Nigeria Content Online

A major factor that
would determine the performance of the Nigerian economy next year is
the elections. Economic and financial analysts all acknowledge this
concern. Apart from the huge spending that has pushed deficit to above
six percent of gross domestic product, there is also the concern that
in the event of a change in government, there may be radical reversals
of many of the policies already in place.

Expenditure is
estimated at N5.16 trillion, revenue is put at N3.18 trillion, while
budget is estimated at N 4.67 trillion. The shortfall will be sourced
from massive domestic and foreign borrowing, with the attendant effect
on the economy. The exchange rate is tottering; interest rate is pegged
at 6.25 percent, while inflation at above 13 percent has not shown any
signs of slowing down.

In its October
rating of the country, Fitch Ratings, a global rating agency, noted
that elections in the first half of next year have increased short-term
political uncertainty in the country. According to its ratings note,
the end of zoning in the ruling party could give rise to instability in
the Niger Delta or in the northern states, depending on who is chosen
as candidate.

“A flare-up in the
Niger Delta would be the worst outcome for the economy as a whole, as
it would likely bring a renewed decline in oil output, budget revenues,
and international reserves,” the report said.

The report added
that the major constraints on the ratings, low per capita income, weak
transparency and governance, and the infrastructure deficit, especially
the power shortage, remain in place.

Uncertainty persists

Bismarck Rewane,
managing director, Financial Derivatives Company Limited, a Lagos-based
financial advisory services firm, also believes that the current
development in the political scene creates uncertainty in the country.

In his presentation
at the Lagos Business School November monthly executive breakfast
meeting, Mr. Rewane said recent development has made the incumbent
president more vulnerable, adding “the political structure is fragile
and the imponderables have multiplied. Stakes are high and situation
fluid.”

Thankfully, the
country’s oil production is back to its best levels since 2006, but
elections pose a risk. Without doubt, the election period comes with
some level of frenzied spending by government that is usually not
captured in the appropriation.

“Revised budgetary
projections and two supplementary budgets (including one to cover the
costs of Nigeria’s new voter registration system) suggest that spending
will rise around 50 percent in 2010, with some spillover into 2011,”
said Razia Khan, regional head of research, Africa, at Standard
Chartered Bank, London.

Ms. Khan said
Nigeria’s election will be one of Africa’s most watched political
events in 2011. She added that the extra budgetary spending is not
without its repercussion.

“Elections are not
without their risks, however, and the concern is that while much reform
is promised in the future, there is little to show for the reform
agenda so far. Almost the entire focus has been on elections and what
emerges thereafter, with comparatively little emphasis on structural
reforms that would benefit the economy now,” Ms. Khan said.

This is in addition
to the coming on board of the Asset Management Corporation of Nigeria
to buy up bad debts from the books of the banks. This will be financed
by bonds to be floated in the next few weeks. According to Fitch,
institutional and structural factors are weaknesses for the public
finances.

“Costs arising from AMCON and other contingent liabilities would
still leave debt ratios comfortably below rated peers,” it said.