By Andrew Jay Rosenbaum
ANKARA
Elections in Nigeria on Saturday will take place in an economy that is between a rock and a hard place, according to experts.
On the one hand, the Nigerian economy is severely challenged by the drop in the price of oil. Analysts say it is largely responsible for the drop in gross domestic product to 5.94 percent in the fourth quarter from 6.77 percent. The worldwide oil glut has led Nigeria to reduce production from 2.15 million barrels on average per day in the third quarter of 2014, a decrease from 2.26 million barrels for the same period in the previous year, according to government statistics.
The oil-price drop has also led to the devaluation of the Nigerian currency, the naira, which has fallen 7.5 percent against the dollar in 2014. Combine this with inflation at about 13 percent, and it is clear that life is not easy for a Nigerian businessperson.
The economic decline has exacerbated drastic inequality in the country. Nearly 70 percent of the population lives below the poverty line, according to the National Bureau of Statistics. This is paradoxical for the largest economy in Africa, with a GDP of $510 billion in 2014, according to a report by the African Economic Outlook published at the end of 2014.
“Economic growth has not translated into lesser inequality,” pointed out Olabisi Shoaga, a professor at France’s Sciences Politiques in Paris, in a note published on March 5. The Gini coefficient, which measures rich to poor inequality, stands at a massive 48.8 for the country – where 100 is the top of the scale.
Meanwhile, the manufacturing capability of the economy has declined, according to the lead economist (Macroeconomics and Fiscal Management, Governance, Poverty, Jobs, & Gender) at the World Bank, Khwima Nthara, in an undated note on the website.
He explained that a combination of slow performance in the oil refining, chemical and pharmaceutical products, electricity, steam and conditioning supply were also factors in the decline.
There is also danger that oil production could be destabilized by violence after the elections, Shoaga said. This could cause a steep drop in liquidity, as oil accounts for 90 percent of the economy and 70 percent of government revenue.
On the other hand, the activities of the terrorist group Boko Haram have destabilized national security and cost huge sums in public funds.
“Increased military expenditure in the past decade has not led to progress in the fight against Boko Haram. The army is ill-equipped, underpaid and demotivated compared to the terrorists that it is meant to tackle. Security forces have been mostly limited to protecting themselves as well as those in power and capable of paying for their services rather than the vulnerable populations under attack,” Shoaga said.
According to the Armed Conflict Location and Event Dataset (ACLED, 2013), Nigeria is the fourth most violent country measured by the number of violent events and the seventh most fatal over the course of the datasets coverage (1997-March 2013).
This violence has different spread patterns; between 1997 and 2009, the levels of both violence and reported fatalities were relatively stable. But since 2010, both have climbed sharply, with increases holding in both absolute and proportional terms. The Nigerian state is plagued by many crises of marked volatility and extreme violence, leading to a high level of insecurity.
“Boko Haram’s activity in Kano, Kaduna, Bornu, Yobe and Bauchi is gradually changing the economic structure of the whole of northern Nigeria. Our research indicates that if the violence persists, development in that region will be tampered and the gap between the North and other regions will widen further,” Eme Okechukwu Innocent, of the Department of Public Administration and Local Government Studies at the University of Nigeria, Nsukka, said in a paper published in December 2014.
Another effect of Boko Haram terror is the decline in foreign direct investment to the country as a whole. Foreign direct investment dropped by 21.4 percent in 2013, according to African Economic Outlook. In 2014, foreign capital invested in Nigeria was $20.8 billion, lower by 2.7 percent from $21.3 billion in 2013.
“Investors do not like instability and violence,” commented Innocent.
Corruption is still a massive drain on the economy. Nigeria’s government and its armed forces and police are mistrusted by the people – nine out of 10 people said the police were corrupt in the 2013 Transparency International Global Corruption Barometer and 45 percent said the military was corrupt.
The scandals surrounding so-called “security votes,” which allow politicians to appropriate millions of dollars behind closed doors simply by evoking “national security,” for example, are well documented, Transparency International said in a report published on May 21, 2014.
What is the outlook?
“Weaknesses in the oil sector have increased macroeconomic risks. The decline in oil output, together with somewhat weaker oil prices, can be associated with a weakening of the balance of payments and shortfalls of budgetary revenues. The balance of payments surplus registered from October 2011 to April 2013 has disappeared; official foreign reserves declined slightly from almost $49 billion in the end of April 2013 to $46 billion on September 19, 2013," the OECD noted in its most recent report on Nigeria.
There is also the issue of short-term portfolio capital inflows that reportedly reached more than $17 billion in 2012.
These inflows have been targeting primarily the government bond market, with interest rates at 12-14 percent and a rather stable exchange rate relative to the U.S. dollar. These short-term capital flows have added another potential source of volatility to the country's macroeconomic situation.
So, whoever wins the elections in Nigeria, will be faced with a substantial challenge to set the economy back on track.
