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Monday, April 13, 2015

New governors face challenge of managing state economies

From May 29, 2015, Nigeria’s newly elected governors will be saddled with the management of the many states that make up Africa’s largest economy, worth over N87 trillion in 2014.
With the import dependent nature of the  economy and headline inflation edging up to 8.4 in February from 8.2 percent recorded in January, analysts say the challenges are enormous.

New governors face challenge of managing state economies

Also, with growth prospect being downgraded from an earlier projection of 5 percent to 4.8 percent for 2015 according to the IMF Article IV report and dwindling revenue occasioned from the falling oil prices at the international market, the negative impact on government revenue poses downside risk for domestic GDP growth in 2015.


The governors of the nation’s biggest three states may have a somewhat easier time though.
Among these, Akinwunmi Ambode (APC) will command Nigeria’s commercial capital of Lagos, which has an economy almost the size of Ghana’s, at $45 billion (N9 trillion), according to Lagos-based Renaissance Capital.
The incumbent governor, Babatunde Fashola has been magnanimous enough to sign a N489 billion budget for 2015 “…with zero deficits.”
In Kano State, Abdullahi Ganduje (APC)  will hold sway  in the $17 billion (N3.4 trillion) northern commercial hub.

This extends the APC reign in Kano State – this time fully aligned with the incoming Buhari-govenrment.
Former FCT Minister, Nasir El-Rufai’s victory in Kaduna State, means he takes over from incumbent Governor Ramalan Yero, to manage a $13 billion (N2.6 trillion) state economy, geographically sandwiched between Abuja and Kano State.

El-Rufai’s past experience in managing the federal capital territory, will be his greatest asset to the benefit of Kaduna’s citizens.

The other governors will face a tougher task and need bigger thinking caps and more grit to enhance their internally generated revenues, (IGRs), amidst the growing and dynamic needs of the citizenry.
Of recent, payments of salaries and wages have suffered delays  in a number of states, suggesting that aggregate demand has been relatively suppressed, a development that requires careful planning by the new governors.

Besides, election related expenses and the rising electricity tariffs are potential headwinds that could accelerate inflation in the medium term.

The attendant arbitrage and rent seeking opportunities following the devaluation of the local currency, the naira, has also presented the governors with a common challenge that requires putting together economic management teams for full utilisation and harnessing of resources.
Consequently, this would continue to fuel speculative demand and heighten currency substitution and dollarisation of the economy which are becoming serious issues in domestic monetary policy that is impacting negatively on the states.

Analysts believe that this could lead to agitation for wage increase by labour, even in the face of these obvious challenges.
Ayodapo Shoderu, president, Nigerian Council of Registered Insurance Brokers, said that the result of the election was already impacting positively on the economy, given the response of market forces to the political process. According to him “there is an inextricable link between politics and economy and whatever affects one would definitely affect the other.”

Shoderu challenged the governors to start giving serious thoughts to strategies for growing the nation’s economy through the provision of infrastructure development and creation of jobs in order to enhance quality lives for Nigerians, and by so doing, increase their disposable income.
Bismarck Rewane, in the current note from the Lagos Business School (LBS) meeting, observed that the new government would “face resistance from outgoing administration as the patronage network is dismantled.

Economic policy pronouncements are likely to be ambitious and politicisation of economic policy will slow the reform agenda.
“Fiscal expenditure will remain dominated by recurrent spending and subdued outlook for oil will continue to drive fiscal deficit. Also that current account will slip into deficit in 2015-16 as well as growth will remain below potential.”

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