The 'Next Level' Cabinet: Once Bitten, Never Shy

President Muhammadu Buhari finally inaugurated his cabinet and assigned portfolios to the 43 appointed ministers this week, six months post-elections and almost three months into his second term.

Considering that it took President Buhari almost six months to form a cabinet in his first coming, this could be considered an improvement. However, historical evidence suggests that we do not consider this to be a positive signal as the administration’s arsenal resists speedy response to pressing issues.

In our assessment, competence also seems like an afterthought in choosing the cabinet, considering that majority of the ministers were former politicians without impressive track record of execution, nor the skill required to deliver much needed reforms. In our reaction to President Buhari’s victory at the polls, we expressed concerns that urgent reforms may be delayed till 2023. With the new cabinet, our initial view is unchanged as we see few reasons for optimism.

Mergers and New Portfolios
We observe that 14 returning ministers retained their past portfolios while the structures of some ministries have changed. But like investors, we see value in continuity and stability only when there is confidence in existing approaches and policies.

We are somewhat excited about the merger of the ministries of finance and budget & national planning, which should improve coherence in policies. We are slightly optimistic that budget forecast may now better align with revenue realities, but we would not hold our breath.

Similarly, the unbundling of power from works and housing means that there should be less distractions. However, the decision to select a new minister for power rather than continue with Babatunde Fashola who now leads the works and housing ministry could lead to setback in one of Nigeria’s most troubled yet vital sectors.

The new ministries created include the ministry of police affairs as well as the ministry of humanitarian affairs and disaster management.

Another Doubtful Dawn in Key Ministries
In the oil and gas industry where progress has been negligible for decades, President Buhari retained the position of minister of petroleum resources. In our opinion, the President lacks the agility and the skillset to transform the sector based on his performance in the same position for the past two years, hence momentum in the sector is expected to remain weak. We expect slow progress towards passing and implementing the reforms need to attract investment into the industry.

In the ministry of finance, budget and national planning, the re-appointment of Zainab Ahmed provides clarity on the direction of fiscal policies. Accordingly, we expect a sustained drive to boost tax collection to narrow the FG’s widening fiscal deficit. But as we do not expect strong improvements in the short-term, we expect continued funding of deficits in the cheaper Eurobond market. The easy monetary policy in advanced markets makes this strategy even more compelling in the near term, but we note that currency risk lurks.

In our view, this ministry remains one to watch as the FG’s fiscal challenges would partially dictate the pace of improvement in the economy. The concern is whether the FG would take necessary actions such as reining in spending and removing subsidies to free up more resources. In this regard, adopting the strategies employed during the first term of President Buhari would yield little progress.

In the works & housing and transport ministries, ministers Babatunde Fashola and Rotimi Amaechi, in that order, retained their jobs. As such, we are optimistic of the continuity of current priority projects and faster completion times. The key risk for these ministries is that capital releases may fall short of budget allocation as capital spending becomes increasingly discretionary in the face of weak revenue mobilisation and increasing recurrent expenditure.  

The ministry for industry, trade and investment is another important ministry under our watch. Foreign Direct Investment (FDI) into the country has dipped consistently from the peak of US$8.9bn in 2011 to US$2.0bn in 2018. Relative to the size of the economy, FDI has deteriorated from the peak of 3.2% in 2009 to 0.5% in 2018.

There is a need to sustain business environment reforms, loosen regulations and promote liberalization of sectors to encourage the investment needed to boost growth significantly. We only saw progress in business environment reforms in the past four years, but regulation became tighter and the FG consolidated its hold on important sectors such as power and oil & gas.