NewsWest AfricaNigeria: Buhari's big bet

Thu,23Nov2017

Posted on Thursday, 18 February 2016 15:17

Nigeria: Buhari's big bet

Smiles soon faded after the 2016 budget was presented. Photo©ReutersIn the face of lower oil revenue and a feisty national assembly, President Buhari has ambitious plans to reform the economy and the oil sector in particular. His success will depend on his talent for horse trading, political communication and day-to-day politics across Nigeria's government systems.

Olisa Metuh, his hands manacled together, stepped down gingerly from the police lorry outside the Federal High Court in Abuja into the full glare of a phalanx of photographers. At first, he seemed uncertain whether to play the persecuted victim or shield himself from a band of determined reporters throwing questions at him.

Looking dazed as he stared at the crowd, Metuh was hurriedly steered towards the court entrance by his police escorts. Metuh, the national publicity secretary of the former ruling People's Democratic Party (PDP), is facing charges of fraudulently diverting N400m ($2m) of state funds.

After being detained for three weeks by the Economic and Financial Crimes Commission (EFCC), Metuh was escorted to court for a first hearing on 19 January and he secured bail with sureties of N400m. But two days later he was back in custody, accused of destroying his own confession statement.

This is part of a torrent of fraud cases being pursued by the EFCC under its new head, Ibrahim Magu. Top PDP officials say this is a witch hunt, but popular anger at these revelations is growing, with little sympathy for the accused. For now, such gripes have little resonance with the tens of millions of people who are struggling in Nigeria's worst recession in a decade and a half.

In the short term, revelations of grand corruption by the former government of Goodluck Jonathan and its business allies are giving President Buhari's team some breathing space. A senior official in the presidency explains: "The figures are staggering [...]. You now have Colonel Sambo Dasuki, the former national security adviser, accused of diverting $2bn intended for arms purchases into a political slush fund to help Jonathan's PDP election campaign last year."

On top of this, he added, there is another arms procurement scandal that cost the state a further $2bn and involved 10 generals and a colonel. "This is fraud of the worst kind," the official continues, "hobbling the efforts of the military to fight Boko Haram and protect people caught up in the insurgency in the north-east."

Righteous indignation

Another set of political scandals under investigation, announced almost gleefully by information minister Lai Mohammed, involves the illicit diversion of N1.34trn by 15 former state governors, four former ministers, eight bankers, 11 businessmen and 12 former civil servants. Added to these are another set of deals that are specifically linked to the oil and gas industry: some $20bn of oil revenue not transferred to the federation account at the central bank from 2013 to 2014 and an additional $10bn in overpayments on service charges to international oil companies and the illicit granting of tax waivers to these companies.

Righteous indignation is running high as investigators plough through accounts and testimony from witnesses, but the chieftains of the former ruling PDP are not sitting on their hands. As the succession of arrests and court appearances of top PDP officials played out in Abuja in mid-January, the PDP organised its own diversion and accused the Buhari government of mismanaging the announcement of the 2016 budget and breaching the constitution in the process.

It seems that, under pressure to meet the end-of-year deadline for the budget speech to the national assembly, some departmental estimates were featured in Buhari's presentation on 22 December without thorough checking. Somewhat embarrassingly, these included generous expenditure on cars for the presidency.

Once Buhari saw these, he called for an immediate revision and struck them out. The revised copies were not immediately available to the assembly, at which point Buhari's foes there, who include most of the PDP caucus and a group of governing All Progressives Congress (APC) senators who back Senate president Bukola Saraki, plotted to gain an advantage from the bureaucratic foul-up.

Within days, newspapers and TV stations were running investigations into the "missing budget", with the PDP calling for Buhari's impeachment. After days of confected drama, the crisis was defused by a letter of explanation from Buhari to Saraki to be read out on the Senate floor on 19 January.

The incident put Buhari's team on notice about the constitutional obstacles that the national assembly can create. If it had refused to accept the budget, it could have blocked the government's spending plans for months. Indeed, one explanation for the crisis was that Buhari's office had refused to pay the customary – and exorbitant – facilitation fee to the Senate to print the budget.

Without some better working arrangement between the presidency and the assembly, there will be more run-ins. After the January exchange of words, the government's plan to push through its bill to reform the state-owned Nigerian National Petroleum Corporation (NNPC) within the first quarter of this year now looks over-optimistic. Under presidents Jonathan and Umaru Yar'Adua, the assembly delayed a bill to reform the NNPC for six years.

Technocrats

One of the problems is that Buhari and his immediate circle have little time for politicking. His advisers and ministers are predominantly technocrats with little appetite for slugging it out with parliament. The cannier APC politicians – such as former Lagos governor Bola Tinubu and former vice-president Atiku Abubakar – are well acquainted with the legislature and its denizens, but are not close to Buhari. However tricky it may prove, shoring up relations between Buhari and his party will be essential to build support for the government's more radical legislation.

Political insiders in Abuja suggest that some of the posturing by national assembly members may be an attempt to get the Buhari government to slow down its anti-corruption drive. Certainly, retrieving much of the stolen money is likely to be a tortuous process, involving lengthy cases, often in foreign jurisdictions. Solid minerals minister Kayode Fayemi explains: "I don't see much scope for any kind of plea bargain deal to cut short that kind of process [...]. The important point is that the investigations and any prosecutions must be scrupulously fair and independent, but these are matters for the police and the judiciary. The government is concentrating on implementing the policies in its manifesto."

As President Buhari explained in a New Year's Day media briefing on television, the first order priority is for the government to respond to plummeting oil prices, now at a 15-year low, which have plunged the economy into recession. He added that the government's resistance to a further devaluation of the naira was based mainly on the inflationary consequences of such a move. He strongly endorsed the central bank's restrictions on access to foreign exchange, which have frustrated foreign businesses and some of Nigeria's elite. "The foreign-currency restrictions cannot be lifted because the money is not there," he said. But Buhari insisted foreign exchange would be allocated to buy "essential materials" for "productive industries" but not to "those who want to import rice and toothpicks."

School fees

By mid-January, the government had clamped down further on foreign-exchange allocations by ending the supply of dollars and euros at the official rate of exchange to the networks of bureaux de change across the country. A horrified official explained that the country had been spending as much as $280m per quarter on school fees overseas.

Buhari argued that the country's oil-dependent economy has been failing to serve the majority of its people. He said his government would pursue and fund social welfare policies that will protect the poorest from the recession while restructuring the economy and ending the chronic dependence on crude oil exports for some 60% of state revenue.

Within days of Buhari's 1 January media briefing, international oil prices had dropped below $30. The budget for 2016, based on estimates produced last November, was premised on an oil price of $38 per barrel. Whether or not oil prices bounce back, the N6trn budget – a 15% increase on the previous year's – is a bold bet on boosting economic growth by investment and countering the recession. An earlier version had pro- posed still more spending, of the order of N7-8trn, until the bad news about the oil market forced a rethink.

The budget's Keynesian strategy includes an emphatic shift from recurrent to capital spending, mainly on gas, electric power and transport projects. Part of the finance for these expansionary programmes will come from the $25bn energy fund announced by vice-president Yemi Osinbajo last December. Osinbajo, who has a co- ordinating role on economic strategy, also announced a N500bn social protection scheme for the poorest 20% of the population.

21%The Nigerian stock market has dropped by more than a fifth since the start of 2016

However, the new budget assumes about N2trn of fresh borrowing, half of which will come from the local market and the rest will be raised internationally. That will partly be through floating a sovereign bond and the rest will come from Asian and Middle Eastern lenders.

There are important plans to expand taxation and strengthen cost-cutting measures, but the government's urgent priority is to boost revenue to support its expansionary budget.
A higher oil price would help hugely. Emmanuel Ibe Kachikwu, deputy oil minister and managing director of the NNPC, is pushing for an extraordinary summit of the Organisation of the Petroleum Exporting Countries in February. But although a more stable market and higher prices – Kachikwu optimistically reckons that prices could be back around $50 per barrel by mid-year – would provide some respite for economic managers in Abuja, it will not fix the oil industry crisis.

The mathematics are undeniable. Since March 2014, the Nigerian government's revenue from oil has fallen by a third: to $4.3bn from $6.6bn per quarter. Crude oil production has also fallen: to 2.05m barrels per day by the end of 2015 from 2.21m in mid-2014.

Weakening demand

That points to another oil industry blockage: the chronic lack of new investment in exploration and production. According to a new report from the Washington-based Atlantic Council, there is a weakening demand for Nigerian oil. This is shown partly by the slump and near cessation of United States purchases of Nigerian oil due to the rise of shale oil and a glut of light, sweet crude available to US refineries at highly competitive prices.

Although Europe and Asia are mopping up much of the surplus Nigerian oil, the market is much more volatile as refiners look for deals on crude that give them the highest profits. The NNPC's failure to run its own marketing strategy – it is the only major oil producer selling almost all its output to middlemen – has deprived the country of billions of lost revenue through poorly structured and corrupt supply deals. Getting the highest returns from oil and gas exports in what could be a lengthy period of low prices would require both structural reforms and far greater NNPC accountability, according to Aaron Sayne and Aubrey Hruby, the US-based experts who wrote the Atlantic Council report.

Like most advisory reports, it calls for the commercialisation of the NNPC's operations but not the sale of its equity in oil fields. However, it does suggest the government sell much of its poorly managed downstream operations. Recent progress on business magnate Aliko Dangote's 450,000-barrel-per-day oil refinery and petrochemicals plant promises at last an end to the costly, and sometimes highly corrupt, refined fuel import deals.

But if the Buhari government is serious about economic restructuring, it will have to go beyond reforming the oil sector to making a massive productive push in two potentially lucrative sectors: mining and agriculture.

Solid minerals minister Fayemi has already secured a record budgetary allocation for the sector but says this falls short of what is required to map Nigeria's mining potential. "My priorities are to clean up the licensing system and organise a road show to bring new investors into the sector," says Fayemi. "There have been some quiet successes: Nigeria is now self-sufficient in lime- stone and thanks to Dangote Inc., we are now a net exporter of cement."

A tougher nut to crack in Fayemi's portfolio will be the management and restructuring of the Ajaokuta Steel Company, with India's Mittal trying to take over the plant. After billions of dollars of investment in the steel mill dating back three decades, it never produced competitively. With the right plan, it could produce viable inputs for a wider industrialisation programme.

Much less problematic is agriculture, where increased production could save the country much of the money it spends on food imports. Audu Ogbeh, a veteran politician appointed agriculture minister, has launched a programme to plant more than two million cocoa trees.

Buhari's $4bn programme to rebuild the war-ravaged economy of north-east Nigeria is based on a massive revival of grain, nut and tomato production. This, like much else the government does, is taken seriously despite the revenue crunch. The north-east project is being managed under the auspices of former defence minister Theophilus Danjuma, now a billionaire businessman who chairs his own development foundation.

Six months after Buhari was sworn in, there is still much goodwill for his government and its efforts against corruption and terrorism. But there is still far too little explanation about the government's wider ambitions and what it might take to achieve them. Already, that communication gap has caused some ructions on the political scene. Failing to deal with such details could undermine the grander plan to remake Nigeria's economy. ●



Patrick Smith

Patrick Smith

Patrick Smith is Editor-in-Chief of The Africa Report. He has edited the political and economic insider newsletter Africa Confidential since 1992 and was associate producer on a documentary about the 2004 coup attempt in Equatorial Guinea commissioned by Britain's Channel 4 television.

 

Subscriptions Digital EditionSubscriptions PrintEdition

FRONTLINE

NEWS

POLITICS

HEALTH

SPORTS

BUSINESS

SOCIETY

TECHNOLOGY

COLUMNISTS

Music & Film

SOAPBOX

Newsletters

Keep up to date with the latest from our network :

subscribe2

Connect with us