HAS Nigeria’s President Muhammadu Buhari done a good job? Some would say it’s too early. Some would say a man is to be judged by the quality of his enemies and detractors. Others would say his actions so far should be a sign of what the future holds.
Among certain circles, particularly those of portfolio investors, perception is rising that the Buhari magic is dimming, and that policy is as uncertain and haphazard as ever. Jan Dehn, head of research at Ashmore Group Plc, which oversees almost $60 billion of emerging market assets, a few days ago said he remained unconvinced that Buhari is up to the job. The fund manager sold all its Nigerian government debt in the past year.
“So far the Buhari administration has done all the wrong things,” Dehn told Bloomberg by phone from London. “Not only has he been incredibly slow in taking any action, when he finally has taken action on the economic front it’s been diametrically opposed to sensible policy. That is a major disappointment given expectations prior to his election.”
What hand Buhari is playing
I don’t believe that President Buhari’s refusal to prioritise the interests of western portfolio investors reflects incompetence or a trend that dooms his administration. Most honest Nigerians would say things are different, and that corruption is less welcome than a year ago. But they would also say they are unclear about the rest of his agenda.
One draw inferences from its actions though. What should a sensible Nigerian government be trying to do in 2015?
Given the scarcity of income and declining reserves, I think resource allocation should come first, and this means at least three main concerns: 1) Manage corruption and impunity; 2) Manage domestic capital allocation; 3) Manage prices, primarily through foreign exchange reserves and the exchange rate regime.
Nigeria’s main issues today can be traced to poorly allocated resources. Despite all Nigeria’s human and mineral resources, corruption and poor organisation have slowed economic growth and development.
The debate about MTN’s $5.2 billion fine for failing to disconnect unregistered subscribers, since cut to $3.9 billion at the intervention of Buhari, is thus instructive. MTN was warned about the security issues with Boko Haram in Nigeria. It knew the law, and didn’t act on it. Yet some people think that MTN shouldn’t pay its penalties, lest MTN “leave the country”.
Does anyone complain when the US applies its rules to foreign firms? Or when the UK or South Africa does the same? All that is different is that Buhari’s government has shown the nerve to apply the law. This should be applauded.
This leads to another point - the vast majority of long term investment in Nigeria is funded through the government bond market or is provided under government guarantee. In addition, a lot of that long term funding is domestic, raised through banks or pension funds.
Offshore funds – the ones whose managers are extensively quoted in Nigeria think pieces – are usually portfolio funds that stay less than a year. A smart government would prioritise long term capital, local or foreign.
This is not unique to Nigeria; Brazil and Malaysia among others have been able to prove that point. In this light, portfolio flows may be jeopardised, but will not be a big loss if capital fixing is what we seek.
How should the Nigerian government allocate its own resources during a recession? Spending through recession is a clearly proven strategy for an economy with reserves to reposition itself during a down turn.
A stale orthodoxy in some circles about austerity suggests you can starve your economy through a recession. It didn’t work in Nigeria in 1983, it didn’t work in the US in 2008, it doesn’t work anywhere.
You reorganise an economy by investing, training, and putting new infrastructure in place. US President Barack Obama’s support of renewable energy firm Tesla Motors and other companies as well as of Wall Street through the Troubled Asset Relief Program (TARP) is widely understood to have been successful, but at the time he was vilified. TARP is a program of the United States government to purchase assets and equity from financial institutions to strengthen its financial sector.
Fortunately Obama was wise enough to ignore the critics, and both the US Federal Reserve Bank and the European Central Bank are still continuing quantitative easing, to maintain liquidity.
Nigeria should be expected to act similarly. It should be encouraged to find ways to keep capital working. Long term infrastructure funding is exactly the sort of thing that the country needs.
This leads to the third part, prices or exchange rates. The Central Bank of Nigeria has sworn to protect its reserves, and to discourage speculation in currency, while encouraging real sector lending. The Central Bank has tried to protect ordinary Nigerians from price shocks, which usually result from rapid devaluations.
Naira borrowing rates have fallen since September to slightly over 11% for long term federal bonds and with a monetary policy rate of 11% at the end of November. In this environment, a local company could borrow at low double digits, the lowest rates in ten years, provided it was in Naira.
Why is this not to be encouraged? Why must the priority be foreign “investors” who must receive their incredible returns at the expense of Nigeria? Why must the priority be domestic speculators in dollars?
I think if Buhari continues to be appreciated by Naira-based businesses and their customers, and vilified by those who would dart quickly in and out of the economy, he is in good company. He has revealed his economic priorities are good ones, and having set them execution will be key.
- Francis Folu is based in Lagos, with over 15 years of finance experience in Africa and the US. He leads Nigerian corporate finance for a Nigerian owned investment firm. [email protected]