By Emeka Anaeto, Business Editor, Babajide Komolafe, Economy Editor,
Emma Ujah, Yinka Kolawole, Nkiru Nnorom & Rosemary Iwunze
As President Muhammadu Buhari hands over the reins of the economy to Bola Ahmed Tinubu, the scorecard seems overwhelmingly negative.
Key macroeconomic indicators are all in the red, with most of them far weaker than what was handed over to the outgoing regime in 2015.
From inflation figures to Gross Domestic Product (GDP) and exchange rates; from the money market performance through the entire financial markets and the real sector, the story is gory.
Headline inflation rose to 22.2 per cent in April 2023, the highest in 18 years. Buhari inherited a single-digit inflation rate at 9.0 percent in June 2015, and he is set to hand over to Tinubu a second-tier double-digit inflation which is still trending up as at the time of this report.
This reflects the steady rise in prices of goods and services under Buhari occasioned by a number of wrong-headed or badly implemented policies including foreign exchange restriction on 43 items, border closure, farmers/herders clash, post-COVID supply chain bottlenecks as well as the most recent Naira redesign debacle, among others.
Consequently, the average headline inflation in the eight years of Buhari tenure rose to 14.77 per cent, up by 447 basis points from 10.3 per cent in the previous eight years, 2007 to 2014.
Of course this escalated the misery index across larger section of the citizens.
The GDP numbers through the previous eight years before Buhari took over in the second quarter of 2015 had averaged 4.8 percent.
As of the time the Buhari administration took off in the second quarter of 2015, Q2’15, the economy growth rate had slowed down to around 3.57 percent due to the oil price crises that had started a year earlier.
However, the high expectations that the economy is going to be revived quickly vanished when the new administration slumbered in setting up the cabinet and the subsequent economic management team that was expected to steer the ship away from the troubled waters.
Consequently, this lethargy littered the entire spectrum of the subsequent years, bringing the GDP numbers to one of the worst in history recording two recessions and an average of 1.2 percent growth.
Tinubu is inheriting a sluggish economy.
Mirroring the steady rise in inflation under Buhari, the benchmark interest rate, the Monetary Policy Rate, MPR, rose by 500 basis points, bpts, to 18 per cent in March 2023, as the Central Bank of Nigeria, CBN, moved to curb inflation.
Consequently, the maximum interest rate rose by 137 bpts to 28.08 per cent at the end of March 2023, from 26.71 per cent at the end of 2015. The Prime Lending rate, however, dropped by 295 bpts to 13.9 per cent from 16.85 per cent.
Tinubu is inheriting a high cost economic environment.
In the eight years of Buhari, the naira depreciated by 245 per cent and 135 per cent in the parallel market and in the official market respectively.
While the official exchange rate rose to N465.13 per dollar on May 17, 2023, from N198 per dollar on May 31, 2015, the parallel market exchange rate rose to N748 per dollar on May 17, 2023 from N217 per dollar on May 31, 2015.
Consequently, the premium between the two exchange rates widened to N279.87 on May 16, 2023, from N19 on May 31, 2015, the widest in the history of the country’s foreign exchange market.
Notwithstanding the decline in net foreign exchange, the nation’s external reserves rose to $35.19 billion at the end of May 16, 2023 from $28.28 billion at the end of 2015, translating to an increase of 24 per cent during the eight years period.
However, discounted for the $30.97 billion increase in external debt during this period, the external reserves will decline to $4.22 billion, hence a decline of 85 per cent in the eight years of Buhari.
How Buhari’s deficit budgeting hands fiscal albatross to Tinubu
The deficit budgeting strategy of the administration of the out-going President has created a fiscal albatross for the incoming administration.
The Federal Government deficit in 2016 was slightly above N2 trillion, but this has risen to over N12 trillion in the current fiscal year.
This follows a consistent pattern of weak revenue generation at the backdrop of propensity to spend more than earnings.
With poor revenue records and expansionary budget outlays, Buhari has consistently borrowed to fund the government budgets since assumption of office.
The National Assembly has also encouraged the borrowing to fund budget deficit from both domestic and external sources.
By 2015, out of the $65.428 billion public debt of the nation, the Federal Government debt was $44.857 billion or N8. 836 trillion
It consisted of $10.718 billion external debt while domestic debt was N8.836 trillion.
But as of December 2022, the total public debt stock of the nation had risen to $103.110 billion or N46.250 trillion.
Analysis of the detailed debt stock as of last year end shows that the external debt stood at $41.694 billion or N16.703 trillion while states and the Federal Capital Territory external debt stood at $4.456 billion.
At $61.415 billion or N 27.548 trillion, domestic debt accounted for 59.56 percent of the total debt stock. Out of that figure the Federal Government owed $ 49.515 billion or N22.210 trillion while states and the FCT owed $11.900 billion or N5.337 trillion.
Tinubu inherits tottering capital market
Elsewhere across the entire financial sector, the story is almost the same, except for some resilience in the capital market.
In the negative principally is the exit of foreign investors in the capital market responding to the adverse macroeconomic and policy environment.
Foreign investors’ participation which hitherto accounted for more than 60 per cent of transactions in the Nigerian stock market went south between May 2015 and 2023.
But the secondary market for equities defied these realities and surged by 52.8 per cent.
The NGX under Buhari administration, is, therefore, marked by significant periods of highs and lows.
When the President took over office in 2015, the market capitalization of the Nigerian Exchange Limited (NGX), formerly the Nigerian Stock Exchange, was N16.88 trillion (equities 69.1% or N11.66trn, bonds and others 30.9%).
By May 16, 2023, the market capitalization had risen to N60.05 trillion comprising equities (N28.523trn), bonds (N22.390trn) and Exchange Traded Fund, ETF (N9.137bn).
Notwithstanding this increase, the ratio of equities market capitalization to GDP remains paltry at about 15 percent, an indication that the capital market is not really integrated with the economy.
Also, the main performance indicator of the NGX, the All Share Index (ASI), advanced to 52,419.33 points from 34,310.37 points, representing a 52.8 percent increase.
However, the positive scores in the capital market in the past eight years include few new listings in the exchange.
2019, particularly, saw the listing of blue chip companies. As one of the settlement terms with the Federal Government for infraction, MTN was compelled to list on NGX. The listing encouraged Airtel Africa, another telecoms giant, to also list, thereby shooting up the market capitalization of equities to over N19 trillion. Prior to the listing of the two telecom giants, Notore Chemicals had listed in 2018. Since then, other major companies, including Skyway Aviation Handling Company Plc (SAHCO), BUA Cement, BUA Foods and Geregu Power, the first energy company to access the stock market, were listed.
Under the Buhari administration, several elite products were introduced in an effort to deepen the market.
More so, the Collective Investment Schemes (CIS) segment of the capital market was revived and the products are now traded on the stock exchange. More Exchange Traded Funds (ETFs) and recently launched Exchange Traded Derivatives have emerged in the Nigerian capital market. With the rollout of Exchange Traded Derivatives, a critical financial market infrastructure, called Central Counterparty (CCP) for clearing, settlement and delivery, was set up by NGX and the FMDQ Securities Exchange.
In 2015, three new indices were launched, including the Premium Board Index, Pension Index and the Main Board Index.
During the eight years of Buhari, foreign investors’ confidence in the market took a nosedive. When he took office in 2015, foreign investors’ participation at NGX was 54%. But by the end of 2022, their participation, fuelled by foreign exchange (forex) scarcity and capital controls by the Central Bank of Nigeria (CBN), had fallen to 17 percent. This has kept many foreign investments trapped in Nigeria.
While there have been a number of new listings, the spate of delisting outweighed the former. While there were a total of seven new companies got listed, not less than 40 companies exited the market either through regulatory or voluntary delisting.
Since the 2008/2009 capital market crash, the primary market for equities has been dormant. Eight years of the Buhari administration failed to revive the primary market for equities. Other than the PO by MTN, there was practically no other equities public offering throughout the eight years of the President’s tenure.
Weak insurance sector
At the inception of the Buhari administration in 2015, the National Insurance Commission, NAICOM, the regulatory body for insurance practice in the country, in collaboration with insurance operators, had set out to achieve some targets in the course of the administration.
The set targets include the insurance sector hitting a trillion naira mark in Gross Premium Written, GPW; enforcement of compulsory insurance; eradication of fake insurance; recapitalisation of underwriting firms; passage of the Consolidated Insurance Bill; regular payment of group life premium for civil servants; increase of third party motor insurance premium, etc.
However, the combined effects of adverse macroeconomic environment and rising poverty diminished the results of the efforts by both the sector regulators and operators.
In 2015, total industry Gross Premium Written, GPW, was N289 billion and, according to NAICOM, the GPW is highly inadequate to underwrite huge ticket risks such as oil & gas and aviation. The Commission, therefore, set out modalities to achieve one trillion GPW in the course of the administration.
However, by December 2022, industry GPW stood at N532.7 billion, a far cry from the N1 trillion projection.
NAICOM, in collaboration with industry operators, had put the machinery in place to enforce the compulsory insurances.
Insurance operators worry that insurance penetration will continue to be low if they remain within comfort zones without expanding the business to the nooks and crannies of the country.
Unfortunately, as this administration winds down, enforcement of the compulsory insurance policies is still a far cry from expectation.
According to experts, the insurance sector loses over N60 billion to fake insurance racketeers annually.
Although NAICOM has taken some steps to curb the spread of fake insurance policies, the menace persists albeit on a declining scale.
Before the administration came, the Consolidated Insurance Bill had been awaiting passage in the National Assembly.
In the course of the administration, the Bill continued to gather dust even as the sector made series of efforts to fast-track its passage.
The Bill is aimed to make insurance practice conform to the ideals of contemporary insurance practice as well as align the insurance sector with the powers of other financial regulators in the country.
Unfortunately, the Buhari administration did not do justice to the Bill.
On the positive note, the administration inherited non-payment of premium for compulsory group life for Federal Government workers from the previous administration.
The implication was that many government workers died in active service with no compensation from the group life insurance scheme, except where the government decides to pay compensation from its treasury.
The development elicited outcry from insurance stakeholders as they called on government to give more attention to group life insurance scheme, stressing that the scheme remains one of the ways the government can cater for workers’ risk liabilities.
However, the administration resumed payment of group life premium for civil servants.
Accordingly, the administration on annual basis pays premium of N5.4 billion for the group life cover.