On Tuesday evening, President Goodluck Jonathan ordered a state of emergency in the three states.
The declaration of a state of emergency in three states – Borno, Yobe and Adamawa in Northeast Nigeria – in order to deal with Boko Haram insurgency will have a negative but relatively small impact on Nigeria’s GDP growth, finance experts have said.
On Tuesday evening, President Goodluck Jonathan ordered a State of Emergency in the three states as part of continued efforts to address the nation’s growing insecurity. The President’s declaration implies that certain normal functions of government in these states will be suspended. The army will effectively take control in the states and will have the authority to arrest and detain suspects; take into possession and control any structure used for terrorist purposes; lockdown any area of terrorist operation; conduct searches; and apprehend persons in illegal possession of weapons.
Where previous states of emergency had seen a military administrator appointed for each state, the current proposals leave democratic structures intact with troops being sent in to take over security.
“We see the impact on GDP growth of the state of emergency as negative but relatively small with agriculture the most likely sector to be affected but with a potential second-round effect via inflation should food prices rise significantly,” Renaissance Capital (RenCap), an investment bank, said; adding that the move, seen by many as long overdue, is a bold one by Nigeria’s president.
Economic significance of the States
The firm gave a breakdown of economic significance of the affected states, highlighting in brief, that the households in these three states are some of the county’s poorest with the states also having the least educated and high rates of unemployment.
Borno, Yobe and Adamawa account for 6 per cent of Nigeria’s GDP. Agricultural activity dominates as half of the collective workforce in the three states is involved in the sector. And by implication, 50 per cent of these states GDP stems from agriculture (versus national average of 40 per cent). Notably, Borno State is the country’s third biggest employer of agricultural workers (5 per cent). The three states collectively employ 10 per cent of the country’s agricultural workforce.
In terms of population – the three states are home to 7 per cent of the country’s population. Yobe State’s per capita income of $1,206 (N190, 000) is one of the five lowest in Nigeria, by the bank’s estimates. Adamawa is not far off at $1,233 (N194, 000). Borno State’s per capita income is relatively higher, at $1,631 (N257, 000), which is equivalent to the national average, $1,700 (N267, 000).
Also 25-30 per cent of the working age population in the three states is unemployed, compared to a national average of 21 per cent in 2010. Less than 11 per cent of the population in the three states has completed primary school, compared to over 65 per cent in Lagos State. And these states also have a less than 11 per cent secondary school attendance rate, compared to an over 75 per cent attendance rate in Nigeria’s south-east states.
According to RenCap, a successful operation, which means improving the overall security situation in the three states, would be an economic positive. However, downside risk would be seen if other affected states such as Kano, Benue and Nasarawa were to deteriorate.
“The direct impact on major Nigerian stocks is likely also to be limited, in our view. We include commentaries on the banks, telecoms, consumer and brewing names in Nigeria. In summary, we think the impact is likely to be marginal – the banks, in particular, have very little exposure, and we believe mobile subscribers are likely to be relatively low ARPU in the states affected. Investors might want to monitor consumer-related stocks for any potential disruption to and/or price increases of agricultural inputs,” the firm said.
“Market implications will depend more on the success of the operation and implications for the security situation not just in the three states. On a standalone basis, the regions affected are not significant in terms of the overall economy. The three affected states account for seven per cent of Nigeria’s population, but just six per cent of the country’s GDP.”
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