Buhari vs. oil prices and Nigerians vs. Buhari

Summary: On the economic situation in Nigeria — the president is blaming falling oil prices; the citizens are blaming their president. Oil prices have not been nice to Nigeria’s president, but most of his citizens feel that the president is not being nice to them. Mr Buhari came into power when oil prices were pulling back, and now that he is close to bowing out of power, the prices are rising to levels not seen in the years preceding the COVID-19 pandemic. Oil prices are hurtling back to pre-pandemic levels. In the 18 months left of his presidency, Mr Buhari could scoop at least $100 billion in oil revenue. What will he do with it?

The price of oil was at its all-time high (US$111 per barrel) in 2011, the same year Nigeria’s current president, Mr Buhari lost his third attempt at the Nigerian presidency in a fiercely contested election race. But four years later, his dream came true: he won the election and was sworn into office in 2015 as Nigeria’s fifth democratically elected head of state. While this was welcome news for him and his followers, significant negative economic shocks coincided with him taking office, with oil prices crashing more than 100 per cent between 2011 and 2015. As head of state, this was not Mr Buhari’s first unlucky encounter with world oil prices. In 1983 – the year he became Nigeria’s fifth military ruler – the price of oil (adjusted for inflation) was roughly $39 per barrel lower than what it had been three years earlier.

These trends tend to raise questions. Does it seem oil prices have not been nice or kind to Mr Buhari in that he came into power when oil prices were pulling back, and now that he is close to bowing out of power, the prices are rising to levels not seen in the years preceding the COVID-19 pandemic? Or is the president just so unfortunate with the prices? At this juncture, it should be noted that Nigeria has no leverage in setting oil prices because Nigeria’s share in total global oil output is negligible: about 2 per cent. While Mr Buhari cannot (and should not) be blamed for tumbling oil prices, he must own the responsibility for the state of the economy because he is the commander-in-chief. The bucks stopped at his desk.

The double face-off and the pursuit of flawed policies Polling data from Gallup shows that Mr Buhari recorded, from his first day in office, a much higher approval rating than any United States president in the last half century. This is an indication that a strong majority (67%) of Nigerians approved of his job more than Americans approved of their presidents since the days of Richard Nixon, more than 50 years ago. But Mr Buhari’s rating began to head downward a year into his presidency. He was down by 23 points. The polling decline might be linked to the 2016 recession.

Falling oil revenues in recent times have led to devastating economic outcomes. President Buhari (who doubles as petroleum minister) and his supporters have often used sinking oil prices to defend why the president has broken some of his campaign pledges. Even though, part and cause of the economic woes predate his presidency, many Nigerians are hurling back the culpability at their president, arguing that what matters is not the crash in oil prices but how the president responded to the instability arising from the oil market and that Mr Buhari is not being vindicated by the facts on the ground. 

For instance, it is believed that the president’s fingers, through the Central Bank of Nigeria, were a little bit rough on the exchange rate policy button. On assumption of office, the president rationed the supply of dollars, thus restricting foreign currency access to many importers. In addition, he activated capital control measures such as shutting out access to foreign currency withdrawals and imposing limits on how much cash Nigerians can withdraw using foreign ATMs. These interventions did not pay off as the currency further depreciated. As a result, factories that could not obtain dollars to import raw materials and capital goods shut down and eliminated tens of thousands of jobs. By mid-2016, the economy had fallen into a recession.

The above outcome prompted a different approach to managing the exchange rate. This time around, after it failed to lean against the wind of popular opinion, the Central Bank allowed the local currency, the naira, to float. This was a huge policy error that opened the currency to speculative attacks, resulting in further depreciation of the value of the Naira of over 200 per cent. That sparked unprecedented price increases, with the inflation rate rising to more than 30 per cent. This triggered a couple of undesired economic outcomes.

After peaking in 2014, net inflows of foreign direct investments plummeted by 76 per cent (it declined from 8.43 billion in 2011 to roughly 2 billion dollars in 2019, the lowest in 13 years.)

In tandem, average living standards – measured in terms of GDP per capita – declined by 7 per cent, with the unemployment rate hitting its highest level in almost 50 years: 23% in 2019, equivalent to roughly 21 million people losing their jobs. And all this occurred before the COVID-19 pandemic hit. The IMF and the World Bank are predicting even grimmer prospects at present, with a projected average per capita growth rate of about zero in 2019–24.

The combination of depreciation and inflation was considered a major contributor to the 2016 recession, the first contraction in 25 years. Had the government and the Central Bank rushed to the IMF and the World Bank for emergency loans to help replenish the depleted external reserves—exacerbated by the 2015 presidential election—the extent of economic damage may have been at least partly mitigated.

Part of Nigeria’s economic situation traces its roots to 2011
The violence that erupted in parts of Nigeria in the immediate aftermath of the 2011 presidential election results may have also played an important role. There are well-documented patterns of investors’ behaviour pointing to their willingness to pull back their capital and investments from Nigeria as they feared looming political instability and economic uncertainty that future governments might generate about economic policies. This validates the claim that, “an increase in the political risk faced by the capitalists reduces domestic investment and leads to more capital flights by the capitalists.”

To be continued tomorrow
The author is a former IDRC Fellow at the Center for Global Development and Public Policy Fellow at the Woodrow Wilson International Center for Scholars, located in Washington, D.C. Twitter: @dapelzg