Nigeria: Economic challenges before us from 2024

In the next four years, then, the task of managing Nigeria effectively would call for a unique combination of talents at the finance ministry…. The new finance minister will require outstanding negotiation skills. This is largely because of the much changed character of our portfolio of borrowing. Only recently, the larger share of the country’s loans was from sovereigns and multinationals.

If the last four years of the Obasanjo administration was crucial to Nigeria’s return to global financial markets, we have spent the last eight years gently closing this door in our own faces. Between 2005 and 2006, the debt management negotiations of the Nigerian government reduced both the size of the country’s debt and its service cost. But beyond this, by creating the basis for the economy’s first sovereign credit rating, it made external borrowing easier across the economy. Successor governments have rested on this enhanced borrowing capacity ― but none more so than the Buhari administration.

Earlier this month, JPMorgan removed the country from its list of emerging economies that investors should be “overweight” in. Analysts at the investment bank believe that “Nigeria’s fiscal woes amid a worsening global risk backdrop have raised market concerns despite a positive oil environment”. Top of these concerns was the failure of the Nigerian National Petroleum Corporation (NNPC) to hand over any monies to the exchequer over the three months to end-March. Domestically, we have continued to tie ourselves in knots over the reasons for this, especially in the face of rising prices in the global markets for crude oil ― our main export.

The new government that comes in next year will therefore inherit a difficult portmanteau of challenges. On account of the Kremlin’s war against Ukraine, inflation will be a major let all of next year. On account of the war’s adverse effect on global output growth, the tide that has lifted leaky boats such as ours up until the outbreak of the pandemic in 2020, will continue to ebb into 2024.

Whether it is because of rising subsidies for the pump-gate price of petrol or due to low domestic crude oil production (again whether this is due to theft along the export pipelines, or the result of the tapering of investment in the sector over the years, no one is quite certain), consensus is that Nigeria is increasingly vulnerable to tightening monetary conditions in the United States of America. Unsurprisingly, Nigeria’s Eurobond issues are selling at a growing price discount. Given the inverse relationship between price and yield in financial markets, put simply, our sovereign borrowing costs is rising.

Also Read: Oil Price Apocalpyse Will Bankrupt Nigeria

These are the immediate consequences of the Federal Government’s failure over the last seven plus years to enact reforms required to strengthen the economy, especially by increasing the resilience of supply response across sectors ― but more especially in the private space. Where we could have increased the economy’s tax generating capacity (by broadening the number of tax paying entities and mainstreaming large swathes of the informal sector) and improved the efficiency of spending across the public sector, we opted instead to borrow large sums of money to plug the resulting holes. Thus, we will end eight years of the Buhari administration with sovereign debts making up a larger portion of domestic output, and the cost of servicing these debts nearly as much as, if not more than, what the Federal Government earns yearly.

The new government that comes in next year will therefore inherit a difficult portmanteau of challenges. On account of the Kremlin’s war against Ukraine, inflation will be a major let all of next year. On account of the war’s adverse effect on global output growth, the tide that has lifted leaky boats such as ours up until the outbreak of the pandemic in 2020, will continue to ebb into 2024. And because of successive Federal Governments’ inability to invite new investments into the economy, unemployment will also remain difficult over the medium term. Arguably, heightened insecurity is one channel through which poor employment opportunities across the economy feeds into our social space. But far more important than all of these downside risks is that in the four years to 2027, some of the debt contracted by the Buhari administration will begin to fall due.

With the capacity to service these debts straitened, and the ability to repay almost non-existent, without a more competent list of ministers than the Buhari administration managed to put together, the next Nigerian government will find itself moving rapidly down Shit Creek in a leaky boat, and without paddles.

In the next four years, then, the task of managing Nigeria effectively would call for a unique combination of talents at the finance ministry. Whereas it was enough over the two terms of President Buhari to identify projects that government persuaded itself where necessary to drive domestic output growth (“infrastructure”, “infrastructure”, “infrastructure” was the mantra) and all you then had to do was find a creditor willing to lend the country the sums that would help build this. The new finance minister will require outstanding negotiation skills. This is largely because of the much changed character of our portfolio of borrowing. Only recently, the larger share of the country’s loans was from sovereigns and multinationals.

But we have since moved the bigger share of our foreign borrowing onto commercial creditors and to borrowing from China. The problem with this is not just that commercial borrowing is costlier, or that persuading lenders in this category to agree to restructuring terms is easier than herding cats, nor that the opacity of China’s lending rumours abound that the terms of loans from the Middle Kingdom include the possible attachment of national assets as collateral) will make restructuring on traditional terms almost impossible. Rather, it is that China does not have a history of having successfully restructured debts of the magnitude it has extended to us.

With the capacity to service these debts straitened, and the ability to repay almost non-existent, without a more competent list of ministers than the Buhari administration managed to put together, the next Nigerian government will find itself moving rapidly down Shit Creek in a leaky boat, and without paddles.