Almost the entire focus has been on elections and what emerges thereafter.
A major factor that would determine the performance of the Nigerian economy next year is the elections. Economic and financial analysts all acknowledge this concern. Apart from the huge spending that has pushed deficit to above six percent of gross domestic product, there is also the concern that in the event of a change in government, there may be radical reversals of many of the policies already in place.
Expenditure is estimated at N5.16 trillion, revenue is put at N3.18 trillion, while budget is estimated at N 4.67 trillion. The shortfall will be sourced from massive domestic and foreign borrowing, with the attendant effect on the economy. The exchange rate is tottering; interest rate is pegged at 6.25 percent, while inflation at above 13 percent has not shown any signs of slowing down.
In its October rating of the country, Fitch Ratings, a global rating agency, noted that elections in the first half of next year have increased short-term political uncertainty in the country. According to its ratings note, the end of zoning in the ruling party could give rise to instability in the Niger Delta or in the northern states, depending on who is chosen as candidate.
“A flare-up in the Niger Delta would be the worst outcome for the economy as a whole, as it would likely bring a renewed decline in oil output, budget revenues, and international reserves,” the report said.
The report added that the major constraints on the ratings, low per capita income, weak transparency and governance, and the infrastructure deficit, especially the power shortage, remain in place.
Uncertainty persists
Bismarck Rewane, managing director, Financial Derivatives Company Limited, a Lagos-based financial advisory services firm, also believes that the current development in the political scene creates uncertainty in the country.
In his presentation at the Lagos Business School November monthly executive breakfast meeting, Mr. Rewane said recent development has made the incumbent president more vulnerable, adding “the political structure is fragile and the imponderables have multiplied. Stakes are high and situation fluid.”
Thankfully, the country’s oil production is back to its best levels since 2006, but elections pose a risk. Without doubt, the election period comes with some level of frenzied spending by government that is usually not captured in the appropriation.
“Revised budgetary projections and two supplementary budgets (including one to cover the costs of Nigeria’s new voter registration system) suggest that spending will rise around 50 percent in 2010, with some spillover into 2011,” said Razia Khan, regional head of research, Africa, at Standard Chartered Bank, London.
Ms. Khan said Nigeria’s election will be one of Africa’s most watched political events in 2011. She added that the extra budgetary spending is not without its repercussion.
“Elections are not without their risks, however, and the concern is that while much reform is promised in the future, there is little to show for the reform agenda so far. Almost the entire focus has been on elections and what emerges thereafter, with comparatively little emphasis on structural reforms that would benefit the economy now,” Ms. Khan said.
This is in addition to the coming on board of the Asset Management Corporation of Nigeria to buy up bad debts from the books of the banks. This will be financed by bonds to be floated in the next few weeks. According to Fitch, institutional and structural factors are weaknesses for the public finances.
“Costs arising from AMCON and other contingent liabilities would still leave debt ratios comfortably below rated peers,” it said.
