All Progressives Congress supporters celebrate after Muhammadu Buhari won the presidential election
The global community has lauded Nigeria for what has been declared the country’s first free and fair election. In one of the closest polls in Nigeria’s short democratic history, Muhammadu Buhari’s All Progressives Congress (APC) beat the incumbent Goodluck Jonathan of the People’s Democratic Party (PDP) on March 28.
On the day of the result, local media caught wind of a congratulatory call that Jonathan made to Buhari after the result was announced – it was unprecedented.
“First and foremost, this election was a win for Nigeria and Nigerians,” says one banker based in Lagos. Even a month after the election result, the mood on the ground remains one of triumph. Real change – a fight against corruption and a better life for Nigeria’s underprivileged – appear to be in reach under a new government.
But how long can this elation last? Nigeria is Africa’s largest oil producer, with oil and gas production accounting for 75% of government revenue and 95% of total export revenue. And as oil prices have dived by around 50% over the last year – from highs of around $110 a barrel to lows of $38 – government revenue has taken a big hit.
Nigeria’s gross government revenue fell by 21.5% to N315.04 billion ($2 billion) between February and March this year. Add to this a legacy of oil theft, which robs the country of at least $20 billion in revenue each year, and Nigeria’s economy is bound to deteriorate. Growth will become subdued. In response, Nigeria’s ministry of finance cut GDP growth projections from 6.4% to 5.5% for 2015. Even that may be optimistic.
Cracks are beginning to show, not least among the country’s banks, which are greatly exposed to the oil and gas sector, with an average 25.1% of loans made to corporates in the sector. First Bank, Nigeria’s biggest lender, allocates 40% of its loan book to oil and gas companies.
Nigeria’s reliance on oil is all-encompassing. The rebasing exercise, which took place this time last year, highlighted how the country has diversified its GDP base, but diversification is not substantial enough.
It’s easy to see that loans extended to the service, manufacturing and even consumer sectors will also be affected by the depressed oil price, as oil and gas companies cancel or renegotiate contracts with suppliers and as imports become more expensive due to the weakness of the naira.
Can the government focus on its election promises when there could be something severe and debilitating bubbling under the surface? Buhari needs a slice of luck, or at least a rise in the oil price.