The Nigeria economy is expected to grow by 2.5 per cent this year
after contracting 1.6 per cent in 2016. But the population is also growing at
2.5 per cent. So, in per capita terms, things are going nowhere.
The reasons for the “recovery” are twofold. First, last year’s
performance was so dismal it would have been difficult for the economy to fall
further. Without doing anything at all — a reasonable description of policy
under Muhammadu Buhari, the country’s ailing leader and frequent London
resident — the baseline effect has worked its magic. Second, the oil that makes
up so much of government revenues is flowing faster. In June, production was
1.7m barrels a day, 10 per cent higher than a year ago.
Like weeds shorn of their leaves, graft will doubtless spring back
as lush as ever once the Buhari strimmer is back in its box. One should, they
say, never let a crisis go to waste. That advice has clearly not reached Abuja,
where the economic collapse brought on by swooning oil prices was supposed to
spur diversification. It has not happened.
The danger now is that, having apparently come through the worst,
Nigeria will simply go back to business as usual. If oil prices recover, so
will headline growth. But the structure and basic dynamics of Africa’s largest
economy will remain unchanged. Nigeria frustrates because of its vast
potential. It has 190m people, among the sharpest, most driven and
entrepreneurial on the continent.
But perverse incentives have diverted the energy of the best and
the brightest to mostly unproductive activities: making money through political
connections, speculation, round-tripping and arbitrage. When President Buhari
was elected three years ago, he promised to end all this.
The economy would be transformed. Manufacturing would be re-energised.
So, would agriculture, which employs three-quarters of the population but
contributes only a fifth of output. The government would wean itself off oil
revenue. Mr Buhari — stern, principled, incorruptible — was said to be the man
to see this through. Little has come to pass. Mr Buhari took six months to name
a cabinet and became embroiled in a necessary but distracting fight with Boko
Haram. He has spent much of the past year convalescing from a mystery illness
that has sapped his presidency of vigour and set off a merry-go-round of
political jockeying to succeed him. There has been practically nothing in the
way of coherent economic policy. True, there have been attempts to punish
individuals for corruption.
Yet, like weeds shorn of their leaves, graft will doubtless spring
back as lush as ever once the Buhari strimmer is back in its box. An example of
failure to cut corruption at the roots is the foreign exchange policy. Mr
Buhari was determined to defend the phoney official rate. But the only way to
do so was to ration dollars. Given the yawning gap with the black market, this
has delivered a delicious arbitrage opportunity to anyone lucky — or connected
— enough to get their hands on precious foreign exchange at the official
window.
Sadly for hopes of economic diversification, the lucky
beneficiaries of dollars did not include manufacturers. Most were actually
banned from receiving the foreign exchange they needed to buy inputs or capital
equipment. Far from expanding, manufacturing actually shrank last year. The
economy is back to square one, gasping for a recovery in oil prices to breathe
life back into the system.There are some promising signs. Agriculture is
getting more attention, and there are tentative improvements in rice and other
crops. If all goes to plan, by 2019, the country will have a $12bn oil refinery
courtesy of Aliko Dangote, Nigeria’s richest man. This is an installation that
could save billions in unnecessary imports of refined products.Related
article
Nigeria’s constitution is working. In Mr Buhari’s extended absence with illness, the competent and dynamic Yemi Osinbajo has been running the show. Foreign exchange policy has improved. In April, a “growth and recovery plan” was published, laying out plans to cut red tape, improve the tax take, reform state-owned enterprises and move towards a market-determined exchange rate. Such policy prescriptions have been discussed for 20 years. The danger is Nigeria will still be talking about them 20 years hence.The immediate prospect is for a vicious and enervating power struggle to succeed Mr Buhari, whom few expect to contest the 2019 election. Whoever emerges victorious will doubtless promise to stamp out corruption, diversify the economy and rationalise the oil sector. Cats not only bounce. They also have nine lives.
Nigeria’s constitution is working. In Mr Buhari’s extended absence with illness, the competent and dynamic Yemi Osinbajo has been running the show. Foreign exchange policy has improved. In April, a “growth and recovery plan” was published, laying out plans to cut red tape, improve the tax take, reform state-owned enterprises and move towards a market-determined exchange rate. Such policy prescriptions have been discussed for 20 years. The danger is Nigeria will still be talking about them 20 years hence.The immediate prospect is for a vicious and enervating power struggle to succeed Mr Buhari, whom few expect to contest the 2019 election. Whoever emerges victorious will doubtless promise to stamp out corruption, diversify the economy and rationalise the oil sector. Cats not only bounce. They also have nine lives.
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