By Yvonne Mhango, Renaissance Capital’s sub-Saharan Africa economist
We think a Buhari win implies reformist policies, including austere fiscal policy and a clampdown on graft. However, leading a coalition may undermine his ability to make difficult decisions.
Potential upside of a Buhari win
Muhammadu Buhari of the All Progressives Congress (APC) is leading in Nigeria’s 2015 presidential election with full results expected shortly. Like Pakistan in 2013, this would be Nigeria’s first transfer of power from one party to another under a civilian democracy. We think Buhari would likely be a reformist. In addition to a crackdown on corruption and more effective handling of the Boko Haram insurgency, we expect austere fiscal policy to be imposed. Less corruption could lower the cost of doing business, particularly for small businesses, and a more secure Nigeria would allow isolated regions to re-engage with the rest of the economy.
Potential downside of a Buhari win
The stalling of economic activity under a first-term president tends to be protracted, as it implies a mostly new cabinet and potential restructuring of ministries and departments.
As government tends to be the biggest economic entity in developing economies, this transition implies economic activity will remain subdued for most of 2015. The fact that Buhari would head up a coalition may stall decision-making and add to pressure on fiscal resources, as he tries to reward the coalition’s constituents for their support. That said, we expect he would be constrained by limited fiscal resources.
Challenges a Buhari presidency would face
Buhari would come into office at a time when Nigeria’s fiscal and external buffers are at their lowest in several years. The drop of the FY15E budget oil price to $53.0/bl, from $77.5/bl in FY14, implies the federal government’s FY15E fiscal revenue is likely to drop by one third. The near-depleted excess crude account implies no access to savings to offset the decline in revenue. Buhari’s administration will thus have to work with very limited resources, which will significantly constrain its ability to fulfil its election promises. In Buhari’s previous stint in office, he administered austere policies; his administration cut spending by 15%, temporarily banned hiring, hiked interest rates, froze capital projects, and cut imports to reduce the balance of payments deficit. This time around, Buhari is heading up a coalition, which may weaken his ability to make difficult policy decisions.
What does a Buhari win mean for the macro?
Buhari is known for his military past, rather than economic prowess, which makes his cabinet appointments crucial. It is not clear who these appointments might be, but Buhari has a number of heavyweight political allies who have governing experience at state levels, including outgoing governors Babatunde Fashola of Lagos State and Rotimi Amaechi of Rivers State, and also technocrats such as Ifueko Omoigui, a former tax boss and member of the President’s Economic Management Team, charged with tax reform.
We expect a reformist administration that will impose austere policies. Limited fiscal resources imply upside risk to taxes. Non-financial companies may be affected by the reversal of tax waivers and import duty concessions. We have no reason to think a Buhari win puts Central Bank of Nigeria Governor Emefiele – who can only be removed by two-thirds of the Senate – at risk.
Notably, when Buhari was last in power, his government broke ties with the IMF when asked to devalue the naira by 60%. However, the reforms that Buhari ended up implementing turned out to be as, or more rigorous, than those required by the IMF.
Opposition movements that come to power often suffer from a lack of governing experience. But, as in the US, the opposition in Nigeria has a bench of experienced state governors with experience of running a state apparatus such as Babatunde Fashola and Rotimi Amaechi. Babatunde Fashola’s eight-year stint as Lagos State’s transformative governor will soon come to an end. Rotimi Amaechi is the outgoing governor of Rivers State, who defected from the PDP to the APC in November 2013. One of Amaechi’s notable legacies was his government’s transport infrastructure investment in Rivers State. Another potential member of Buhari’s economic team is Ifueko Omoigui, the former executive chairman of the Federal Inland Revenue Service of Nigeria. She was also a member of the president’s Economic Management Team, charged with the responsibility of tax reform. Kayode Fayemi, former governor of Ekiti State, who lost a re-election bid in June 2014, is another alternative for a possible role. We cannot be sure that any of these will be in cabinet, but they are illustrative of our view that there is a bench of candidates who could be given roles.
There is a risk of potential disruptions, which could turn violent once the final election results have been released. This risk is significant in our view, not only because the presidential race was tightly contested, but also because those with a vested interest in the incumbent retaining power may choose to not accept the results quietly.