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Nigeria Special January 2018

Nigeria: Tight presidential race pits incumbent against pro-market reformer

On 16 February, Nigerians will head to the polls to elect their next president and representatives in the National Assembly. Amid the absence of reliable poll data, the presidential election seems set to be a tight race between incumbent President Muhammadu Buhari from the ruling center-left All Progressives Congress (APC) and Atiku Abubakar, a wealthy businessman and former vice president, from the center-right opposition People’s Democratic Party (PDP). Considering both frontrunners’ differing approaches to economic management—Buhari is seen as more interventionist whereas Abubakar more market-oriented—the possibility arises that the election outcome leads to a policy shift in certain economic areas.

While the candidates share common proposals such as creating jobs and increasing infrastructure spending, they differ sharply over how the foreign exchange regime and the vital oil industry ought to be managed. Buhari supports the Central Bank’s system of controlling the value of the naira, which has been criticized as inefficient and for deterring foreign investment. In contrast, Abubakar has said he would deregulate the foreign exchange market and replace Central Bank Governor Godwin Emefiele, whose term ends in June. He also plans to liberalize the oil and gas industry by selling all the state oil refineries, partly privatizing the state-owned oil company and scrapping gasoline subsidies. But according to Jane Morley, Head of Sub-Saharan Africa Country Risk at Fitch Solutions, despite Abubakar’s bold proposals, he would face an uphill battle to implement them fully:

“It is likely he will struggle to deliver on reform. He will face resistance from disparate vested interest groups, even if he has a parliamentary majority, while key structural obstacles, including corruption and complex bureaucracy will undercut the extent of immediate gains.”

Meanwhile, commenting on the outlook for monetary policy under Buhari, Cobus de Hart, Chief Economist for West, Central and North Africa at NKC African Economics, noted:

“If [Buhari] remains in power as expected, we expect more of the same. In turn, FX pressures are seen mounting, and reserves will likely remain on a downward trajectory which could hold implications for FX liquidity conditions. Portfolio flows will play a very important role in determining the path of reserves this year, as oil exports receipts will take a knock from lower oil prices. How the central bank responds, in turn, could hold adverse consequences for growth and unemployment. To drive diversification, FDI is sorely needed and for this to occur, the FX framework needs to be corrected.”

All in all, the election currently remains a toss-up and is expected to be decided on the issues of the economy, corruption and security. A win by Abubakar would alter the status quo on economic policy, particularly in the areas of exchange rate management and handling of the oil sector, which could potentially attract greater investment and thus bring about a positive economic impact over the medium-term. Whichever candidate gets elected, however, they face a tough economic scenario ahead. The economy is still struggling to recover fully from the 2016 recession induced by the crash in oil prices; unemployment has been on the rise recently, climbing to 23.1% in Q3 2018 from 17.5% in 2017; inflation remains stubbornly high despite tight monetary conditions; and widespread poverty and rampant inequality persist.

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