Initial reaction has focused on the momentousness of the election, and a reminder of just how significant Nigeria is. “The vote for Buhari is a profoundly important moment in Nigeria and indeed Africa’s history,” says Charles Robertson, global chief economist at Renaissance Capital. “Nigeria accounts for one in six Africans, and one fifth of the continent’s GDP. This is Nigeria’s first election in which voters have supported a transition from one party to another. It is a testament to the building blocks of civil society that have emerged since the end of military rule.”
Is it? One could argue that depends on whether the outcome is accepted without violence: the People’s Democratic Party, whose support base is in the south, and its supporters may not go quietly. Members of the government are already crying foul about the election process, although, as David McIlroy, Head of Africa Investments at Alquity, says, “an observer mission from the European Union has said there has been so systematic manipulation in the voting process despite logistics and communication problems.” Violence nevertheless remains a considerable risk.
Still, there’s no question that the people have spoken. “The government has been riddled with corruption, incompetence and incapable of defeating Boko Haram,” says McIlroy. “This has been brought more to the fore in recent times with the insurgency of Boko Haram in Northern Nigeria. The severe decline in the oil price has highlighted the levels of corruption and incompetence of the present government. Buhari stands for change, bringing a firmer stance on corruption and Boko Haram, both of which should be positively received by the market.”
Buhari does indeed stand for change, as do most challengers in elections, but what does that mean in practice? “We think a Buhari win implies reformist policies, including austere fiscal policy and a clampdown on graft,” says Yvonne Mhango at Renaissance Capital. It is widely believed that this military man, who is from an area where Boko Haram have made serious inroads, will be more successful in dealing with that movement than Jonathan has been, but it is less clear what he might do with the more technical policies that impact on economy. To take the positive view, “less corruption could lower the cost of doing business, particularly for small businesses, and a more secure Nigeria would allow isolated regions to re-engage with the rest of the economy.”
And the negative? “The stalling of economic activity under a first-term president tends to be protracted, as it implies a mostly new cabinet and potential restructuring of ministries and departments,” says Mhango. “As government tends to be the biggest economic entity in developing economies, this transition implies economic activity will remain subdued for most of 2015.” On top of that, it may well be that Buhari has to lead a coalition, which tends to stall decision-making and, Mhango says, adds to pressure on fiscal resources, as he tries to reward the coalition’s constituents for their support.
A crucial issue will be the appointments he makes. While the Jonathan administration had very clear failings, it did have some capable people, none more so than finance minister Ngozi Okonjo-Iweala. Her replacement will be of enormous importance. Jonathan was responsible for ousting the widely respected central bank governor Sanusi, who now serves as an Emir in one of Nigeria’s provinces, and it is possible he could be invited into government. Meanwhile Sanusi’s replacement, Governor Emefiele, is likely to stay in that post.
It is worth remembering that, in the distant past, Buhari has led the country before. What, from an economic and market’s perspective, do we learn from that? “When Buhari was last in power, his government broke ties with the IMF when asked to devalue the naira by 60%,” says Mhango. “However, the reforms that Buhari ended up implementing turned out to be as, or more rigorous, than those required by the IMF.” She says he cut spending by 15%, temporarily banned hiring, hiked interest rates, froze capital projects and cut imports to reduce the balance of payments deficit.
The world’s view of this election is likely to focus on Boko Haram, whose kidnapping of schoolgirls last year captured global attention as an unimaginable atrocity. The group has stepped further into the limelight with its attempts to align itself with ISIS. Those who are unfamiliar with Nigeria may think that Buhari, as a Muslim who has talked before about imposing Islamic law, might in some way be aligned with Boko Haram, but he is understood to be deeply committed to their eradication, having seen up close the damage they have done to northeast Nigeria.
Buhari inherits Nigeria at a difficult time, as Monday’s post outlined. The oil price has hit Nigeria very hard; the drop in the budget oil price for fiscal 2015 compared to 2014 implies a one third drop in fiscal revenue, there is almost nothing left in the country’s excess crude account, foreign exchange reserves are dwindling and the country is insufficiently diversified beyond oil. But, still, there’s a lot to gain. “Nigeria, being the largest economy in Africa, provides a fundamentally strong investment case from the benefits of demographics to its oil assets and growing middle class population,” says McIlroy. “In the short term, declining forex reserves and rising deficit challenges exist.However, over the long term under more robust governance the economy should be able to sustain economic growth north of 5% over the foreseeable future. Buhari’s party, with its focus on weeding out corruption, could provide this much needed catalyst for Nigeria and restore some confidence in the country.”
“We view this election result as a net positive for the country.”