Nigeria’s new president was sworn in on Friday in the country’s first ever democratic handover of power. He faces a tough battle to diversify an economy reliant on oil and hampered by terrorism and endemic corruption.
Retired major-general Muhammadu Buhari won the 2015 election as a self-described “converted democrat,” taking over from incumbent Goodluck Jonathan. However, it’s not the first time he has led the country—he ruled as dictator between 1983 and 1985, after taking power in a coup.
“The common themes raised by all we met focused on the need for good governance, security and an end to systemic corruption,” said Kato Mukuru, global head of research at Exotix Partners, in a research note published after the election results.
“President-elect Buhari and Vice President-elect Osinbajo are universally accepted as being the right team to deliver on this, but after being disappointed on many occasions by their leaders, many people were hopeful, rather than expectant.”
‘Severe’ terror risk
Buhari’s military credentials have increased expectations that he will do better in tackling Boko Haram than his predecessor. The militants have wreaked havoc in the north-east of the country in a six-year killing and kidnapping spree aimed at establishing an Islamic caliphate.
The chaos has deterred some investors from Africa’s biggest oil producer, although Nigeria’s commercial hub of Lagos is located far away from Boko Haram territory.
The country as a whole is rated at “severe” risk of terrorism and political violence—on a par with Syria, Iraq, Yemen and Afghanistan—by global risk consultancy Aon.
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Two Nigerian cities—Jos and Abuja, the capital city—are at “extreme” risk of terrorism, with the latter suffering four attacks and 177 deaths in the year to February, according to political risk consultancy Verisk Maplecroft. It said that the risk of terrorist attacks rose in 13 Nigerian cities during the time period.
“While Boko Haram will remain the dominant terrorist threat in Nigeria, Verisk Maplecroft believes there is a possibility of hostilities resuming in the Niger Delta following the election of Mohammed Buhari,” the consultancy said in a statement this month.
“The amnesty protecting members of the militant group MEND is due to lapse and without successful negotiations this could mean disruption to the country’s vital oil industry, in addition to attacks on key cities in the south east of the country.”
Nigeria’s economy grew at 4 percent year-on-year in the first three months of 2015, which was its slowest rate of expansion since early 2012, according to Capital Economics. The independent research firm attributed this in part to country’s reliance on energy production: Oil and gas accounts for 35 percent of its economy, according to the Organization of the Petroleum Exporting Countries (OPEC), of which Nigeria is the most populous member.
Buhari “will struggle to diversify the economy (away from energy),” Capital Economics warned in a report on frontier markets last week.
In March, Standard & Poor’s lowered its credit rating on Nigeria from BB-minus to B-plus, because of the impact of oil prices.
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On the upside, weak prices could provide the impetus for much-needed reforms and balancing of the books.
“We believe the low oil price combined with a change in the government provides the best opportunity in years to push forward reforms in Africa’s largest economy,” said economists at Renaissance Capital in a report this month. The frontier market specialist company said that investors should no longer be underweight on Nigeria.
Corruption hopes and fears
Buhari’s previous time in charge as dictator has raised human rights concerns but he does have a reputation for incorruptibility, a factor that helped him to power.
Although he is yet to appoint his cabinet, the president is expected take a lead in tackling corruption within the oil and gas sector, with Vice President Yemi Osinbajo heading up the fight in all other industries.
“An improvement in corruption should improve Nigeria’s fiscal situation and improve equity investors’ perception of the country,” said Renaissance Capital in a report last week.
The emerging market investment bank said that Nigeria’s corruption problem was in line with expectations, when compared to other countries with low gross domestic product (GDP) per capita that are oil exporters.
“Improving Nigerian corruption would be far easier to achieve if Nigeria ran out of oil,” Renaissance Capital said.
It was upbeat on the country’s long-term economic forecast.
“We think Nigeria will be a trillion dollar economy by 2025 (the U.S. Department of Agriculture thinks 2030) and it will keep doubling every 10 years pushing per capita GDP to around $15,000 in 2050.”