economic risk.

Higher oil prices mask structural shortcomings

Higher oil prices have brightened Nigeria’s macro outlook, boosting export earnings and the supply of foreign exchange, improving the external position and supporting Naira stability.

The trade account registered a surplus equal to 6.2% of GDP in Q1 2018, capital inflows have recovered following last year’s FX reforms and enticed by attractive government yields, while FX reserves have almost doubled over the past 18 months.

The stability of the exchange rate has supported a faster pace of disinflation in recent months, helping headline price growth slow to 11.6% y-o-y in May from more than 16% a year earlier. We think this disinflation trend, together with concerns over growth, could prompt the Central Bank of Nigeria (CBN) to cut rates during Q3.

Structural problems                                      

Yet, in our view, these gains merely mask the economy’s unresolved structural shortcomings. Economic growth remains sluggish and reliant on the rebound in oil output while the non-oil economy, which accounts for about 90% of GDP, continues to languish with many service sectors still mired in contraction. Joblessness continues to rise, up almost three-fold in three years to 19% in Q3 2017, pushing the number in poverty to 87 million.


Government is increasing spending and oil price on high yet the economy is contracting.

The growth outlook may benefit from fiscal stimulus following the passage of the 2018 Budget, delayed for six months, which targets a 22.5% increase in government spending. But this expansionary stance may also prove to be a key source of macro risk if Nigeria fails to address its fiscal fault lines, including the ongoing reliance on oil revenues, inadequate non-oil tax collections and a large share of its budget directed to debt service.

The decision to issue external debt to redeem more expensive short-term government securities is helping reduce debt service costs in the near term, but exposes the fiscal position to exchange rate risk in the event of a future decline in oil prices and NGN devaluation.

Election risk and inflation

Election-related spending may compound these fiscal concerns while the poll itself raises macro risks given political uncertainty, fractures within the ruling All Progressive Congress (APC) and President Buhari’s waning approval ratings.

Portfolio equity flows and money market instruments have been the primary channels, with gross capital inflows exceeding $6bn in the first quarter of this year while the government also issued $2.5bn in 12-year and 20-year Eurobonds in February 2018.

We think inflation will reach single digits in H2, before liquidity pressures from an expansionary budget take effect and start to push price growth higher (see CEEMEA Economics Quarterly: Nevertheless, we think the combination of disinflation, sluggish non-oil growth, and positive real rates will prompt the CBN into 100bp of rate cuts in the third quarter of this year. 


Against this, however, Nigeria’s reliance on fuel imports means rising international oil prices are pushing up the cost of fuel subsidies, estimated by the Petroleum Products Pricing Regulatory Agency (PPPRA) at $250m in May alone. Oil prices at current levels therefore suggest a fuel subsidy that could total $1.5bn in H2 2018, and about $2.5bn for the year as a whole, which would equate to almost 20% of last year’s gross oil revenue.

Higher oil doesn’t translate into stronger growth.  Whatever benefits oil may bring to Nigeria’s nominal balances, however, there remains significant vulnerability given the structural shortcomings afflicting the economy and its ongoing oil dependence. For one, the gains that have been achieved following the rise in oil prices have not translated into non-oil growth.

The non-oil sectors which accounts for 90% of GDP expanded by just 0.8% y-o-y at the start of 2018. Momentum has been constrained by sluggish growth in the agriculture sector and persistent contractions in the real estate, trade, and construction sectors.

Falling real wages, rising unemployment

One reason for this has been the squeeze on purchasing power and consumer spending from high inflation. Meanwhile lending growth to the private sector remains sluggish, on average contracting in nominal terms over the past 12 months, in part due to fiscal dominance and bank financing of the fiscal deficit.

These factors are among those seen as most problematic for doing business in Nigeria, alongside the country’s long-standing structural impediments such as inadequate infrastructure, corruption, an inefficient government bureaucracy and policy instability.

The reform plan and its problems

Over our forecast horizon, the economy should receive some support from easing inflation pressures and the fiscal stimulus contained in the 2018 Budget. Perhaps there is also some upside for the growth outlook from the efforts that have taken place towards improving the business environment, as part of the government’s Economic Growth and Recovery Plan (EGRP).

Indeed Nigeria was among the 10 countries implementing the most regulatory reforms to make it easier to do business in 2016/17 in terms of the World Bank’s Doing Business assessment, with reforms to improve the ease of starting a business, dealing with construction permits, registering property, getting credit, and protecting minority interests.

Nonetheless, the regulatory environment remains restrictive, evident in Nigeria’s overall rank of 145 out of 190 countries in the World Bank

 Doing Business survey

Meanwhile weak institutions, infrastructure bottlenecks, disappointing macro dynamics, and poor basic health and education outcomes weigh heavily on the country’s competitiveness, leaving it languishing in 125th position out of 137 countries in the World Economic Forum’s 2017/18 competitiveness rankings. Fiscal and FX concerns persist.

Budget delay and deficit

Faster implementation of the 2018 Budget, which places a continued emphasis on infrastructure projects may also offer some upside to our growth forecasts, but is likely to put pressure on Nigeria’s already-stretched fiscal metrics. According to the CBN, the fiscal deficit widened to 4.7% of GDP in 2017 as spending growth significantly outpaced revenue collections.


The 2018 Budget provides additional fiscal stimulus, with spending set to rise by 22.5% to N9.12trn ($25bn) and the deficit forecast to be N1.95trn. The government expects N3.5trn to go to recurrent spending, N2.9trn to capital and N2.2trn to servicing debt.

Despite the more favourable oil price environment, we are circumspect over Nigeria’s ability to raise revenues, and expect the budget deficit to be significantly bigger than the government’s projections at 3.5% of GDP.5 Initial figures for 2018 suggest the government is continuing to run sizeable monthly deficits. 3 The EGRP was released last year and aims.

Too close to call poll

A close contest increases the possibility of desperation by the ruling party and government to resort to illegitimate to retain power, thereby creating a fertile ground for violence.

Electoral uncertainty and macro risks National elections are set to take place in February 2019, and are likely to add a layer of political uncertainty to Nigeria’s already disappointing macro outlook. Four years ago, President Muhammadu Buhari and the All Progressive Congress (APC), a coalition party established to take on the then incumbent Peoples Democratic Party (PDP), won the polls convincingly and achieved the first democratic transition of power in Nigeria’s history (see Nigeria elections: Historic win for opposition candidate, 1 April 2015).

Mr Buhari will once again lead the APC into the 2019 elections, although his approval ratings sit near all-time lows. This largely reflects the impact of Nigeria’s painful recession in 2016-17 and the sustained economic hardship that has accompanied his presidency, including rapidly rising joblessness, and poverty.

In addition to the economy, other key election issues are likely to include security and corruption. Boko Haram, militants, herdsmen, and voter manipulation, which increases the risk of violence.

The polls look set to be a closely contested affair, particularly given that these policy challenges are exacerbated by strains within the APC coalition. In July several high profile APC members – including Senate President Bukola Saraki and House of Representatives Speaker Yakuba Dogara – broke away from the ruling party to form the Reformed All Progressive Congress, and potentially join forces with the PDP.

A second term economic risk

A second term for Mr Buhari however raises the risk of limited economic progress and further fiscal deterioration, prolonging the stagnation of his first term particularly if there is no move towards completing reform of the exchange rate system or fiscal adjustments that diversify government revenues away from oil.

In the near term, however, the election impact is likely to be negative as increased political uncertainty precludes policy reforms, weighs on confidence, deters investment spending and restrains the growth outlook.

However, Dr Boniface Chizea, Managing Consultant BIC Consultancy Services Ltd is not overly impressed or bothered with the reports saying that they are mere projections.

“We as a people tend to celebrate any projections no matter the credibility of the source particularly coming from outside the country. We harp on it and use it to support our jaundiced views on the economy for as long as it buttresses our preferred and selfish stance.

The Economist report may be; but not HSBC; an international Bank. How many of the predictions from our local banks have we ever taken seriously? Even domestic rating agencies such as Agusto&Co have been muzzled for lack of audience and patronage.

There are issues with the economy no doubt. We accept that the economy has been relegated to the back burner as should be expected with elections 2019 looming large on the horizon. The indices from Bureau for Statistics indicate a slow down but we all know that in Nigeria such issues do not actually predict the outcome of an elections.

Just as we all agree that elections in the country are not driven by any ideology otherwise the recent gale of defections could not have taken place; so also GDP performance has never determined the results of elections in the country. Surprisingly the general feeling of wellbeing has not been correctly predicated on the outcome of elections.

We know that primordial considerations still rule the political waves as a majority of the voting population do not have such sophisticated level of thinking. It is also trite to observe that the economy would improve after the elections; that should be obvious to all perceptive observers.

So I for one would not place much store on such predictions as they do not amount to much. APC remains the party to beat warts and all as even as we speak we have not so far seen that credible and threatening opposition that would upset the apple cart.”




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