Nigeria in 2012 (1)

Nigeria will be confronted with various challenges in 2012. Externally we will face a risky global environment while at home we grapple with self-inflicted political wounds and difficult economic reforms and structural change. Macroeconomic fundamentals will remain strong, but all the post-election optimism about the country’s outlook may be dissipating somewhat in the face of insecurity, socio-political and religious tensions and deferred financial and capital market recovery. Risky Global Context! One word will characterize the global economy in 2012-“difficult”! The World Bank in its Global Economic Prospects 2012 says, ““The world economy has entered a very difficult phase characterised by significant downside risks and fragility”. The principal cause is resumed financial turmoil induced by European fiscal crisis which is spreading to developing and high income countries. The Bank also notes declining capital flows to developing economies and probability of European recession accompanied by slowing growth in developing countries. Based on the above, the bank lowered its growth prospects for 2012 to 2.5percent. UNCTAD similarly revises projected global growth downwards to 2.6percent, noting that “the world economy is on the brink of another major downturn” and expresses concerns about continued jobs crisis, European sovereign debt, banking and financial sector concerns, fiscal austerity, unemployment and poor business and consumer confidence. The IMF notes that “global recovery stalls, downside risks intensify” in its January 2012 World Economic Outlook Update and also revised projected growth down to 3.5per cent. Many European economies have suffered ratings downgrades and have negative outlooks, and all three reports highlight significant downside risks! In this sombre context, global demand may fall and oil prices (and other food and commodity prices) which appear to have peaked since April/May 2011 may be susceptible to decline. With our lower reserves cushion, high foreign currency demand and budget deficits, a shock in global oil and commodity markets will affect Nigeria, probably severely. Dangerous Demographics!! Domestically the biggest cause for concern, and probably the fundamental underpinning of our socio-political problems may be the looming demographic catastrophe Nigeria faces! According to NBS data, Nigeria has over 104 universities; 75 polytechnics, more than 30,000 junior and senior secondary schools; and almost 100,000 primary schools. Our universities had an average of 800,000 students over the last five years; over 1.37 million students were enrolled in universities, polytechnics and colleges of education in 2006, and over 1.98million in 2007, meaning that perhaps 2-3million graduates will enter the labour force by 2011/2012! Our 2011 population was 164million people, with a potential labour force of 67.2million people, of whom 16million (or 23.9%) were unemployed! Unemployment has risen from 13.4% in 2004 to 23.9% by 2011. Within the restive age group of 15-24 years, unemployment is 37.7%! Twenty percent of graduates of all tertiary institutions are unemployed! In 2011, 2.217million persons joined the ranks of the unemployed!!! In many states (Yobe, Zamfara, Sokoto, Imo, Bauchi, Gombe, Jigawa, Katsina, Rivers, Delta, Borno, Kano, Kaduna, Benue), unemployment is higher than the national average! Meanwhile this idle and disaffected population is angry, more engaged and better connected! There are 95.3million active telephone lines (as at November 2011) according to NCC data, and the telecommunications sector now has capacity to provide every Nigerian with a telephone line (with total installed capacity of 172.4million lines. Internet penetration is rising and more people are connected to social media. The potential for citizen action is significantly higher as well-demonstrated during the fuel subsidy protests. Policy Challenges! Elevated Political Risk!! Nigeria’s government barely scraped through a mini-insurrection over removal of fuel subsidies. The 6-day nationwide strike, by our firm RTC’s calculations cost the nation N215.77billion ($1.4bn). Our assumptions note that the upstream petroleum sector was not on strike leaving oil production and export unimpaired. We also included a (probably) generous discount of 25percent of agricultural output to account for front-end activities including possible transportation delays. Several other policy battlegrounds however remain-power privatisation; rise in electricity tariffs; resistance to economic reforms and privatisation; rationalisation of federal MDAs; petroleum industry bill; cashless Nigeria, and the deferred battle over downstream petroleum deregulation. We expect some intra-government tensions and a possible confrontation between the House of Representatives and the Executive. Vested interests-regional interests, crony capitalists, bureaucrats and their allies in parliament and others, along with labour will oppose economic reforms all the way! The best policy outcome in 2012 will be successful power sector privatisation. There are dangerous political scenarios in 2012 and beyond. The 2011 elections and anger over North-South power sharing; and “Boko Haram” terror and insecurity are straining national unity and cohesion. We expect Nigeria to step back from the brink, as usual, but worse outcomes are possible! There are elements in the political space who appear willing to over-extend political brinkmanship beyond margins of safety, and it is easy to project the activities of “Boko Haram” to a point in which citizens head back to their home regions.