Oil Shocks Hit Nigeria As Nigeria’s currency devalued by 10 percent

 ► Nigeria’s currency devalued by 10 percent

 ► Oil Shocks Hit Nigeria—and Threaten Jonathan’s Re-election

Last Tuesday, Nigeria’s central bank devalued the country’s currency by 10 percent in an effort to shore up foreign reserves hard-hit by falling oil prices. The move comes months before a presidential election and highlights the country’s vulnerability to the price of oil, which makes up 70-80 percent of the Nigerian government’s revenue.

With Brent crude hitting a four-year low of $77.83 per barrel in early November, Nigeria, Africa’s largest oil producer, is feeling the pinch. Government coffers are emptying, and construction companies and other employers have begun to lay off workers. As oil prices could remain low for 2015, Nigeria must plan for a lean year. On Nov. 16, Finance Minister Ngozi Okonjo-Iweala announced that the government would cut expenditures by 6 percent in its 2015 budget, lower the budget’s benchmark for oil prices from $77.5 to $73 and raise taxes on certain luxury items. That move was followed by last week’s currency devaluation.

As the government recalibrates, the opposition has taken advantage of the market’s uncertainty to articulate a leftist economic vision for Nigeria’s future. Meanwhile, some observers wonder whether the plummeting oil prices will affect the financing for incumbent President Goodluck Jonathan’s re-election bid or dampen Jonathan’s appeal. Others speculate that his campaign already has the funding it needs—licit or illicit—to dominate the field.

Nigeria relies heavily on oil, producing above 2 million barrels per day. Recently, economic growth has been faster in the non-oil sector, but oil still provides 70-80 percent of government revenues and over 80 percent of export earnings. Prices have fallen for reasons beyond Nigeria’s control, but Nigeria’s oil sector has internal problems of its own. Oil theft, whether by young men breaking into pipelines or bureaucrats stealing fortunes with the stroke of a pen, costs the government as much as $8 billion a year. Frustrated with the losses, international oil companies like Shell are selling off assets.

Oil theft has also played into Nigerian politics in ways that will resonate through the elections in February 2015. In 2013, Sanusi Lamido Sanusi, then the governor of the Central Bank, alleged that $50 billion was missing from the accounts of Nigeria’s state-owned Nigerian National Petroleum Corporation (NNPC). In response, Jonathan suspended Sanusi, a move that deepened many Nigerians’ suspicions that Jonathan’s administration, like others before it, thrives on oil-related corruption. In August, Jonathan shook up the NNPC’s leadership, but some analysts saw the move as a way of tinkering with patronage networks rather than rooting out wrongdoing.

Meanwhile, former militants in the Niger Delta—Jonathan’s home region, the locus of Nigerian oil production and the site of an insurgency from 2006-2009—have threatened to resume violence if Jonathan is not re-elected. With an amnesty for militants set to expire in 2015, and Jonathan likely to extend it, some of the president’s backers will settle for nothing short of maintaining the status quo.

Heading into 2015, however, Jonathan faces the most formidable opposition coalition yet assembled in Nigeria’s Fourth Republic: the All Progressives Congress (APC). Jonathan’s People’s Democratic Party (PDP) has won every presidential election since Nigeria returned to civilian rule in 1999. But some northern Nigerian elites feel Jonathan has usurped their region’s rightful turn in Nigeria’s informal, rotational politics. In the booming southwest, meanwhile, APC politicians are emphasizing tax collection and service delivery, charting a vision that points to a possible future for Nigeria beyond oil. In 2011, southwestern politicians cemented their regional dominance while leaving the presidency to Jonathan. Since then, the APC’s architects have built a national party, including by wooing PDP malcontents. Five PDP governors, four of them from the north, switched parties in 2013.

The 2015 election will be decided partly through the machinations of these so-called political godfathers, including vote-buying and thuggery. Yet there are also real ideas at stake. In his Nov. 11 declaration of his candidacy for the February 2015 elections, Jonathan ended with the refrain that his government is “expanding opportunity.” With Nigeria’s economy growing over 6 percent annually, the economy is indeed expanding, but over 60 percent of Nigerians still live in extreme poverty. In the shadow of falling oil prices, Nigeria’s 2015 election campaign will feature a debate about the direction of the economy—and about who really benefits from current growth.

In a Nov. 13 op-ed, Bola Tinubu, an APC godfather and former governor of Lagos state, outlined the APC’s economic vision, including its response to declining oil revenues. Tinubu argued that despite “rosy GDP numbers,” poverty levels and middle class struggles indicate that “Nigeria is mired in a long-term, secular depression.” Castigating the PDP as a party whose policies favor the wealthy, Tinubu contended that austerity measures were the wrong response to falling oil revenues. Rather, he suggested that the government should cease to peg expenditures to the amount of dollars it holds, and instead print more money and stimulate the economy with job-creating infrastructure projects. “The rewards of job creation and economic growth allocated among the bulk of the populace outweigh the inflationary risk,” Tinbutu argued. Okonjo-Iweala rejected the proposal.

Will the APC’s economic vision earn them support? Their model of governance has drawn acclaim in Nigeria’s mega-city of Lagos, where the opposition has held power since 1999. But voters in an off-cycle election in Ekiti state in June rejected a reformist incumbent APC governor and embraced a PDP challenger with a populist touch and access to the party’s deep coffers. Many observers attributed the PDP’s upset in Ekiti to the so-called politics of rice—the PDP’s ability to mobilize voters by catering to their immediate needs.

If oil revenues continue to fall, however, the PDP’s finances could suffer—or not: Nigerian critics have raised suspicions about the role that Petroleum Minister Diezani Alison-Madueke, a close ally of Jonathan, occupies on his campaign, namely chair of the finance sub-committee. One commentator speculates that the campaign already has a “bottomless war chest” comprised of “the billions of dollars allegedly missing under Diezani’s watch” at the NNPC.

Jonathan’s government cannot ignore the drop in oil prices, but the advantages of incumbency, particularly if the rumors of illicit financing are true, could be enough to guarantee him another term.