President Buhari delivered his maiden democratic day speech as a democratically elected president. In the speech the president talked about his administrations performance in the are of security, corruption, economy and other social issues. As expected, his speech was mostly focussed on the “economy” having mentioned it a total of 12 times and indeed “economic” about 5 time.. He also mentioned “oil” 12 times indicative of its relationship with Nigeria’s present predicament. Having tracked the President and his policy actions in the last 365 days, we do not need his speech to understand why he has failed on the economy in the last 365 days.
Here is a list of 7 blunders we believe President Buhari made on the economy in his first year as president
1. Delay in naming cabinet – The very first mistake President Buhari made was not naming his cabinet on time. It took the president about 5 months to finally release his list of nominees to ministerial positions. This delay created a vacuum in an economy that required policy makers to be on board as soon as he was sworn in. Due to this delay, Nigeria had to rely on monetary policy through the CBN to control the trajectory of the economy. By the time he named his ministers things were already too late, as the economy was not on its way towards a recession. Fiscal policy remained in the back burner as the CBN acted like a lone wolf at a time where it needed the compliments of fiscal policy. For example, with the CBN raising rates and playing with the cash reserve requirements of banks, they did not have complimentary fiscal policies that could help cushion the effects of monetary policy tightening.
2. Poor response to FX shortfalls – Nigeria’s number one economic challenge was the loss in the value of the naira following the drop in the price of crude. Before Buhari became president, the CBN had devalued twice as it tried to respond to the economic indicators before it. But as Buhari assumed the presidency he adopted a currency policy that precluded any pragmatic reforms that was in response to economic realities. Rather he persuaded the CBN to ban import of some items, peg the naira stubbornly to the dollar and impose capital controls. The effect, was devastating as even local manufacturers could not source input for their raw materials. Even when the items they wanted to import was not banned, they did not have dollars to fund purchase of raw materials. The effect was a gross reduction in revenues thus hurting profitability and inducing job losses and throwing the country into an imminent recession. The CBN Governor acknowledged this much in the latest monetary policy communique predicting that we might actually go into a recession by Q3 if fx reforms are not implemented alongside the passage of the budget.
3. Economy not corruption – On assuming power, the president also made corruption its number 2 priority after security. Whilst fighting corruption is very important, we believe the president erred by not prioritizing the economy first. Having inherited a failing economy amidst lower oil prices the president should have declared a state of emergency on the economy ensuring that all government decisions are firmly shaped by economic inclinations.
4. Underestimating Niger Delta Militants – Another grave mistake the president made was underestimating the dissidence of the Niger Delta militants. Having been mostly held back by the past government via amnesty and other lucrative deals, the militants began a new wave of attacks as it appeared that the president was going to probe their activities. Bombing and vandalization of pipelines began in a sophistication not seen before. Oil production has fallen by more than half since then worsening Nigeria’s economic situation. The president should have begun dialogue with the militants rather than given them the impression that they will be sidelines or worst case tried .
5. Approving tariff increases in Electricity – Power situation in the country had been very bad for the last three months. Power generation has now dropped from a peak of over 5,000mw to just 2,000mw or under. Despite this, the Buhari government approved an increase in electricity tariff by over 40%. The New Multi Year Tariff Order, 2015 was meant to be implemented since 2015 but several delays have meant it be shifted to 2016. Whilst tariff increase was important for the electricity market to attract the right funding, it was coming at a period when the purchasing power of most Nigerians was already decimated. The result is a spike in inflation further hurting disposable income of most Nigerians. In fact, most discos have been faced with returned bills as communities refuse to pay resulting in a double whammy for them.
6. Budget Fiasco – After naming ministers very late the president had little time to prepare adequately for the 2016 budget. This means the budget was rushed with most details left unchecked for duplications and errors. The outcome was a disastrous budget that had to be presented more than twice to the national assembly. This created unnecessary delays ensuring that the budget is not passed till May 2016. Details of the passed budget are still not out leading critics to wonder how soon it is going to be implemented. If by June the budget hasn’t been revealed one wonders whether it won’t be too late already for the economy as its effects may not be as strong as expected.
7.Late removal of fuel subsidy – The president seems to also have a knack for taking the right decision either at the wrong time or when it is almost too late. For example, it has taken the president almost one year to remove subsidy on petroleum products after analysts had expected that would have been done when the price of oil was still under $40 and at some point under $30. Rather than remove subsidy, the president reduced the price of fuel insisting that what was required was a change in the pricing template. One year later, Nigerians have just come out of months of queueing for petrol for hours every day before they decided to remove subsidy. Unfortunately, subsidy was removed just barely months after the price of electricity was increased with forex depreciating to about N350.
The result of these blunders is wanton economic hardship for millions of Nigerians who have now seen the purchasing power of their income reduced by half over the last one year.