macroafricaintel | Nigeria – Views of foreign investors ahead of polls

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Crucial presidential election in February has elicited mixed reactions about the economic and political outlook of Nigeria. President Muhammadu Buhari is seeking a second four-year term. His main challenger, Atiku Abubakar, is the country’s former vice-president.

Mr Buhari’s strong points are his anti-corruption war and the strides his administration is recording in building much-needed infrastructure. Mr Atiku has presented himself as a genial pro-business candidate. Because both candidates have a huge followership and strong political structures, the election is widely expected to be hard-fought and results likely tight.

Concerns grow
Thus, there are concerns that the polls might not be free and fair. These are not unfounded. The opposition complains about harassment and intimidation by the state. This sentiment is probably not unconnected to the corruption charges some of their members are currently fighting in the courts.

Mr Buhari insists there is nothing to be worried about, vowing the elections would be free and fair. And that he would accept the results, even if he does not win. Still, recent actions by his government have heightened fears about whether that would really be the case.

A familial connection has been established between the president and Amina Zakari, a commissioner at the electoral commission, for instance. And in January, Walter Onnoghen, Nigeria’s chief justice, was slammed with corruption charges. Coming just one month to the polls, especially as the judiciary could determine who is declared winner of the likely tight presidential poll, quite a number of people are wary.

Idayat Hassan, director of the Centre for Democracy and Development, an Abuja-based thinktank, says she has “doubts [about whether the] two dominant political parties involved and [the] security [agencies] are interested in credible elections [as] the political actors are demonstrating unrestrained desperation to win…at all cost.” She believes “there is a high likelihood that the elections will end up in court…as both parties believe they will emerge winners”.

Not worried
In light of these developments, there is the perception that foreign investors are concerned about whether the polls would be free and fair as well. And what that could mean for the country’s markets and economy this year. But instead of assuming, why not simply ask those who should know?

New African asked Charles Robertson, global chief economist and head of macro strategy at Renaissance Capital, an investment bank focused on emerging markets, about what investors were telling him. “They are relaxed about the election,” says Robertson. His feedback is corroborated by Malte Liewerscheidt, vice president at Teneo, a global risk consultancy. “Investor sentiment is somewhat indifferent”, says Liewerscheidt.

These views are surprising. So why is the election not a key concern for foreign investors like would ordinarily be assumed? Teneo’s Liewerscheidt says “overall, few investors expect much to change, regardless of who wins the general election, [hence why] interest in the polls is muted.”

If foreign investors are not worried about the elections, why are they not putting their money where their mouths are then? Some foreign portfolio investors have reportedly been doing some quick trades in the markets as late as January. But flows have not nearly been as much as they used to be.

That is, even before the elections became increasingly imminent. Returns from local equities have not been encouraging, though; albeit this has also been the case globally. In response, Renaissance Capital’s Robertson says “[they] are deterred from investing in Nigeria due to the low oil price and uncertainty on FX [foreign exchange] policy after the election.”

Growth expected to pick up
In its 2019 economic outlook, the African Development Bank (AfDB) says “the slide in oil prices from late 2018 coupled with an output cut imposed by the Organisation of Petroleum Exporting Countries (OPEC) poses a downside risk to [Nigeria’s] economic outlook.” It also sees the “parliament’s approval of the 8.83 trillion naira 2019 ‘budget of continuity’ [being] delayed due to [the] presidential elections”.

In any case, economic growth projections for the year are quite decent. From the World Bank, International Monetary Fund to the AfDB, the expectation is that Nigeria would grow by at least 2 percent in 2019, from likely lower than that level in the previous year. So, what could be responsible for the improvement?

Mark Bohlund, Africa economist at Bloomberg Economics, tells New African that “Nigeria’s economy will probably accelerate in 1H19 [January-June, 2019], fueled by increased spending connnected to parliamentary and presidential elections in February.” In other words, he sees the upcoming elections driving growth to some extent. However, Bloomberg’s Bohlund sees “that acceleration [likely tapering] off over the year as the new government aims to improve longer-term fiscal sustainability.”

An edited version was published by New African magazine in February 2019

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