Much has been made about the country’s struggle with the decline in oil price, and how it affects the government’s dollar revenue.
The uncertainty in global oil prices rubbed off on Nigeria, whose foreign exchange earnings have a direct strong correlation with oil prices. With heavy decline in the price of oil, Nigeria became more unattractive to foreign investors – in the short-term, that is.
The primary fear was that there wouldn’t be adequate dollar supply to service dollar denominated obligations such as imports and capital repatriation.
Nigerian assets, both debt and equity saw record sell-off levels, as investors feared an imminent devaluation of the local currency. A devaluation of the currency will see naira-denominated asset values diluted, as more naira will be required for a given amount of dollar.
The naira is therefore deemed overvalued, mostly as a result of being artificially managed by the CBN. With the expected fall in revenue, the naira will be expected to adjust lower.
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The price of oil is seen bottoming out at $75 a barrel as a result of high extraction cost of shale and improving winter-season demand, an end can be seen to the negative investor sentiment towards Nigeria.
The change in economic realities however, is seen as a wake-up call for government administrators.
In a vote of confidence for Africa’s largest economy, Carmen Altenkirch, director of the sovereign group at Fitch Ratings said in a Thursday interview with Bloomberg, “Nigeria [has] the fiscal space to run deficits in the region of 4-5 percent of GDP for a few years without undermining fiscal stability.” Nigeria will weather the storm.
As Nigeria tries to overcome this current economic hurdle, some sections of the investment community have expressed their bullishness about the country after the elections.
With the current administration coming to a grounding halt, the next administration will be expected to make accelerated moves to catch up to world trends, or risk deteriorating the economy.
“A lot of involuntary changes will be forced as a result of constraints paced by the global community”, says Bismarck Rewane, Financial Derivatives CEO in an investors conference last week
“The PIB will have to be passed, not on Nigeria’s terms, but in alignment terms as our bargaining power is eroded by increased competition and the fall in prices”.
The good thing about the coming elections is that whatever the outcome turns out to be, it will be a good sign to the international community, so long post-election violence can be avoided.
“If the incumbent stays in power, it will mean that the country is stable, if the opposition gets into power, it will be a great signal that a new African democracy can peacefully transfer power,” says an equity analyst that prefers anonymity. “It sends the signal that Nigeria is indeed ready for business”.
“Nigeria’s Economic transition in the corporate world, which has always been faster than the country’s political transition; we will continue to do very well; we will be in a much better place after the elections.Economic transition has progressed faster than the political transition of the country,” said Rewane
“Nigeria will be in a much better place after the elections .Even better is the fact that Nigeria seems to perform beyond expectation when adversity looms. Nigeria has always done better when oil prices were low, and when there was revenue pressure than any other time” he added.
EDOZIE IFEBI
