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Beyond the Change Chorus: Is Nigeria Open for Business Again?

Against the intense apprehension by local and international observers, Nigeria’s 2015 Presidential Elections turned out peaceful and successful following the incumbent’s concession of defeat prior to the final announcement by the electoral umpire – INEC.

The election, which was keenly contested by All Progressives Congress (APC) – General Muhammadu Buhari (GMB) and Peoples Democratic Party (PDP) – Goodluck Ebele Jonathan (GEJ) saw the emergence of GMB as the President-elect of Nigeria.

GMB satisfied the constitutional requirement of polling the majority votes of 15.4 million (vs. GEJ’s 12.9 million total votes) while also winning at least 25.0% of the votes cast in 28 states (vs. GEJ’s 27 states).

In the past weeks, there have been two contending words — Change vs. Transformation. With the former now triumphing over the latter, the Nigerian economy and financial market demand more…”Beyond the change chorus”.

As a result of the uncertainties in the air prior to the elections, the Nigerian economy suffered certain setbacks against the backdrop of weakening macro-economic variables (exchange rate, oil prices, inflation, GDP) and massive outflow of FPIs.

These rubbed off on the financial market as investors became overtly cautious to jettison fundamentals for fear of the unknown. Investments were on a halt while investible funds stayed on the sideline, the question is; with the successful completion of the elections, is Nigeria …”Open for Business Again?”

APC Emergence: How Soon Will Change Come?
The historic victory and emergence of APC’s General Muhammodu Buhari as Nigeria’s next President points to the dawn of a new era in Africa’s largest economy.

When the President-elect assumes office on May 29, 2015, the Nigerian masses look up to him for “Change” in a country that has seen 16 years of unbroken reign of the ruling PDP. Hence, the question in the mind of many is: how soon will this Change Come? While we refer to our initial report “After Elections…What Next?”, we extract APC’s manifesto below for an insight into what to expect:

• National Security: To be urgently addressed via a well-trained, adequately equipped and goals- driven Serious Crime Squad to Combat Terrorism, Kidnapping, Armed Robbery, Militants, Ethno-Religious and Communal Clashes Nationwide
• Job Creation and the Economy: Make our economy one of the fastest growing emerging economies in the world with a real GDP growth averaging 10.0% annually; to be driven by ICT, Manufacturing, Agriculture and Entertainment. This is to thrive under a sound macro-economic policy environment, run by an efficient government which preserves the independence of the Central Bank;
• Agriculture and Food Security: Modernise agricultural sector hinged on a change from self-subsistence farming to medium/commercial scale farming;
• Industrialisation: Formulation of a private sector-led industrial base for the economy, Entrepreneurship Promotion, Economic Diversification and Heavy Investment in Research and Development;
• Oil and Gas Industry: Speedily pass the much-delayed Petroleum Industry Bill (PIB) and ensure that local content issues are fully addressed; Make Nigeria the world’s leading exporter of LNG through the creation of strategic partnerships.
• Infrastructure: Generate, transmit and distribute power from current 5,000 — 6,000 MW to at least 20,000 MW of electricity within four years and increasing to 50,000 MW with a view to achieving 24/7 uninterrupted power supply within ten years, whilst simultaneously ensuring development of sustainable/renewable energy; Construction of 3,000km of Superhighway including service trunks and building of up to 4,800km of modern railway lines — one third to be completed by 2019 via a Public Private Partnership (PPP) arrangement;
• Education: Targeting up to 15.0% of our annual budget for this critical sector whilst making substantial investments in training quality teachers at all levels of the educational system;
• Healthcare: Increase the quality of all federal government-owned hospitals to world-class standard within five years and invest in cutting-edge technology such as tele-medicine in all major health centres in the country through active investment and partnership programmes with the private sector;
• Foreign Policy: Make regional integration a priority within ECOWAS with a view to ensuring that a common tariff and currency are achieved by 2020 under Nigeria’s guidance and leadership while maintaining strong relationships within the Gulf of Guinea, Commonwealth, BRICS and other strategic partners around the world.

In our view, the Manifesto appears pregnant with promises of a brighter tomorrow, with promises hinging largely on huge expenditure bordering on Health, Education, Infrastructure, Agriculture and Macro-Economic Advancement.

Even though we continue to imagine the exact source of funding for some of the capital expenditure in the near term, we note the emphasis of the Manifesto on Public Private Partnership (PPP) as means of addressing the infrastructural development in the country.
In addition, we imagine that the disposition of the incoming leadership towards corruption should block marked leakages in the system while moderation in the cost of governance will go a long way in supporting this plan.

Corruption and the Rule of Law: Personalities to effect Changes in Institutions
One of the mantra of the APC campaign is to fight corruption and ensure adherence to the rule of law. Since democratic transition in 1999, the Nigerian Government has established several state agencies targeted at tackling corruption and also embarked on measures to block leakages.
Cynics however point to political interference, inefficiency, under-funding and poor conviction rate of these corruption fighting institutions as a reflection of the deeper problems left untouched.

We do not expect APC to establish new parallel agencies due to challenges of fiscal revenue, but to focus on building on the present institutions and implementing measures that will encourage transparency, accountability and adherence to the rule of law.

One of such measures is public declaration of assets by pubic office holders, as promised by the President-elect on campaign stumps. Also, important to note is General Buhari’s reputation of being frugal, assertive, and strong-willed, which will create a template to benchmark his cabinet and also build the moral psyche of the nation.

Given his experience as Petroleum Commissioner, we anticipate that the President-elect will focus on reforming the petroleum industry and shedding it off the reputation of opaqueness. That may further draw out the passage of the PIB law, but will eventually sail through with an APC majority in the National Assembly.

The incoming Vice-President, Professor Osinbajo will also be bringing 25 years of legal practice experience to the administration, which will be invaluable in delivering on the electoral promise of adherence to the rule of law.

Having played a prominent role in the reforms of Lagos judicial system as Attorney- General and Commissioner of Justice between 1999 and 2007, we expect the administration to institute reforms in the judicial system.

Hence, we expect a very active Judiciary during the administration. All in all, we expect that the Buhari administration will record a relatively better, if not stellar performance in rule of law and corruption eradication.

Macro-economic Indicators: What Would Change?
As highlighted in our flash note published March 18, 2015 titled “After Elections… What Next?” we summarise our expectations as follows:
• The revenue base of the Nigerian economy is expected to remain weak on lower crude oil prices. Our bear case sees oil price trading below US$60.00 in the near to medium term.
• On the back of a successful and peaceful transition in government, we expect the exchange rate to stabilise at an average of N200.00/US$1.00 at the interbank market as electioneering wraps up.
• The depleting rate of the Nigerian external reserves (currently at US$29.8bn and dipped 13.6% YTD) may taper as we expect increased foreign portfolio in the near term. The eventual stop of the revenue leakages in the Oil & Gas space before the end of the year would increase the accretion of the external reserves.
• The lag effect of the depreciation/ devaluation of the Naira will continue to take its toll on Nigeria’s headline inflation rate. We retain our average inflation rate of 9.5% for 2015.
• We retain our 5.0% GDP growth rate forecast for 2015 despite a challenging Q1 & Q2 as a result of election activities that staled policy implementation.

Financial Market: Dynamics are Changing?
The Nigerian financial market has remained pressured since the build up to the 2015 general elections following the consensus forecast of possible breakout of violence post-elections. In this light, the market experienced an intense pressure with the massive exodus of funds which reflected on market return both in the bonds and equities market.

We refer to our earlier report…”After Elections…What Next?” where we highlighted our views of the response of the economy to the macroeconomic issues.

Nigerian equities market sustained YTD loss of 9.2% as at March 31, 2015 while yields on fixed income instruments surged from 14.5% to 15.0%. Post-election result declarations, equities YTD loss moderated to 0.8% while yields moderated to 14.9%.

Before now, investors seem to have placed high weight on polity uncertainties to price securities so low. With tensions of electoral violence doused, the coast is clear for both equities and fixed income market gyrations.
Going forward, we expect the market to normalise and respond to fundamentals.

Source: Afrinvest Research

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