Brazil & Nigeria with a cameo from Ethiopia: Let me tell you a story of the present with a word for the future

Dear Africa Interested Individuals:

                                                        Brazil and Nigeria: similar experiences and different macroeconomic approaches

                                                         

Brazil is the largest economy and oil exporter in South America.  Brazil is also the most populous nation in South America.  Nigeria wears the same three crowns for the continent of Africa.  Both countries held presidential elections five months apart: Brazil in October 2014 and Nigeria in March 2015.  Both countries also had a candidate going for reelection; the Nigerian candidate lost while the Brazilian candidate won with a 3% margin which is one of the tightest elections in Brazil's electoral history.   Brazil's currency (Real) is now at its lowest official level since 2003; Nigeria's currency (Naira) achieved its lowest official level in February 2015.  Inflation in both countries is at the same level: 9.2% in Nigeria and 9.25% in Brazil.  Consumer and Business confidence have plummeted in both countries.     

The election winner in Brazil is the country's first female president (Dilma Rousseff) while the election winner in Nigeria is the country's oldest president (Muhammadu Buhari) upon beginning a term and the first president to ascend to the throne after four consecutive attempts (2003, 2007, 2011 & 2015.)  She defeated a career politician and the same can be said about the loser in the Nigerian election who was formerly a deputy governor, governor and a vice president.  Brazil did not embrace change while Nigeria did.  The loser of the Brazil presidential election: Aecio Neves had a slogan, "The sure path for Brazil to really change."  The party of the presidential election winner in Nigeria also ran a campaign that was built around change.  This party slogan galvanized the majority of the electorate in Nigeria that was fed up with the old order of unfulfilled promises, rampant malfeasance and increasing unemployment.  Nigeria was also no longer being taken seriously among the comity of nations.  Change won out in Africa's largest economy and most populous nation and lost out in South America's largest economy and most populous nation.  

In Brazil where change was rejected, Dilma Rousseff's approval rating has sunk to a record low of 8% in August, just ten months after being reelected; this is down from 10% in June.  Two-thirds of respondents to a survey said they will support impeachment proceedings against Ms. Rousseff.  Her 8% approval rating is now below Brazil's former president: Fernando Collor de Mello whose approval rating was 9% in September 1992.  He resigned shortly after to avoid impeachment stemming from corruption allegations.         

Dilma Rousseff is trying to cut spending and slash government debt as she strives to push forward with austerity measures to deal with Brazil's worst economic downturn in twenty-five years amid a growing fiscal deficit.  Nigeria is trying to cut spending also while increasing government debt to offset revenue shortfall from depressed crude oil prices.  This continual debt accumulation may lead to a downgrade of Nigeria's (already non-investment grade) debt rating.  Fear of a downgrade of Brazil's investment-grade credit rating (S&P is the most likely to downgrade first) is currently creating palpable tension in Brazil.  Brazil is on the lower tier of investment grade and any further downgrade will move the country's sovereign debt to junk bond status.  Another hydra-headed monster in both countries is corruption.  

Corruption scandals currently plague both countries with the state-run oil company in both countries (Petrobas and NNPC) at the center of it all.  NNPC is currently undergoing a massive shake-up internally under a new head while streamlining its operations.  Petrobas is involved in a continuing criminal investigation surrounding massive bid-rigging and bribery (kickback) scandal (managers at Petrobas are alleged to be involved in money laundering and accounting fraud) that has already ensnared prominent members of the ruling Workers Party.  One party official (Cunha) accused of taking five million dollars in bribes has defected to the opposition and is currently reviewing the merits of eleven requests before Congress for Rousseff's impeachment.  

Brazil is now in its largest contraction for six years and is now officially in a recession.  The economy contracted by 1.9% in Q2 after contracting 0.7% in Q1.  This is said to be caused more by errant economic policy and not global headwinds unlike the 2008-2009 crisis and may therefore last into 2016.  Nigeria is not in a recession.  Nigeria's GDP has increased at a decreasing rate for the third quarter in a row which should leave close watchers with furrows on their brow.  Nigeria's GDP in Q3 2014 was 6.23%, 5.94% in Q4 2014, 3.96% in Q1 2015 and 2.35% in Q2 2015.  While the Nigerian economy may not yet be in a collective recession, it is in a sector recession.  Nigeria's Oil, Manufacturing, Industry and Mining & Quarrying GDP are now in a recession as these sectors all have negative growth for two consecutive quarters.  Nigeria's Q3 GDP release will be very closely watched and compared, as it will be the first numbers fully attributable to the regime of Nigeria's new president: Muhammadu Buhari.  

While Nigeria and Brazil lead their continents in oil exports, oil is not the highest dollar export earner for Brazil but it is for Nigeria.  Iron ore and soy beans generate more export earnings for Brazil than crude oil.  Brazil made $7B in 2014 from the export of poultry meat.  Among Brazil's top-five export earners, three are agricultural products (soy beans, sugar and poultry.)  Nigeria is the largest producer of soy bean in Africa but, has not yet harnessed its export potential to make it a major revenue earner sadly.  What about sorghum?  Nigeria is the largest producer in Africa and among the top five in the world in most production rankings. Nigeria was number one in 2010; USA is now number one and three of its top five export customers are African countries: Sudan, Kenya & Djibouti.  Nigeria is seriously slacking off to put it succinctly.  

While Brazil has lost some of its values courtesy of oil production and export and related scandals, it has not lost the understanding that agriculture is the key to its economic success and not crude oil and therefore continues to invest heavily in agriculture.  Nigeria has also lost some of its values and reduced investments in agriculture where it has comparative advantages in the growing of sorghum, millet, cocoa and soy bean.  This was not the case during the first ten years after Nigeria's first commercial discovery of crude oil in Oloibiri in 1956 when agriculture still reigned supreme.  

Brazil and Nigeria have many positive and negative similarities.  One major difference that puts a wedge between the two is the importance of agriculture over crude oil for Brazil relative to Nigeria.  A focus on soft commodities over hard commodities has a stronger and longer lasting effect on a country's economy and its people.  Reliance on hard commodities for export earnings in an economy, after the emergence of a persistent price decline, leads to hard times that linger.  This is the case in Brazil & Nigeria.  The former would have been a lot worse than its current bad situation.   

People eat to live; human beings never forget that.  The countries they inhabit should not also.  Its hard commodities that have had the greatest impact on revenue shortfall for Brazil; iron ore and crude oil are down about 50% and 57% respectively over the past twelve months.  Soy beans price has declined by about 20% over the same period.  While this has further helped to depress revenue accretion, its decline is less drastic.  

The United States Dollar has appreciated against the Real by 60% over the past year and by 23% in Nigeria officially and 30% unofficially.  This is half of the dollar gain against the Real.  Two of Brazil's top three dollar earners are hard commodities (Iron ore & crude oil) while Nigeria's one earner by a wide margin is crude oil.  The Bovespa index has declined 24.6% over the past year; the Nigeria ASI index has declined 30.6% over the past year.  Nigeria's stock market continues to tank without any significant non-oil buffer for the economy.   

Brazil's economic situation could have been a lot worse without soybean ($31B earned in 2014,) sugar and poultry-meat contributing significantly to the country's GDP.  Nigeria's economic situation could have been a lot better if necessary investments were made to harness natural potential in the growing of cocoa, oil palm, sorghum and millet despite the discovery of oil as was the case in the 1960s before Nigeria got lazy and decided to extract instead of growing.  Nigeria has been taking instead of making and now the economy is walking on stilts.   

Ethiopia is a non-oil economy and a land-locked country.  Ethiopia is one of the five fastest growing economies in the world according to the IMF.  Coffee & sesame seed exports are driving the Ethiopian economy.  Ethiopia had the largest nominal GDP growth in Africa for 2014 at 10.3%.  40% of 2014 GDP was attributable to agriculture.  This is equivalent to Brazil and Nigeria combined approximately which both hover around the 20% mark.  Do not let the similar percentages for Brazil & Nigeria deceive you.  Brazil's GDP is 4X that of Nigeria while its population is just 13% more than that of Nigeria at 203 million.  

Oil and other hard commodities have become a distraction for Africa after their discovery.  Agriculture is a perennial attraction that has not been given the necessary attention by most African countries.  When something hard stays on top of something soft, it crushes it.  The GDP growth rates of African economies (Ghana, Nigeria, Zambia, Angola & Guinea etc.) dependent on hard commodities have become a lot more volatile, whenever there is a global hard commodity price slump.  It is time for soft to lead and hard to follow as is the case in Ethiopia, Malawi & Kenya.  African countries rise up and go for it; your people will be better off for it in good times and bad times.  Brazil has put an emphasis on sowing soft and is reaping the benefits in a negative economic climate.     

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