Joseph Rohm, portfolio manager at Investec Asset Management, shares his thoughts on the recent Nigerian elections.
At the end of what can possibly be described as Nigeria’s most tightly fought national elections, General Muhammadu Buhari of the All Progressive Congress (APC) has emerged as the president elect of Africa’s biggest economy. While it has not been without its challenges – among which postponing the elections by six weeks amid threats of disruption from Boko Haram – a peaceful handover of power is a very good outcome for Nigeria. It is the country’s first handover of power to a new political party since the end of military rule 16 years ago and this underlines the strength of its democratic process.
What does this mean for the country?
General Buhari (72) has a military background and ruled the country for 18 months between 1983 and 1985. We believe he will have two key focus areas, one of which is clamping down on corruption. During his previous tenure as leader of the country, he was particularly harsh on corruption and now he will most likely attempt to improve transparency regarding the oil industry and its money flows. However, this will be difficult as the existing practices are fairly ingrained in Nigeria.
It is also quite likely that Buhari will release a report on the Nigerian National Petroleum Corporation (NNPC) that exposes some of the corruption within the oil industry. This could result in a leadership change for the national oil company.
Secondly, he is expected to be tough on the threat of Boko Haram and the insurgencies in the north of the country. As a former military general, he will most likely put much more resources behind efforts to stop their progress and reduce the violence. The prevailing view in Nigeria is that it is under outgoing President Goodluck Jonathan’s watch that Boko Haram has extended the frequency and nature of its attacks. This has lost him a lot of popularity.
What now for the economy?
Our Africa portfolio management team recently visited Lagos and we expect the operating environment to remain difficult for companies this year. We anticipate fiscal austerity in the coming year, due to pressures on revenue. The lower oil price, as well as the depleted excess crude account, mean there will be greater state financial discipline.
From a macro-economic perspective, we don’t expect major policy changes. The differences in policy between the incoming ACP and Jonathan’s People’s Democratic Party (PDP) are quite limited, though a lot depends on who Buhari brings into his Cabinet. As this is a period of transition at a governmental level, we don’t expect any major changes to be made in the next six to 12 months. New governments often don’t have experience, so the new appointments will be keenly watched.
One of the big appointments will be that of finance minister – it is expected that the incumbent minister Ngozi Okonjo-Iweala will be replaced. Regardless of her abilities, the economy has not fared well under Jonathan’s leadership and it is time for difficult decisions to be made. This provides an opportunity for change, but whether it happens will depend largely on the appointments made within government and the conviction push through change. We will watch the developments closely to see whether the new government can deliver.
The central bank will also be watched, though we don’t expect a change in governor, as nothing will be gained by this. The general view is that interest rates should be lowered.
The naira has been another major talking point: given the fact that the oil price has halved and that central bank reserves have dwindled, it is likely that the currency will devalue further. As Buhari’s government only takes office on 1 May, they will likely blame the currency slide on the Jonathan administration. It will be very difficult for the new government to support the naira.
Risks still possible
In the short term, there is still a risk of disruptions and violence, which will be observed carefully. Jonathan had strong support in the south, and any violent opposition to a Buhari government is likely to come from here.
While the run-up to the elections has been a testing period for many investors, we believe the fundamentals underpinning Nigeria’s long-term structural growth prospects have not changed. It remains a strategically important economy for the continent thanks to the size of its market, its attractive demographics and the reforms the country has made so far to attract international capital.