Despite the support President Muhammadu Buhari has received so far from the media, relative to his immediate predecessor, Goodluck Jonathan, concerns continue to grow that his slow pace at providing policy direction and appointing a cabinet is hurting Africa’s largest economy.
To buttress this point in his monthly briefing on the Nigerian and global economy at the Lagos Business School (LBS), the Managing Director of Financial Derivatives Limited, Mr. Bismark Rewane, while acknowledging some progress, in a covering note, said: “The macro-economic scorecard reveals a balanced performance with major successes in power supply, petrol queues, restructuring of the oil sector and restoring the international reputation and pride of Nigeria.
“The salary arrears and contractor debts have been regularised and leakages are being blocked. The building blocks are being laid slowly. But the truth is that it is taking too long.
“The administration has not come out with a clear economic policy or blueprint. This macro-economic ambiguity is borne out of the sheer gravity of the problems and the dilemma that the possible options throw up. The recent plunge in oil prices in August is aggravating a difficult situation.
“The impact of this policy void is increasing the tentativeness of investors and is being exacerbated by the rash of administrative measures. The volatility in the forex and interest rate markets is evidence of consumer and investor anxiety. A cabinet is likely to be announced in a few days and will douse most of these fears.”
Providing further insight in his breakfast monthly presentation, Rewane said the Nigerian economy was at a “standstill” because of the absence of decision makers, resulting in a slowdown of leading economic indicators.
In addition to oil production slowing down by 6.79 per cent to 9.8 per cent of GDP, manufacturing also declined by 0.07 per cent, while the service sector growth fell by 2.39 per cent to 4.67 per cent in the second quarter of the year.
He blamed the fuel shortage, election lull, economic stagnation, power cuts, the Boko Haram insurgency and shrinking purchasing power for decline of second quarter GDP to 2.35 per cent.
But he warned that Nigeria’s annual growth estimate for the entire year could drop to 20-year low of 2 per cent.
Also, a Lagos-based economist and political commentator, Paul Igbinoba, was quoted by AFP as stating: “The economy has suffered from the delay… The president needs to move quickly in appointing his key ministers and putting in place his economic team.”
Yet there have been tangible improvements under his rule, according to AFP.
Electricity production rose from less than 3,000 megawatts (MW) before Buhari came into office to about 5,000MW now, while refineries have suddenly come back to life after years of idleness.
In an early sign of his assault on graft, Buhari sacked the entire board of the Nigerian National Petroleum Corporation (NNPC), notorious for mismanagement and rampant theft. He then installed a Harvard-educated lawyer, Dr. Ibe Kachikwu, to spearhead reforms as the new managing director.
The military has also intensified its war against Boko Haram in the North-east, using its air power to support ground troops.
Buhari recently set a three-month deadline to subdue the insurgents.
But his spokesman has maintained that the president marked his first 100 days in power at the weekend by looking ahead rather than behind.
“(Buhari) does not consider the 100 days in office as a milestone… There is no official event to mark the day,” Garba Shehu told AFP.
Buhari ran as a hawk on security and with a tough anti-corruption stance, pledging to recover “mind-boggling” sums of stolen oil money and vowing to crush Boko Haram’s six-year Islamist insurgency that has killed at least 15,000.
The 72-year-old president is determined to “fix insecurity, the economy and eliminate corruption. These are the goals he has been pursuing in the past 100 days,” said Shehu.
The leader has accused former President Jonathan, who ruled from 2010 until May, of having left the treasury “virtually empty”.
Buhari’s vice-president, Yemi Osinbajo, has estimated the country’s debts at some $60 billion (N11.820 trillion), and said Nigeria’s economy is in its worst state since the country gained independence 55 years ago.
In a related development, the full implementation of the treasury single account (TSA) by the federal government has led to a further sterilisation of N500 billion banking sector float at the Central Bank of Nigeria (CBN).
This is expected to further constrain banks’ earnings as a slew of regulatory actions as well as global headwinds have already hit their bottom lines.
The TSA is a unified structure of government bank accounts that gives a consolidated view of government cash resources whereby all funds belonging to the federal government are domiciled in one account with the central bank, with payments and collections into the account done via electronic means.
It is a bank account or a set of linked bank accounts through which the government transacts all its receipts and payments and gets a consolidated view of its cash position at any given time.
In addition to the federal government ministries, agencies like the Securities and Exchange Commission (SEC), Corporate Affairs Commission (CAC), Nigerian Ports Authority (NPA), Nigerian Communications Commission (NCC), Federal Airports Authority of Nigeria (FAAN), Nigerian Civil Aviation Authority (NCAA), Nigerian Maritime Administration and Safety Agency (NIMASA), Nigeria Deposit Insurance Corporation (NDIC), Nigeria Customs Service (NCS), NNPC, Federal Inland Revenue Service (FIRS), Department of Petroleum Resources (DPR), among others, are affected by the directive.
According to Rewane, the performance of banking stocks is expected to worsen as the operating environment remains volatile and economic slowdown persists.
Similarly, the Head of Research at Sterling Capital Limited, Mr. Sewa Wusu, while acknowledging that the policy would affect the flow of liquidity in the banking system, stated that the initiative would bring about transparency and effective revenue management.
“Liquidity in the banking system will definitely be affected. This is because once the banks collect government’s funds, it will be sent directly to the TSA. The free funds some banks used to enjoy will no longer be there,” Wusu added.
But he said the decision to fully enforce the policy would help to ensure the consolidation of government’s revenue. He argued that prior to the initiative, government funds in banks were fragmented, a system that gave room for corruption.
“But now that the TSA is to be fully implemented, it will help to block leakages and uncover idle cash. It will also allow complete and timely information on government cash,” he explained.
Fitch Rating about a fortnight ago warned that Nigerian banks were heading into financial and operational storms in view of what it called the increasingly difficult conditions under which they are operating.
It said the difficult times were likely to result in a sharp deterioration in profitability, asset quality, liquidity and capital ratios.
In a report, Fitch Ratings’ Director, Financial Institutions, Mahin Dissanayake, said: “We said the sector outlook was negative in December. GDP figures for 2Q15, released yesterday, showed weaker year-on-year growth of 2.4 per cent, down from four per cent in the previous quarter, the slowest quarterly growth rate for over 10 years.
“Nigerian banks have had to contend in recent months with the increased vulnerability of the oil and gas sector, pressure on the naira, the slower economy and tightening bank liquidity.
“These are all credit negative for the sector. Since the beginning of August, public sector deposits, which represent around eight per cent of total system deposits, have exited the commercial banks and must be held at a single treasury account at the central bank. This adds pressure to liquidity.
“No significant changes in economic policy have materialised following the change of government at the end of May 2015, but until a new cabinet is formed and a clear policy framework is announced, uncertainty will weigh on the outlook.”