President Goodluck Jonathan is Mis-managing Nigeria's Economy
Thanks to weakileaks, we now know that as Acting President, "Jonathan claims he wants to do a good job over the next 12 months", but 10 months later, Nigeria is depleting its foreign currency reserves to defend the Naira and running down oil savings before elections next year, damping investor confidence. International observers fear that as the government prepares its first global bond sale, the sale could be under-valued and under-sold.
Despite increasing oil prices (Oil prices on Tuesday jumped above $90 a barrel for the first time in more than two years) Foreign Reserves fell by almost $10 billion to $33.1 billion in the year through Nov. 29, according to data compiled by the Central Bank of Nigeria in Abuja. (The reserves include the government's Excess Crude Account).
"They aren't saving for infrastructure, they aren't saving for a rainy day," said Veronica Kalema, Sub-Saharan Africa analyst at London-based Fitch. "That's no way to manage an oil economy."
The governor of the Central Bank of Nigeria (CBN), Mallam Lamido Sanusi, last week warned that the nation's economy is in danger and warns Federal Government to reduce expenditure on National Assembly. Speaking at the eighth convocation ceremony of Igbinedion University Okada, Edo State, on the topic: Growth prospects for the Nigerian economy, at the weekend, the CBN governor warned the Nigerian economy would not develop if the Federal Government does not reduce cuts in its expenditure.
Mallam Sanusi said it was not good enough that 25 per cent of the federal spending was being consumed by the National Assembly instead of using it to bring real development to the country, adding that Nigeria needed to focus on policies that would bring real development to the country.
"If you look at the budget, the bulk of government spending is revenue; revenue expenditure.
That is a big problem; 25 per cent of overhead of Federal Government goes to the National Assembly. We need power, we need infrastructure, so we need to start looking at the structure of expenditure and make it more consistent with the development initiative of the country," he stressed.
"It is curious that with a wave of liquidity flooding into emerging markets, Nigeria stands apart," Razia Khan, head of Africa economic research at Standard Chartered Plc, said in an interview in Johannesburg. "With oil prices stable and oil output back to its best levels since 2006, it is a concern that foreign exchange reserves have not risen."
A report in Bloomberg say demand for dollars climbed to a high of $741.4 million at the Sept. 27 central bank auction, compared with an average of $248.9 million in the first eight months, the bank's data show. The naira weakened to as low as 155.675 per dollar on the day, compared with the central bank's target of 150. It traded as low as 151.55 today.
"The trend in reserves is worrying," Samir Gadio, an emerging-markets economist at Standard Bank Group Ltd., said in a phone interview from Lagos. "When you have a heavily managed currency, and your reserves are dropping like this, at some stage the market will start to panic."
Fitch Ratings cut its outlook Oct. 22 for the sovereign debt rating on Nigeria, Africa's biggest oil producer, even as crude prices held above $80 a barrel. With the threat of violence before April's election increasing, investors may move to take more money out of the country, straining the central bank's policy of keeping the naira pegged close to 150 to the dollar. As the money drains away, the West African nation pushes ahead with a $500 million bond sale for this month.
Concern that violence will disrupt next year's election has been boosting foreign currency demand at biweekly central bank auctions since September, Kalema said.
It also sent the yield on Nigeria's 91-day Treasury bills to 7.9 percent on Nov. 26 from a record low of 1.04 percent on March 11, according to central bank data. Ghana's 8.5 percent fixed-rate Eurobond, due October 2017, yielded 6.06 percent as of 9:32 a.m. in Accra, down from 7.53 percent on March 1.
To add to the uncertainty, Niger delta has have stepped up assaults on oil installations, including those owned by Exxon Mobil Corp. and Afren Plc.
Alleged militant leader Henry Okah said in a telephone interview from jail yesterday that the insurgency won't end until the government allows the region to control its oil wealth.
The central bank of Africa's most populous nation has been hemorrhaging reserves even as crude output rose 15 percent to 2.15 million barrels a day in October from a year ago, according to data compiled by Bloomberg. Oil accounts for 95 percent of Nigeria's foreign currency earnings.
The flight of capital contrasts with such other emerging markets as South Africa and Brazil, which have seen inflows soar as near-zero interest rates in Europe, the U.S. and Japan fuel demand for high-yielding assets. Brazil's real has strengthened 38 percent against the dollar since the start of last year, while South Africa's rand has climbed 36 percent.
Nigeria's reserves also are being depleted as the government runs down its Excess Crude Account, financed from savings set aside for times when international oil prices fall below the benchmark in the budget. That isn't the case now. Oil was trading as high as $89.57 a barrel in London today, compared with $60 forecast in the budget.
About $5.5 billion was withdrawn from the fund this year for investment in power plants, and another $1 billion was used as seed capital for a new sovereign wealth fund, Okwudili Ojukwu-Enendu, a spokesman for Finance Minister Olusegun Aganga, said. He declined to say how much remained. Aganga said on Sept. 3 that the account held between $500 million and $800 million.
On Oct. 25, Aganga said Fitch's lowering of the outlook on Nigeria's BB- credit rating to "negative" from "stable" was "unduly punitive" as the creation of the sovereign wealth fund would bolster government finances. The bill is currently awaiting approval from lawmakers.
Another factor boosting confidence is Nigeria's relatively small public debt: about 15 percent of gross domestic product, according to the International Monetary Fund. That compares with 127 percent in Greece and 68 percent in the U.K. Investors are unlikely to shun the international bond sale, Kalema said.
Nigeria appointed Citigroup Inc. and Deutsche Bank AG as bookrunners for its Eurobond sale, Ojukwu-Enendu said on Nov. 3. Barclays Capital and FBN Capital Ltd., a unit of First Bank of Nigeria Plc, were named as advisers in October. Nigeria expects to conclude the sale by mid-December, Abraham Nwankwo, director- general of the Debt Management Office, said Nov. 2.
Violence surrounding next year's election is the biggest threat to a bond sale by a country with a history of military intervention and ethnic conflict.
President Goodluck Jonathan is running for re-election, angering some Northerners who regards it as their turn to hold the presidency in a country divided almost evenly on religious lines.
"Nigeria's political backdrop, more contentious in the run-up to 2011 than is usually the case, may be feeding nervousness about the continued stability of the naira," said Khan. Building reserves "is key to the restoration of confidence."
At the inception of his government, President Jonathan Goodluck inherited about $7 billion in the ECA Account. $3billion and later another $1billion was shared among the State and Federal Government immediately Jonathan got into office as part of the agreement reached with the governors for them to allow him become Acting President leaving a balance of $3billion.
And now, in preparation for the 2011 election, the balance has been squandered!
Nigerians have cause to be worried as our Federal Government's domestic debt while relatively low still amounted to N1.75 trillion naira or US$13.6 billion at the end of 2006 but by the end of 2009, it had virtually doubled to N3.23 trillion or US$21.8.
Today, foreign debt is also rising. Few years after repaying huge foreign debts, the country's external loan is to reach $9.4 billion this year based on a proposed 2010 borrowing plan of Jonathan's Federal Government.
President Jonathan is not alone in borrowing and overspending; an atrocity is also taking place in some States of Nigeria. Just in case you don't know, Nine Nigerian State Governor have accessed the Nigerian capital market for funds via bonds and so far have raised N108 billion. These states claim they raise this money for the financing of infrastructure projects. When the treasury has been looted dry, the State Governors resort to borrowing. Future generations are now being saddled with bondage of debts. The future of the citizens of those states is being mortgaged, and no one is asking questions!
President Goodluck Jonathan is running for office in the April 2011 presidential election, going by his declaration in February 2010, he has only 2 months "to do a good job" and convince Nigerians that he is the right man for the job.
At the Okada lecture Lamido Sanusi said "The solution to Nigeria's problem is not in the interest of a very few group of people who have held the country to ransom. The answer lies in every Nigerian simply standing up to this group that enough is enough.
"Very often you look at the problems of the country and you look at the powerful vested interest that are benefitting from these problems and you think that the problems cannot be resolved. Let me tell you one thing; stand up to them, face them, the country belongs to you and we must claim it. And the only way Nigeria will change is if we stop complaining about these people and do something about them."A country like Ethiopia, which came out of war just yesterday, is growing at 11 per cent annually and by 2012, Ethiopia will be generating 4,000 megawatt of electricity, which is more than what Nigeria is generating today. It is one thing to complain about Nigeria's problem, the situation is heightened when you see pockets of success around Africa.
"In 10 years, if we do not adopt the right policies, the Ghanaian economy could overtake our economy on per capita basis. Look at Angola, we helped Angola solve a civil war and today, Angola is exporting more oil than us and Angola has gone further on diversification. There is a big problem and the problem is a policy problem, so the answer is the pursuit of the right policies in the short to medium terms." Sanusi stated.
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