The 2019 Presidential and National Assembly elections are over and President Muhammadu Buhari of the All Progressives Congress (APC) has emerged victorious, defeating his main challenger, Atiku Abubakar of the People’s Democratic Party (PDP), with 15.19 million votes to the 11.26 million.
Much of the nation’s economic activities in past months were piloted against the backdrop of electoral uncertainty. But taking a cue from the outcome, emphasis has now shifted to what President Buhari’s second term holds for the economy in 2019 and beyond.
Many things are likely to play out within the first full year of the President’s second term, according to analysts who spoke to BusinessDay. These include sustaining the implementation of Economic Recovery and Growth Plan (ERGP) to support economic growth at 2 percent; either termination or reappointment of CBN governor in June, and reforms to attract Foreign Direct Investments (FDIs).
Others are sustaining the Federal Government’s welfare initiatives such as TraderMoni, MarketMoni, FarmerMoni, and National Home Grown School Feeding Programme (NHGSFP), in addition to expected improved executive-legislature synergy.
“A victory for President Buhari means consolidation of the progress made on economic growth since the recovery from recession and sharp currency devaluation in 2017,” said research analysts at Lagos-based CardinalStone Partners led by Michael Nwakalor and Jerry Nnebue.
“A Buhari second term signals continuity in prevailing monetary policy for the next four years, all else equal. These policies achieve price and exchange rate stability through routine interventions in the foreign exchange market and an elevated yield environment to attract/retain foreign portfolio investors. The incumbent governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has done a satisfactory job in aligning with the administration’s objective,” the research analysts said.
The analysts said arising from the above, there is a likelihood to maintain status quo rather than opt to appoint a new CBN governor.
“However, there remains the chance that the governor is replaced, as has been the case since 1999 (the inception of the Fourth Republic). The position has changed hands every five (5) years and has so far rotated across four of six geopolitical zones in the country, with the two remaining zones being North Central and North East. Considering the unofficial rotation policy, we believe there is the possibility of the central bank governor being replaced by an appointee from the Northern region,” they said.
The CardinalStone research analysts noted that the equities market had been the preferred destination for foreign portfolio investments (FPIs) in the last five years, accounting for over two-thirds of total FPI inflows. The added that it was only recently that a tilt in favour of money market instruments began.
“Given the aforementioned, we foresee renewed interest in Nigerian equities. We expect the rally to begin in the banking sector, owing to its liquidity benefit and spill to other counters on the index, trading at relatively attractive valuations. Both foreign and local investors have already begun taking positions as evidenced by average market breadth of two times witnessed in the past three weeks,” they said.
Guy Czatoryski, head of Coronation Research, said Buhari’s second term implies a continuation of government based on firm regulation and security.
“However, while Buhari’s first term sailed into the oil price crash of 2015 and the recession of 2016, economic conditions are different – arguably better – now,” Czatoryski said.
“The administration’s policy emphasis during the first term period was on security; the fight against corruption; tax compliance; and tight regulation, which included FX controls.
Agriculture (25 percent of GDP) was supported with subsidised fertilizer and soft loans, and never went into recession; and an Economic Recovery and Growth Plan (ERGP) was enacted,” he said.
A feature of President Buhari’s first term as President was weak economic growth, 2015-18. GDP developed well below trend and fell into recession in 2016.
One key cause was the oil price collapse in late 2014 and 2015 which put pressure on government revenues, the naira exchange rate, the trade account, and Nigeria’s ability to import critical industrial inputs.
Low growth has been associated with rising unemployment, which not only took off in 2015 and 2016 as the economy slowed and went into recession, but continued to rise during the weak recovery that followed.
“As we argued in ‘Coronation Research: Year Ahead 2019, A Year of Two Halves, January 15’, the naira is within 10 percent of its fair value, so fundamental pressure to revalue it is weak. FX reserves are $42.4 billion, which we calculate is compatible with Naira/$ stability, at close to N363/$1, for the rest of 2019,” Czatoryski said.
On interest rates, he notes that the CBN currently offers a risk-free rate of 587 basis points (bps) above inflation, which keeps foreign investors in naira money markets.
“As we argued in January, if inflation trends down mid-year, there may be scope for rate cuts in fourth-quarter (Q4), or even third-quarter (Q3),” Czatoryski said.
“There was a brief pre-election rally in the equity market, which partly unwound last week. High economic growth rates were not a feature of the last APC administration. That said, the trend in non-oil GDP growth, evident in recent data, suggests that the economy is doing better than earlier thought. As we argued in January, we believe that under such conditions there is upside risk in bank stocks,” he said.
Czatoryski argued that after naira devaluations in 2016 and 2017, Nigeria has seen the worst, noting that the APC’s renewed majority in the Senate was significant.
“The Senate proved frustrating to Buhari’s agenda in his first term, 2015-19. Expect the budget to be passed quickly this year,” he said.
A feature of President Buhari’s first term was conflict between the President and the Senate. Despite the APC having a majority in the Senate, it was a senator with opposition sympathies (he later defected to the PDP) who held the Senate presidency.
Friction between the executive and legislative arms of government was a recurring theme during President Buhari’s first administration, 2015-19. The President depended, more than the previous administration, on executive orders where possible. The most serious example of this conflict came with the six-month delay in the passage of the 2018 budget, which represented the longest ratification cycle for any full-year budget since 2000. The President presented the budget bill on November 7, 2017 and the act was not signed into law until May 16, 2018.
The Senate president (2015-19) has now lost his Senate seat. The APC has a simple majority in the Senate which implies that it will be able to elect a Senate president. However, at this stage, with not all the Senate elections declared, it is unclear exactly how strong the APC position in the Senate and House of Representatives will be.
On balance, however, it looks as though the President may have an easier relationship with the legislature than during the period 2015-19.
On economic growth, although 2018 GDP growth at 1.93 percent year-on-year (y/y) was slow, analysts see are a number of positive items in the data. Non-oil growth is accelerating and reached 2.70 percent y/y in Q4 2018, compared with the overall growth rate of 2.38 percent y/y. Of the six largest sectors in the economy, agriculture, trade, manufacturing and telecoms have all recorded at least two consecutive quarters of growth.
Iheanyi Nwachukwu
