It’s been a tough year for Nigeria and the government of President Muhammadu Buhari. With the country’s economy already buffeted by the fall in global oil prices, resurgent militancy in the Niger delta has had a sizeable impact on oil production levels. Meanwhile, foreign investment levels are down, and a shortage in foreign exchange has created a liquidity crisis – stemming in large part from the government’s rigid efforts to prop up the embattled naira and prevent an inflationary spike.
The country has slipped into its worst recession in a generation. And as a further sign of diminishing confidence in one of Africa’s most important economic powerhouses, last week saw a ratings downgrade for several of the country’s banks based on falling confidence in the government’s ability to bail them out in the event of a banking crisis.
Businesses are downbeat and we believe the next few months are likely to get worse rather than better given current economic and political conditions. But we also believe that the deepening of the economic crisis will force more radical reform and that there are accordingly glimmers of hope that could alter the trajectory of Nigeria’s economic fortunes and longer-term governance outlook.
The economic crisis has exposed Nigeria to itself, laying bare the losses, leakages and inefficiencies of a dysfunctional state system, burdened by corruption and mismanagement. The ruling APC party’s hard-won reform mandate has certainly lost some of its sheen against the constraints of the tough economic conditions the party inherited on coming to power in 2015, and the realities of a political system that is still replete with vested interests and debilitating ethno-regional competition. A battle is being fought between those seeking structural reform and enhanced discipline, and those using the current situation to further their own commercial and political interests. It remains to be seen who will emerge on top, but there remains at least some cautious optimism around what the government might achieve as it seeks to reinvigorate the economy and restore confidence.
After a difficult year in 2015, money has begun ploughing back into emerging markets amid stagnation and lower growth in the developed world. And with around US$38tn sitting in OECD markets earning 1% returns or lower, Nigeria offers significant opportunities to international capital if confidence can be restored. In this respect, we believe the government’s handling of three factors are going to be critical to tackling the current state of ‘stagflation’ and shaping Nigeria’s broader political and economic outlook:
Negotiations with interest groups in the Niger delta
Foreign exchange policy
Debt-raising initiatives, infrastructure investment and economic stimulus.
In this note, we explore the dynamics at play around these three areas.
Trouble in the creeks: insecurity in the Niger delta
Buhari’s 2015 election victory shook Nigeria’s political establishment to the core. After 16 years of the PDP’s national dominance, rising dissatisfaction at perceived government underperformance and corruption, combined with an alignment of diverse political interests were at the heart of the APC’s landmark victory. But a power-struggle between the country’s main ethno-regional power blocs also sowed the seeds of the opposition’s triumph. The controversial presidency of Goodluck Jonathan led to perceptions that political power – and with it, economic control – was increasingly being monopolised by a southern cabal around Jonathan. This dynamic was at the heart of Buhari’s successful move to rally the northern Hausa-Fulani and south-western Yoruba against the ruling establishment. Yet this dynamic has once again sharpened the lines of ethnoregional identity in Nigerian politics.
Buhari’s government is inevitably dominated by the northern and south-western networks which brought him to power. With a handful of notable exceptions, it lacks heavy-hitters from the Niger delta and south-eastern Igbo community, most of whom remain aligned with the PDP in opposition. The curtailing of political influence and patronage networks in the delta and southeast has contributed to rising political tensions and resurgent restiveness at the grass-roots level.
The most evident sign of this worrying trend has been the emergence in the last year of the Niger Delta Avengers (NDA). The NDA is an organised militant group which has bombed several oil pipelines in the oil-producing region. Based in the western axis of the Niger delta, the group’s attacks – notably on the Forcados and Escravos trunk lines – have been relatively sophisticated and surgical, resulting in hundreds of thousands of barrels of lost production, but limited casualties. At their peak earlier this year, as much as 50% of Nigeria’s oil production was lost at a significant cost to the national coffers.
But the NDA is not operating in isolation. In fact, there are a number of smaller networks and community militias which have become more vocal in the creeks of the delta in recent months, while localised community issues remain significant, especially around the Forcados pipeline route. Meanwhile, the political demands of the NDA are also receiving broader backing from senior Niger delta power-brokers who feel the government needs to be doing more to support the region’s development needs.
Author: Roddy Barclay