Atiku Abubakar, the presidential candidate of the Peoples Democratic Party, and Peter Obi of the Labour Party seem more up to the task of jolting Nigeria’s economy out of the slow-growth path induced by President Muhammadu Buhari’s signature policies, Capital Economics has said.
The UK-based consultancy said this in the latest instalment of its Election Watch series ahead of Nigeria’s polls.
It said boosting oil production, overhauling the foreign exchange regime and placing the public finances on a more even keel would support the economy’s long-term prospects, albeit at the cost of inflicting near-term economic pain.
“Nigeria’s oil-dependent economy has contended with an eight-year dose of ‘Buharinomics’. The outgoing president’s signature policies have included protectionism, a loose fiscal stance as well as an artificially strong and stable naira that policymakers have clung to despite a volatile oil price environment,” its Africa economist, Virág Fórizs, said.
GDP growth during the Buhari administration averaged 1.3 percent per annum compared to the 6.5 percent average over the preceding eight-year period, according to the economic research firm.
It outlined three sets of interlinked economic policy challenges facing the next administration.
“First, Nigeria’s key hydrocarbon sector is struggling to pump out crude oil,” Capital Economics said.
It said a combination of chronic underinvestment in the sector – notwithstanding belatedly passed reforms – and security issues contributed to output dropping to a 50-year low of 1.02 million barrels per day in September 2022.
It added that despite edging up to 1.27 million bpd in December, production remains well below the 1.74 million bpd OPEC+ quota.
The firm said the authorities attributed the recent pick-up in oil output to the security services making headways against oil theft, adding that promises by the presidential candidates of the ruling All Progressives Congress and the opposition PDP to ramp up security spending would likely result in a further bump in oil production.
“Even so, we think that any new government will struggle to attract sufficient investment to reverse the long-standing decline in output, especially with the transition towards greener sources of energy,” it said.
The second challenge is mounting balance of payments strains largely due to the unorthodox foreign exchange regime, according to the firm.
It said subdued oil production volumes have limited Nigeria’s gains in terms of the value of oil exports, even as elevated prices have pushed up the country’s fuel import bill.
“Taken together, the latest figures suggest that the current account remained in a deficit in 2022, failing to improve much compared to 2021,” Capital Economics said.
It said the foreign exchange restrictions in place to maintain a tight grip on the currency have deterred foreign investment inflows and hindered activity.
“Reforming Nigeria’s multiple exchange rate regime is a key campaign promise of opposition candidates Atiku Abubakar and Peter Obi, while ruling party presidential hopeful Bola Tinubu seems to favour the existing system,” the firm said.
It said a marked shift towards a unified and fully flexible exchange rate would facilitate smoother balance of payments adjustments without the distortionary effects of the current FX regime.
“Third, fiscal policy settings are putting the public finances on a worsening trajectory. Paradoxically for such an oil-dependent economy, high oil prices have provided little benefit to the fiscal position. The main culprit behind this is the country’s fuel subsidy scheme,” Capital Economics said.
It said phasing out or removing fuel subsidies, as the three main presidential candidates have promised, would only go so far to shore up Nigeria’s public finances however.
“Oil revenue problems are compounded not only by limited non-oil revenues (which are less than 4 percent of GDP), but also by a loose fiscal policy stance that has characterised ‘Buharinomics’,” it added.
Policy proposals to address Nigeria’s broader fiscal woes diverge significantly among the key presidential hopefuls.
“While Mr. Tinubu of the ruling APC seems to offer continuity when it comes to loose fiscal policy (and quite possibly deficit monetisation too), opposition candidates tout fiscal discipline. Mr. Obi of the Labour Party even vowed to close the country’s perennial budget gap though ‘zero-based budgeting’,” the firm said.
It said turning around the deteriorating public debt trajectory would require wholesale fiscal reforms, including but not limited to boosting non-oil revenues and spending restraint.
Capital Economics said: “Taken together, to jolt Nigeria’s economy out of a ‘Buharinomics’-induced slow-growth path, we think that the next administration would have to systematically tackle these interrelated challenges. This appears to be least likely under a Tinubu administration as campaign promises suggest no fundamental shift in the direction of economic policymaking.
“Atiku Abubakar (of the PDP) and Peter Obi (of the Labour Party) seem more up to the task. That said, even policy proposals of the PDP and the Labour Party seem somewhat half-hearted when it comes to a pro-business and/or a pro-growth stance. Either way, piecemeal reforms risk leaving the economy with lingering ‘Buharinomics’ policies that continue to sap growth.”