It Is The Economy, Stupid -By Uddin Ifeanyi

One of the more interesting lines in our domestic conversation, today, is the argument that “everything is now political, and will remain so for some time yet”. The general elections scheduled for February next year loom over all other national worries. On past form, until six months after the election, nothing else will matter.

However, globally, the set of current worries comprise different condiments. Top on the list from the Nigerian vantage is concern with how Turkey’s economic woes feed through into other emerging (and frontier) economies. And last week we saw the South African rand drop against the main traded currencies, even as Bloomberg reported a 6 basis points (bps) rise in the yield on the country’s benchmark 2026 government bonds. In response to these conditions, managers of monetary policy in Argentina, on the other hand, took the unusual step of raising the country’s benchmark interest rate by 500bps (by the way, the “bps” is a hundredth of a percent). At 45% per annum, Argentina’s policy rate is now the highest in the world — even if it does give the peso a fighting chance in the battle for exchange rate stability.

Yet, even at this level, Turkey’s woes are not all the concern there is. As the U.S. economy strengthens (inflation is up, unemployment is nearing record lows, and the numbers off Wall Street continue to flatter), the Federal Reserve is bound to push benchmark interest rates up. Unfortunate as it is, the trade spat between the U.S. and China has played to the U.S. dollar’s appeal as an asset haven for investors. All of which means that returns on dollar-denominated assets (all other risks considered) might soon trump the yields from investing elsewhere.

At risk from this possible reset of global investment portfolios are developing economies with huge debt burdens and poor earnings capacity. I.e. countries for whom any adverse change in global financing conditions is likely to result in sovereign credit defaults. Nigeria does not fit this bill — yet — only because global oil prices remain elevated. Fortunately for our economy, its managers, and people, despite the threat to global trade from a resurgence in protectionist trade policies globally, the futures markets currently price medium-term oil prices at around US$53 per barrel.

Considerably well over the federal government’s current budget oil price benchmark, one could add. But there are others who would argue that, even that good, the medium-term oil price outlook is way below our fiscal break even point. In other words, in order for the national budget to be in balance, a barrel of our Bonny Light blend of crude has got to sell for far more. Estimates of how more, range between US$80 and US$100 per barrel. The broad range of these estimates notwithstanding, much of the conversation around the 2018 Appropriation Act (including the furore over the supplementary budget) highlights the many difficulties associated with the national budgeting process, even with oil prices relatively high in the global market.

The “and/or” to this fiscal balance debate is one that every Nigerian government has paid lip-service to over the last half-a-century. Essentially, it is about weaning the economy off its addiction to oil export earnings. Options for going cold turkey range from increasing the domestic tax take (by broadening the tax net and improving the tax collection process) to diversifying the economy by improving the private opportunities for private sector supply responses. Hypocrisy, or incompetence, or a unique combination of both vices mean that these options remain on the cards.

Rather than simply cavil, this latter point draws attention to immense vulnerabilities at the local level. The last time the International Monetary Fund spoke to its thoughts on our economy, it drew attention, in unusually strong language, to vulnerabilities in the financial services sector. Worried about the sector’s build-up of dodgy loans, the Fund called for “enhancing banking sector resilience through a proper assessment of asset quality, strengthened capital buffers, and phasing out regulatory forbearance”. Whereas lower yields on government’s domestic borrowing was always going to hurt the banks, we are now left with worrying what their responses would be to a reversal in non-resident investors’ appetites for naira-denominated assets.

Ifeanyi Uddin

The troubles do not end there. Despite the recent oil export earnings-based recovery in domestic output growth, productivity levels across key (if not all) sectors of the economy are still mired in the doldrums. Inflation (after the base year effects associated with last year’s higher rates wear off) is poised to rediscover its upward trajectory later in the year. Supply worries associated with the breakdown in security conditions in the north-central food-producing belt of the country might provide by far the biggest impulse (so far) to food price increases in the country. Unemployment and underemployment (both already implicated in the worsening security conditions all over the country) are at levels where security experts acknowledge that red flags should have been hoisted long ago.

In other words, as an economy, there cannot be many in the world, today, as fraught as Nigeria is. So, what does it mean when we insist on “everything being political”? Obviously, it is that for some months to come (if not a year) all else will be subordinate to the shenanigans that pass as politicking in these parts — the serial defections across the main parties, the besieging of the National Assembly by operatives of the Department of State Security (as Greeks once did to Troy, gift horses and all), etc. To what effect, though, is this variant of politics committed? For if politics is understood as doing and thinking all that it takes to influence government policies, then, no policy prescriptions matter more, currently, than how to ring-fence the economy against the threatening headwinds, while improving resilience across all its different sectors.

Does it surprise, then, that thus far, none of the actors in our newly-heightened political environment has put forward a coherent policy platform on any of these? Not really. For, if we have proven anything in this country, it is that as a people, we find it exceedingly difficult to do (the right) things properly!

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.