The Buhari Year 1 Mid Term Report

Just after General Muhammadu Buhari was declared winner of the conclusive 2015 Presidential elections in Nigeria, I wrote an article proposing ideas for his presidency (see here). He had won on a platform of Change; victory was not quite unanimous but had tremendous support among the most vocal and educated of the populace. While his sing song had been Corruption and Security, falling oil prices and low external reserves had put pressure on both government revenues and the Naira such that the Economy would soon become the number 1 priority.

And how did he respond? He took his time naming a cabinet and in my opinion made a number of underwhelming choices. While it was inevitable that he would have to reward key party people, appointments to core positions such as Finance, Budget & Planning, Agriculture, Communications, Education and Transport do not immediately inspire confidence that the needle has been moved significantly as promised. The combination of Power, Works and Housing into one under former Lagos State Governor Babatunde Fashola might look good on paper given his pedigree, however it could prove a bit too much in the final analysis as each area requires significant work to deliver the required outcomes. That Buhari started on this note sent a message that he was not ready for business from day 1 as there were little or no surprises in the appointments made, all were known quantities. Having said that, 7 months in there is enough time to take a look at what has been done so far under 4 broad headings.

Change — Different party, new actors has not immediately translated to change. It largely remains business as usual. While much has been made of the smaller number of ministries and as a result smaller cabinet, the budget process (which should be the most visible evidence of change) has followed the same trend as the recent past. Buhari has gone for an expansionist budget planning to spend significantly more (in Naira terms) than any government in Nigeria’s history. The 2016 budget is N6.08Trn, circa N1Trn more than total spend in 2015 (N4.45Trn approved budget and N547B supplementary appropriation). 26% of the budget (N1.6Trn) is capital expenditure which compares rather unfavourably with huge budgets of the past such as the Yar’Adua budget of 2010 which had total spend of N4.6Trn with 40% as capital expenditure and the Jonathan budget of 2013 with total spend of N4.99Trn, 32.5% as capital expenditure.

Despite spending significantly less than proposed for 2016, both voted more capital expenditure in Naira terms and as a percentage of total spend. What makes it even more astonishing is the fact that for the first time in almost a decade Nigeria should have no subsidy payments to make in 2016 (savings of circa N650–700B), clearly a statement of intent would have been made with capital expenditure of N2.1–2.4Trn (35–40%). A budget with 74% non capital expenditure throws all talk of Zero Based Budgeting out of the window. This has been a budget produced on the same templates as in the past with several instances of wasteful and needless spending which were expected to be cut out. As far as bringing change to public spending, unless the National Assembly pushes back we will have to wait one more year to see that. Clearly there is a need for an increase in government spending to stimulate the economy and shore up investor confidence, however increasing non capital expenditure by 18% (inflation is 9.4%) when whole budget increased by 20% doesn’t suggest that the new government is ready to break with the old.

Economy — A lot has been made about how fall in oil prices portends grave danger for the Nigerian economy as a whole. Clearly there has been a slow down in the economy in 2015 (2.84% GDP growth in Q3 2015 as reported by NBS), however the economy is significantly bigger than oil and government spending (non oil sector made up 89.73% of GDP in Q3 2015). What this suggests is that at a time when oil revenue seems set to continue on a downward spiral, government response must be to defend and do all it can to grow the non oil sector.

Key to this is having an understanding of the key sectors of the economy, their drivers and what fiscal (as well as monetary) levers can create a positive effect. Agriculture (24.5%), Trade (18.78%), Information and Communications Technology (9.9%) and Manufacturing (9.67%) make up almost two-thirds of GDP. Only Manufacturing recorded negative growth in Q3 2015 (-1.75%) while others recorded growth rates in excess of overall GDP growth rate for the same period, therefore counteracting the downward pull of oil (1.06%) and manufacturing (combined 20% share of GDP).

What this shows is that price stability maintained through lower petrol price than 2014 (at a huge subsidy cost though, it remains to be seen impact of scarcity in Q4) and defending Naira has ensured minimal adverse effect on the economy so far. Agriculture in particular is keenly affected by petrol prices as chief transportation mode for produce is by road. Trade is largely affected by exchange rate and one would have expected a significant downturn given the exclusion of certain items from the CBN window, however the sector recorded 4.4% YOY growth. Manufacturing has largely been affected by Oil refining which has had a significant drop in Q1 and Q2 but showed a strong recovery in Q3. A review of the Q3 2015 Jobs report shows a 36% increase in number of jobs created YOY, albeit 90% are informal jobs. In effect, the Buhari administration has largely been bailed out by CBN policies that have maintained stability while the new government found its feet. As can be seen from areas where CBN could not exert control e.g. fuel availability, government struggled to deliver coherent and effective responses leading to hardship faced by the people.

2016 looks to be more of the same with CBN set to continue defending Naira at current rate, more foreign exchange demand management and more importantly a loosening of monetary policy with the recent drop in rates (the worry here is impact on inflation which could go into double digits). Government needs to play its part and this is where the 2016 budget as highlighted earlier comes as a disappointment. There needs to be a significant reform of public sector spending to drive funds to areas where most needed. There also needs to be major overhaul of the tax infrastructure (legislation and administration), supported by positive TSA impact and Customs reforms to ensure that the huge 2016 budget deficit is not repeated. 2016 will be a make or break year for this administration from an economic perspective.

Corruption — This has been the administration’s strongest push in the first 7 months with the law enforcement agencies reading the “body language” of their principal and going after high profile targets in the past administration. It has helped sell the message of change and also distracted focus on other areas where there is relative inertia. The test however will come from the ability to secure quick and effective convictions as well as recovery of looted funds. Of concern however is the willingness to bend the rules to achieve the convictions. It is important that the rule of law must be obeyed and government should simply become smarter and innovative in ensuring they achieve their objectives while not trampling all over the constitution and the Judiciary. In 2016 government must be prepared to see this become a sideshow while the people begin to focus on other areas where they expect to see improvements that directly impact their lives.

Insecurity — the battle against Boko Haram continues to claim lives and casualties despite the claim by government that the battle has been “technically won”. There is no doubt that several territories have been regained in a continuation of the push begun by the past administration early 2015. However until Internally Displaced Persons (IDPs) can begin returning home or the process of resettlement begins the government has no business announcing victory. While the war against terror is almost always never fully won given that individual units or persons can carry out attacks, being able to fully reclaim the North East and get people back to living relatively safe and productive lives is achievable and should be the benchmark by which success is measured. The government should set a more realistic target of end of 2016 rather risk losing credibility through unrealistic targets such as the end of 2015 date set which its now trying to justify. Important also to mention that 2016 might bring even more potential flashpoints to the fore with the proposal to reduce (or stop) the amnesty payments to erstwhile Niger Delta militants as well as recent agitations by the Islamic Movement and IPOB.

What does this all mean?

In the overall analysis there have been more misses than hits in the first 7 months of the Buhari administration, some of it self inflicted — controversy on lopsided nature of appointments (compounded by statements made which suggested a section of the nation should expect to be marginalized), lack of an appropriate response to clashes between the military and civilians in the North (Islamic Movement) and South East (IPOB) as well as the “inconclusive” elections handled by INEC in Kogi and Bayelsa states.

The good news is that there remains willingness to give this government more time to get its act together. 2016 is very critical to setting the right tone as can be seen from how 2012 set the tone for the loss of popularity of the Jonathan administration. President Buhari will be well warned to learn from that and begin to not only craft sound and effective policies but ensure a significant improvement on communication and engagement with the populace to ensure understanding and buy in.