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Wednesday, 11 February 2015

The Economic Impact of the Postponement: Stability Deferred

Image: BBC




























On Saturday, 7th of January, the Independent National Electoral Commission (INEC) announced that after careful deliberation it was acceding to the demands of the National Security Adviser (NSA) and the Service Chiefs to postpone the General Elections for six weeks. The new dates the Commission’s Chairman announced were now to be March 28 (Presidential and Federal Legislative elections) and April 11 (Gubernatorial and State Legislative elections). Much has already been written about the wide-spread suspicion which has greeted the postponement. Remi Adekoya’s article in The Guardian, Karen Attiah’s article in The Washington Post, and Tolu Ogunlesi’s article in the Financial Times, give a good sense of this general scepticism – much of which I share.


In this article I instead highlight the implications and impact of the postponement on the country’s economic stability. 

Stability Deferred


The ebullient glow that once permeated perceptions of Nigeria’s economic health has given way to an undercurrent of uncertainty. As the curtain dropped on 2014, plunging oil prices unleashed a trifecta of woes – reduced government revenues, foreshadowing a period of austerity; looming currency crisis, due to downward pressures on the Naira; and dwindling foreign reserves, as the Central Bank throws dollars into the market to stem the Naira’s slide – that are now weighing down the economy. Data now suggests that last year foreign investors reportedly pulled out N846.5bn ($4.5bn) from the stock market – 65% more than in 2013; a sign of waning investor confidence. And the Nigerian Stock Exchange (NSE) was billed as the worst performer among the major African exchanges in 2014 as investors stayed back and major multinationals whittled down their investments pending a clearer sense of the government’s fiscal policy direction in this changed economic landscape.

The proposed 2015 “transition” budget unveiled in December last year only deepened the uncertainty. Rather than charting a realistic path out of austerity, its thrust seemed geared towards attracting votes with populist, but inconsequential, measures like the “luxury tax”. Four of its key assumptions – oil production, 2.278m barrels/day; oil price, $65/barrel; exchange rate, N165/$; oil revenue, N1.92tr ($9.6bn) – were quickly dismissed as unrealistic by analysts as soon as the budget was presented.

 Industrial scale oil theft has left production lagging below 2m barrels/day since 2012. With little signs of oil theft abating, reaching the production target is probably unlikely. There is no need to dwell on the unrealistic oil price and exchange rate set. Both were already on a precipitous downward trend even before the budget was unveiled. As for the oil revenue target of N1.92tr, I’ll just charitably call it overly optimistic. In 2013 when the price of oil averaged $100+, oil revenue was reportedly N1.99tr. Now that oil prices have fallen by 50%, and with production sagging below expectation, how government arrived at such an optimistic revenue forecast is anyone’s guess.

Postponing the elections to March and April now means tackling these pressing problems have also been effectively deferred till the middle of this year when the almost inevitable unrest that will follow the elections (whoever wins) subsides. It also means that the tough measures for stabilising the economy that the political class need to start debating have been postponed till election fever dies down. After all, in election season, who wants to start discussing such unpopular measures as retrenchment of government employees/slashing government wages, removal/reduction of subsidies, capital controls to stem the flight of investor funds, accepting a devalued Naira rather than depleting the foreign reserves to vainly defend it etc.

Unsurprisingly, the Monday after the election postponement saw the Naira plummet to historic lows against the dollar – a declining trend that has continued – as investors sold off their holdings in the bond and equities market. Of the 30 markets tracked by the “World Market Indices”, the NSE, on the day after the postponement, was one of the worst performers – second only to Greece’s stock exchange.

More than a vote postponed therefore, by extending the election season for a further six weeks, government has also deferred the critical time when tough decisions will have to be made to stabilise the economy. And as we know: The longer a crisis persists, the narrower the range of options become, and the harder it becomes to manage.