Domestic Policy & Politics

With his All Progressives Congress (APC) controllingboth the House of Representatives and the Senate, and ready to back a US$35 billion budget and another US$30 billion in local and international borrowing, President Muhammadu Buhari will have no excuse for failing to implement his programme of economic restructuring and reforming public services.

For the president, the upcoming year will be all about legacy. Having insisted that he will retire gracefully in 2023, he will hit the ground running with a determined implementation plan. As most of his ministers are power politicians with little interest in policy or management, however, the government team will struggle with implementation.

Another danger is that the political success of the APC – it is indisputably the national ruling party now – will lead to complacency and reliance on partisan federal government handouts to win over local support.

The main opposition People’s Democratic Party (PDP) has yet to recover from serial electoral and legal defeats in 2019. Nor can it decide on the best flag bearer to run against the APC. The mercurial Atiku Abubakar wants to compete again as presidential candidate in 2023, but many party members would prefer Aminu Tambuwal, the current governor of Sokoto State, who represents a younger and more technocratic wing of the APC.

Security

The closure of Nigeria’s land borders is set to continue into the first quarter of 2020 and perhaps for the entire year, given that the strategy has been endorsed by Central Bank governor Godwin Emefiele. Officials nonetheless concede that the closure has not been effective and they will need to step up joint border patrols and the use of surveillance technology.

That is setting Nigeria up for better policing of the frontiers for reasons of both economic and military security.

Wide-ranging shuffles of top personnel in the police, military, and intelligence services are likely in 2020. The national security adviser wants to rationalise institutions operating in the sector and consolidate the command structure. Plenty of turf battles lie ahead among military and police commanders. The four military service chiefs are likely to be retired in 2020, making way for a personnel reorganisation and possible reform of the command structure. There have been strong calls for more military assets in the north-east, where the Islamist insurgency has won new backing from regional militia aligned with the Islamic State in Iraq and Syria.

Nigeria will be under growing pressure to do more to combat the insurgency, which is rapidly gaining ground in Burkina Faso, Mali, and Niger.

Economy

Year-on-year real GDP growth reached almost 2.3% in the third quarter on the back of an improved oil sector, agriculture, and manufacturing, but Nigeria will fall far short of the federal budget assumption of 3% for 2019 overall and could fall short of the 2.3% overall real growth predicted by the IMF for this year.

Per capita growth will remain negative this year and next, and overall GDP growth is unlikely to meet the 2.5% forecast by the IMF for 2020, let alone the 2020 federal budget target of over 2.9%. Growth in the region of 2% or slightly above appears more likely.

Like last year, agricultural output remains vulnerable to security disruptions and weather conditions. The controversial border control measures could boost domestic output of some agricultural commodities but at the short-term cost of higher inflation, which will remain in double digits next year.

Whether or not Buhari decides to re-open the border to trade will not only affect the Nigerian economy but also demonstrate his commitment to the African Continental Free Trade Agreement, whose key provisions should become effective next year. With respect to budgetary matters, Nigeria will probably again undershoot its revenue target, overshoot the recurrent spending projection, and overshoot the deficit projection contained in the 2020 federal budget. Despite a vastly improved budget passage schedule, spending on the major capital projects will continue to lag.

A significant dip in oil prices could affect the budget and have spill-over effects on the broader economy. A proposed increase in VAT, along with other tax measures, could increase the overall tax take of the federal government and states, but not to the extent needed or desired.

Nigeria’s debt levels should continue rising, whether or not a eurobond is issued in the first half of 2020. Debt service will remain undesirably high compared to revenues.

Central Bank of Nigeria (CBN) governor Godwin Emefiele will continue to wield outsized influence on policy matters, with the CBN unlikely to accede to IMF demands for a unified exchange rate. The bank is as liable to introduce more restrictions as to reduce those in place on access to foreign exchange for imports. Its pressure on banks to increase lending could adversely affect bank balance sheets, and it is unclear when Emefiele will increase the minimum capital requirement.

Finances in several Nigerian states will continue to be rocky, with minimum wage negotiations and payments a significant concern.

Energy

Although Saudi Arabia is bearing the brunt of the latest OPEC/non-OPEC output cuts, Nigeria will stay under pressure to comply fully with respect to its crude oil output. Condensates aside, that leaves little room to raise output in order to increase revenues if OPEC extends the cuts past March.

Oil output and exports will remain vulnerable to pipeline outages, although the reductions experienced in 2016 are not expected. Oil prices are unpredictable, although average 2020 prices are likely to exceed US$60/barrel.

Although an increase in the official fuel price cannot be ruled out, the federal government is unlikely to end the subsidies or underrecovery. Nigerians are more at risk of an increase in electricity tariffs.

The major corruption cases, including the Malabu Oil & Gas/OPL 245 case, will continue to exert influence on state–IOC relations. Implementation of the amended productionsharing contract (PSC) law, and federal government attempts to obtain more payments from the IOCs, will also play a role.

The Process & Industrial Development (P&ID) affair (see Nigeria Focus, October 2019) still represents a significant liability for the federal government, although payment of anything even close to the US$9 billion demand is improbable.

Improved relations between Buhari and the National Assembly could facilitate the approval and signing into law of the governance, fiscal, administrative, and host communities portions of the Petroleum Industry Bill, but predicting the timing is challenging.