Nigeria's lost year? President Buhari takes his sweet time, but clock may have started ticking

Russian roulette or just meticulous planning for new Nigerian president who has been ruling alone? It is anybody's guess.

MOST debtors generally like to leave it late—there’s something reassuring about having money in your pocket, even when you know it is not yours.

As such, an ongoing bid by MTN, Africa’s biggest mobile phone operator, to pay back hundreds of millions in Nigerian debt early has had even those who would ordinarily appreciate it raising an eyebrow.

MTN wants to pay some $600 million, and has been looking to convince regulators that it is a good plan. It is even pleading to, please, be allowed to pay now. “We have already been negotiating with the lenders but the challenge has been getting the central bank to approve that we can accelerate the payment,” MTN Chief Executive Officer Sifiso Dabengwa told Bloomberg news on Wednesday.

The economics behind it would add up: The Johannesburg-headquartered multinational saw profit fall 11% in the first half of this year, and expects performance to remain depressed in the second half. Part of the dip was due to money fluctuations as African currencies weakened against the South African rand, in which the firm reports its earnings.

Nigeria’s 62.8 million subscribers are the most out of the 23 countries MTN operates in; all bar five, in Africa. However, sales in Africa’s largest economy fell nine percent to June, in what MTN said was due to constraints by a “weak macroeconomic environment, aggressive competition and operational executional challenges.”

With the naira being buffeted from all sides this year, paying up the debt quickly would help the firm manage the fluctuations, Dabengwa said, adding that the talks had reached the presidential level. 

Borrowing for corporates is also set to become expensive. First Bank of Nigeria, the country’s largest by assets, said while its profit projections remain on course for the first half of the year, it nevertheless expects growth to slow for the rest of the year, compared to last year.

As such, FBN would switch from “lending to multinationals and big companies” and focus on small businesses, as this offered more attractive interest returns, the bank’s finance head Oyewale Ariyibi said this week.

Volatile: The naira. Source: XE.COM

Faced with the naira’s tempest this year, Nigeria’s central bank is playing safe with MTN. In June, the regulator restricted the supply of foreign currency for dozens of import lines as it looked to hold on to scarce dollars after global prices of oil, which account for 70% of government revenue, fell by nearly half over the past year.

With inflation easing past its 6-9% target band, the  regulator further required banks to leave a third of their deposits with it, in a measure also aimed at defending the naira, which has lost a fifth of its value against the dollar in the last year in the process chalking up an all-time low of 243 units to the American currency (ratings agency Fitch had projected a ceiling of 210).

But as the CBN tightens monetary policy, even it has admitted that it was not too clear on the economic direction the new government wanted to go, and was waiting for president Muhammadu Buhari  to constitute his team and outline overall fiscal policy.

Buhari, elected in March, has not seemed to be in a hurry. His Cabinet would only be announced in September, he said, leaving markets to essentially grope their way in the dark. Uncertainty tends to leave most investors, including even the most risk-happy, wringing their hands as their valuations swing all over the place. To further muddy the waters, the economy did not feature too highly during Buhari’s campaign, the focus understandably having been on corruption and insecurity.

In keeping with this, Buhari’s first moves have been on crushing the Islamist insurgency in the north-east, while several appointees of the previous regime have been sacked in recent weeks. But while the cross-border challenge of Boko Haram is well understood, for markets the sovereign risk has increasingly taken on a domestic hue, with any policy direction—especially on spending and raising revenue—only likely to be felt early 2016, almost a full year into Nigeria’s four-year electoral cycle.

Looking for angels

Buhari says the search for a new team has been delayed by the need to pick people who are not “compromised”. However, he was also backed by many deep-pocketed individuals, who will want to have a say in any new appointments. A military ruler in the early 1980s, his first cabinet was picked in 18 days.  

But as he juggles various interests and sifts through CVs, the president did take time to bat back calls to shed expensive fuel subsidies, saying the research he had received so far had “no depth”.

 “When you touch the price of petroleum products, that has the effect of triggering price rises on transportation, food and rents.  That is for those who earn salaries, but there are many who are jobless and will be affected by it,” Buhari, who once oversaw a state oil firm, is reported to have said.

A Nigeria shop owner. Ordinary citizens are feeling the squueze of a policy vacuum. (Photo/AFP/Getty).

It is a position possibly informed by two things: His ruling coalition is seen as leftist, with its major backing having been from the more socially conservative north, and as such he would want to shield poor Nigerians from the vagaries of the market.

Subsidies are also about the biggest gains ordinary Nigerians see from their oil, with the well-connected creaming off most of the proceeds, in an industry that has suffered from chronic underinvestment in infrastructure and also come to be seen as a cash cow, from black market saboteurs to validly elected politicians.

As such keeping prices low buys him some more time, with many Nigerians still on a high after their historic revokation of the PDP-dominated social contract, which saw an opposition party dislodge the ruling party for the first time.  

Worst fears come true

However, what Buhari fears is already happening and may tax many Nigerians’ patience. The curb on hard currency financing on dozens of exports has led to increases of basic prices in the shops cutting consumer spending; unemployment figures are rising, while productivity has fallen. 

Arrears to the oil industry have led to shortages at the pumps-one standoff with importers in May hit consumers hard, with even the ever-present hum of electricity generators going momentarily quiet.  

In a country where the breadwinner on average supports up to 30 people, government workers have battled salary delays  

The country’s balance sheet is also weak—Buhari in June said he has inherited “virtually” empty coffers from the previous government, blaming it on their “bad management”, while the stock market is down nearly 10% this year. 

Expected economic growth of 4.8% this year would be about half the average of the last 10 years, while increased resources on the war against terrorism are expected to further pile on the debt.

Buhari is asking the people, Africa’ most populous, to be patient as he cleans the Augean stables—decades of doing things unaccountably will take time to reverse. 

However, more debt means the state would naturally look to plug deficits—and increased taxes (even hidden ones such as inflation) especially on firms are an easy route. This means both the employers and ordinary Nigerians will continue to struggle with the state’s reduced capacity to deliver on public services and infrastructure. 

While Nigerians are famously resilient, the stability truism remains: the state’s power is often derived from how much space it allows individuals and corporates to generate a profit. Right now, it is not too much. The clock may very  well have started ticking on Buhari.

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