Elections key to Nigeria’s future
Building an industrial structure in Africa’s largest economy
by Kingsley Moghalu
Thu 26 Mar 2015
Nigeria's deferred presidential election this weekend is a pivotal contest that will decide the country’s future and the personalities who will shape it. With 170m people Nigeria is Africa’s most populous country and largest economy. Whoever wins will have to come up with solutions to tackle an oil-lubricated economy traumatised by a sharp decline in the price of crude, which makes up over 80% of the country’s revenues. The government must rebalance skewed spending priorities that are focused more on recurrent expenditure to finance a bloated governance apparatus than capital investments for real economic transformation.
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These problems have led to the naira falling heavily, the result of lower oil revenues and the absence of fiscal savings that could have acted as a buffer against exogenous commodity shocks. The first post-election challenge will be to secure the peace by discouraging any temptation on the part of the loser to stoke a political crisis that could turn violent. President Goodluck Jonathan and his challenger General Muhammadu Buhari signed a pact pledging to work towards elections devoid of violence. Much effort by various interests, including US President Barack Obama, has gone into persuading them to stick to it.
The second challenge is the economy. Despite the present distress, which will last through 2015 and well into 2016, Nigeria remains imbued with considerable economic potential, which it will realise, at least partially, within the next decade. Depressed oil prices will force the country to exploit less volatile areas of economic activity, although it will face social unrest if some states become unable to meet such financial obligations as worker salaries.
Political uncertainty has buffeted the naira and depressed confidence among local and foreign investors. Yet the currency will stabilise and investors will re-engage as a settled political environment returns. More important is how to bring about structural transformation, create jobs, and rebalance lopsided economic growth between the more prosperous south and the poorer north, in particular the northeastern states that have been devastated by Boko Haram terrorist attacks.
Achieving these goals will require scaling some hurdles of political economy. The government must restructure a federation where most resources and instruments of power rest at the centre in Abuja, leaving many states dissatisfied and feeble. Just as difficult to resolve is the conflict between dominant partisan political influence and rational economic policy-making. With political and other vested interests dominant over economic policy, fiscal revenues are highly stretched. There is deep-seated tension between spending, often on questionable projects, and saving, which most Nigerian politicians detest but is essential for any resource-driven economy vulnerable to external shocks.
In the medium to longer term, the country’s economic fortunes will be boosted by the scheduled completion and take-off in 2017 of a major oil refinery under construction by the Dangote Goup, the industrial conglomerate owned by Aliko Dangote, Africa’s richest man. The plant will refine 650,000 barrels of oil per day, cutting Nigeria’s refined petroleum products import bill by 50%. This will lower pressure on the naira caused by the constant need for producers of petroleum derivatives and other importers to purchase large amounts of dollars. Local refining will reduce the need for foreign exchange. Beyond this benefit, and the generally positive impact on monetary policy, the refinery and its by-products will mark a structural shift towards an effective industrial manufacturing economy.
Whoever wins this weekend needs to bring greater discipline, focus and strategy to the country’s economic management. The country must improve management of its fiscal resources by curbing the many areas of waste and leakage of fiscal revenues in the oil and other sectors. In addition, the next government must reform the power sector within the next four years and create skills and jobs needed to underpin a still elusive industrial economy.
The list of tasks is long. Whether the victor will master them remains an open question. Yet the trials of the past 12 months could provide the necessary impetus for success.
The writer, a former deputy governor of the Central Bank of Nigeria and member of the OMFIF Advisory Board, is founder and president of Sogato Strategies LLC, an emerging markets risk and strategy advisory firm, a partner in the US law firm Cooke Robotham LLP, and the author of Emerging Africa.