Politics Trump Economy as Investors Sidestep Nigeria Elections

Five days to an election that pits the incumbent President Goodluck Jonathan of the PDP, against the APC’s Muhammadu Buhari, investors are mostly watching from afar, having pulled most of their money out of Nigeria in the past year.

The race for the presidency is set to be the closest since the return to democracy in 1999, with both parties having 42 percent support among likely voters, according to an Afrobarometer poll released Jan. 27.

“Based on my correspondence with a handful of foreign fund managers, I get a sense that some foreign investors are giving investing at the moment a thorough think through,” said Abiodun Keripe Head, Research and Strategy at Elixir Investment Partners Limited, in a response to questions.

“I get a sense that investors might still be on the sidelines should there be a change in government pending when there is a clear policy proclamation as to the direction where the broad economy and fiscal policies will be steered.”

Nigeria’s $415 billion economy ($1/N193) the largest in Africa has expanded by an average of 7 percent per annum over the past decade.

GDP per head tripled to $3,000 in 2013, while the population of 170 million (Africa’s biggest) is a magnet for consumer firms.

Prospects for profiting from the demographic boom, by investing in the underdeveloped road, rail and power networks, banking and insurance sector, broadband infrastructure, ecommerce, hotels and other services, has attracted global companies from General Electric (GE) to P.E firm Carlyle group, in the past four years.

The uncertainty from upcoming elections and 50 percent slide in oil prices in the past year have however slowed some of the bullish outlook for the country.

“The gauge of investor’s perception ahead of the general election is on the low; caution seems to be order of day,” Kayode  Omosebi, an equity analyst with UBA capital Plc, a Lagos based investment bank, said in response to questions. 

“However, we expect to see few investors playing in the market, driven by speculation and bargain hunting activities.”

Foreign investors sold Nigerian stocks valued at N846.5 billion ($4.5 billion) in 2014 , 65 percent more than in 2013 as oils slump and devaluation of the naira  depressed sentiment, data from the Nigerian Stock Exchange  showed last week.

The benchmark gauge for Nigerian stocks the NSE-ASI has lost 13.48 percent so far this year, after its 17 percent slide for 2014.

“Investors are watching the elections very anxiously and many view political risk in Nigeria as the key area of focus for 2015.  Investors do not have a preference for any one side,” Razia Khan, Head Africa macro and global research at Standard Chartered, said in an email response to questions.

“What they are most hoping for is a smooth election process that reduces any uncertainty.  From this perspective, a more contested election, especially if the result is open to challenge, would sit uneasily with most investors.”

About 68 million people are registered to vote, while the shoddy distribution of new voters cards mean a third of registered voters are yet to receive them (according to the electoral body INEC), contributing to investor angst over the vote.

According to Khan, the challenges posed by the weaker oil price are almost a secondary consideration for now.

Nigeria’s foreign reserves dropped to $33.87 billion by February 5, down 20 percent from a year ago, as the Central Bank struggled to meet demand for dollars caused by an outflow of funds from the country.

Benchmark 10 – year bond yields have spiked to 15.27 percent, from an average of 13 percent in 2014 as domestic investors taking up the slack demand higher interest rates to fund the government deficit.

Foreign Exchange (FX) trading restrictions introduced in December, by the Central Bank have also hurt investor sentiment towards the country, with daily interbank liquidity dropping to an average of $300 million.

“When the FX net open position of Nigerian banks was at 20 percent of shareholders’ funds in 2008, daily FX turnover in Nigeria was probably as high as $1bn,” Samir Gadio Head, Africa Strategy FICC Research, told BusinessDay.

“These FX liquidity figures are very low for an economy of the size of Nigeria. For example, South Africa’s spot FX market trades between $2bn and $4bn a day.”

 PATRICK ATUANYA