The business community is waiting anxiously to see how Nigeria’s 2023 general elections will impact the business landscape.
PwC Nigeria’s Andrew Nevin said the main focus will be on whether the incoming administration will come up with stabilising policies.
In the meantime, Nigeria is still grappling with many macroeconomic challenges, including a forex shortage and a budget deficit.
The major presidential contenders agree on some key economic policies, including exchange rate alignment and the removal of fuel subsidies.
With the election year already here, one major concern on the minds of analysts is how the business landscape will be affected.
There is also concern about how the policies of the incoming administration will affect investors. This is a legitimate concern, seeing as Buhari’s administration has been plagued by bad economic years.
Nigeria’s gross domestic product (GDP) grew by 2.25% year-on-year in Q3 2022, marking the slowest growth since the Covid-19 pandemic.
The oil sector recorded -22.67% (year-on-year) as of Q3 2022, indicating a decrease of 11.94% points relative to the rate recorded in the corresponding quarter of 2021. Also, the growth rate decreased by 10.91% points compared to the 11.77% contraction recorded in the previous period.
On the other hand, the non-oil sector grew by 4.27% in real terms during the reference quarter (Q3 2022). This rate was lower by 1.18% points compared to the rate recorded same quarter of 2021 and 0.50% points lower than the second quarter of 2022.
The decline in Nigeria’s GDP growth indicates a drop in productivity in the economy due to the recurrent contraction in the oil sector and the low growth in key non-oil sectors such as transportation, banking, and education.
This implies that Nigeria’s economic activities grew in the third quarter compared to the corresponding period of 2021, albeit at a slower pace compared to the previous period.
Economic growth under Buhari: Since the return to democracy in 1999, Nigeria has had four presidents. Three of the former Presidents were produced by the People’s Democratic Party (PDP), while the last and incumbent president is from the All Progressives Congress (APC).
During this period (May 1999-July 2022), Nigeria recorded its highest average inflation rate of 13.98% under the current Muhammadu Buhari administration, closely followed by Obasanjo’s 8-year administration with an average inflation rate of 12.3%.
Comparing exports earnings: Nigeria is also underperforming compared to over ten years ago. In 2008, Nigeria recorded total export earnings of $88 billion. As of 2010, during the last year of late President Yaradua, export revenue was $80.5 billion.
President Jonathan, however, presided over the highest years of export revenue for Nigeria, recording $99.8 billion, $96.9 billion, and $97.8 billion in 2011, 2012, and 2013, respectively. But by the time he left office, export earnings were a total of $34.7 billion (end of 2015 which can partly be attributed to him).
As of December 2021, Nigeria’s export revenue is still languishing at $45.9 billion.
Forex crisis and slow GDP: Nigeria’s exchange rate has also depreciated by 76.5% between 1999 to date against the US dollar, witnessing multiple devaluations at the official market, with even higher devaluations recorded in the unregulated markets.
Meanwhile, with GDP Growth, looking at the NBS data, Nigeria’s real GDP has grown to N72.39 trillion in 2021 from N23.83 trillion recorded in 1998, representing a CAGR of 4.95% over 23 years.
Nairametrics Research gathered that a breakdown of the GDP performance across the six administrations since 1999, shows Obasanjo’s administration focused on telecommunication, with the introduction of telco giant MTN in the Nigerian market.
Musa Yar’Adua’s regime, together with Goodluck Jonathan, saw the manufacturing and air transportation sectors record significant growth.
The short-lived Yar’Adua administration recorded the highest average annual real GDP growth rate of 7.13%, followed by Obasanjo’s regime with 6.99%, while Goodluck Jonathan recorded an average 6.1% annual growth rate.
On the flip side, the current Buhari administration has recorded the worst average GDP growth of 1.1% in the past seven years.
The Buhari administration has been prioritising the agricultural sector, albeit with marginal growth recorded.
The upcoming elections: Nigeria’s Independent National Electoral Commission (INEC) presented a budget of N305 billion to the National Assembly, for the 2023 general elections.
INEC said the N305 billion is different from the N40 billion yearly budget request of the electoral body, citing that N100 billion had already been disbursed of the total projected expenditure, and stating, however, that it would not be enough for adequate preparation towards the 2023 general elections.
Meanwhile, President Buhari has also hinted his successor would have a smooth transition, stating recently that he will not remain in the Federal Capital Territory (FCT) Abuja after he hands over to the next administration in May 2023.
Buhari added that he will be far away to give his successor a “free hand to operate”.
Expectations from the next president: The four main contenders to replace President Buhari are Peter Obi of the Labour Party, Rabiu Kwankwaso of the NNPP, Atiku Abubakar of the PDP, and Bola Ahmed Tinubu of the APC.
Two major issues all sides seem to agree on are the issue of exchange rate alignment and the removal of fuel subsidy, which is a hindrance to more foreign investment and also a huge bill for the FG ( subsidy).
At the World Bank’s Nigeria Development Update and Country Economic Memorandum in Abuja attended by Nairametrics last month, Nasiru El-Rufai, Governor of Kaduna State, warned that Nigeria could end up like Sri Lanka if it does not implement reforms that tackle the issue of exchange rate alignment and removal of fuel subsidy.
El-Rufai stated that Nigeria’s presidential candidates are all campaigning on the removal of petrol subsidies and elimination of multiple exchange rates without politicizing it because everyone knows that failure to do so represents a clear danger to Nigeria.
El-Rufai also urged that Nigeria’s next president must be willing to take very difficult, immediate, and urgent decisions that will make the country go through maybe 3-5 years of pain, and reverse the trajectory. He said:
“I am proud to be a member of the Obasanjo administration that decade of growth the 2010 trajectory, we were in that government, and we knew what the President had to do, ready to act.”
“The next President of Nigeria must be willing to do one term and reverse Nigeria’s poor economic trajectory.”
The business impact for 2023: Andrew Nevin, the Advisory Partner and Chief Economist at PwC Nigeria, told Nairametrics that international investors will be waiting to see if there is a stable policy environment in Nigeria before and after the election. He urged that the FX regime has to be liberalized and that urgent steps must be taken to unify the exchange rate.
Speaking further on the impact of the elections on the Nigerian business climate, he said:
“I think that people are looking at what the policies would be for the new president, particularly around the fuel subsidy FX regime, and continue to simplify business, also reducing the complexity and cost of the Federal Government, all of those things we are looking at as we go into a new election.
“The candidates seem to be on a path where the fuel subsidy will go, and the FX regime would be modified in some way, I don’t think people have heard exactly how they are going to implement the Oransaye report, and some of the issues around the complexity and cost of governance.
“We have seen some companies, particularly South African companies exit Nigeria, we have seen complexities around lawsuits related to taxes, from companies like MTN to even Dangote, I think in Kogi state, there’s the issue over the cement factory, so all of those things make international investors, concerned, I think if there is a more stable policy environment they will start to come back, but I think they will come back slowly and cautiously, likely to put in a large amount of capital expenditure.”
He highlighted some urgent economic policies that the new President has to implement, including the removal of fuel subsidies.
“FX regime has to be liberalized and take steps toward a unified exchange rate as a priority. Nigeria needs to focus on exports of high value-added services, which means how do we upscale young people but also how do we add the digital infrastructure to be able to support that, we think that’s more urgent and has a higher payback for the country than necessarily investing in hard physical infrastructure, also we have been consistent that investment should be in education and health care,” he said.
He added the ASUU strike, which has negatively affected many young people throughout the nation, will not be allowed to repeat.