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Next Level Nigeria The Outlook for Buhari's Second Term

Despite ongoing challenges, there is cause for cautious optimism in the political and economic outlook for President Buhari’s second term.

As President Buhari’s inauguration for his second term approaches, Nigeria is beginning to look beyond the 2019 elections and towards what the president’s second term might hold. Nigeria is still emerging from its deepest recession in recent memory, and its sluggish growth rates have seen poverty levels climb. As a result, Buhari’s administration has a busy in-tray of issues to tackle. Precedent, however, suggests the Buhari administration’s approach to alleviating these issues will remain cautious and its performance, mixed. Buhari has shown little sign to date that he is a man to change his ways and adopt more radical measures to super-charge Nigeria’s economy.

Having secured 55.6 per cent of the popular vote in the recent elections, Buhari surprised many by building on his majority of 53.96 per cent at the 2015 elections. He emerged victorious despite facing a concerted challenge from a resurgent PDP opposition led by former vice president, Atiku Abubakar. But beneath this headline, the declining turnout rate of 35.6 per cent reflects a weakening social contract between the people and the country’s ruling system. Voters appeared far less enthusiastic about Buhari’s leadership and his campaign’s ‘Next Level’ mantra than they were in 2015 but were equally wary of Atiku and his PDP associates who many perceived as self-serving and prone to cronyism. Government and Nigeria’s political class as a whole face an uphill battle in strengthening the social contract and demonstrating how they can contribute to development and the improvement of livelihoods.

The APC’s last four years in power were characterized by frequent political clashes between the legislative and executive arms of government, which saw delays in passing essential legislation including the budget. With the APC winning most seats in the Senate and National Assembly, we can expect initial harmony, but this is likely to be short-lived, as lawmakers and the APC at large remain deeply divided by personal interests and factional politics. The cracks are likely to emerge around upcoming cabinet appointments and can be expected to widen towards the end of the tenure as various caucuses jostle for the presidential race in 2023. Political developments in the next few years are expected to be influenced in particular by the expectation that 2023 will see a south-westerner returned to the executive office.

The relationship between the executive and judicial arms of government is also set to remain fraught, with the continuation of the anti-corruption crusade targeting high-profile judges. The trial of the Chief Justice of Nigeria, Walter Onnoghen, is a litmus test of the viability of this part of the anti-corruption fight, as Onnoghen is the most senior member of the judiciary ever to face prosecution in what, nevertheless, remains a relatively politicized case. Tied to this is an expectation of renewed vigour in the EFCC’s investigation and prosecution of high-profile politicians. But if this fails to look beyond the opposition’s ranks in its sanctioning, then the Buhari administration will fall short of expectations in taking a principled approach to rooting out corruption in the system.

It is unlikely that the president will take six months to form a cabinet as he did in 2015, and expectations are high that he will announce the new government within weeks of being sworn in for a second term in May. President Buhari may retain a handful of current cabinet ministers that he believes have been effective, signalling continuity in policy and direction that will be welcomed in some business quarters.

Government Priorities

President Buhari carries over the same broad priorities from his first four years—security, anti-corruption and economic recovery. Accordingly, the outlook is one of continuity rather than radical change of focus and approach.

Security

Nigeria contends with a myriad of security threats such that the focus and efforts of the military and other security agencies are spread out across the country. Besides the Islamist militant insurgency, which is still active in remote quarters of the North East and will likely be the focus of renewed military attention, there continue to be violent clashes between farmers and herdsmen in the Middle Belt as well as increasing banditry in Zamfara State. There is also the ever-present threat that resurgent militancy in the Niger Delta could flare up again in the event that local interest groups grow restive over the benefits they wish to derive from the oil and gas industry or government programmes in the volatile region. Meanwhile, south-eastern secessionist pressures and popular unrest have been a prominent feature of Buhari’s first term even if they are unlikely to escalate to the extent of threatening national sovereignty in the current context. In addition, there are continued occurrences of kidnapping for ransom around the country.

All of this means that security will continue to be a priority in government decision-making and budgetary allocations. The way in which the government handles the Niger Delta in particular will be critical to its ability to achieve a sustainable economic platform given the centrality of oil to the Nigerian economy; notwithstanding, the conduct of the army in the region during elections is likely to have inflamed tensions, providing some legacy issues that will need to be addressed in the short-term.

The economy

On the economic front, infrastructural development will remain a priority and attract a lot of capital spending, notably on power, road and rail transport. However, unless the government can achieve a significant improvement in revenue collection infrastructural development will be delayed; as it is unlikely that the government will be able to continue borrowing at the same pace as under Buhari’s first term. Till date, the Buhari government has embarked on several privatization initiatives, divesting or significantly scaling back state interests in several ventures. It has also publicised initiatives aimed at unlocking value in national assets through the concessions of the international airports in Lagos, Kano, Port Harcourt and Abuja and the development of free trade zones. We also expect attempts to sell down the federal government’s interests in oil exploration joint ventures with multinationals as another significant move.

Efforts to encourage foreign direct investment by improving the ease of doing business have had moderate success to date and are expected to continue. But private sector views are mixed, with many considering these efforts do not go far enough in tackling the wide range of structural issues that constrict business growth and investment. It is also likely that the initiatives to improve the business environment will continue to be undermined by regulatory actions from other parts of government with opposing agendas.

SMEs will remain in focus, but it is unclear if there will be successful enforcement of the executive order pertaining to the patronage of locally made goods, which could be a boost for small businesses. This order recommends a 40-per-cent preferential participation rate in public procurement for micro, small and medium-sized enterprises. Rather, initiatives to boost SME productivity will remain centred around micro-lending. The government is set to continue with the much-publicized Anchor Borrowers Program as a key pillar of its agricultural development policy, having promised to expand it to 1 million beneficiaries notwithstanding performance challenges. The Social Investment Programs (SIPs) will also continue to be promoted as a pathway to economic recovery, with the N-power scheme optimistically projected to result in a million new jobs by the end of the second tenure.

Fiscal and Economic Outlook

The Economic Recovery and Growth Plan (ERGP) remains the blueprint for the Buhari administration’s second term agenda. However, the country’s fiscal deficit is the biggest economic challenge in the short-term and the administration has the onerous task of restructuring government spending while sustainably raising revenue. Though the government insists that the country’s debt is benign, with the debt-to-GDP rate currently just above 20 per cent, interest payments as a percentage of revenue are over 60 per cent and capital expenditure in the last four years has averaged a meagre 2.1 per cent as a percentage of nominal GDP. Yet the 2019 budget will rely on internal and external borrowing as government revenue remains dependent on fluctuating oil prices and seemingly unpredictable—but consistently underwhelming—production levels. By August 2018, the government had only realized 52 per cent of expected income for the year due to lower-than-expected crude volumes (1.7m barrels per day in the first nine months of 2018 versus the budgeted 2.3m barrels). This reflects continued unrealistic expectations in the budgeting process as crude production has been lower than projections for the last three years.

The main prospect for revenue growth lies in increasing non-oil revenue, which the administration achieved in its first term with moderate success. The FIRS reports that it collected N5.32 trillion in 2018, the highest it has collected so far in revenue, out of which the non-oil sector contributed 54 per cent, while the bulk of the remainder was from tax on petroleum profits. Targeting non-oil revenue means that capturing more economic activity within the tax net will continue to be an important strategy to build on this growth.

A VAT increase is also being considered, with various reports stating that a 50 to 100 per cent hike is being assessed. This would be an extremely unpopular policy direction but is more likely to be pushed through in this term as the government will be looking for ways to fund the surge in personnel costs that will arise from the new N30,000 minimum wage bill passed by the National Assembly. It remains to be seen whether the president will assent to the wage increase or refuse, heightening fiscal uncertainty. Moreover, the administration is likely to remain unwilling to review pricing mechanisms for the multiple exchange rates, electricity tariffs and petrol prices to reflect fundamentals. This is despite reports indicating that subsidy payments by the federal government average N1.2 trillion annually, making deregulation of the downstream oil sector an increasingly urgent issue, even if local refining capacity grows.

Buhari’s socialist leanings will continue to determine his economic policies in the second term. The foreign exchange demand management policy of the Central Bank remains the biggest symbol of his statist stance and is poised to remain so. Reports indicate that the CBN defended the naira with up to USD 20 billion in 2018 and a shock to oil prices or oil production could put pressure on this approach at an early stage of a second term.

Despite ongoing challenges, there is cause for cautious optimism in the political and economic outlook for President Buhari’s second term. In comparison to his first tenure in which the Boko Haram insurgency was at a peak and Nigeria was heading into a recession, Buhari’s second-term challenges seem less daunting. There remains ample opportunity for the government to make improvements by implementing much-needed reforms with sincere political will and a zealous team