eco

Nigeria's 2023 elections: Security, economic and foreign policy imperatives

Nigeria's 2023 elections: Security, economic and foreign policy imperatives 5 December 2022 — 1:00PM TO 2:00PM Anonymous (not verified) 23 November 2022 Chatham House and Online

Bola Ahmed Tinubu, presidential candidate for the All-Progressives Congress, discusses his vision and recently-unveiled manifesto for ‘renewing hope’ in Nigeria.

Nigeria is scheduled to hold presidential and national assembly elections on 25 February 2023 as well as governorship and other subnational elections on 11 March 2023.

The elections will end President Muhammadu Buhari’s two terms in office since his election in 2015 and will mark the first time that he is not engaging in a presidential poll since Nigeria’s transition to civilian rule in 1999 – an important marker in Nigeria’s trajectory of democratic consolidation.

Nigeria’s recently enacted Electoral Act has contributed to improved hope around the election process, reflected in the addition of 12.29 million new voters in Nigeria’s voter registration exercise across the federation’s 36 states and 1,491 constituencies.

Yet Nigeria stands at a critical juncture, having suffered from two recessions in the past six years, unprecedented levels of food insecurity, persistent fuel scarcity and high levels of crude oil theft.

Civic fatigue also remains an important challenge and President Muhammadu Buhari’s three main policy pillars of security, economy and corruption continue to be defining issues for citizens.

At this event, Bola Ahmed Tinubu, presidential candidate for the All-Progressives Congress, discusses his vision and recently unveiled manifesto for ‘renewing hope’ in Nigeria including his policy proposals for economic reform and revival and how to deliver secure and inclusive job opportunities for Nigerian citizens.

Download a transcript

This event is a members and Africa programme event and is part of a series of events and outputs examining Nigeria’s 2023 elections and political developments.

As with all Chatham House member events, questions from members drive the conversation.




eco

Is China's economy on the rebound?

Is China's economy on the rebound? 5 April 2023 — 6:00PM TO 7:00PM Anonymous (not verified) 28 February 2023 Chatham House and Online

Exploring the domestic and international signals from the first annual session of the 14th National People’s Congress.

2022 proved to be a difficult year for China. War, COVID-19 and economic turbulence presented a cocktail of significant challenges for the ruling CCP in China. Having dispensed of the infamous zero-COVID-19 policy, China is apparently back open for business.

On the international front, continued tensions with the West, war in Europe and climate change are just some of the obstacles standing in the way of Chinese economic recovery. 

Domestically, China must find ways to reinvigorate demand and move on from a low of 3 per cent GDP growth in 2022. With a frustrated population, people are also keen to be freed from the shackles of a stream of lockdowns and quarantining.

The in-tray for the 14th National People’s Congress, as it begins its first session, is substantial. The implications, at home and abroad, from its recent summit in Beijing reverberate around the world.

The experts on the panel discuss:

  • What has been the true extent of COVID-related damage to China’s economy and wider society?
  • What economic scars are visible post-recovery?
  • Will there be longer-term implications for China’s economic and diplomatic footprint globally post-COVID? 

As with all member events, questions from the audience drive the conversation.




eco

Putin’s Eurasian dream may soon become a nightmare

Putin’s Eurasian dream may soon become a nightmare Expert comment NCapeling 3 May 2022

The Ukraine invasion has detrimental consequences for the Russia-led Eurasian Economic Union, a project which has been stumbling since its inception.

The Eurasian Economic Union (EAEU) – consisting of Russia with Armenia, Belarus, Kazakhstan, and Kyrgyzstan – represents the culmination of Russia’s pursuit of regional integration with its post-Soviet neighbours.

Officially, the Union has an ambitious economic goal – the creation of a market based on common rules for its five member states and their 180 million citizens – and Russia likes to portray the EAEU as an Eurasian replica of the European Union (EU).

But although a common market was placed at the heart of the EAEU as a way to appeal to member states, it is of marginal importance for the Russian economy. For Moscow, the EAEU is primarily a geopolitical tool to help re-assert its regional and global role.

In a world of evermore powerful trading blocs, Moscow wants to use the EAEU to establish its own economic power base in the new polycentric world order. But Russia’s limited interest in the technocratic intricacies needed for the economic union to live up to its lofty proclamations exposes the real geopolitical ambitions.

The Kremlin has no qualms about disregarding the common rules when they clash with Russia’s own foreign policy, and it soon became evident the EAEU was a means to an end rather than an equitable institution within which Russia would accept constraints on its unilateral behaviour.

A crisis in the making

Although the EAEU has enabled some internal trade liberalization as well as the movement of people and labour to the benefit of its members reliant on labour migrant remittances, it has failed to tackle institutional barriers or promote growth and development policies.

Russia’s limited interest in the technocratic intricacies needed for the economic union to live up to its lofty proclamations exposes the real geopolitical ambitions

It has been hampered by weak common institutions and a lack of institutional capacity of its member states, while Russia’s dubious commitment is also problematic. The EAEU lacks the institutional features of a genuine common market and any attempts to address these shortcomings have been essentially empty promises.

EAEU membership does benefit the political elites of its member states, because its hub-and-spoke model relies on bilateral high-level political deals between Russia and each member state individually. And by using the enticement of security guarantees and both political and financial support, Moscow has succeeded in attracting new members to join.

But a member’s political survival – or defence against political and economic reform – is dependent on military, economic, financial, and political support from Russia. This has been evidenced by the Armenian-Azerbaijan conflict, and by Russia’s backing of the Lukashenka regime in Belarus and the Tokayev government in Kazakhstan.

The design of the EAEU ties it to Russia’s own fate, and so the impact of harsh sanctions imposed on Russia for invading Ukraine are in stark evidence across its member states. Both Kazakhstan and Kyrgyzstan are reeling from the adverse effects on their domestic currencies and remittances, and the trade bans of key commodities.

And although the ban Russia imposed on grain export to EAEU members has softened, it shows the extent to which Russia was prepared to disregard the rules and sacrifice the EAEU to rescue its own economy. Members are incurring direct economic losses from Putin’s war against Ukraine and the fluctuation of the rouble has created a major impediment to trade with Russia.

Russia seems to increasingly view the Union as a convenient tool to bypass sanctions, with massive implications for its partner countries. And the supposed advantages of EAEU membership – enhanced trade, growth, and modernization – have simply not materialized.

Due to the rapid economic decline of Russia – a fall of 10-15 per cent is anticipated for 2022 – the EAEU is even less likely to deliver the promised economic benefits, while also putting members at risk of secondary sanctions.

The Ukraine invasion has also reignited domestic sensitivities and regional tensions. In Kazakhstan, Tokayev has failed to endorse Russia’s justification for the invasion and refuses to recognize the ‘independence’ of the separatist LNR and DNR.

Russia’s invasion of Ukraine clearly reduces the benefits of Eurasian integration even further than before and imposes higher cost on the partner countries than were envisaged when they joined

Meanwhile Azerbaijan has pursued territorial gains in Nagorno-Karabakh while Russia is distracted by its invasion of Ukraine, and has requested the withdrawal of Russian peacekeeping from the disputed territory.

Russia is keen for partner countries to help mitigate the economic impact of sanctions by providing alternative transit routes for imports to Russia. But the EAEU faces challenges even at its most basic level because the sharing of custom duties among member states was denominated in dollars, which Russia now wants to move away from.

No easy escape

Russia’s invasion of Ukraine clearly reduces the benefits of Eurasian integration even further than before and imposes higher cost on the partner countries than were envisaged when they joined. They have been dragged into a geopolitical calamity over which they have no control – the inability of EAEU institutions to mediate or constrain Russia’s behaviour is stark.




eco

Central and Eastern Europe become hawkish on China

Central and Eastern Europe become hawkish on China Expert comment LJefferson 16 September 2022

The recent withdrawal of the Baltic countries from the ‘17+1’ format displays changing perceptions of China due to its ambiguity towards the war in Ukraine.

While the Russian invasion of Ukraine only confirmed Central and Eastern Europe’s views of Russia, it is also affecting their relations with China. Although the relationship was already complicated due to unfulfilled Chinese economic promises to CEE countries and growing indications of efforts to influence their domestic politics, China’s support for Russia is pushing Central and Eastern Europeans even further away.

This shift was highlighted, and formalized, recently by several countries in the region leaving the ‘17+1’ format, through which China cooperates with a group of countries from the region. The shifting attitudes towards China will also influence the relationship between the European Union as a whole and China.

A Trojan Horse that never was

When the format was launched in 2012 between 16 CEE countries at the time and China, the countries jumping on board expected a wave of Chinese investment and an opportunity to diversify mostly west-bound trade.

These hopes never fully materialized as Chinese foreign direct investment (FDI) in CEE has been generally lower compared to the rest of Europe and China never became an important export destination for any of the countries. The growing disillusionment and concern about Chinese security threats has led to some of the countries speaking up about the perceived perils of closer cooperation.

The first to withdraw from what had become ‘17+1’ by 2021 was Lithuania, which also took an interest in strengthening ties with Taiwan and allowed it to open a Taiwanese representative office in Vilnius. This triggered a breakdown in the bilateral relations with China. As a retaliatory response, China blocked Lithuanian imports and imports from other EU states containing inputs from Lithuania, leading the EU to launch an official dispute at the WTO.

War in Ukraine

Since the invasion started, CEE countries have been dealing with large numbers of Ukrainian refugees, organizing shipments of military equipment to Ukraine, and at the same time worrying whether they could be next on Russia’s list.

However, the concerns and security environment that these countries face seems to be almost entirely disregarded by China. On the sidelines of the 2022 Winter Olympics in Beijing, Xi and Putin signed the joint communiqué in which China backed Moscow’s demands to reverse NATO borders to the pre-1997 situation, completely disregarding CEE’s security interests.

Since the invasion started, CEE countries have been dealing with large numbers of Ukrainian refugees, organizing shipments of military equipment to Ukraine, and at the same time worrying whether they could be next on Russia’s list.

China’s implicit support for Russia after the invasion has sowed deep mistrust of its respect for the sovereignty of other nations. The Chinese diplomatic apparatus clearly noticed this changing mood among CEE governments and sent a special envoy to eight capitals in April-May tasked with ‘eliminating misunderstandings regarding Russia-Ukraine conflict’.

However, the trip was not particularly successful. The delegation failed to secure high-level meetings, with the most prominent case being the Polish minister of foreign affairs declining to meet Huo Yuzhen, the Chinese Special Councilor for CEEC cooperation. Given that Andrzej Duda, President of Poland, was the only head of an EU state who attended the Beijing Olympics opening ceremony just before the Russian invasion in February, the change in attitudes is clear.

Following the envoy’s visit to the Czech Republic, the Czech parliament’s foreign affairs committee unanimously approved a resolution calling for the country to quit the ‘16+1’ format and the government is expected to act upon it in the near future. Meanwhile, Latvia and Estonia recently jointly announced that they would no longer be participating in the cooperation framework, turning it into ‘14+1’.




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Turkey Is on the Road to a Severe Economic Crisis

Turkey Is on the Road to a Severe Economic Crisis Expert comment sysadmin 12 July 2018

The deteriorating state of the economy is President Erdoğan’s Achilles’ heel and the biggest threat to his currently unrivalled leadership.

A special one lira coin minted for the presidential inauguration of Recep Tayyip Erdogan. Photo: Getty Images.

Fifteen days after Turkey’s parliamentary and presidential elections, Turkish President Recep Tayyip Erdoğan appointed a new government under radically enhanced executive powers granted by the constitution. He chose 16 loyalists and partisan figures to ensure that he remains front and centre in decision-making and policy formation.

Most notably, Erdoğan sacrificed the former deputy prime minister and ex-Merrill Lynch chief economist Mehmet Şimşek in favour of his inexperienced son-in-law Berat Albayrak as finance and treasury minister to manage the fragile economy. Whether he has the competence to placate jittery financial markets and foreign investors is debatable.

Erdoğan will prioritize short-term growth at all costs to the detriment of macroeconomic and financial stability. That entails foregoing interest rate hikes needed to contain runaway double-digit inflation and to support a plummeting lira that depreciated nearly 20 per cent this year. It also means loosening the purse strings, flooding the markets with cheap credit and sponsoring rampant construction and mega-infrastructure projects.

True to his promise, he has appropriated to himself, by presidential decree, the right to hire the central bank governor, deputies and monetary policy committee members for a four-year term. This completes the politicization of the once-respected and independent central bank and is in line with his unorthodox monetary views that higher interest rates equates with higher inflation.

Erdoğan associates progress with gleaming high-rise buildings, gargantuan infrastructure show-pieces and elevated growth rates. He is spiking the fuel to boost the speed of the sputtering mid-sized Audi-style Turkish economy to achieve superior Ferrari growth rates. As any mechanic knows, these tactics are unsustainable in the long term. Eventually, the engine will burn out.

He does not seem to appreciate that Turkey’s growth model requires an overhaul to join the league of rich economies. It is too reliant on consumer spending and government-sponsored infrastructure and construction projects funded by speculative financial flows rather than on sustained private investment and exports.

Net result: the corporate sector’s foreign-exchange liabilities have climbed to a record $328 billion as of the end of 2017. When netted against foreign-exchange assets, it is still a worrying $214 billion. Its US dollar and euro debt pile has more than doubled since 2008, 80 per cent of which is held by domestic banks. Given these acute balance-of-payments conditions, it is not farfetched that Turkey may impose capital controls in the short-to-medium term to restrict the outflow of foreign assets. At $50 billion, the current account deficit – defined as the sum of the trade balance and financial flows – is not even covered by the central bank’s net international reserves at nearly $45 billion.

Unsurprisingly, some major Turkish companies are negotiating with their bondholders to restructure their sizeable foreign loan obligations as lira devaluation increases the financial burden. Should a significant number of Turkish corporates default on their foreign obligations, this would reverberate across the Turkish economy, cause mass consumer panic, shake the confidence of international financial markets and potentially lead to a crisis within the Turkish financial system and to a deep and prolonged economic recession.

Revealingly, Erdoğan’s nationalist allies, the Nationalist Movement Party (MHP), refused to join his government. Perhaps Devlet Bahçeli, the MHP leader, learned the lessons of the 2001 financial crisis as a member of a three-party government. So he is opting to project influence from the outside, rather than risk being tainted with responsibility for an economic downturn.

Turkey’s president is doubling down on his singular approach to governance irrespective of the fallout. Notwithstanding his current political dominance, the deteriorating state of the economy is his Achilles’ heel and the biggest threat to his currently unrivalled leadership.




eco

A Credit-fuelled Economic Recovery Stores Up Trouble for Turkey

A Credit-fuelled Economic Recovery Stores Up Trouble for Turkey Expert comment sysadmin 17 February 2020

Turkey is repeating the mistakes that led to the 2018 lira crisis and another freefall for the currency may not be far off.

Headquarters of the Central Bank of the Republic of Turkey. Photo: Getty Images.

Since the 2018 economic crisis, when the value of the lira plummeted and borrowing costs soared, Turkey’s economy has achieved a miraculous ‘V-shaped’ economic recovery from a recession lasting three quarters to a return back to quarterly growth above 1 per cent in the first three months of 2019.

But this quick turnaround has been built on vast amounts of cheap credit used to re-stimulate a consumption and construction boom. This so-called ‘triple C’ economy generated a rapid growth spurt akin to a modestly able professional sprinter injected with steroids.

This has made the currency vulnerable. The lira has steadily depreciated by 11 per cent against the US dollar since the beginning of 2019 and crossed the rate of 6 lira versus the US dollar on 7 February. And there are further warning signs on the horizon.

Credit bonanza

Statistics reveal that Turkish domestic credit grew by around 13 per cent on average throughout 2019. The credit bonanza is still ongoing. Mortgage-backed home sales jumped by a record high of 600 per cent last December alone and the 2019 budget deficit catapulted by 70 per cent due to higher government spending.

Turkey’s central bank fuelled this credit expansion by cutting interest rates aggressively to below inflation and, since the start of this year, purchasing lira-denominated bonds equivalent to around one-third of total acquisitions last year to push yields lower.

Equally, it has linked bank lending to reserve requirements – the money that banks have to keep at the central bank – to boost borrowings via state and private banks. Banks with a ‘real’ loan growth (including inflation) of between 5 and 15 per cent enjoy a 2 per cent reserve ratio on most lira deposits, which authorities adjusted from an earlier band of 10-20 per cent that did not consider double-digit inflation.

Cumulatively, bond purchases (effectively quantitative easing) and reserve management policies have also contributed to eased credit conditions.

Commercial banks have also reduced deposit rates on lira accounts to less than inflation to encourage consumption over saving. Together with low lending rates, the boost to the economy has flowed via mortgages, credit card loans, vehicle leasing transactions and general business borrowings.

Accordingly, stimulus is at the forefront of the government’s economic approach, as it was in 2017 and 2018. It does not seem to be implementing structural change to re-orient growth away from consumption towards productivity.

In addition, governance is, again, a central issue. President Recep Tayyip Erdogan’s near total monopolization of policymaking means he guides all domestic and external policies. He forced out the previous central bank governor, Murat Cetinkaya, in July 2019 because he did not share the president’s desire for an accelerated pace of interest rate reductions.

New challenges

Despite the similarities, the expected future financial turbulence will be materially different from its 2018 predecessor in four crucial respects.

Firstly, foreign investors will only be marginally involved. Turkey has shut out foreign investors since 2018 from lira-denominated assets by restricting lira swap arrangements. Unsurprisingly, the non-resident holdings of lira bonds has plummeted from 20 per cent in 2018 to less than 10 per cent today.

Secondly, the Turkish government has recently introduced indirect domestic capital controls by constraining most commercial transactions to the lira rather than to the US dollar or euro to reduce foreign currency demand in light of short-term external debt obligations of $191 billion.

Thirdly, the Turkish state banks are intervening quite regularly to soften Lira volatility, thereby transitioning from a ‘free float’ to a ‘managed float’. So far, they have spent over $37 billion over the last two years in a futile effort to buttress the lira. This level of involvement in currency markets cannot be maintained.

Fourthly, the Turkish state is being far more interventionist in the Turkish stock exchange and bond markets to keep asset prices elevated. Government-controlled local funds have participated in the Borsa Istanbul and state banks in sovereign debt to sustain rallies or reverse a bear market.

All these measures have one running idea: exclude foreign investors and no crisis will recur. Yet, when the credit boom heads to a downturn sooner or later, Turks will probably escalate lira conversions to US dollars; 51 per cent of all Turkish bank deposits are already dollar-denominated and the figure is still rising.

If Turkey’s limited foreign reserves cannot satisfy the domestic dollar demand, the government may have to impose comprehensive capital controls and allow for a double digit depreciation in the value of the lira to from its current level, with significant repercussions on Turkey’s political stability and economic climate.

To avoid this scenario, it needs to restore fiscal and monetary prudence, deal the with the foreign debt overhang in the private sector and focus on productivity-improving economic and institutional reforms to gain the confidence of global financial markets and Turks alike.




eco

Turkey Needs Radical New Direction to Save the Economy

Turkey Needs Radical New Direction to Save the Economy Expert comment NCapeling 23 November 2020

Turkey should emulate the reformist approach it adopted after the 2001 crisis to prevent an economic and financial breakdown - but this looks highly unlikely.

Although Ankara has witnessed what appears to be an abrupt change of its top economic team with two fresh appointments to key positions – Naci Ağbal as governor of the central bank and Lütfi Elvan as finance and treasury minister – a cardinal rule of thumb in Turkish politics is that the more drama one sees, the less policy change there will actually be.

Financial markets reacted positively to the moves in the expectation they will signal a change of Turkey’s overall economic approach, but the reality is Turkish president Recep Tayyip Erdoğan is simply putting loyalists into key bureaucratic positions to help ensure the primary role of these functions becomes ‘selling’ his policies more effectively, rather than altering them.

The hope from the markets – which saw the beleaguered Turkish lira appreciate against the US dollar at the news – is that Turkey adopts substantial interest rate increases as well as measures to repress liquidity expansion in order to temper its controversial so-called ‘Triple C’ approach of using cheap credit to stimulate growth with an unsustainable consumption and construction boom.

But instead, Erdoğan’s declaration after the appointments were made indicates the new restrictions in which they will now operate, saying ‘we are in a historic struggle against those who want to force Turkey into modern capitulations through the shackles of interest rates, foreign exchange rates and inflation’.

Learn from past successes

To resolve its current underlying economic problems, Turkey should actually be looking to its recent past and aiming to emulate the approach pursued by former prime minister Bülent Ecevit during the 2001 financial crisis when he recruited Kemal Derviş, a senior World Bank official with extensive experience and international contacts in economic, financial, and monetary affairs.

As economy minister with a broad mandate to spearhead a durable economic recovery plan, Dervis established independent market regulatory agencies covering banking, telecommunications, energy, and other key sectors, and strengthened the competition authority.

He also either liquidated or merged insolvent banks, granted central bank autonomy to guarantee price stability, and ensured recruitment was based on competence, expertise, and meritocracy. Crucially, his productivity-enhancing restructuring blueprint was designed in Turkey rather than being imposed by the International Monetary Fund (IMF) or another external agency.

Ecevit also turbocharged reforms motivated in part by a desire to join the EU with constitutional, political and legal modernization which widened personal freedom, significantly curtailed capital punishment, liberalized the cultural environment for Kurds, and fortified the rule of law. And one of his coalition partners in that work, the right-wing pro-Turkish National Action Party (MHP), is now allied with the current ruling Justice and Development Party (AKP).

His foreign minister Ismail Cem also enhanced Turkey’s relations with both Europe and the US, initiated the so-called ‘earthquake diplomacy’ with his Greek counterpart George Papandreou after twin tragedies struck both nations in 1999, and largely avoided entanglement in Middle Eastern conflicts.

The net result of all these actions was that Turkey emerged from the crisis with greater resilience, a more robust regulatory framework, upgraded political and economic institutions, rapidly decreasing inflation, a credible central bank, a stronger financial system, closer relations with the EU and US, and heightened domestic and foreign investor confidence.

But now that similar woes are engulfing Turkey anew, is Erdogan and the AKP/MHP alliance able – and willing – to repeat the Ecevit recipe? Present signs indicate they are highly unlikely to as they are too committed to entrenching the Triple C model.

Although this model will likely further consolidate their power, it will also empty the civil service of qualified professionals, restrict civil liberties and freedoms, and create more ideological politics, affecting Turkey’s foreign policy.

Such a stubborn refusal to shift direction is increasing the inevitability of a deep economic and financial breakdown and so, unless Turkey undertakes a serious policy departure instead of continuing to resort to the quick fix approach, there is real likelihood it will simply accelerate towards disaster.




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College Football Playoff snubs: Georgia among teams with beef after second rankings

There was some dramatic movement in the second College Football Playoff rankings. Here's who got slighted.