Yesterday’s raid of the National Assembly by the State Security Service (SSS) has raised the country’s political risk profile further, leading to major selloffs in Nigeria’s stock and bond markets.
The bond market witnessed a spur of activity during yesterday’s session, as a flurry of headline political news dominated trading sentiments over the course of the session.
“We witnessed continued selloff by offshore clients mostly on the 2027s and 2028s as tensions in the political space further strengthened their recent bearish position on the market,” Zedcrest capital analysts led by Oluwatosin Ayanfalu said in a late note to clients.
Nigeria’s secret police boss was fired hours after armed security agents temporarily blocked the entrance to the National Assembly in a sign of heightening political tensions before elections in February.
Vice President Yemi Osinbajo, who’s acting head of state while President Muhammadu Buhari is on vacation in the U.K., ordered the dismissal of State Security Service Director General Lawal Musa Daura “with immediate effect,” according to a statement, which gave no explanation.
His ouster capped a day of drama in the capital, Abuja, which started with secret police officers wearing masks and their standard black uniforms turning away legislators, reporters and staff as they tried to enter the National Assembly complex.
The Nigerian equities market closed in the red as the NSE-ASI shed 0.40 percent to close at 36,333.80pts.
Sector performances were broadly negative yesterday with the oil and gas sector emerging the worst performer.
The broad sell-off was driven by losses recorded in SEPLAT (-8.45%), Forte Oil (-2.34%), Guaranty Trust Bank (-2.13%), Lafarge WAPCO (-1.97%), and Zenith Bank (-0.83%).
Rafiq Raji chief economist at Macro Africa Intel said recent political events confirm foreign investors’ suspicions and also vindicated their decisions to withhold investments due to the current uncertainties.
“The delay in investment decision will affect economic growth and hinder development in major sectors of Nigeria economy,” Raji told BusinessDay by email.
Nigeria Eurobonds also turned bearish in yesterday’s session, with yields rising by c.7basis points on average.
“We witnessed the most selloff on the Jan 2021 which rose by c.12bps, consequently reversing recent gains. The 2038s however lost the most in price terms down by c.0.70pct (+6bps) d/d,” Ayanfalu of Zedcrest Capital said.
Chief executives officers in the country have told BusinessDay that they have put on hold major new investments in the country until after the 2019 elections.
They took the decision due to the rising political uncertainty in the country as politicians engage themselves in high profile battle for power.
Africa’s top oil producer has seen increasing political turmoil in the past weeks. Dozens of legislators, including Senate President Bukola Saraki and several governors, walked out of the ruling All Progressives Congress (APC) to join the ranks of a swelling opposition.
Buhari is seeking re-election next year.
Bismarck Rewane, CEO of economic intelligence firm, Financial Derivatives said the uncertainty is being factored into asset prices.
“The economic benefit of an open and democratic society has not yet been embedded in our culture,” Rewane said.
“These are early stages, and so we are still on the learning curve,” Rewane told BusinessDay by phone.
A key question is whether Osinbajo obtained the president’s approval for the decision to fire the state security service boss, who’s from Daura, the same hometown as Buhari.
The standoff between Buhari and Saraki and other lawmakers has been largely responsible for the stalemate between the executive and legislature that’s hobbled the government for the past few years.
Presidential adviser, Ita Enang, said on Monday that the government was at risk of shutting down unless lawmakers returned earlier from their current break to pass a supplementary budget.
Buhari on July 17 asked lawmakers to reallocate N229 billion ($633 million) in a supplementary budget, less than a month after he signed 2018’s spending plan into law.
Business leaders who talked to BusinessDay said that their top concerns include uncertainty over the country’s macroeconomic outlook, especially the direction of the country’s exchange and inflation rates.
They also said that they are concerned over the inaction on the 2019 budget, as there have been no capital releases from the budget, despite the fact that it has been signed into law.
Another area of concern is the open partisanship that civil servants are displaying in the run-up to the 2019 national elections.
Some complained of visiting offices, only to find out that senior civil and public servants have abandoned their posts for political campaigns and therefore the needed approvals have been put on hold.
The business leaders also told BusinessDay that while the rising conflicts and defections in the political space are signs of increasing political maturity in the country, as it indicates that being an incumbent no longer guarantees victory, they are also concerned that the conflicts may also be a sign of political instability.
Only last week Shell said that it will wait until 2019 to decide whether to go ahead with the development of its Bonga Southwest offshore oilfield.
The project, one of the country’s largest with an expected production of 180,000 barrels per day, will generate profit at below $50 a barrel, according to Bayo Ojuli, managing director of Shell Nigeria Exploration and Production Company.
Even though Shell said that it is negotiating a production sharing contract agreement with the federal government to determine the viability of the project, oil industry sources told BusinessDay that there is no way Shell would make the Final Investment Decision on a project that will cost as much as US$10 billion in a pre-election year with so much political uncertainty in the air.
Four key petroleum bills that could help facilitate investments in Nigeria critical oil and gas sector remain stuck between the National Assembly and the Presidency even as the relationship between both arms of government has completely deteriorated, reducing the chances that the bills will be passed before the end of the tenure of this administration.
On August 4, Ibe Kachikwu, the Minister of State for Petroleum Resources had to assure investors that plans by shareholders of the Nigeria Liquefied Natural Gas (NLNG) Limited to reach a Final Investment Decision (FID) on its Train-7 project by December 2018, would not be affected by the 2019 general election. But oil industry sources say that it is unlikely as investors will be reluctant to put money down in the US$7 billion Train 7 project if the current noise in the political environment remains high.
Past trends have always shown that the country’s economy tends to slow down near elections due to rising political uncertainty.
But there are fears that this year’s slowdown in the economy could be worse because the economic growth is already very fragile. The country only managed GDP growth of 1.95 percent in the first quarter and second quarter economic growth is also expected to be below 2.0 percent.
With the government fully distracted with the battle to win a second term, most economist believe that growth could slow down further with a risk of recession not far-fetched.
However, Acting President Yemi Osinbajo took firm actions Tuesday to check acts of impunity by government officials following the unauthorized invasion of the National Assembly by operatives of the Department of State Security Service, DSS.
The Acting President, disturbed by the Tuesday action, summoned the Chief of Staff to the President Abba Kyari, acting Chairman of the Economic and Financial Crimes Commission, EFCC, Ibrahim Magu and the Inspector General of Police, Ibrahim Idris, to his office and met with them behind closed doors.
Prior to the sacking of the DSS DG, many had reasoned that President Muhammadu Buhari’s appointees had held the nation hostage by their actions ahead of the 2019 general elections.
The Inspector General of Police after the meeting denied being part of the plan to lay siege on the National Assembly.
An insider informed BusinessDay that the Vice President used the opportunity to assert his authority.
The Vice President BusinessDay gathered lamented that the siege on the National Assembly was a major dent on the planned reception to welcome former People’s Democratic Party PDP, Senate Minority leader, Godswill Akpabio, schedule for Akwa Ibom state on Wednesday.
“He was very bitter that while he was working to bring about a political solution to the National Assembly impasse, the DSS acted the way they did without recourse to his office,” the source said.
“The VP has sent a strongly worded message to all those concerned and he has the backing of the President to take these actions,” he said.
TONY AILEMEN, CHRIS AKOR, DIPO OLADEHINDE, ENDURANCE OKAFOR
