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partner perspectives

Dec 17, 2015 | 21:34 GMT

2016 Nigeria Forecast: A Very Difficult Year

Partner Perspectives are a collection of high-quality analyses and commentary produced by organizations around the world. Though Stratfor does not necessarily endorse the views expressed here — and may even disagree with them — we respect the rigorous and innovative thought that their unique points of view inspire.

By SBM Intelligence

2016 is going to be a challenging year. The challenges can be surmounted with the right planning; openness, so that the people of Nigeria are prepared for those challenges; and political will, in order to steer the country through the trying times. While the legal system is speedily reformed to ensure redress of the perceived massive looting and stealing of the past (President Jonathan led) government, the President Buhari led government should quickly quit the blame game as the 180 million citizens and daily population additions will become impatient once Year 2016 bills start coming up. With the exposure to social media and ghost radio stations, a one-man riot will quickly turn to a one million-man riot.

2016 is a promising year for Nigeria despite these challenges. The economic challenges are global and Nigeria has a young population which creates great opportunity for labour. With the right policies and quick implementation, we will witness a surge in local production and reopening of small scale manufacturing centres, greater emphasis on food processing and industrial farming.

Agriculture is not the new oil, however, self sufficiency in more areas will save us a lot of foreign exchange. While our law makers take their lessons in FaceBook, the APC led Government should encourage and support real technological achievements that will encourage local manufacturing.

The government also must find money to invest in education in order to prepare our growing population for the challenges of the 21st century.

2015, a Look Back

2015 proved to be a year of contradictions for Nigeria. The year commenced with Nigeria readying itself for what was touted to be the biggest political event on African continent in 2015 as the country prepared to go the polls in presidential, gubernatorial and legislative elections. Initially scheduled to take place on 14 February, the ballot was postponed to 28 March as the administration of President Goodluck Jonathan launched an intensive counterinsurgency military campaign against the Boko Haram Islamist extremist sect as to ensure that the voting could occur in a secure environment.

The presidential leg of the vote was eventually won by former military general and leader of the All Progressives Congress (APC) candidate, Muhammadu Buhari. Despite minor acts of violence in the country’s north eastern states, which remain the focal points of the Boko Haram insurgency, voting concluded relatively peacefully. Despite the unprecedented heat generated by the politicking leading up to the elections, concerns that Jonathan would contest Buhari’s electoral victory, thus potentially catalysing a political crisis with violent religious and ethno-political undertones, were quickly allayed when Jonathan conceded defeat, marking the first time in Nigeria's history that an incumbent was removed through the ballot box. Buhari was formally inaugurated as Nigeria’s Head of State on 29 May 2015. While the presidential election peacefully ended, various governorship and other elections are still undergoing different levels of battles in the courts.

Towards the end of the year, in Kogi and Bayelsa states, there were governorship elections, neither of which ended cleanly. In Kogi, the governorship candidate, Abubakar Audu died just after the Independent National Electoral Commission declared the vote inconclusive. There was a protracted dispute over who would replace him on the rerun ballot, and eventually, his party settled on Yahaya Bello, a choice promptly rejected by James Faleke, Audu's running mate. The result of the rerun has been rejected by Bello's opponent, the incumbent, Idris Wada. Bayelsa also faces a rerun following an inconclusive first round, the incumbent governor, Seriake Dickson is in the lead. The elections in Bayelsa were marred by violence, with an as yet to be ascertained number of deaths.

Despite the peaceful transition of power at the federal level, however, there are a number of socio-political and economic factors which continue to render Nigeria’s political outlook tenuous in 2016. The authority and legitimacy of the Nigerian government continues to be challenged by the Boko Haram Islamist extremists in the country’s north eastern Adamawa, Borno and Yobe states where in spite of being pushed backed from most of the territory captured, the group has resorted to a combination of relentless bombing campaign as well as hit and run tactics to which the security agencies are yet to respond appropriately. the government has and continues to recapture rebel-held territory, Boko Haram continues to perpetrate acts of mass violence across large parts of Nigeria on a regular basis, tainting claims by Buhari that Boko Haram will be defeated by the conclusion of 2015.

One of the advantages that the insurgents had during the last few years was the poor state of the Nigerian military, and new evidence is coming to light on the role of corruption in weakening what was once a proud institution. Former National Security Adviser, Rtd. Col. Sambo Dasuki is currently under investigation, and has been charged on some counts, of embezzling at least $2.1 billion meant for the purchase of equipment for the military to fight the insurgency.

The government has, unfortunately, done next to nothing to rebuild infrastructure. This means that those displaced from the territories previously under Boko Haram control still cannot return to a semblance of normalcy.  This has greatly affected the legitimacy of the government in these areas in spite of military gains against Boko Haram.

In the absence of a regionally coordinated counter-terrorism initiative involving Nigeria’s Lake Chad neighbours, where the sect has also secured an operational presence, it is likely that Boko Haram’s violence will continue to burgeon in 2016. Shortly after being sworn in, President Buhari, in recognition of this fact, made several visits to the Lake Chad countries to galvanise support. This has however not yielded the expected results so far as Boko Haram’s bases in these countries remain largely unassaulted, providing a safe haven for the insurgents to retreat to in the face of the onslaught from the Nigerian army. With the militant group pledging allegiance to the Islamic State (IS) in March 2015, Boko Haram violence may also increasingly assume a discernible anti-Western flavour, potentially spreading to the Nigeria’s commercial and political epicentres. Recent reports of a heavy influx of battle-hardened fighters from the IS takeover of the Libyan town of Sirte into the Boko Haram ranks point to a build-up to a major offensive.

In addition to placing Buhari’s nascent presidential tenure under political pressure, the insurgency is also having a significant impact on the Nigerian economy. A significant portion of Nigeria’s budget is expected to be allocated to the country’s defence sector, suggesting that government investment in other sectors will be sacrificed. Plummeting oil prices and an associated loss of revenue is expected to place further economic strain on the Nigerian government who may in turn try to offset the financial shortfall by implementing austerity measures. Of particular concern is the possibility that the Nigerian government may revisit its fuel subsidy initiative which local and international economists alike have derided as costly, inefficient and susceptible to corruption.

Previous attempts to remove the fuel subsidy have catalysed periods of political instability in Nigeria with trade and labour unions, public transportation providers and civilians holding protracted strikes and protest action demanding its reinstatement. These protests have rendered both the political and security environment in the country tenuous.

Internal Security

2015 will also mark the end of a Presidential Amnesty Programme (PAP) which ended a petro-insurgency in Nigeria’s oil-rich Niger Delta region. Signed in 2009, the PAP offered militants such as those of the Movement for the Emancipation of the Niger Delta (MEND) vocational training, financial incentives and lucrative security contracts in exchange for laying down their arms. However, in the wake of dwindling oil revenues and the redirecting of state resources to counterinsurgency operations against the Boko Haram Islamist extremist sect, the government of President Muhammadu Buhari may lack the financial fortitude to extend the PAP. Discontinuing access to state patronage may prompt militant leaders to resume their insurgency in the Niger Delta, with the potential to cut crude oil outputs sharply and further reduce government revenues. Precedent suggests that militants could resume attacks on oil installations (both on-shore and offshore) and resume targeting foreign expatriates in acts of kidnapping for the purposes of ransom and extortion.

The coming year may also see the intensification of ethno-political violence in both Nigeria’s south east and north central regions. In south eastern Nigeria, agitation, the arrest of Radio Biafra director and secessionist Indigenous People of Biafra (IPOB) leader, Nnamdi Kanu, on 20 October 2015 has and continues to incite pro-Biafra agitation in the region. Agitation demanding Kanu’s release is likely to continue in major cities such in the near-term and carry the potential to intensify significantly. Triggers which could inflame the agitation and lead to a rapid deterioration in the South East’s security environment include the perceived treatment of Kanu during his incarceration and/or the charges levied against the separatist leader. This has the potential to spill over into the South South, further destabilizing the region.

Conversely, Kanu’s release from police custody may placate the activists and lead to a decrease in protest activity. In north central Nigeria, a failure by the government to formulate a solution to the myriad of social, economic and political factors fuelling mass violence between herdsmen and host communities will likely see an already deteriorating situation only spiral further out of control.

More than 2,000 people were killed violence between nomadic herdsman and indigenous communities in the states of Benue, Nasarawa and Plateau states in 2015 alone. A continuation of violence on this scale will not only adversely impact affected communities but could have much wider ramifications for the Nigerian state given its impact on national food production in a region of the country collectively known as Nigeria’s ‘food basket’.

There is also a gradual but significant increase in intolerance between Sunni and Shi’a groups in the North West. The bombing of the procession in Zaria and pronouncements by Zakzarky following this are indicative. Some of the moderating, older Shi’a voices have aged and their influences are in decline, with younger and more militant Sheikhs rising. Mismanaging this can lead to serious escalations of violence in the North West in the coming year. On the 12th of December, this boiled over in the alleged attempt on the life of the Chief of Army Staff by members of Zakzaky’s group in Zaria and the resultant response of the soldiers that led to the loss of several lives.

Zaria the focal point of the clashes between the Shi'a and the military, is strategically positioned to meet major economic logistic needs from North-West Nigeria and other locations. It is not far from a military armoury and base. It's only three to four hours’ drive from Abuja. Nigeria cannot afford to ignore this problem, or handle it like it did with the Maitatsine group in Kano in the 1980s, and more recently Boko Haram in Borno state. An urgent intervention to mediate and de-escalate the situation is necessary to forestall the militant terrorism in the North West.

The Economy

On the economy, Nigeria in 2016 will be defined by economic pressures. Oil prices are expected to remain low (at least for Q1 & 2) especially with Iran’s expected re-emergence as a major oil exporter. This, combined with the continued trend of a reduction in the number of buyers and quantity of buyers for Nigerian crude will put government revenues in a tight squeeze. Next year will be defined by how government at all levels will react to financial pressures. There remains a clear risk of recession and debt default by some states.

The Federal Government (and the CBN) has a number of key economic decisions to make such as decisions on devaluation, subsidy, diversification, lending rates and capital controls and these decisions will have effects on how businesses can invest and cover their operating costs. There are clear expectations of economic slowdown and slight increase in unemployment in the first two quarters of 2016. This may be followed by an increase in entrepreneurial activities as Nigerians try to make ends meet in such situations. It is important that these decisions are made quickly in order to indicate clear direction of the government’s economic policy to enable investors make their own decisions.

Another economic pressure the country may face is a late budget. The more the budget is delayed, the more companies that need to make investment decisions may delay; affecting B2B businesses. The Medium Term Expenditure Framework, due in August 2015, has finally been completed this December. The government in the document recognized the macroeconomic situation and the economic pressures and made the relevant promises. Clearly, the government intends to spend to stimulate the economy. The government has said that capital expenditure will take up 30% of the 2016 budget, up from 17% in previous budgets. This is coupled with the fact that the 2016 budget figure is tentatively put at ₦6 trillion, which is the largest budget we have ever had in Nigeria, and is 50% more than the 2015 budget. Funding this budget in the face of dwindling oil revenues remains a challenge the Buhari administration will need to resolve.

The fact remains though that at this point in time, Nigeria's government income is almost entirely dependent on oil revenue, with oil related activities coming a distant second before taxation, an even further third. Unfortunately, the price of oil, which as if the second week of December, 2015, is trading below the $40 per barrel mark, is expected to go even lower in the coming year. The  2016 budget is hinged on expectation of oil price of $38 per barrel and a production quota of 2.2 million barrels per day. The possibility of renewed Niger Delta unrest may affect these quotas, and a global oil glut will slows sale. We do however, expect that the government's revenue generation specifics will be made clearer when the first draft of the 2016 budget is presented.

The APC government will also try to stamp its identity on governance by rolling out schemes and projects especially in agriculture, environment, health and education.

It must be pointed out that the new government initially tried to deny some of these programmes, which had been an integral part of the APC's  campaign manifesto. But, bowing to pressure both from some of their own supporters, and from the opposition, they have “smuggled” some of these plans into the 2016 budget (like welfare payments and feeding students). We believe that those promises are near impossible to implement and bowing to that pressure in the face of economic realities may be setting the government up for ridicule. With a borrowing plans of almost N2 trillion, Nigeria cannot afford to finance consumption and welfare packages that are not tied to production.

The Buhari led Government was slow in setting up their governing structure and this resulted to a lot of economic uncertainty and undeniably hurt the economy badly. From the stock market crash and reduction in All Share Index from 34,000 in May 2015 to about 28,000 in December 2015, to the exit of foreign investors, to the CBN’s stance on capital movement restrictions and the resultant massive devaluation of the naira in the parallel market. We think that the government, apparently because of their campaign promise of stabilising the Naira against the American Dollar, is greatly influencing the CBN and its indefensible stance to continue pegging the value of the Naira. For economic reasons, the Naira will continue to loose value on a daily basis, whether devalued, pegged, or left to float.

The CBN restrictions and controls have hurt business in Nigeria and created a lot of uncertainty scaring away existing and intending investors, while depleting the country's reserves and invariably enriching the speculators they claim to be keeping away. Nigeria's reserves have also been deeply burned into. If this trend continues, the Naira will trade at N300 / dollar by the end of the first quarter of 2016 and close up at N300 – N350 by end of 2016 (even if oil price appreciates).

Legal Issues and Legislation

Another expected trend is a flurry of anti-corruption cases. It is hoped that they will lead to convictions and will be followed through due processes. It is also hoped that anti-corruption efforts are not limited to sanctions; it is hoped that the Buhari-led government will strengthen internal controls and plug loopholes as promised. One of the most anticipated reforms from this government is that of the Judicial sector. The Vice President did a lot of good work in this regards when he was the Attorney-General of Lagos State and it is expected that he will bring this experience to bear on the judiciary at the federal level. 2016 will be the year that will determine whether this will be the case.

A key institution that will be critical in 2016 is the National Assembly. It is expected that this institution will come under increased scrutiny (from the public) as the year 2016 wears on. It is also important to know that the power struggle within the APC NASS may make progress difficult. Key members will also continue to experience actions by Law Enforcement Institutions and the outcome of such actions will be slightly important in determining the pace of progress.

It is no secret that Nigerians yearn for a lot more from their current National Assembly than its previous incarnations. For instance, the previous Assembly passed only __ laws in its 8 years of existence. The current crop, having been swept into office on a ticket promising “change” for Nigeria, have weighty expectations on their shoulders.

It has, however, not been an auspicious beginning, as the Upper and Lower Chambers of the Federal Legislature spent weeks embroiled in battles over leadership positions, with the Senate eventually producing Senator Bukola Saraki as Senate President following manoeuvrings that would have made Machiavelli hand over his teacher’s cap. Senator Saraki has since become involved in another fight for his freedom and political future as he battles charges at the Code of Conduct Tribunal.

With this atmosphere, it is safe to say that it does appear that the issues which the majority of Nigerians would dearly love to see tackled will be consigned not so much to the back burner as not even placed upon the flames at all. It was therefore no surprise to see that rather than the pressing issues, Bills have been brought by members seeking to muzzle social media.

In the event that the Honourable Members of both chambers are eventually capable of turning to relevant concerns, it would be proposed that the following issues should command their attention:

1. The repeal of the Land Use Act

2. Amendment of the Constitution to create state and municipal Police forces, with provisions for Federal oversight to guard against civil rights abuses: This is one of the key promises of the APC government on the campaign trail. It is important that this is done in order to improve policing and intelligence gathering of our security agencies.

3. The enactment of legislation permitting the development of ports by states, with relevant Federal oversight : This is important to enable states develop their economic potential and leverage their advantages to develop at their own pace. It is inefficient to place the responsibility for development of ports on the FG. Also, it will free up Lagos which is on the verge of collapsing on itself due to population pressures caused by its population growth rate being 6times the national average

4. The passage of legislation barring the marriage of any person below the age of 18.: Not much needs to be said on this. It is absolutely important, but I doubt it will ever pass.

5. The amendment of the electoral act to enable electronic voting, and voting by Nigerians in the diaspora.

6. The establishment of a social security system into which citizens would be enrolled at birth.

7. The amendment of the Constitution to allow conferment of Nigerian citizenship on foreigners married to Nigerian women.

8. Pruning the Exclusive Legislative List to confer ownership of Solid Minerals in States, to enable them exploit this in conjunction with the Federal Government: As states see-saw at the edge of bankruptcy, perhaps the most important way the FG can help is not with bailout funds from crude rents, but with legitimizing the current arrangement many states operate where they allow miners operate within their states unofficially and collect minimal rents from them. Legitimizing this will give the states the incentive and the authority to develop this sector and create much needed employment in their states outside government and also tax appropriately, generating much needed IGR.

The Key to Success

No other individual in Nigeria will be as crucial to the success of the Buhari Government as the Minister of Works, Power and Housing. Nigeria's biggest challenge, is unemployment, and this feeds all the other problems the country will face in 2016. Babatunde Fashola sits atop a ministry that can on its own, take a huge bite out of the unemployment pie with good planning, implementation, and follow through. Nigeria's infrastructure deficit is an opportunity.

On 8 December, Fashola unveiled his plan for action for the three areas he will be facing. He made clear that his short term strategy on roads will be to complete roads that have already started, and achieve interconnectivity quickly. If he is able to achieve this, then intra-Nigeria trade will be bolstered.

Road works are important. As Fashola pointed out, Nigeria has about 200,000 km of roads. 16% of this belongs to the Federal Government, and needs to, in the main, be recovered. There is a lot of work to be done in terms of road resurfacing, and clearing roadways.

The numbers are clear. An immediate start to maintaining the existing roads will put almost 30,000 people back into work.

On housing, the numbers do not add up for Mr. Fashola. Publicly available records indicate that Nigeria has a housing deficit of 17 million units. Mr. Fashola has said he hopes to spend N360 billion per year on government directly building houses and deliver 17,760 flats in the first year. This means that the average cost of each apartment he hopes to build is N20.27 million. These are too expensive, and the number of apartments that will be put up at that rate, will not make a dent in Nigeria's housing deficit.

SBM research indicates that N20 million is the cost of high end accommodation. The people who need accommodation the most need something cheaper. Decent accommodation can be built at a quarter of the amount that Mr. Fashola is proposing. At N5 million per building, Mr. Fashola's N360 billion will get us 72,000 housing units.

However, this is still not enough to put a dent in Nigeria's housing deficit. The APC promised Nigerians a million housing units a year for four years. 72,000 housing units per year will build just over a quarter of that in four years. For the government to meet that campaign promise, directly building houses will not be the answer.

Unfortunately, the Land Use Act, in its current form, does not encourage investors from making the kind of investment needed to unleash the full power of the housing sector. We believe that Mr. Fashola's biggest challenge in getting the APC plan to work lies not in direct building, but in directly engaging the legislature to repeal, or at least amend the LUA to encourage large scale private participation in the building industry.

Our Predictions

Making predictions of the future are quite hard, but anyone who predicted the tsunami-like proportions by which the APC won elections in the North would have been quite surprised by the wins in Kogi, Plateau and Benue, hitherto core PDP territory. It was on the back of these victories that they won the Presidency by adding a little above half the votes from the South-West.

Since March this year, a lot of Nigerians are eagerly anticipating that tangible and real change from the Buhari administration and a turn in their fortunes. So far, the performance of the administration has been mixed, but largely not encouraging as it squandered its honeymoon period by being too slow to act, even in appointing a cabinet.

Over the next one year, it can be expected that the following will happen:

The price of crude oil will likely either remain at current level or even get lower, considering that OPEC has refused to put production quotas and Iranian oil is about to enter the market. This means further reduction in earnings for Nigeria.

State governments will continue to struggle financially, leading to many months of owed salaries and pensions.

The Federal Government will end fuel subsidies in order to avoid incurring the heavy debts that financing it entails.

The reduced revenues will also hamper the efforts of state governments to borrow from the capital market to finance their recurrent expenditure.

The government will resort to increase taxation and there will be a backlash from Nigerians because of this.

We expect that the Naira will be devalued by at least 20% (N240 /$), by February 2015, but the damage caused so far needs a lot more to correct.

States will be forced to either cut down their workforces or continue to be in the financial red, delaying on salaries. Whatever direction the states take, they will come into conflict with the labour unions. 2016 will be a year of industrial action.

Sadly, crime fighters, like most other Nigerians, will witness hard times, which will affect their commitment to their work. This lack of commitment will lead to an even worse security situation.

The Buhari government appears bent on exposing the alleged massive looting by members of the previous administration, and 2016 will be an interesting year. So far, with the media exposure given to these high profile cases and media lynching received by the accused have generated mixed reactions, and in 2016 we expect corruption to fight back. Whether the Government or corruption will win the war will be dependent on the integrity of the Nigerian Legal system.

Most of the alleged looters, especially those in the top echelons of the Goodluck Jonathan government will spend a lot of their 2016 in court, and with the expected review of the legal system and changes in the leadership Economic and Financial Crimes Commission, we expect quicker acquittals or convictions.

The war on corruption will also be viewed as one sided as members of the now ruling party APC who are also accused of corrupt practices will not undergo any trials. The opposition PDP will make a lot of noise about this.

2016 should witness consistent and sustainable efforts are resettling 2.5 million people displaced across Nigeria, in formal and informal camps. Better and sustainable measures for 14 million people indirectly displaced.

The Boko Haram insurgents will be dislodged from their base in the North-East. However, there will continue to be active cells which shall attempt to set off improvised explosive devices and suicide bombings. With the inaction of our Lake Chad neighbours, their territory will continue to provide a base to retreat to and launch attacks from. Expect most of the hit and run attacks to come from Chad, and the Diffa Region of Niger Republic which has seen minimal policing.

There will still be tension in the Middle Belt between nomadic herdsmen and farmers as they clash over resources. The FG will continue to be too focused on the North East to pay attention to this low-intensity warfare situation. This problem is slowly affecting food supply nationwide and is being largely ignored. Several reports on the issue garner little or no media attention, and with the expanding impact of desertification, there will be an escalation of the conflict in the Middle Belt in 2016.

There will be an escalation of the Sunni/Shi’a crises in the North West. However, it will not get to the levels of open insurgency.

The amnesty programme will be discontinued and there will be a renewal of insurgency in the Niger Delta.

Considering the position of the Minister for Power, Housing and Works in his agenda setting address, we expect that some perennial road projects will be concluded.

There will continue to be emigration from cities in the North-East caused not just by the insurgency but by overall worsening economic conditions. Cities such as Lagos, Abuja, Jos, Bauchi, Gombe and Kano will be net recipients of the migrants.

While President Buhari’s popularity in the North-West and North-East geopolitical zones will be largely unaffected among most Muslims. Among the Shi'a though, his popularity will plummet. His popularity will also take quite a hit in other areas his party won as he struggles to deliver on campaign promises.

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