Frontera Deep Dive:  Nigeria Finds Honesty Isn’t Enough 1
Nigeria

After decades spent waiting for a government to tackle corruption, Nigerians are finding honesty isn’t the best policy, writes Luke Doogan.

Nigeria, the victim of extensive plundering of its vast oil resources in a web of corruption, is finally seeing the light. The election of a president on a strong anti-graft agenda has ushered in a new era of transparency and accountability.

But it’s not enough. Nigeria, Africa’s biggest economy, is in the throes of significant decline, driving poverty. Economic growth is near a record low of around 2%, which means per capita stagnation given the population growth. Foreign direct investment plunged 46% from a year ago in January.

As ever for Nigeria, oil is the problem, or rather the plunging price of it. With crude delivering 90% of export earnings, economic creativity is urgently needed to support the government’s budget, protect foreign reserves, and stem the on-going devaluation of the naira.

So far, economic policy has been uninspiring. While the anti-corruption fight is vital, this should not be Buhari’s main focus right now. The government must diversify the country’s oil-dependent economy in order to avoid repercussions of a prolonged or further oil crash.

 

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Go Faster

While Muhammadu Buhari’s presidency is in its infancy, it’s clear he is serious about tackling the country’s endemic corruption.

In his first six months in office, frustration with the President’s thorough and precise leadership style earned him the nickname “Baba Go Slow.” Many were willing to suspend judgment, however, given the necessity of setting the right foundation to tackle the multitude of challenges.

Those ‘in the know’ expect Buhari to continue ramping up his anti-corruption drive, and demanding government accountability.

The significance for Nigeria can’t be over-emphasized. From 1999 to 2015, the ruling PDP retained its grip on power by allowing the political elite to systematically loot state assets to the detriment of the public purse while manipulating legal and political institutions.

Preoccupied with furthering their personal enrichment, Goodluck Jonathan’s administration failed to heed the growing resentment. The PDP suffered a humiliating defeat at the hands of the recently formed APC, which won 21 of Nigeria’s 36 states. It was the first time in the nation’s history that an incumbent president had failed to win a re-election bid.

 

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Goodluck Jonathan

While successive PDP presidents have sought popular support by pledging to combat corruption, they have subsequently abandoned such restraints almost immediately on taking office. Yet, during his brief spell as Military Head of State from 1983 to 1985, Buhari developed a rare reputation for honesty, implementing some austere economic policies and clamping down on corruption within the executive. This record has raised hopes that there will now be a genuine commitment within the upper echelons of the government to tackle graft once and for all.

Missing $150 Billion

On this front, Buhari has been highly proactive. He has replaced the heads of the Nigerian National Petroleum Corporation (NNPC), the Federal Inland Revenue Service and the Customs Service, and demanded audits of these revenue-generating public bodies that have been plagued by allegations of graft.

Reform of the criminal justice system is being spearheaded by a new presidential advisory committee against corruption.

A number of investigations have been launched against high-profile politicians, including key Jonathan allies, hauled before the Economic and Financial Crimes Commission (EFCC).

The most significant is against Sambo Dasuki, a national security adviser to the former president. Dasuki is accused of appropriating $2.1 billion intended for the purchase of equipment for the army to use in its fight against Boko Haram.

Dasuki and other officials involved in the case have maintained that they were acting strictly under Jonathan’s orders at all times. Specifically, Dasuki said that Jonathan ordered $47 million to be withdrawn from the central bank and distributed among PDP members. Some of the misappropriated funds were allegedly funnelled into Jonathan’s re-election campaign.

Dasuki’s disclosures have led to the arrest of several high-profile former PDP politicians, with Dasuki himself arraigned by the EFCC on a 19-count charge.

Jonathan has also been accused of playing a leading role in the diversion of billions of dollars from the state oil company, NNPC. According to anti-corruption agencies, high levels of fraud have been identified in the Ministries of Petroleum and Works and the Nigerian Maritime Administration and Safety Agency (NIMASA). The scale of the corruption is alleged to have increased exponentially in the final days of his administration.

In all, Buhari has stated that about $150 billion was looted under the outgoing government.

 

Goodluck Defense

Despite the weight of allegations against him, diplomats from the US and UK have requested that Jonathan be spared investigation, fearing it would damage the precedent set when he conceded defeat and left office. Within Buhari’s administration and civil society, many others argue strongly for Jonathan to be held accountable for any substantiated allegations.

The misappropriation of funds earmarked for the army is particularly contentious. Were those funds distributed as intended, they might have prevented the deaths of thousands of civilians. An issue Buhari can’t ignore, this might yet trigger an investigation into the former president.

The anti-corruption initiative has another challenge too. The selective nature of investigations so far calls Buhari’s integrity into question. He needs to demonstrate impartiality to avoid aspersions he’s simply settling old scores with the PDP.

This was highlighted when Buhari eventually swore in his cabinet, six months after assuming power. Among the individuals appointed were some high-profile politicians who had been subject to extensive corruption allegations during their previous mandates, including Minister of Power, Works & Housing Babatunde Fashola, Minister of Transport Rotimi Amechi, Minister of Solid Minerals Kayode Fayemi and Minister of Finance Kemi Adeosun.

Establishing a well-functioning democracy that exhibits respect for the rule of law demands that the President afford anti-corruption bodies the autonomy to conduct investigations against all politicians, regardless of their affiliations.

Currency Devaluation

From a business perspective, the anti-corruption campaign may prove disruptive. Companies that have colluded with members of the political elite risk becoming the subjects of criminal investigations or corruption scandals in the coming year. While most big companies have governance principles prohibiting the disbursement of bribes, very few have an executive responsible for enforcing such policies.

For the longer term, of course, tackling corruption is key to increasing the transparency and accountability foreign investors need if they are to help grow the economy. But right now, transparency and accountability aren’t the foremost issue on investors’ minds.

The far bigger, immediate threat is Nigeria’s dangerous economic imbalance. The country’s $30.1 billion budget is the largest to date, with a projected doubling of the deficit this year to $11 billion, or 2.16% of GDP.

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The naira is the currency of Nigeria.

Meanwhile the central bank, contrary to international advice, has been resisting further devaluation of the naira. With the slump in oil revenue crimping the supply of reserves to support the currency, Nigeria has instead imposed drastic foreign-exchange controls to maintain the rate.

Buhari’s mammoth budget was accompanied by a promise that his government was committed to economic diversification through a combination of import substitution and export promotion. Non-oil industries such as agriculture and mining will be promoted, and tax collection improved to lift one of the lowest fiscal revenue-to-GDP ratios in the world.

But none of that can happen while the current exchange-rate restrictions prevent businesses from buying essential imports and deter foreign investment.

Boko Haram

Beyond the economy, maintaining security will be the key test for Buhari, given the persistent threat from Boko Haram.

The Islamic insurgency in the Lake Chad basin has been raging since the early 2000s – originating as an armed revolt against government corruption, regional economic disparity and abuse by the armed forces.

Since 2010, the group has engaged in guerrilla warfare across northern Nigeria, attacking civilian, military and government targets, and destabilising Cameroon, Chad, Niger and Nigeria. Their attacks have reportedly killed over 17,000 civilians and displaced 2 ½ million.

While the Jonathan government was repeatedly criticised for its abject failure to treat the insurgency as a significant threat – a major factor in its electoral defeat – Buhari has taken immediate action. Within a few months, he allocated $100 million, replaced key army chiefs, relocated the command center to the conflict zone in the North East, and backed a military alliance with Cameroon, Chad and Niger.

This 8,700-strong transnational task force has liberated vast territories from the Islamic caliphate and pushed Boko Haram fighters from all of their key strongholds.

Yet despite its retreat into the Sambisa Forest in the northeast and islands on Lake Chad, Boko Haram remains a major threat. Although Buhari appears to have forced a change in Boko Haram’s tactics, he has not significantly reduced its threat to civilian populations. The insurgency has increased its rate of suicide bombings in the northeast and hit the capital, Abuja, in October.

Forcing Boko Haram out of Nigeria will trigger attacks against neighboring states in an attempt to establish a base in new territories. Its campaigns will increasingly be launched from Chad and the Diffa region of the Niger Republic, where domestic security is notoriously weak.

Coalition forces are responding with a two-pronged operation – combatting the remaining Islamist forces engaging in guerrilla attacks, while continuing to protect liberated areas to prevent the insurgents re-establishing a foothold.

For now, the insecurity is contributing to a drastic cooling off of foreign direct investment, with multinationals unwilling to engage in Nigeria.

 

Presidential Amnesty

Even before the collapse in oil prices, major international producers were seeking to ‘unload’ their onshore holdings because of the uncertain political and security environment across the country and the government’s inability to protect their interests.

Among a series of divestitures since 2010, Total SA sold an oil block for around $500 million last April.

Conflict concerns from the oil industry are focused not on the insurgency in the North, but tensions in the crude-producing Niger Delta region in the South. An amnesty agreement brokered in 2009 by then-President Yar’Adua is now failing. The militant Movement for the Emancipation of the Niger Delta (MEND) has reverted to attacking oil pipelines and engaging in large-scale oil theft.

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MEND supported Buhari during the 2015 election on optimism that he would tackle the corruption that has prevented oil revenue being generated for the region. Other Niger Delta militias, including the Niger Delta People’s Volunteer Force, were less affable to Buhari, threatening a resumption of violence if government does not adequately address local needs.

The glue for Yar’Adua’s amnesty was a five-year Presidential Amnesty Program (PAP), which provides scholarships, vocational training, and a monthly allowance of $300 to 30,000 former militants. A number of militant groups have threatened to resume hostilies should the program end. The Buhari administration, having said it would let the PAP expire, instead opted on Feb. 17 to extend the program until the end of next year.

Given the predictable increased security risks in the Niger Delta, it’s likely that attacks will increase. Pirates boarded a Polish-owned cargo vessel off the Nigerian coast last November, kidnapping five crew members, and hijacked an Emirati-owned oil tanker off Ivory Coast on Feb. 22Nigeria can’t risk the outbreak of another conflict, with resulting crude oil theft, illegal bunkering and attacks on onshore and offshore oil installations. And yet it can little afford the expense of appeasing militias in the midst of its economic crisis.

2016 Watch Points:

  • Despite calls for a less prejudiced approach to the investigations, it is likely that the vast majority of those indicted will be PDP or Jonathan affiliates. However, Buhari may sacrifice a number of lower-level, less high profile APC members in order to present the façade that he is not conducting a witch-hunt against members of the outgoing administration.
  • The EFCC is likely to call upon Goodluck Jonathan to respond to allegations of graft levied against him, though this will most likely involve written correspondence. It is doubtful that Jonathan will be subjected to criminal prosecution.
  • There is a risk of recession and debt default by some states while the government seeks to rescue the economy. Diversifying its revenue streams away from oil should promote slow growth in later this year.

 

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The author is Luke Doogan, Africa Analyst at West Sands Advisory Limited. After working in the energy industry in Ghana, Luke has focused on investigating the intricacies of how informal networks exert influence over political and commercial decision-making throughout Sub-Saharan Africa.

West Sands is a business intelligence, investigations and political advisory firm that has, since 2006, helped clients identify opportunities and reduce risk in emerging and frontier markets (http://www.westsandsadvisory.com).

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