Buhari’s Undisclosed Illness: Should Investors Keep Giving Him The Benefit Of The Doubt?

By Global Risk Insights Published: April 10, 2017, 4:15 pm
Buhari's undisclosed illnessNigerian President Muhammadu Buhari. Photo: Punch

Investors continue buying Nigerian bonds despite urgent calls for reform after the country dipped into economic recession for the first time in 25 years.

In March, high-profile investors were competing on the London Stock Exchange for Nigerian debt, a 15-year, $1 billion eurobond issued while President Muhammadu Buhari was receiving care in London for an undisclosed illness. On March 21, 2017, Standard and Poor’s affirmed Nigeria’s B/B rating, a stable economic outlook and a cautiously optimistic assessment of the country’s economic recovery.

Will such enthusiasm for a Nigeria in recession last, when the country’s wavering leadership has not yet delivered on the promises of change made after the first-ever defeat in 2015 of an incumbent president?

From Global Risk Insights. Story by by Constance Hubert, a research assistant for the NATO Parliamentary Assembly whose interests include international political economy, the security-development nexus in sub-Saharan Africa and investment on emerging markets.

The Nigerian economy grew by 90 percent almost overnight in 2014 due to a GDP reevaluation, overtaking South Africa as the continent’s largest economy. In 2016, the economy shrank by 1.5 percent. The country is also dealing with rampant inflation, which reached 18.72 percent in January 2017 alone.

While both Nigeria and South Africa are today in recession, the sharp fall of the naira after the Central Bank dropped a peg to the dollar, as well as the country’s high dependence on oil, cost Nigeria its position.

Oil accounts for roughly 90 percent of exports and 75 percent of consolidated budgetary revenues, and the industry has been crumbling under the twin burdens of corruption and low commodity prices.

In a January 2017 policy paper, the International Monetary Fund attributed economic difficulties to mismanagement and domestic policy failures in adjusting to lower commodity prices.

Buhari and Central Bank Governor Emefiele have indeed been strong opponents to a floating currency that would have, according to experts, unblocked investment and boosted local production through a sharp devaluation of the naira. Instead, a half-hearted policy holding the naira in a tight range around 315 per dollar and encouraging the limitation of imports to “essential” products led to the collapse of the naira on the black market and unrestrained speculation.

Will the Economic Recovery and Growth Plan be enough to restore growth?

Nigeria’s Economic Recovery and Growth Plan (ERGP)unveils a roadmap for Nigeria’s economic recovery, growth and sustainable developmen. Released in early March 2017, this medium-term economic plan, required by international financial institutions to unlock further loans to Nigeria, presents a remarkably straightforward assessment of the country’s shortcomings.

The priorities for reform highlighted in the report are the over-dependence on oil, low government revenues, a large infrastructure deficit, a rising debt service and double-digit inflation. The growth plan, however, falls short in terms of its vision for future reforms and their implementation.

According to a report seen by Reuters, the IMF is expected to warn Nigeria its economy needs urgent reform, and the current roadmap is unlikely to drag the country out of recession unless urgent reform such as a change in exchange-rate policy is implemented. This could delay talks concerning $1.4 billion in international loans from the World Bank and the African Development Bank.

Additional challenges faced by Nigeria’s government

Macroeconomic imbalances and flat economic growth are far from the only challenges faced by the Buhari administration. Yemi Obinsajo, the liberal vice president who ran the country during the president’s illness, has appeased tensions in the Delta region. Militants there, notably the Niger Delta Avengers, disrupted oil production in 2016. But the stabilizing presence of Obinsajo’s leadership on economic issues cannot be taken for granted.

In a rather extreme analysis, Stratfor forecast that if Buhari was to leave office abruptly, the administration’s gains in the fight against Boko Haram could be reversed as Muslim northerners would lose the leadership race to Yemi Obinsajo, a Christian southerner. The Constitution provides that the vice president shall replace Buhari as head of state if he were to leave office. Without going as far as suggesting that only a northerner could contain extremism in Borno State, President Buhari’s illness unsettles the country and could lead to the disruption of Nigeria’s religious and regional balance of power.

The grim economic and security outlook in Nigeria, coupled with the president’s mystery illness, generate a high degree of uncertainty that would be further heightened by the delay of international loans expected to support the Economic Recovery and Growth Plan. This could be the final blow to the country’s recovery efforts and investor confidence.

Read more at Global Risk Insights.

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