Wednesday, March 18, 2015 6:19PM / afrinvest
Nigeria’s macroeconomic scene in recent times has been laden with issues surrounding the domestic polity in anticipation of the upcoming elections in March and April. Election campaigns are getting more intense with no one actually sure of which of the two major political parties will carry the day.
Falling oil prices still continues to pressure the fiscal stability of government whilst Naira stability is continually tensed on the back of falling external reserves and weak market sentiments. Yields in the fixed income market remain upward trending while investor sentiments for equities remain passive as investors demand high premium for investment. In our view, there are critical questions that beg for definite answers; “After elections …what next?
Post-Election Governance and Polity: Wheels Falling Off or a Renaissance?
As campaigns gradually wind-up, the general consensus is that this would be the most keenly contested election in the history of the country, with little to separate the two leading parties – PDP and APC. A close run – as it is being expected - will mark a departure from the past when Presidential elections were won landslide by the ruling party. This perhaps suggests that political structures and institutions are now more robust as the electorates are becoming more enlightened and demanding. Such development could potentially deepen the polity and improve democratic governance at the Federal level as political parties holding sway at the center will be encouraged to deliver on electoral promises in order to retain power in future elections.
However, our near term prognosis of post-election polity dynamics remains pessimistic, as a “catch-22” may envelop the socio-political scene, as adjudged by the subtle threats of hardliners along the socio-political divide heating up the polity. Militants in the Niger Delta have threatened to resume insurgency in the event of a Buhari presidency, and an uneasy calm presently pervades Northern Nigeria, which may give way to rioting if President Jonathan emerges winner. While this may be interpreted as mere threats associated with elections, recent trends and developments offer ominous signals.
Nevertheless, we think the political elites with vested economic and political interests will eventually settle for a middle ground as always. In the end, the truest test of character of whoever wins will be on delivering electoral promises and developing a pathway towards economic renaissance.
Revenue Base to Remain Weak on Lower Crude Oil Prices
A critical issue to confront either party Post- May 29 hand over is the reality of a lower government revenue base given lower oil price (which accounts for 74.4% of export earnings and approximately 75.0% of government revenue). The above is worsened by sustained bearish market outlook for crude oil on continued supply glut in the market. Our bear base scenario sees oil price trading below US$60.00 in the near to medium term.
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