Worries about Africa's largest economy: Nigeria
As is the case with most interested parties and economic analysts, it has become increasingly hard for me to be optimistic about the Nigerian economy's probability of scaling the tough waters of 2014/2015, and landing on its feet by at least the end of the third quarter. So many problems are still in sight, and some of these problems have only just become apparent.
Of all of Nigeria's issue, it's heavy dependence of oil exports as the major source of income is the most worrisome. This is not only due to the fact that oil prices, after taking the plunge are still sluggishly trying to get back up there. There is also the issue that Iran is speculated to be in negotiations with the U.S. to release some 40 million barrels of oil it has in reserve. Seeing as Asia and the U.S are Nigeria's biggest buyers, and given that the U.S. is not buying Nigeria's oil anymore, and that the 40 million barrels that Iran will release will meet the demand of Asian countries that up until then would have gotten their supplies from the African continent, this gives Nigeria less than a year to find and develop alternative sources of income. Even in the most organized countries this will be near impossible.
On the topic of Nigeria needing another source of income, the most viable option is Agriculture. This has been well talked about and a lot of Nigerians are starting to go into farming, albeit on a small scale. Now this is all well and good, except that there is a need for government involvement and wholesome participation. A lot of this will require investments including but not limited to providing subsidies to farmers both in terms of farming equipments and other inputs, giving farmers access to loans, and most importantly fixing the power problem.
One of the major deterrents to the production of goods at home for Nigerians is that the cost of doing business is so high that it is much cheaper to import! Even at a time when the currency is not performing well, statistics show that import for the first quarter of 2015 is about 22% higher than it was in the first quarter of 2014. However, total imports dropped by $0.4 trillion dollars from the fourth quarter of 2014 to about $1.6 trillion in the first quarter of 2015. This is consistent with the fact that import decreases when the value of the home currency drops, although it is important to bear in mind that this fall in import might well be as a result of the restriction placed by the Central Bank of Nigeria on importers from accessing it's foreign reserve. With that said what is notable here is that imports are higher this year than they were at this time last year which is quite shocking. Despite the fact that access has been restricted to foreign currency, there has been no surge in home production because imports are still cheaper than producing in Nigeria even given how expensive the dollar has become! One of the biggest reasons for high cost of production at home is the lack of electricity. This leads me to the invariably bemoaned power problem.
One of the major problems domestic producers and service providers have is the high cost of fuelling the generators they use to power their businesses. Fixing the power problem has been on the agenda now for so many years. All Nigerians get are promises from governments that either don't intend to make good on them, or do not know how to go about achieving them. Now that the era of oil is coming to an end it is important to note that once upon a time fixing the oil refineries in Nigeria was going to be a capital expenditure that would generate substantial future economic benefits since Nigeria refined its oil in the U.S. But up till this day the refineries are as good as useless. I bring this up to point out that although the resources might be there to take on these critical projects, the government is surprisingly unwilling and unable to tackle many major issues.
The large size of the Nigerian government is another troublesome issue that must be dealt with. Most of Nigeria's income goes to the federal government while the state governments share the smaller portion. A significant portion of Nigeria's income that is retained by the centre goes to paying the 300 plus law makers that occupy the National Assembly. The cost of the upkeep awarded to these government officials significantly inflates the large recurrent expenditure Nigeria incurs annually. If Nigeria is to survive especially during this period of income shortage, and certainly further into the future, it must reduce the size of its government both at the federal and at the states level.
Everyone both in Nigeria and abroad is looking to the new president to see who will be on his economic advisory team. This is an issue of great importance as we're still unsure about the direction the Nigerian government plan to take concerning the dire economic situation Nigeria is in. There is a lot of uncertainty about whether and how Nigeria will survive the fallen oil price as foreign investors obviously do not think the storm is over. Given that oil is its major source of Nigeria's income the president and his team need to give us a layout (at least) of the economic policies, fiscal and monetary that they plan to implement in the long run to soothe the uneasiness of foreign investors. The shocker came when the president announced in his Washington Post address that he will not be picking his cabinet members until September. Now this is fair enough as the Nigerian citizenry may understand that this is an action necessary to purge the system of corrupt officials, but picking his economic advisory team cannot wait, the stock market says so. The selection needs to be done as soon as is possible because it seems as if the only office working on defending the Naira and curbing inflation is the Central Bank. The economy cannot be run by the central bank alone.
A final issue that will need to be addressed is the inability of the judiciary to give punishments that fit their crime to corrupt government officials. It is a known fact that corrupt officials who have laundered the country's money get away scot free (a meagre fine is not punishment) except in very few of the cases. If corrupt officials (these people who steal in millions of dollars) know that they will get away with syphoning the country's wealth, then there will be no deterrent to thievery among the ruling class. The problem in Nigeria is that the judiciary itself is highly corruptible. The law is binding in Nigeria, but only when poor people are concerned. Without a way to bring people to book, Nigeria will continue to take from the poor to give to the rich!