Buhari’s fragile pieces: An economic scorecard full of trauma – Part 3

In a few days, President Muhammadu Buhari, who is eager to retire peacefully, will leave Nigerians and Nigeria in fragile pieces, as well as an economy that is struggling to survive. Buhari’s administration will be remembered for the rise in human misery, rising national debt, two recessions, record unemployment and inflation levels, and receding foreign direct investment. Because of his decisions and policies, the country faces numerous challenges to its fiscal sustainability, external finances and economic outlook. While the President’s men struggle to defend his policies and legacy, the average Nigerian cannot be more excited to heave a sigh of relief and hope for better days.

On May 29, 2015, when Buhari said he belonged to everybody and belonged to nobody, little did many know that he meant the latter than the former. The last eight years have been tough for Nigerians. During this period, GDP growth averaged 1.1 per cent as the country experienced two economic recessions. Unemployment and underemployment rates increased to an all-time high of 56.1 per cent in 2020, pushing 133 million Nigerians into multidimensional poverty, according to the data from the National Bureau of Statistics. Likewise, economic growth has not been inclusive, and Nigeria’s economy faced key challenges of lower productivity, and the weak expansion of sectors with high employment elasticity.

The Buhari administration has maintained that it has been one of the best things to happen to the country. The government, on several occasions, claimed it has fulfilled most, if not all the promises it made to Nigerians during its campaigns. Citing its huge infrastructure spending, Buhari explained the high debt profile of his administration saying, “We do not act on infrastructure by accident. It has been a deliberate choice for our government as a tool to fight poverty, to create economic growth and employment and to open the path of prosperity for our people.” But to many Nigerians, the investment in infrastructure is at a huge cost to the people in terms of the debts that will be repaid over a long period of time and the implications for inflation.

Perhaps, Nigeria has seen the most disturbing inflation figures in the past eight years. For the first time, high inflation became an entrenched issue, making it difficult for economic agents, particularly investors, to plan ahead. Before Buhari assumed office, Nigeria had an unbroken 29-month single-digit inflation, which used to be the inflation target of the previous administration. Seven months into his administration, the inflation rate left the realm of single digit, but many experts dismissed the new trend as transitory. At the administration’s second anniversary, the speed of the headline inflation rate had almost doubled, climbing from 8.7 per cent to 15.6 per cent. Thereafter, efforts to curtail the challenge made little or no difference as the price crisis assumed the character of runaway inflation.

The speed of inflation hit the highway following the famous border closure of 2019 that left millions of households struggling to feed. The government said the border closure was necessary to check smuggling and rising insecurity while stimulating local production. The government did boast that the country achieved self-sufficiency in target food items like rice. But the market reality was something entirely different, with 50 kilogrammes of rice rising by nearly 500 per cent in about four years, to hit N40, 000–N10, 000 higher than the public sector monthly minimum wage, which some states have not complied with. Last month, the headline inflation rate set a new 17-year high of 22.2 per cent while food inflation neared 25 per cent. From May 2015 till April 2023, the composite Consumer Price Index (CPI) has tripled, which means an average household would need to increase its money income three times to retain its May 2015 consumption level.

Whereas inflation has been a global concern in recent years, Nigeria’s elevated inflation predated the trigger of global inflation – COVID-19. And while inflation is easing elsewhere, such as the United States where it has dropped to a two-year low, Nigeria’s month-on-month inflation change, which measures the current strength of inflation, is still trending upward at about two per cent. The decoupling of Nigeria’s inflation rate with the global trend speaks to the true character of the country’s price crisis; it has little to do with the global shock but more with local structural challenges that have crippled local production.

On interest rate, Nigerian businesses have never had it rosy in cost and access to funds. The rise of fintech in the past decade has almost eliminated the second half of the twin challenge of funding (access) except that borrowers pay through their noses. That suggests that the unaffordable cost challenge is more prevalent today than at any other time. In June 2015, the maximum interest rate was 26.4 per cent, which was close to 10 per cent above the going rate about a decade earlier.

Before the end of Buhari’s first term, the maximum lending rate had spiralled to 31.6 per cent, which was restrictive enough to send many small businesses out of business. The Central Bank of Nigeria (CBN) puts the current maximum price of commercial funds at 28.6 per cent. With management and sundry charges, high-risk borrowers, including Micro, Small and Medium-scale Enterprises (MSMEs), which generate about 84 per cent of Nigerian jobs according to the International Labour Organisation (ILO), pay as much as 33 per cent as interest rate.

To suck out liquidity from the economy and achieve stable inflation, the monetary authority embarked on an aggressive restrictive monetary policy last May, raising the benchmark interest rate from 11.5 per cent to 18 per cent in 12 months of tightening. But the fiscal recklessness and untamed development financing seemed to have continued pouring water on the floor. The Monetary Policy Committee (MPC) inadvertently wasted time mopping.

The fate of the naira is not what can be easily forgotten. One immutable and most distinguishing function of money is a store of value, underscoring John Keynes’ popular quote, “The best way to destroy the capitalist system is to debauch the currency.” Naira has, indeed, faced much debasing in the past eight years that it became more of an article of speculation and trade than it was a store of value. The currency has lost its long-standing 150 peg against the dollar. The official rate was about N196/$ with the official and black-market rates converging. Shortly after the first anniversary, the official exchange rate of the local currency had lost almost 50 per cent of its value, trading around N280/$. But the problem was much deeper – the currency became increasingly unstable while the market arbitrage widened to about N80 per dollar. That marked the beginning of the recently renewed round-tripping and other barefaced official malpractices added to the pains.

Since 2016, naira has literally been on the highway to its doom. The CBN attempted every strategy in the books only for naira debauchery to continue. At the height of the crisis last year, a premium on the black market hit 100 per cent for the first time since the country’s return to civil rule. The parallel market rates have tightened around N740 to a dollar in the past six months with some air of sanity in the market but the damage seems to have been done. At the official market, the currency has lost about 290 per cent of its value against the dollar in the past eight years while it dipped by close to 150 per cent at the official market.

On employment and poverty, Nigerians await the first National Bureau of Statistics (NBS) labour statistics in over two years. Ahead of the release, Nigerian Economic Summit Group (NESG) and KPMG have pegged the unemployment rate at 41 and 37 per cent respectively. At the end of 2020, the last labour data released by the statistics office, the unemployment rate was 33.3 per cent – over three times what it was when Buhari was campaigning in 2015. If the rate of jobless in Nigerians remains unchanged or above the 2020 level, Nigeria will be ahead of South Africa, which currently has the highest proportion of jobless citizens at 32.9 per cent.

The average projection of NESG and KPMG forecast on the proportion of Nigeria’s working class, who are unable to get jobs, is 39 per cent, which will be over 600 basis points ahead of the country’s biggest regional rival (South Africa). In 2018, the first quarter of 2015, the national rate of unemployment was 7.5 per cent, and it tipped to 8.2 per cent the following quarter during which the President took the reins of office. In the third quarter, the figure went up to 9.9 per cent, and ballooned to 23.1 per cent in 2018 when the administration’s policies began to take root with headlines on dwindling capacity utilisation, factory closure, fleeing investment and insecurity taking over the media space.

Poverty, a constant in the country’s socio-economic equation, is an increasing function of unemployment and inflation rates. But the rate of poverty and the number of Nigerians living from hand to mouth has increased to a frightening level in the last few years. Last year, an NBS survey estimated that 63 per cent of persons living in Nigeria or 133 million are multidimensionally poor. But scarier is the geographical distribution of the figure – close to two-thirds (86 million) of the people live in the North, while a paltry nine per cent of Sokoto residents escape multidimensional poverty.

With the aforementioned data on unemployment, inflation, exchange rate, GDP, recession, food prices, and debt level, it is clear that during the departing government’s era, things only got worse. Buhari won’t be missed by many Nigerians or the business sector. They have had more than enough and can only tend to the fragile pieces he has left them.

The new administration, working with stakeholders, needs to develop an agenda for economic and social inclusion. At the heart of such an agenda must be improving the lives of the average Nigerian. This agenda must also include a practical strategy on how to structurally transform the economy, moving labour and economic resources from low productivity sectors to high productivity sectors.