Six months ago the conventional wisdom among investors and companies exposed to Africa’s largest economy was that the incumbent PDP President Goodluck Jonathan would be re-elected, leading to a continuity of already enacted reforms.
Today such calculations have largely been discounted, as the closest elections since Nigeria’s return to democracy since 1999, is leading to a re-write of the scripts on the implication for business if either party emerges victorious.
“A Jonathan victory would mean a market based, continuation of policy reforms such as a sustenance of the power reforms, deregulation of the downstream oil sector and passage of the petroleum industry bill (P.I.B),” said Opeyemi Agbaje, CEO of consultancy RTC advisory services in a Feb. 10 note.
“A Buhari presidency would be prone to statist and populist inclinations. Current policy assumptions no longer hold, while some transaction risks are in play. There may be a review of the power reforms and renegotiation of the PIB.”
A recent Afrobarometer survey finds the two parties (PDP and APC) running neck and neck in the presidential race, each with 42 percent support among likely voters.
Agbaje says most Nigerian companies are carrying out a careful analysis of the policy and business implications of the two central scenarios (continuity and change).
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“I am worried about what a review of current policies would mean in terms of uncertainty and new rules for businesses,” the Chairman of a large food and beverage firm speaking anonymously told BusinessDay.
“Otherwise we are preparing for any eventualities,” he said.
A review of the power sector reforms may impact listed companies like Transcorp and Forte oil, which together with unlisted firms such as West Power & Gas Limited (WPG), acquired the privatised assets for a total of $3.5 billion.
Nigerian Banks who mostly financed the transactions may also be affected if the power privatisation is suspended or reviewed by a new government.
“A negative reversal in favourable government policies will indeed affect businesses albeit, depending on the foot prints of such companies the impact might be short-lived,” said Abiodun Keripe, head of Research and Strategy at Elixir Investment partners limited, in a response to questions.
“One key concern as of now is dwindling government revenues due to the drop in crude oil price. This is a variable whoever wins the election has to deal with,” Keripe said.
The 45 percent slide in oil prices since June 2014 has meant lower revenues for the Nigerian government which uses proceeds from sale of the commodity to fund 70 percent of its budget.
The 2015 budget puts capital expenditure at N387 billion, a 75 percent cut from the N1.55 trillion appropriated for 2014.
Construction and building material companies such as Julius Berger and Dangote Cement may be challenged in 2015 by a cut in government capital spending or change in policy although the latter Nigeria’s largest listed company has tried to diversify its revenue stream by expanding its business overseas.
Investors have sold Dangote Cement stock down by 24 percent year to date (Feb 20), while Julius Berger has lost 37.2 percent. This compares to a 15 percent slide in the benchmark NSE-ASI for the period.
“General perception of the investing public towards the forthcoming general elections seems bearish in our opinion,” said Meristem Securities analyst Olawale Olusi, in a response to questions.
“Events in the political landscape have more than amplified the scepticism in the Nigerian economy… Ultimately, we are confident of fund inflows once the coast is clear irrespective of who wins,” Olusi said.
The market is likely to remain in a risk-averse mode given a possible prolonged period of uncertainty, before and after the elections other analysts say.
Nigerian fixed income yields have spiked as foreign investors are largely underweight bonds and exited most of their maturing Treasury-bill positions, according to Samir Gadio, Head of Africa Strategy, FICC research, at Standard Chartered Bank.
Yields on 16.39 % FGN bonds due 2023 fell by ten basis points to 16.14 percent, according to Friday prices from the FMDQ.
The naira remained steady at N197.00 per dollar as Central Bank reserves fell to $32.43 billion as at February 18.
“The local yield curve will probably react by a less significant margin than FX, non deliverable forwards (NDF) and Eurobond asset classes because it is influenced by liquidity factors and as international investors are already largely underweight, but the bearish positioning in the debt market and elevated bond yields are likely to persist,” Gadio said.
PATRICK ATUANYA
