First anniversary: Economy bleeds as Buhari dawdles – Punch


With no clear policy direction, critical sectors of the Nigerian economy such as power, oil and gas, manufacturing and transportation appear worse off at the end of the first year of the President Muhammadu Buhari administration, RASHEED BISIRIYU, OYETUNJI ABIOYE and ’FEMI ASU write

The exit of the Goodluck Jonathan administration exactly a year ago offered a big relief to many players in the business sector in Nigeria.

Shortly before then, the country was considered one of the most dangerous places in the world to do business, no thanks to the persistent marauding activities of the Boko Haram militants, who killed hundreds of people and overran communities in the North almost on daily basis, especially in the North-East. Kidnappers were also on the prowl in the South, abducting influential people for ransom.

Apart from threats to lives and businesses, many industries that could no longer bear the high running/production costs were forced to close down and lay off their workers as the country faced acute fuel scarcity and worsening power supply.

As many eagerly awaited the beginning of a new administration, there were high hopes that the All Progressives Congress-controlled government led by President Muhammadu Buhari would usher in a much-desired change.

Buhari’s victory at the poll as Nigeria’s new leader was instantly greeted by an upbeat response from the stock exchange market. Indeed, the market capitalisation (of listed equities) appreciated by N903bn to N11.621tn from N10.718tn.

The fuel scarcity that had lingered for a long period petered out just as a significant improvement in power supply was seen, a development many attributed to the President’s body language.

Energy

Kachikwu
Apparently, the energy sector received considerable attention from the administration as Buhari dissolved the board of the Nigerian National Petroleum Corporation barely a month after he assumed office.

The appointment of the then Executive Vice Chairman of ExxonMobil Africa, Dr. Ibe Kachikwu, as the new Group Managing Director of the NNPC on August 4 was widely seen as a positive development and a reinforcement of Buhari’s commitment to sanitise the corporation, which had been described as one of the world’s most opaque national oil companies.

Kachikwu was later appointed as the Minister of State for Petroleum Resources and retains his position as the NNPC helmsman.

Rounds of severe fuel scarcity

In October, fuel queues started to emerge at some filling stations in parts of the country. But the scarcity of the product did not become severe until the next month and it lingered up until December.

The situation was said to have been caused by the delay in the payment of N413bn subsidy debt owed by the Federal Government to marketers, most of who stopped or drastically reduced their importation of petroleum products. The subsidy arrears were paid in December.

In January this year, Nigerians heaved a sigh of relief from the suffering and pains inflicted on them by the fuel scarcity. The government also announced a slight reduction in the price of petrol from N87 per litre to N86 and N86.5 for the NNPC stations and private stations, respectively.

But the relief did not last long as fuel queues resurfaced at filling stations in Lagos and some major cities in late February. The queues of desperate motorists and other consumers, which lasted for over two months, worsened days after Kachikwu said on March 23 that the queues might not be completely eliminated until about two months despite the efforts being put in place by the government.

On May 11, the government announced a new petrol price band of N135 to N145 per litre, which signalled the end of fuel subsidy. This was greeted by mixed reactions. The Nigeria Labour Congress embarked on strike days after to protest against what it called “the height of insensitivity and impunity.”

In what has been described as a partial deregulation, the government said “any Nigerian entity is now free to import the product, subject to existing quality specifications and other guidelines issued by regulatory agencies,” procuring foreign exchange from secondary sources.

But sourcing forex remains a huge challenge for a number of marketers, thus threatening their ability to import petrol.

Just recently, marketers under the aegis of Depot and Petroleum Products Marketers Association, in a meeting with the Minister of Finance, Mrs. Kemi Adeosun, complained about the forex scarcity, asking for assistance from the government.

Power generation, crude output at record lows
February 1, an increase in electricity tariff took effect, with the Minister of Power, Works and Housing, Mr. Babatunde Fashola, saying it was “a painful pill” consumers should “swallow”. The hike irked many consumers, with labour unions protesting against it.

The next day, the Transmission Company of Nigeria announced that the nation had achieved its peak generation of 5,074.70 megawatts. But the improvement was short-lived as generation dropped below the 4,000MW mark later that month.

On March 1, the Nigerian Electricity Regulatory Commission said power supply through the national grid had dropped below 2,800MW due to vandalism.

Eight days after, power generation in the country fell to a record low of 1,580.6MW, a development that threw many parts of the country into blackout for days.

The downturn in power supply was exacerbated in May by the several attacks on oil and gas installations in the Niger Delta, which made generation plunge to a new low of 1,400MW on May 17, according to the TCN.

The country has experienced four total system collapses this month, up from three in April and two in March, data from the system operator have shown.

The nation’s unutilised generation capacity rose from 3,626.1MW on April 5 to 4,539.9MW on May 24, when 2,319.9MW was supplied to households and businesses.

Similarly, crude oil production in the country has been significantly disrupted by the militant attacks, pushing oil output to more than 22-year lows.

“Because of the incessant attacks and disruption of production in the Niger Delta, as I talk to you now, we are now producing about 1.4 million barrels per day. We were at 2.2 million bpd but we have lost 800,000 barrels,” Kachikwu said on May 16 while addressing members of the House of Representatives.

Commenting on the governance of the oil sector in the last one year, the President, Nigerian Association of Energy Economics, Prof. Wumi Iledare, said the government could be commended for improved transparency in the way business was currently being conducted.

He said, “The low oil prices and the volatility of exchange rates have not helped with respect to petroleum products supply. One can excuse the current government for the failure of the past, which cannot be corrected within a year. The fiscal irresponsibility in the management of our foreign reserves has contributed to a large extent to what we see at the pump.

“Certainly, that the current minister (Kachikwu) is brilliant is an understatement. That he is energetic is not in doubt. But to think he has sole answers to Nigeria’s oil and gas sector challenges is foolhardy. Thus, I have no hesitance to give the current government a low grade with respect to the governance of the sector.

“That the current minister is the (NNPC) GMD cannot in my opinion be justified for the effective governance of the industry. It has made the governance of the sector more amorphous, confusing, regressive and perhaps dictatorial than in the last administration.”

The professor of petroleum economics said he expected the President to have constituted the Board of the NNPC accordingly within the context of the NNPC Act 1977 before embarking on the restructuring of the corporation.

Iledare said it was surprising that it took nearly a year for the executive to have an opinion on the petroleum industry institutional and fiscal framework.

“There is no gainsaying that for nearly 20 years, the industry has been waiting for petroleum industry reform. I expected something on the PIB almost immediately the government was sworn in by the then National Assembly,” he said.

The immediate past Chief Executive Officer, Midwestern Oil & Gas Company Limited, Mr. Adams Okoene, commended the government’s efforts towards the deregulation of the downstream petroleum sector.

He, however, said, “I don’t see a blueprint with clearly defined milestones towards achieving the energy sufficiency that this country needs; a thing like that must be visible to everyone.”

An energy expert and Senior Lecturer, Energy Law at the University of Lagos, Dr. Adedayo Ayoade, said the performance of the regime was a mixture of success and failure.

He said, “The PIB has not been passed and that’s not a good mark for the government because it is necessary to show the way forward for the Nigerian oil and gas industry to enable us to get investments.

“The industry is stagnant and in a state of flux, and there is no prospect for any success in the industry until we sort out our PIB, the governance structure and taxation structure for the upstream.”

According to Ayoade, the deregulation of the downstream will be the greatest gift for the foundation and history of the country.

He said, “If the Federal Government can do this deregulation policy and privatise the refineries, it will transform the prospects of the Nigerian economy forever.”

Describing the resurgence of militant attacks in the Niger Delta as the biggest disaster for the country, Ayoade said dialogue would be better than sending the military in to resolve the crisis.

The Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, said the government had not done much, noting that a lot of issues in the energy sector were inherited.

He said the government had decided to take some steps in the power sector to improve transmission capacity.

Oni said, “Considering what has been done with petrol price, which allows anybody to bring in products, I think that will increase supply. Once the CBN adopts the flexible exchange rate and we all know how it works and everybody can access forex, I think petrol scarcity will be a thing of the past.

“We need to tackle the issue of insecurity in the Niger Delta. If the attacks continue, we could see output go down to one million bpd because the bulk of Nigeria’s production is in the Niger Delta. We should not allow the situation to escalate because there will be impact on revenue and foreign reserves.”

The Lagos Chamber of Commerce and Industry, in its one-year economic review of Buhari’s regime, said, “The current state of electricity generation, transmission and distribution calls for serious attention.

“The damning situation of electricity supply is traceable to epileptic performance of most key power plants in the country and the security challenge in the Niger Delta.”

Manufacturing

For the President, Manufacturers Association of Nigeria, Dr. Frank Jacobs, the past one year has been the worst period in the history of manufacturing in Nigeria.

He said, “The past one year has been the worst period in the history of manufacturing because of the fact that government policies made it difficult for manufacturers to plan.

“The issue of foreign exchange affected manufacturers to the extent that many of our members had to close shop while others operated at very low capacity because they did not have enough forex to buy their raw materials.”

He, however, noted that the government had done well in stemming insecurity, especially the Boko Haram insurgency. “They have tackled the issue of corruption, which has been a major problem. But we want the war on corruption to be more comprehensive,” he stated.

Money/foreign exchange
According to experts in the finance sector, there is no doubt that President Buhari inherited an economy in a very bad shape.

They noted that the plunge in the global prices of crude oil, Nigeria’s main foreign exchange earner, had not really helped the administration’s management of the economy in the last one year.

However, economists said that the policy response of his economic management team had been poor and far below expectation.

For instance, they noted that the contradictions in the money and foreign exchange markets compounded the inflation rate and discouraged investment in the economy.

The LCCI said the absence of a well-structured, broad-based and synergised economic blueprint with clearly stated goals, plans and strategies was largely responsible for the current challenges and policy ambiguity the nation was experiencing.

The group, in its one-year economic review of the President Muhammadu Buhari regime, noted that the global economic reality, fall in global oil prices, policy shortcomings and insurgency all played a very critical role in the weak economic performance of the country.

It, however, said commended the government’s recent efforts at stabilising the economy.

“We commend the government’s efforts in fighting corruption, which has become endemic in our system. For instance, the level of impunity in governance has reduced drastically due to the government’s anti-corruption stance,” it said, stressing the need for the administration to review its processes and implement reforms and frameworks that would make corruption difficult to thrive.

The LCCI stated, “The economic policy space remains unclear. Policy conception is faulty, hence, policy coordination and implementation suffer serious setback. There is, therefore, an urgent need for central policy strategy with detailed and well-designed policy direction. This is critical for effective and efficient coordination and implementation of policies.”

It said while the policy goal of eliminating corruption was laudable, the need for concerted efforts on the side of the government with respect to policy, legal and regulatory environments to boost private sector participation was highly desirable.

The group said it was imperative to make very strong moves to resolve the weakening oil revenue and find creative ways of incentivising foreign exchange inflow into Nigeria so as to boost liquidity and ease access to forex through alternative sources such as foreign direct investment in critical sectors of the economy and Diaspora remittances.

The Chief Executive Officer, Renaissance Capital, a London-based investment bank and research firm, Mr. Temi Popoola, said although the new administration has a strong economic team, the policy response to the challenges facing the economy was initially not effective.

He wished the decision taken in recent times could have been taken earlier.

He said, “In our view, the initial response to the global events, which impacted Nigeria could have been done differently. It has taken much time. The decisions on electricity tariff, currency regime and subsidy could have been taken earlier. I think we are now on the path of recovery.”

An economist and Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson chukwu, said the economy had been on the downward trend in the last one year, saying the policy response to the challenges facing the economy had been poor.

He said, “In Q1 2015, the growth rate was 3.96, in Q4, it was 2.11; now in Q1, 2016, it grew by negative of 0.36. The government’s focus on the fight against insurgency and corruption had left it with little attention on the economy. The budget took time to be passed and there is nothing like an industrial policy. There has been contradiction in the monetary policy environment and the foreign exchange policy has been anti-investment. The foreign direct investment inflow has also recorded negative. We have seen inflation and, the Gross Domestic Product and unemployment data all down.”

A professor of economics at the Olabisi Onabanjo University, Sherrifdden Tella said the economy had not performed well in the last one year but blamed the last administration for the mismanagement.

He, however, noted that the current economic management team could do better.

Transportation
In the automobile subsector, many are in the dark about the government’s policy direction. Over 30 automakers, including Nissan, Ford, Kia and Toyota, which embraced the automotive policy introduced under Jonathan in September 2013, have only commenced the assembly of vehicles in the country on a small scale.

There may have been no major strides yet in the railway subsector in the last one year, the Minister of Transportation, Mr. Rotimi Amaechi, has raised Nigerians’ hope that the government was determined to transform the industry and create thousands of jobs through its efforts. For instance, the executive fought tooth and nail to get the Lagos-Calabar rail into the 2016 budget along with the construction of a new standard gauge Lagos-Kano rail, having convinced the Chinese government to buy into the nation’s new rail projects.

Maritime

Activities at the seaports have dropped considerably following the imposition of high duty on the imported vehicles and other materials as well as a ban on 41 imported items from accessing foreign exchange via the official window.

But the Secretary-General, Nigeria Shipowners Association, Tunji Brown, gave the Buhari administration a pass mark in its efforts in the maritime sector.

He said, “They are just at the first phase of putting policies together and drawing up a road map. So far, they have been transparent. We now know what is happening with the Cabotage Vessel Financing Fund and the plans they have to develop the shipping sector.”

Agriculture

The Country Manager for Nigeria, Harvest Plus, Mr. Paul Ilona, scored the administration high in its efforts in agriculture, considering that the budget was recently signed into law.

He said, “The new Minister of Agriculture, Audu Ogbeh, is a very technical person and he does not like to start what has not been effectively evaluated. I think it is the right step in the right direction because we cannot continue to wallow around uncompleted budget every time.

“I score him high because I have seen the template for the agricultural sector. Since the budget has just recently been signed into law, there is not much he could have done before now in the absence of a budget.

“ But the diversity of the plans on the ground and how he plans to address the needs of all the sectors, I think by the time the money gets pumped in, there is no doubt that we shall begin to reap the result of the well-planned agricultural platform.”

Construction industry

Since the inception of this government, construction activities have been at the lowest, according to the Second Vice-President, Nigerian Institute of Building, Mr. Kunle Awobodu.

Awobodu, who is also President, Building Collapse Prevention Guild, said, “Several companies in the sector have retrenched more than 50 per cent of their workers while others have closed down completely to venture into other business after selling their equipment.

“Government is the major client to professionals in construction; so, if the government is not engaging in construction activities, the sector will be down.

“Overall, we can say performance has been a bit fair not completely poor but it can get better. We are hoping that now that the budget has been passed, activities will pick up again,” he said.

Telecoms

Experts in the telecommunication sector, including the outgoing President, Association of Telecommunications Companies of Nigeria, Mr. Lanre Ajayi, said there were unmet expectations.

He specifically said the broadband penetration remained low; investor confidence weak, judging by the response to the recent spectrum auction that produced only one bidder. “Operators are still facing huge challenges,” he said.

Absolving his regime of any blame in the economic poor performance in the last one year, President Buhari said the sharp drop in the price of oil globally had put Nigeria in a volatile situation, adding that the country made “a terrible mistake” by relying solely on oil.

Buhari, who was quoted to have said this on Wednesday while receiving the outgoing Iranian Ambassador to Nigeria, Mr. Saeed Koozechi, at the Presidential Villa, Abuja, reaffirmed that his administration was fully committed and determined to do all within its power to achieve the rapid diversification of Nigeria’s economy in the shortest possible time.

Additional reports by Anne Okon, Maureen Ihua-Maduenyi, Ozioma Ubabukoh and Comfort Oseghale.