By Ben Wilkinson and Jon Marks
Following fraudulent elections last spring, Nigeria’s new president faced an uphill struggle to assert his authority and win back public trust. So far, he seems to be doing both
April’s bitter and contested election, marred by violence and the stench of fraud, led many to believe that Umaru Yar’Adua, Nigeria’s incoming president, was tainted from the moment he took over the job of running Africa’s most populous country.
Yet in his first few months in office, the taciturn but determined leader has shown his mettle, taking a tough line on precisely the two issues his predecessor, Olusegun Obasanjo, fought hard to emphasize, but with mixed results: corruption and economic reform.
In an exclusive interview with Emerging Markets shortly after his election, Yar’Adua reaffirmed his commitment to press ahead with the far-reaching reforms launched by his predecessor, amid widespread concerns that the incoming government could backslide on market friendly initiatives.
“Without fear of contradiction, reforms have come to stay,” Yar’Adua says. “The government and leadership of the [People’s Democratic] Party are convinced that sustaining reforms is the only key to unlocking the nation’s potential.”The former state governor acknowledged that a reversal of the progressive policies spearheaded by his predecessor would “risk causing incalculable damage to Nigeria’s economic future and reputation”. This emphasis on reform has seen Yar’Adua take unprecedented steps to impose himself on economic policy, most conspicuously by publicly dressing down central bank governor Charles Soludo [see box] over long-planned currency reform.
He has also sought to draw a line under a scandal that stained Obasanjo’s last days in office. His reversal of the controversial sale of oil refineries – divested to allies shortly before Obasanjo stepped down – was, according to Dozie Ikedife, president of pan-Igbo group Ohanaeze Ndigbo, “an indication that things are not going to be as they were and that nobody is going to be another person’s puppet”.
“After Obasanjo’s constant international grandstanding, Nigerians are relieved to find themselves with a new head of state who is quietly spoken, reputed as honest and uncorrupt, and best known for his technical skill,” says a Lagos-based analyst.
Another encouraging sign that the devoutly Muslim Yar’Adua would press ahead with governance reform was his public disclosure of his own assets, says Razia Khan, Standard Chartered’s regional head of research for Africa. “Although the asset declaration is a constitutional requirement, there is currently no further requirement that this be made public,” she observes. “With the president himself setting a good example, in favour of greater transparency in the financial disclosure of public officials, there is at least a sense in Nigeria of ‘so far, so good’.”
Markets have looked to the positives in Yar’Adua’s first months, reflecting the fact that local banks are winning friends among emerging markets investors. Although all but two ministerial posts are held by PDP members, the very act of offering jobs to the opposition All Nigeria People’s Party (ANPP) has set Yar’Adua apart from the traditional winner-takes-all approach. Labelling his cabinet a “government of national unity” will “help to establish the consensus that is necessary to support broad-based economic reform”, says Khan.
The new leader has pledged to carry through the next phase of so-called home-grown economic reforms enshrined in the National Economic Empowerment Development Strategy (Needs) launched by Obasanjo. He said his administration will carry through the next phase of reforms – Needs II – which will run until 2011.
Yar’Adua told Emerging Markets he will redouble efforts to create sustainable growth in the real economy, primarily by diversifying away from oil. “[We are] seeking to maximize foreign direct investment in the non-oil sectors and diversifying out of oil,” he says.
Big spend predicted
Yet huge effort and expenditure is needed if the benefits of Nigeria’s emergence are to be shared by more of the 120 million population. Regions like the Niger Delta and much of the teeming commercial capital Lagos remain infrastructure disaster areas. Moreover, little of the oil boom money has trickled down to the poor.
Finance minister Shamsudeen Usman recently told development bank partners that the federal government proposed to spend more than N600 billion ($4.7 billion) to develop infrastructure, especially on the government’s priority areas of energy, water, roads, health and education. “Nigeria needs more; we have the capacity to take more credits; we are looking for more dollars to get the power sector going,” Usman said. “We need billions of dollars to do the roads, railways, to provide for food security.”
The implication, analysts say, is that Nigeria might look for more sovereign borrowing, having cleared the mass of its debt in the previous administration’s Paris Club deal. Some $3 billion had been tapped since 1999 from the World Bank, “a drop in the ocean” according to Usman. Now that sovereign debt to the Paris and London Clubs is repaid, “the challenge for us... is to see how to significantly increase credit to the nation.”
Goldman Sachs – which has been bullish about Nigeria since at least 2005, when it compiled an influential report on the market’s prospects – recently forecast that Abuja’s sovereign rating will be upgraded in the near term.
Yar’Adua has promised to overcome the energy sector problems that have long constrained Nigeria’s economic performance – announcing the biggest shake-up in oil sector management in three decades, breaking up the mighty but inefficient Nigerian National Petroleum Corporation (NNPC) and ministry of energy, to create a new corporate structure, with a new leadership.
The president has already given much-needed priority to the resolution of the Niger Delta crisis – seeking talks to counter efforts by militant groups such as the high-profile but shadowy Movement to Emancipate the Niger Delta (Mend) to sabotage oil pipelines and kidnap foreign oil workers, which have forced the closure of 20% of the country’s oil production. Vice-president Goodluck Jonathan – an ethnic Ijaw, from the Delta – has met both militants and activists in the region to kick-start the process.
Economic platform
Running parallel to bank reforms and efforts to normalize the bureaucracy is an investment drive that has seen agricultural output rise sharply and promises a new generation of privately-financed power, road and other infrastructure projects.
Confident banks, such as Oceanic Bank managing director Cecilia Ibru, believe the local financial sector is now sufficiently strong to finance big projects from its own liquidity. International banks also want in: financial close is anticipated in the next few months for Nigeria’s first independent power project. According to Jonathan Berman, principal at Johannesburg-based financial adviser Fieldstone Capital, the 190MW Ibom Power scheme financing will cost “about $200 million, all-in, up to construction”.
“Commercial banks are now willing to lend long term, with just [political risk insurance] PRI, if needed,” seasoned Africa hand Berman observes: “We have seen 10-year naira-denominated facilities offered, which is quite a step forward, and might go out even further with credit enhancement. Dollar-denominated offers have carried 15-year maturities, which is also quite innovative for Nigeria.”
This improving climate gives substance to the very big ambitions of Nigeria’s reformists, whose goal is for the nation to join the world’s top 20 largest economies by 2020. Having stated that his priority will be “the economy first, the economy second, and the economy third”, Yar’Adua has set a target growth rate of 13%.
“We expect the GDP to achieve a growth rate of about 7–7.5% in 2007 and 2008,” says Diamond Bank managing director Emeka Onwuka, singling out “the benign investment climate created by the successful political transition”.
But Yar’Adua’s administration remains idiosyncratic. Foreign minister Ojo Maduekwe, a veteran PDP politician, is promoting foreign policy tagged “citizenship diplomacy”, under which any “failure to tell the good story about Nigeria from now on, would be considered as a hostile act”, which would “make it difficult for investors to come to our country”.