Three major events are set to shape policy and overall momentum of growth in Africa’s largest economy in 2019, according to a BusinessDay survey.
BusinessDay polled the outlook of leading local investment houses that included United Capital, Cardinal Stone Partners, Financial Derivatives Company and the research arm of FSDH Merchant Bank.
Expectedly, next month’s general elections topped the list of risks facing the economy this year.
Some 73 candidates are vying for a chance to lead the country for the next four years, although it could be a fierce battle between two dominant candidates – incumbent President
Muhammadu Buhari of the All Progressives Congress (APC) and former Vice President Atiku Abubakar of the main opposition People’s Democratic Party (PDP).
Buhari, 75, says he will continue to fight corruption and expand his socialist intervention programmes if re-elected.
Atiku, 72, says he will focus on key economic reforms, from ending a system of multiple exchange rates to selling part of opaque state oil company, NNPC, in a bid to revive an economy still reeling from the 2014 crash in crude prices.
The investment houses polled by BusinessDay all agree that this year’s election will be tightly contested between Buhari and Atiku, as they said arguments for a Buhari victory are not as strong as that of 2015 when the former military dictator edged out then incumbent President Goodluck Jonathan in an unprecedented turn of events. The North-West of the country handed President Buhari the victory in the 2015 elections, with a total of 7.2 million votes, 46 percent of his total votes.
In addition, Buhari has won all seven North-Western states in the last two presidential elections (2011 and 2015) by comfortable margins.
“While we think President Buhari is likely to maintain his strong position in key states in the North West, especially Kaduna, Kano and Katsina, the 2015 margin may reduce considerably, say, to between 65 to 70 percent, amid recent defections by political heavyweights in the region, especially in Kano, Sokoto and Zamfara,” a team of United Capital analysts said.
“Again, President Buhari’s perceived push back of Boko Haram, alongside his long history with the North East region, may support his chances. However, this will be deflated by the fact that Atiku is from this zone,” the analysts said.
Cardinal Stone also expects the margin of a Buhari victory in the region to reduce on vote splitting across religious and ethnic lines, as both candidates, Buhari and Atiku, are Muslim and Fulani.
In their view, the high profile defections witnessed in 2018 from the ruling APC to the major opposing party (PDP) would also have an impact, albeit moderate, on the APC’s expected margin of victory in the region, considering recent events in states such as Sokoto, Kano and Zamfara, in particular.
“Success in the 2019 presidential elections hinges on the ability of the two main parties involved to consolidate votes in their respective strongholds,” a team of analysts at the Lagos-based Cardinal Stone said.
“We have seen that a victory is likely for the PDP, if they are able to gain ground in the North. This victory is possible even if APC retains victory in the same regions as in 2015. Conversely, the APC will need to consolidate its votes in the South West, while retaining its firm grip in the North in order to secure a second term for President Muhammadu Buhari,” they added.
Whatever the outcome, this year’s election is sure to take a toll on the economy of Africa’s most populous nation, in need of urgent reforms to grow sustainably and create sufficient jobs for its teeming people.
A possible change of guard at the office of the Central Bank governor is the second biggest risk facing Nigeria.
The five-year tenure of current CBN governor, Godwin Emefiele, comes to an end this June.
Although the CBN governor is eligible for reappointment for another five-year term, no CBN governor has returned for a second term since 1999.
In the possible event that Emefiele doesn’t get the nod for a second tenure, it leaves the door open to another governor with new ideas, one of which could be to end the multiple exchange rate practice favoured by the current governor.
The CBN has kept its official exchange rate hovering at N306 per US dollar since 2017, while allowing the naira trade 18 percent weaker at the Investors and Exporters window introduced April 2017.
The CBN resorted to this strategy to satisfy the yearnings of foreign investors for a market-determined exchange rate while allowing it make special interventions to selected end-users at a lower rate.
While the change of tack has helped ease an acute dollar crunch that contributed to an economic contraction in 2016, the price variation is still a cause for worry for some investors who say they are often confused over the official rate.
Lack of critical reforms, post-election, and the direction of oil prices come in as the third biggest risk facing the country.
With the right reforms, Nigeria will be better placed to manage any oil price shock in 2019. The economy contracted for the first time in a quarter of a century in 2016 after oil prices bottomed.
Slow efforts to diversify the economy’s revenue stream means another oil price crash could leave the economy in dire straits.
Government officials have anxiously watched the recent movement in oil prices which fell below the 2019 budget benchmark, but are now showing signs of a recovery, climbing above the $60 per barrel budget benchmark Friday after falling to as low as $53 per barrel less than two weeks back.
An expensive petrol subsidy – which gulped some N2 trillion last year according to analysts’ estimates – and other anti-market policies need to be made way with, analysts say.
With the Federal Government’s budget deficit tipped to hit N3 trillion this year, wasteful spending could come under increased scrutiny.
Not only will key reforms impact government revenue, they would also drive company profitability and propel the economy.
“If appropriate policies are implemented to address the risk factors in the economy, the earnings performance of quoted companies may show improvements in 2019 compared with 2018,” said Ayo Akinwunmi, head of research at FSDH Merchant Bank.
Nigeria’s economy continued on the path of recovery in 2018, although it failed to resonate with the wider economy as prevalent risks forced banks to cut lending and foreign investments stalled.
The analysts surveyed by BusinessDay forecast the economy to expand 2.2 percent in 2019, meaning GDP per capita could slide for the fifth successive year as population growth outpaces economic growth.
Bismarck Rewane, CEO of Financial Derivatives Company, said 2019 will be an interesting year with four distinct parts – fallouts of the election, post-election conflict, a focus on election policies and a likely currency adjustment by year-end.
“We expect petrol price to rise 25 percent to N176-N200 per litre while the currency will slide to N385-395 per US dollar,” Rewane said.
LOLADE AKINMURELE & OLUFIKAYO OWOEYE
