Nigeria is Africa’s most populous country and largest economy, so it is no wonder that the country’s elections — scheduled for February 25 — have piqued investor interest. This is particularly the case as the country finds itself in the doldrums of sentiment, after years of economic stagnation.
Despite huge potential, Nigeria’s economy has been blighted in recent years by a string of external shocks that have been compounded by policy own goals.
No doubt, the commodity price shock of 2014-2015 and the more recent Covid-19 pandemic and war in Ukraine have affected the country’s financial health. But haphazard and draconian regulations, a clumsy foreign exchange regime, a lack of policy coherence and poor messaging have also spooked investors. The result has been a limp and lethargic economy under President Muhammadu Buhari, characterised by low growth and high inflation.
Given these economic concerns, investors will be watching three key areas closely and will be vested in the policy positions of the main candidates vying for Nigeria’s highest office: Bola Tinubu, Atiku Abubakar and Peter Obi.
First is the issue of fuel subsidies. This has long been an emotive matter for Nigerians, who feel that fuel subsidies represent one of the only tangible benefits they get from their government — even if symbolic. As it stands though, the subsidies are distortionary and act as a huge drag on the fiscus. This has been noted by multilateral institutions such as the World Bank and IMF, which estimate that the subsidy scheme costs the country as much as $7bn annually.
The situation has been made worse by persistent underproduction in Nigeria’s oil sector, which has led to diminished revenue from the key commodity. For Nigeria watchers, removing or amending the fuel subsidy is seen as a key measure of any new administration’s political will and commitment to reform.
Second is the ease of doing business in Nigeria. The Buhari administration garnered notoriety for its interventionist, and at times predatory, policy endeavours, which appear to punish rather than promote foreign investment. Some foreign firms have found themselves restricted from repatriating revenues or even the unexpected recipient of bills for decades worth of supposedly unpaid royalties.
It’s clear from these examples and other less high-profile cases that Nigeria’s commercial environment has been unpredictable and challenging. Thus, the focus for the incoming regime should undoubtedly be methods and mechanisms to improve Nigeria’s ranking of 131 out of 190 countries in the most recent edition of the World Bank’s Ease of Doing Business report.
Third is the issue of foreign exchange. The crucial question here centres on the liberalisation of the country’s multiple exchange rates. This has long been advocated by investors in the country, whose lack of dollar access has stymied their willingness and ability to participate in the local economy. Any signs of movement towards a more orthodox and simplified exchange rate regime will unlock animal spirits in the economy.
This — and any other changes to the interventionist approach by the Central Bank of Nigeria (CBN) — will be linked to the future of central bank governor Godwin Emefiele. The much-maligned Emefiele has pioneered the tiered forex system and his tenure has attracted criticism from across the political and business spectrum. His controversial attempt last year to run for president also blurred lines around central bank independence — another body blow to investor sentiment.
Market consensus is that Emefiele will be replaced (or resign) before the end of his term in 2024, with the new CBN governor almost certain to adopt a more pragmatic and liberal approach to monetary policy. This will go some way to restoring the damaged credibility of Nigeria’s apex bank, but the pace and magnitude of the changes may be slower than anticipated, even under new leadership.
How does each of the three main presidential candidates measure up against these policy challenges? On a positive note, all have noted their intention to remove the fuel subsidy regime, either partially or in totality. They have also all vocalised their willingness to allow the naira to float freely. That said, some interesting positions have been undertaken by the candidates with regard to the future of Emefiele. While Tinubu of the All Progressives Congress (APC) and the Peoples Democratic Party’s Abubakar have both seemingly taken hardline positions opposed to the CBN governor’s tenure, a more conciliatory approach has been adopted by Obi.
Nigeria’s presidential aspirants are also seeking to address anxieties associated with the business climate. As per Abubakar, Nigeria’s revival from its economic malaise will be contingent on the state adopting a non-interventionist approach to the economy — effectively the antithesis of the Buhari presidency. Abubakar has expressed his intention to break all state monopolies in the petroleum, rail and power transmission industries in a bid to promote privatisation — a message that will enthuse investors.
For his part, Obi has pledged to be a reformist president, concentrating on economic diversification, business environment reform and giving priority to anti-corruption initiatives — policy positions that are likely to strike a favourable chord with market interests.
Markets may be more circumspect about Tinubu and the APC’s positioning. While his tenure as Lagos state governor suggests some level of reformist thinking and pragmatism, there is lingering scepticism over his positive appraisals of Buhari’s economic policies and how his potential presidency is being branded as one of continuity from the outgoing regime.
Whoever emerges victorious in Nigeria’s upcoming presidential election will face an unenviable task of restoring confidence in an otherwise stuttering Nigerian economy. While it is a known fact that politicians in Nigeria campaign in poetry and govern in prose, there is at least a sense that any new administration will adopt a more constructive approach to economic policy than its predecessor.
While this is certainly sending the right signals to investors, the burning question will be whether intentions can translate into tangible action. If the Buhari administration has taught us anything, it’s that even the best intentions can do as much harm as good if they lack a thorough understanding of the nature, scale and complexity of the challenges at hand.
• The authors are directors at Signal Risk.
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