Economic Growth Perspective despite Turmoil

Nigeria is on course for 6.75% GDP growth this year, despite political turmoil ahead of 2015 elections and oil theft that has cut official output by 400 000 barrels a day, the finance minister Ngozi Okonjo-Iweala said today. Africa’s second biggest economy is an increasingly attractive destination for equity, debt and foreign direct investment, but markets remain wary of the violence and rampant spending on patronage that often occurs during election cycles. US economist David Hale told Deutsche Presse-Agentur (DPA) that Nigeria is set to be the continent’s new economy power house.

“South Africa is set to become Africa’s number two economic power this year, after Nigeria.” Hale said this is because of the huge investments Nigeria received after it privatised electricity. “Of course I’m worried about elections … but we’ve put in place a tight fiscal framework,” the Finance Minister said. “Our country needs … macroeconomic stability.” She did not comment on what was sustaining growth, but it has been driven by high oil prices, agricultural output, banking, telecoms, and a surging population of 170 million.

Nigeria’s economy expanded 6.5% in 2012 and last year’s figure is expected to be roughly the same. Next February’s vote will be the most closely fought since the end of military rule in 1999, and it will be tempting for rival politicians to spend cash buying loyalties. President Goodluck Jonathan already faces a crisis within his ruling People’s Democratic Party (PDP) that has led to mass defections. The budget presented in December is being held up by the lower house, after defections cost the ruling party its majority there last month. The opposition All Progressives Congress (APC) has ordered its members to block the budget over an unrelated spat in the volatile, oil producing Rivers state.

“The house is playing Tea Party politics,” Okonjo-Iweala said, referring to the Republican movement that tried but failed to stop a budget deal in the United States. “It’s even worse than the Tea Party because it’s not based on principle – it’s just a quarrel going on in one state.”Nigeria can use half of last year’s budget again and after that the government goes into shutdown. “But I’m not concerned at all,” she said, adding that the Senate has indicated it will pass the budget, and that agreement had always been reached in the past with both houses.

The 4.64 trillion naira budget was tighter than the previous one, and the cuts were made largely by axing badly needed capital spending. That angered some lawmakers who want more money for projects ahead of 2015. “They are angry they can’t spend the way they want, but we must fight to maintain … stability,” Okonjo-Iweala, twice finance minister and a former World Bank vice-president, said.

Yet Nigeria’s oil savings have been drained in the past year, according to a confidential exchange between the minister and a legislative budget committee reviewed by Reuters. The Excess Crude Account (ECA) contained US $8.65bn in December 2012, Okonjo-Iweala told lawmakers. A year later, it had just US$ 2.28bn, a substantial fall. Forex reserves are also falling and the naira, which had been stable, is under pressure from the emerging market asset sell off.

She denied the ECA had been spent on electoral patronage, saying it was needed to cover the budget because oil theft had cut output from the 2.5 million to 2.1 million barrels a day. “We suffered a huge quantity shock. If you’ve lost more than 20% of your output, how do you manage that?” she said. “That’s what the ECA was designed for: shocks.”

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