Monday, January 18, 2016 8:10 PM / ARM Research
We continue our series of excerpts from ARM’s core strategy document—the Nigeria Strategy Report, but direct our focus towards developments on the domestic policy front. We start with their review of the socio-political landscape over the last six months and outlook for 2016.
Prior to its historic victory at the 2015 general elections, much has been made about how the absence of an overarching political (and economic) philosophy in the All Progressive Congress (APC) was a potential mine-field to the party’s future. Hardly had the party settled into office in June when the fissures opened with the elections into leadership positions at the National Assembly, which witnessed a faction within the APC enter into dalliance with the opposition Peoples Democratic Party (PDP) to defeat their party’s ‘anointed’ candidates.
After the dust settled, political horse trading reached fever pitch over the announcement of ministerial nominees with the president submitting the list in four months after his inauguration. Notwithstanding the delays in appointing his cabinet, the president swung into gear on some reforms: implementing the TSA, kick-started the re-structuring of the NNPC and audit of cash generating government agencies as well as commencement anti-graft prosecutions.
Beyond the tensions at the centre, the Nigerian military continued to make progress in recovering territories from the Boko Haram insurgents though relative to expectations, gains have trickled to a much slower pace. On the other hand, civil unrest flared up in the South-East as Biafran agitators resumed their quest for secession leading to a shutdown of economic activities in the affected region.
Despite these headwinds, a key theme through the first six-months of the APC government is the existence of a strong political will to follow through on reforms for key aspects of the socio-economic fabric more than at any time in the recent past.
From where ARM stands, it seems clear that at the very least the specific policies and implementation drive in each specific area of the economy will go a long way towards overcoming the odds posed by the endemic issues that continue to make this a challenging domestic macro-environment going into 2016.
The Political Landscape
Whilst the political risk from the general elections somewhat subsided in H2 15, claiming that the environment improved significantly would be a hard-sell even for the most optimistic of investors. If anything, the macro-vulnerabilities deepened, problems that seemed near-eradicated somehow persisted, and the political risk seems to have been replaced by a less vocal but just as debilitating uncertainty around policy direction, reform progress and simply getting on with the business of governance. With limited clarity in the first few months post-handover even as global conditions worsened and everything with Naira implications seemed destined for a downturn, the question inevitably become one of whether things were so bad that there was even any point waiting for government action as the gloomy realities threatened to obscure any hope of improvement.
Whilst the jury is out on whether it was worth the wait, the glimpses of direction that eventually materialized appear to indicate a better grasp of the challenges from policy makers and, perhaps more importantly, carry a strong undertone of will to see it through. In that sense, the perception of policy guidance as important for all states of economic health remain quite valid and it is this that makes the additional reform progress in H2 15 still of some of relevance if delivered in these tough times
Infightings within ruling party and election annulments increase…
The strong bond that held sway among members of the All Progressives Congress (APC) prior to their historic victory at the polls in H1 15 gave way to infighting shortly after the May 29 inauguration of the new government. The fiasco was compounded when the leadership of the bicameral legislature emerged through a rancorous process with both the President of the Senate and Speaker of the House of Representatives, both members of APC, teaming up with the opposition Peoples Democratic Party (PDP) to defeat their party’s ‘anointed’ candidates. Similar intra party acrimony was also witnessed at the state level. And the quick schisms seem to underline the absence of an overarching political (and economic direction) philosophy.
Aside the aforementioned, a recurrent development on the Nigerian political turf in H2 15 is the annulment of elections by the judiciary. Oil-rich Rivers led the pack as the state’s governor and 3 senators, all of the PDP, were sacked by the appellate court which ordered the conduct of fresh elections though the annulment of the governorship election is currently being challenged at the Supreme Court. In the same vein, Benue South senatorial election which returned the immediate past Senate President David Mark to the senate was annulled. Mark’s victory at the polls was challenged by Daniel Onjeh of the APC.
Table 1: Number of Annulled Elections in Nigeria Post-May 29, 2015
…as Buhari finally constitutes his cabinet amidst increase in corruption probes
After what seemed like an endless waiting period, President Muhammadu Buhari finally constituted his cabinet and trimmed federal ministries to 24 from previous 29. The President himself assumed direct responsibility over the Ministry of Petroleum and appointed the Group Managing Director of the state-owned Nigerian National Petroleum Corporation (NNPC) to deputize as minister of state for Petroleum. Babatunde Fashola, the immediate past governor of Lagos, was saddled with the bulk of the infrastructure development efforts of the current administration as he was handed Power, Works and Lands & Housing, a merger of three previously separate ministries. Other notable appointments include those into the ministries of Solid Minerals (Kayode Fayemi, former governor of Ekiti state), Transportation (Rotimi Amaechi, former governor of Rivers state), Finance (Kemi Adeosun, former commissioner of Finance in Ogun State), Industry, Trade & Investment (Okechukwu Enelamah co-founder and head of the country’s first private equity firm), and Budget and National Planning (Udo Udoma, a former senator and head of the Securities and Exchange Commission).
Projecting an ethical dimension of governance and fulfilling a campaign promise, in a move introduced by the late Musa Yar’Adua, President Buhari and his deputy, Osinbajo, publicly declared their assets and in addition slashed their salaries by 50% (Yar’Adua 20%). Furthermore, in line with his anti-corruption promises, the president set up a seven-member Presidential Advisory Committee on Anti-Corruption, headed by Itse Sagay, to formulate a strategy and co-ordinate the anticorruption war of the administration. The president also appointed a new head for the Economic and Financial Crime Commission (EFCC).
All the foregoing appears to suggest the expected focus on tackling corruption remains intact and, hitherto, the president’s actions seem to be in consonance with his statements. Back in July, the president pledged to recover “mind-boggling” amounts of stolen oil money and bring those responsible to book, alluding that 250,000 barrels of crude were being stolen every day by fraudulent individuals. He further explained in October that preliminary steps had been taken to sanitize the NNPC and improve its operations so that the inefficiency and corruption could be reduced to a minimum level. Additionally, he indicated he had ordered a complete audit of other revenue generating agencies: Central Bank Nigeria, Federal Inland Revenue Service, Nigerian Customs Service and Nigerian Communications Commission, for better service delivery to the nation. While there has been a series of high-profile corruption-related arrests and probes (including of current officers1), actual recoveries remain a while off—a situation that may not change soon, with reports of a relatively paltry N8 billion returned to government coffers thus far. Perhaps the important thing is that while the recoveries may not materialize, the plugging of leakages might still help government make the most of currently diminished revenues.
Political risks heighten as agitation for Biafra compounds security concerns
In spite of the recovery of strategic territories from Boko Haram by the Nigerian military, amidst other gains which include arrests of some key sponsors of the terrorist group, the war against terrorism appear destined to be longer than expected. Though the military has consistently maintained that it is on course to fulfilling the December 2015 timeline given by the president to end the group’s activities, the spate of attacks on both the civilian and the military by the terrorists, while reduced, remains a concern. Buttressing the concern on the feasibility of the deadline, Nigeria’s number one military officer, Abayomi Olonishakin, recently guided that the harmattan weather, “and some other logistics”, has been an impediment to the war on terror.
Figure 1: Boko Haram Activity Profile
In addition to other security concerns such as kidnapping and armed robbery in different parts of the country, a new security threat appears to be rising in the south east with the agitation for secession by proponents of Biafra. This movement appears bent on resurrecting moves to create a Sovereign State of Biafra which was the crux of the country’s civil war (1967-1970). The recent arrest of Nnamdi Kanu, Director of Radio Biafra, by the DSS provoked mass protests by pro-Biafra agitators in the south eastern states which led to shut down of commercial activities and clashes with government security forces. Intriguingly, similar protests were held in the commercial cities of Port-Harcourt and Lagos. Though many have denounced the ongoing agitation for secession as a rally of politically motivated miscreants, some of the acts allegedly perpetrated under this umbrella indicate that there is a risk that this development could snowball into a much bigger crisis if appropriate measures are not taken to curb it. Nonetheless, the veracity of a unified Biafran agenda is already being called to question by the absence of a clear-cut philosophy or a united front, evident in the emergence of diverse factions.
Is there still a way, even with newfound will?
Thus far, the political will to follow through on reforms for key aspects of the socio economic fabric appears stronger than at any time in the recent past. For instance, the arrest of past and present high-profile political actors, including those of the ruling party, appears to affirm the pledge to tackle corruption is being taken seriously. Similarly, the recent reforms also suggest that the president means business with respect to improving efficiency and transparency in the polity. In the same vein, whilst the insecurity challenge has not been fully addressed, with the December deadline for Boko Haram missed, unlike the wimpy response previously, it is not for lack of effort. The formation of strategic alliances with countries such as Niger and France, and much better equipment of the military with all necessary support indicate the fight against insecurity is being taken much more seriously.
Perhaps most important is that, after about six months of uncertainty, the policy direction of the Buhari-led administration is now much clearer. His appointment of former public servants, who have well-established precedents, as heads of critical ministries, has helped to set the right tone with the team appearing to buy into the presidential agenda and coming across as well-driven to deliver the promised change.
Nonetheless, whilst the administration might enjoy strong marks for its efforts the real aim is to create a change and the real question is then whether, in light of current economic headwinds and other factors, those efforts will achieve the desired effect. To elaborate, despite all the efforts at probity and fighting corruption, stimulating the economy and ensuring fiscal prudence, the real question is whether things have gotten so bad that none of these laudable initiatives would ultimately matter. For instance, whilst it is all well and good to choose to plug leakages could it be the case that the oil-induced decline in revenues is set to be so devastating that there is no leakage worthy of the name to protect against or even enough revenues to achieve any key goals? With oil forecast to stay below $40/bbl through 2016, even if all leakages are successfully blocked, the impact of the falling oil price on the country’s books will still be felt. Or if one shifts focus to the fact that only ~N8 billion loot has been recovered, concern inevitably grows as it would seem the corruption fight is not yet as strong as to cause panic and stimulate real reflux to the government coffers. In addition, the persistence of suicide bombings in the North East, growing clamour for the Sovereign State of Biafra and rising cases of armed robbery and kidnapping also imply that insecurity remains a major concern in Nigeria. To our thinking, addressing concerns such as these will be key to the eventual success of all the efforts to stimulate the economy and drive growth in 2016. Furthermore, in spite of their antecedents, it remains to be seen whether or not the president’s men will effectively execute the lofty goals they have professed as several challenges persist and portend a credible threat to success. Hence, the question is whether the administration has even a fighting chance of meeting rising expectations?
Thus, while the budget is what is currently flying the flag of the administrations’ key hopes and aspirations the implications of the issues raised lend importance to how and when the answers materialize in every facet of the economy—knowing that, given the grim scenario, optimism or pessimism regarding outcomes will be on a case by case basis. From where we stand, it seems clear that at the very least the specific policies and implementation drive in each specific area of the economy will go a long way towards overcoming the odds posed by the endemic issues that continue to make this a challenging domestic macro-environment going into 2016.
Related News from ARM’s Nigeria Strategy Report