Nigeria repeats an old mistake: Buhari is repeating an economic error he made as dictator 30 years ago
Give me lucky generals,” Napoleon is supposed to have said, preferring them to talented ones. Muhammadu Buhari, a former general, has not had much luck when it comes to the oil price. Between 1983 and 1985 he was Nigeria’s military ruler.
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Just before he took over, oil prices began a lengthy collapse; the country’s export earnings fell by more than half. The economy went into a deep recession and Mr Buhari, unable to cope, was overthrown in a coup.
Now he is president again. (He won a fair election last year against a woeful opponent. The Economist endorsed him.) And once again, oil prices have slumped, from U$64 a barrel on the day he was sworn in to US$32 eight months later.
Growth probably fell by half in 2015, from 6.3 per cent to a little more than three per cent. Oil accounts for 70 per cent of the government’s revenues and 95 per cent of export earnings. The government deficit will widen this year to about 3.5 per cent of GDP.
The currency, the naira, is under pressure. The central bank insists on an exchange rate of 197-199 naira to the dollar. On the black market, dollars sell for 300 naira or more.
Instead of letting the naira depreciate to reflect the country’s loss of purchasing power, Mr Buhari’s government is trying to keep it aloft.
The central bank has restricted the supply of dollars and banned the import of a long list of goods, from shovels and rice to toothpicks. It hopes that this will maintain reserves and stimulate domestic production.
When the currency is devalued, all imports become more expensive. But under Mr Buhari’s system, the restrictions on imports are by government fiat. Factory bosses complain they cannot import raw materials such as chemicals and fret that if this continues, they may have to shut down.
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Black market
Many have turned to the black market to obtain dollars and are doubtless smuggling in some of the goods that have been banned.
Nigerians have heard this tune before. Indeed, Mr Buhari tried something similar the last time he was president. Then, as now, he resisted what he called the “bitter pill” of devaluation.
When, as a result, foreign currency ran short, he rationed it and slashed imports by more than half. When Nigerians turned to the black market, he sealed the country’s borders. When unemployment surged, he expelled 700,000 migrants.
Barking orders at markets did not work then, and it will not work now. Mr Buhari is right that devaluation will lead to inflation—as it has in other commodity exporters. But Nigeria’s policy of limiting imports and creating scarcity will be even more inflationary.
A weaker currency would spur domestic production more than import bans can and in the long run hurt consumers less. The country needs foreign capital to finance its deficits but under today’s policies it will struggle to get any.
Foreign investors assume that any Nigerian asset they buy in naira now will cost less later, after the currency has devalued. So they wait.
Those who fail to learn from history
Mr Buhari’s tenure has in some ways been impressive. He has restored a semblance of security to swathes of northern Nigeria that were overrun by schoolgirl-abducting jihadists. He has won some early battles against corruption. Some of his economic policies are sound too.
He has indicated that he will stop subsidising fuel and selling it at below-market prices. This is brave, since the subsidies are popular, even though they have been a disaster (the cheap fuel was often sold abroad and petrol stations frequently ran dry).
If Mr Buhari can find the courage to let fuel cost what the market says it should, why not the currency too? You can forgive the general for being unlucky; but not for failing to learn from past mistakes. — Economist/GB