Nigeria is facing an elevated risk outlook in 2015, as three broad themes affecting Africa , oil price collapse, political uncertainty and an Islamic insurgency, converge all at once in the country.
The current interconnected world means there is growing pressure on governments to improve governance and reduce corruption, while the recent energy market turbulence will widen the fiscal and budget gap, according to Control Risks, a global business risk consultancy, in its annual RiskMap report released yesterday.
“Businesses need to be adequately prepared for this,” said Roddy Barclay, a senior consultant, in a conversation with BusinessDay at the firm’s office in Lagos.
“One good thing is that Nigeria is better prepared to weather the storm of low oil prices today than in the 1980s due to its low domestic and external debt levels.”
The deepening political divisions between Nigeria’s geopolitical regions, over the presidential poll and the absence of a clear front-runner, increase the risk of a contested outcome and a turbulent aftermath, according to Barclay.
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The incoming administration in May, will have to address a cash-flow crisis, the threat from Islamist militant group, Boko Haram, while maintaining stability in the oil producing Niger Delta and stemming social unrest, he said.
Oil prices, which make up 70 percent of the Nigerian Federal budget, are down some 45 percent since June last year.
Growth will slow to 5.54 percent in 2015, down from an estimated 6.23 percent, the statistics office said in January, while Nigerian stocks are down 10.9 percent year to date, as investors sell down positions.
The presidential elections which are scheduled to hold in about two weeks, pit the current incumbent, Goodluck Jonathan, of the PDP, against his major challenger, Muhammadu Buhari of the APC, in what is essentially a rehash of the 2011 polls.
“We expect a long dragged out period of uncertainty after the elections, although we believe if the APC loses they will contest the outcome through legal channels,” Barclay said.
“There are also questions on how the PDP will react to a loss of power. We see the whole political system in a state of flux for a while.”
The genuinely competitive elections are a critical juncture on Nigeria’s path towards becoming a mature democracy, although the closely contested polls are uncharted territory for the country’s political system, according to Control Risks.
The recent postponement of Nigeria’s elections by six weeks has also unnerved some investors and made others delay their final investment decisions, Control Risk said.
Control Risks says investors that are active in Africa’s largest economy, should be preparing for both scenarios of either a Jonathan or Buhari win, although the country should emerge stronger from the elections despite current challenges.
“Nigeria has an impressive capacity for weathering impending crises and we believe that the upcoming elections will be no different,” Tom Griffin, Managing Director West Africa, Control Risks, said.
PATRICK ATUANYA
