MORE than 30 years ago, a young general swept to power in the fifth of
\nNigeria\u2019s military coups since independence in 1960. The country he
\ninherited was a mess: bled dry by pilfering politicians within and
\nhammered by falling oil prices without. Last year that general, Muhammadu
\nBuhari, became president again\u2014this time in a democratic vote. The
\nproblems he has inherited are almost identical. So are many of his
\nresponses.<\/p>\n
In the eight months since Mr Buhari arrived at Aso Rock, the presidential
\ndigs, the homicidal jihadists of Boko Haram have been pushed back into the
\nbush along Nigeria\u2019s borders. The government has cracked down on
\ncorruption, which had flourished under the previous president, Goodluck
\nJonathan, an ineffectual buffoon who let politicians and their cronies
\nfill their pockets with impunity. Lai Mohammed, a minister, reckons that
\njust 55 people stole $6.8 billion from the public purse over seven recent
\nyears.<\/p>\n
Mr Buhari, who\u2014unusually among Nigeria\u2019s political grandees\u2014is said to
\nhave just $150,000 and a couple of hundred cattle to his name, abhors such
\nexcess. As military ruler he jailed, fired or forced into retirement
\nthousands of bureaucrats whose fingers had been in the till. This time,
\nthe Economic and Financial Crimes Commission (EFCC) has arrested dozens of
\nbigwigs, including a former national security chief accused of diverting
\n$2.2 billion. The EFCC has a poor record of securing convictions; but a
\nsingle treasury account has been introduced to try to stop civil servants
\nsiphoning off cash. And agencies which may not be remitting their fair
\nshare to the state are having their books trawled by Kemi Adeosun, the
\nfinance minister.<\/p>\n
Such measures are doubly important because the economy is swooning along
\nwith the oil price. The sticky stuff directly accounts for only 10% of
\nGDP, but for 70% of government revenue and almost all of Nigeria\u2019s foreign
\nearnings.<\/p>\n
Oil\u2019s price has fallen by half, to $32 a barrel, in the months since the
\nnew government came to power, sending its revenues plummeting. Income for
\nthe third quarter of 2015 was almost 30% lower than for the same period
\nthe year before, and foreign reserves have dwindled by $9 billion in 18
\nmonths. Ordinarily there would be buffers to cushion against such shocks,
\nbut Mr Jonathan\u2019s cronies have largely squandered them. Growth was about
\n3% in 2015, almost half the rate of the year before and barely enough to
\nkeep pace with the population. The stockmarket is down by half from its
\npeak in 2014.<\/p>\n
Domestic oil producers are feeling the pinch worst. Many borrowed heavily
\nto buy oilfields when crude was worth more than $100 a barrel, and are now
\nstruggling to pay the interest on loans, says Kola Karim, the founder of
\nShoreline Group, a Nigerian conglomerate. This, in turn, threatens to
\ncreate a banking crisis. About 20% of Nigerian banks\u2019 loans were made to
\noil and gas producers (along with another 4% to underperforming power
\ncompanies). Capital cushions are plumper than they were during an earlier
\nbanking crisis in 2009; but, even so, bad debts are mounting and banks
\nthat are exposed to oil producers may find themselves in trouble. \u201cIt
\nwouldn\u2019t surprise me if one or two went down,\u201d says a senior banker in
\nNigeria.<\/p>\n
The government\u2019s response to the crisis has been three-pronged. First, it
\nis trying to stimulate the economy with a mildly expansionary budget. At
\nthe same time, it is trying to protect its dwindling hard-currency
\nreserves by blocking imports. Third, it is trying to suppress inflation by
\nkeeping the currency, the naira, pegged at 197-199 to the dollar. Only the
\nfirst of these policies seems likely to work.<\/p>\n
The budget, which includes a plan to spend more on badly needed
\ninfrastructure, is a step in the right direction. Although government
\nrevenues are under pressure from the falling oil price, Mr Buhari hopes to
\noffset that by plugging \u201cleakages\u201d (a polite term for theft) and taxing
\npeople and businesses more. That seems reasonable. At 7%, Nigeria\u2019s
\ntax-to-GDP ratio is pitifully low. Every percentage point increase could
\nyield $5 billion of extra cash for the coffers, reckons Kayode Akindele of
\nTIA Capital, an investment firm. Mr Buhari also plans to save some $5
\nbillion-$7 billion a year by ending fuel subsidies\u2014a crucial reform, if he
\nsticks with it. Even so he will be left with a deficit of $15 billion (3%
\nof GDP) that will have to be filled by domestic and foreign borrowing.<\/p>\n
Yet his policies on the currency seem likely to stymie that. The central
\nbank has frozen the naira at its current overvalued official rate for
\nalmost a year. The various import bans (on everything from soap to
\nballpoint pens) are supposed to reduce demand for dollars, but have little
\neffect. Businesses that have to import essential supplies to keep their
\nfactories running complain that they have been forced into the black
\nmarket, where the naira currently trades at 300 or more to the dollar.
\nSeveral local manufacturers have suspended operations. International
\ninvestors, knowing that the value of their assets could tumble, have
\nslammed on the brakes and some have pulled money out of the country just
\nas their dollars are most needed (see chart).<\/p>\n
Nigeria is fortunate in having low levels of public debt (less than 20% of
\nGDP), but it is not helped by high interest rates, which mean that 35% of
\ngovernment revenue goes straight out of the door again to service its
\nborrowings. It would not take much to push it into a debt crisis.<\/p>\n
Frustratingly, this crunch is one that Nigeria has been through
\nbefore\u2014under the then youthful Mr Buhari. Then, as now, he refused to let
\nthe market set the value of the currency. Instead he shut out imports,
\ncausing the legal import trade to fall by almost 50% and killing much of
\nNigeria\u2019s nascent industry in the process. Between 1980 and 1990,
\ncarmaking fell by almost 90%. Today, as in the 1980s, the president is
\nmaking a bad situation worse.<\/p>\n","protected":false},"excerpt":{"rendered":"
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