In Nigeria, as elsewhere, foreign exchange markets can be a barometer of internal strife, so when central bank governor Lamido Sanusi noticed a surge in dollar demand at forex bureaux in July, he feared something was amiss.
The bank found tens of billions of naira was traded for US dollars in cash, much more than importers needed to buy goods or investors to repatriate funds, and there was no trace of where the money came from or where it was going.
“Obviously, this was some form of money laundering to cover all the trails,” Sanusi said. “And with interest rates as high as they are, the only people who can take that much naira and buy dollars are people who are not borrowing their money.”
The exchange rate is at 161,5500 naira to a US dollar.
The prime suspects, he says, are politicians jockeying for positions ahead of what looks likely to be bitterly divisive 2015 polls in Africa’s second-biggest economy.
He blames “dollarisation of the economy by political elites” for continued weakness of the naira, despite central bank moves to prop it up with dollar sales that have depleted its reserves to an eight-month low.
Some economists dispute that explanation of the currency’s troubles, but it highlights the economic risks of Nigeria’s costly and often violent pre-electoral politics.
Nigeria’s growth rate of more than 6,5% and its huge consumer market are a draw for foreign investors, but they worry about stability and the country’s tendency to squander its windfall as Africa’s biggest oil producer.
Nigerian elections always cost the country billions of dollars and, often, many hundreds of lives, especially when they ignite ethnic rivalries or regional tensions between the largely Muslim north and mostly Christian south. This cycle could be especially costly, in terms of blood and treasure.
A feud is bubbling between President Goodluck Jonathan and rivals in his ruling People’s Democratic Party (PDP) over his assumed intention to run for another term, which is distracting from vital economic reforms. A bill to reform the oil industry, which feeds 80% of government revenue, is stuck in parliament and unlikely to pass before the elections.
Thanks largely to the feud, unofficial campaigning has begun almost two years early, so politicians will need to sustain spending on patronage for longer.
Such spending can come from politicians’ private interests, but there are other ways, including state money for projects that benefit constituents and government contracts for allies.
“The need of politicians to spend money now will be a big drag on the economy,” said Bismarck Rewane, CEO of Lagos-based consultancy Financial Derivatives. “If it comes from the treasury, the fiscal deficit will widen, you’ll get more inflation, the naira will weaken.”
There is also widespread concern that some politicians profit from criminal gangs that make money from kidnapping, extortion or the theft of oil from the Niger Delta.
Seven ruling party governors and a former presidential candidate have formed a PDP splinter group determined to stop Jonathan from running again, though as recently as last Sunday he declined to say whether he would.
All but one are northerners who feel another spell in office would break an unwritten rule that the presidency should rotate between north and south every two terms, or are disappointed with his record on tackling security challenges like an Islamist insurgency in the north. The president last month sacked nine ministers he suspected of disloyalty.
Nigeria’s cash position always plummets ahead of election time, but this time oil theft is proving an unprecedented drain, dragging official output to a four-year low, nearly a fifth below its 2,5 million barrels per day capacity.
“Oil theft tends to shoot up in periods of heightened political instability and competition,” London’s Chatham House wrote in a report this month. “Nigeria’s upcoming … elections scheduled for 2015, are a particular wild card.”