The term “dead cat bounce” derives from the fact that even a dead cat will bounce if it falls from a great height. If you imagine a dead cat soaked in crude oil and dropped from a 50-storey building, you get a rough picture of how Nigeria’s economy is performing these days.
Nigeria is expected to grow 2.5 per cent this year after contracting 1.6 per cent in 2016. But the population is also growing at 2.5 per cent. So in per capita terms, things are going nowhere.
The reasons for the “recovery” are twofold. First, last year’s performance was so dismal it would have been difficult for the economy to fall further. Without doing anything at all — a reasonable description of policy under Muhammadu Buhari, the country’s ailing leader and frequent London resident — the baseline effect has worked its magic. Second, the oil that makes up so much of government revenues is flowing faster. In June, production was 1.7m barrels a day, 10 per cent higher than a year ago.
Like weeds shorn of their leaves, graft will doubtless spring back as lush as ever once the Buhari strimmer is back in its box
One should, they say, never let a crisis go to waste. That advice has clearly not reached Abuja, where the economic collapse brought on by swooning oil prices was supposed to spur diversification. It has not happened. The danger now is that, having apparently come through the worst, Nigeria will simply go back to business as usual. If oil prices recover, so will headline growth. But the structure and basic dynamics of Africa’s largest economy will remain unchanged.
Nigeria frustrates because of its vast potential. It has 190m people, among the sharpest, most driven and entrepreneurial on the continent. But perverse incentives have diverted the energy of the best and the brightest to mostly unproductive activities: making money through political connections, speculation, round-tripping and arbitration.
When President Buhari was elected three years ago, he promised to end all this. The economy would be transformed. Manufacturing would be re-energised. So would agriculture, which employs three-quarters of the population but contributes only a fifth of output. The government would wean itself off oil revenue. Mr Buhari — stern, principled, incorruptible — was said to be the man to see this through.
Little has come to pass. Mr Buhari took six months to name a cabinet and became embroiled in a necessary but distracting fight with Boko Haram. He has spent much of the past year convalescing from a mystery illness that has sapped his presidency of vigour and set off a merry-go-round of political jockeying to succeed him. There has been practically nothing in the way of coherent economic policy.
True, there have been attempts to punish individuals for corruption. Yet, like weeds shorn of their leaves, graft will doubtless spring back as lush as ever once the Buhari strimmer is back in its box. An example of failure to cut corruption at the roots is the foreign exchange policy. Mr Buhari was determined to defend the phoney official rate. But the only way to do so was to ration dollars. Given the yawning gap with the black market, this has delivered a delicious arbitrage opportunity to anyone lucky — or connected — enough to get their hands on precious foreign exchange at the official window.
Sadly for hopes of economic diversification, the lucky beneficiaries of dollars did not include manufacturers. Most were actually banned from receiving the foreign exchange they needed to buy inputs or capital equipment. Far from expanding, manufacturing actually shrank last year. The economy is back to square one, gasping for a recovery in oil prices to breathe life back into the system.
There are some promising signs. Agriculture is getting more attention, and there are tentative improvements in rice and other crops. If all goes to plan, by 2019, the country will have a $12bn oil refinery courtesy of Aliko Dangote, Nigeria’s richest man. This is an installation that could save billions in unnecessary imports of refined products.
Nigeria’s constitution is working. In Mr Buhari’s extended absence with illness, the competent and dynamic Yemi Osinbajo has been running the show. Foreign exchange policy has improved. In April, a “growth and recovery plan” was published, laying out plans to cut red tape, improve the tax take, reform state-owned enterprises and move towards a market-determined exchange rate. Such policy prescriptions have been discussed for 20 years. The danger is Nigeria will still be talking about them 20 years hence.
The immediate prospect is for a vicious and enervating power struggle to succeed Mr Buhari, whom few expect to contest the 2019 election. Whoever emerges victorious will doubtless promise to stamp out corruption, diversify the economy and rationalise the oil sector. Cats not only bounce. They also have nine lives.
By David Pilling. This article was first published in the Financial Times.