‘Bull-Hari’: Local investors’ election euphoria not enough to reverse economy woes

The aftermath of Nigeria’s presidential polls saw the stock market recover all its year to date losses to break even. The market’s unprecedented surge, which brought year to date returns up to 4.6 percent, from prior losses of -15 percent, was contrary to popular expectations of a sell off, as most investors couldn’t fathom peace after the elections.

The bond market also enjoyed one of its longest strengthening streaks before ticking down marginally at the end of the week. The Naira wasn’t left out of the party – strengthening in the parallel market, as people unwound their dollar positions with the passing of the election ‘dark clouds’.

Apart from the peaceful aftermath of the elections, which signaled a maturing democracy, the surge in goodwill from Nigerian citizens who now genuinely believe that they have stake in their own country has proven good for the pockets of investors so far.

Their new president-elect who had been growing in popularity in the run-up to the elections appears to be genuinely loved by a majority of the population because he seemingly holds what the people have been craving for over the years – the will to want to actually change things.

“We think Buhari would likely be a reformist”, say RenCap analysts, led by Razia Khan, in a reaction to the election outcome.

Analysts are of the opinion that his administration will be successful because he will take charge of a cohesive and coherent political machinery, without the dissidence or bickering that made the former falter.

“Buhari has a number of heavyweight political allies who have governing experience at state levels, including outgoing governors Babatunde Fashola of Lagos State and Rotimi Amaechi of Rivers State”, RenCap said.

The ascension to power of General Buhari, fondly referred to as ‘Sai Baba’ by his endeared followers will be done with a solemn realization of the arduous task at hand, rather than with the satisfaction of accomplishment, if he is to meet the expectations of his beloved adherents.

Despite the markets’ bull run of the past two weeks, foreign investors are still largely lurking on the sidelines, keenly observing how subsequent events will unfold as other key economic issues are tackled.

With the risk of political instability scratched out of investors’ books, more attention is now being paid to Nigeria’s mono-economy, and the resultant forex illiquidity caused by the lower oil prices.

Although the market is currently showing excitement and confidence at the prospects of his new administration, the incoming government must continue to press the right buttons in order to spur confidence and increase private sector investment.

One of such is the continuation of state divestment from productive sectors, including natural gas finds, which the NNPC is sitting on, in order to encourage more investment in energy, Nigeria’s biggest challenge.

“We expect that the Buhari administration will reduce the financial responsibilities of the government as much as possible (referring to government’s divestment), and place greater focus on the core of governing, including [entrenching] the rule of law”, says Obinna Ajoku, Chief Strategy Officer of Lagos-based Algor Strategies, a privately held equities investment firm.

According to him, this, along with his promised zero-tolerance for corruption is one of the key policy thrusts that will foster the business sector’s trust for the government.

The new government will undoubtedly inherit a leaner purse, which will prompt it to propose austere measures to the economy. Analysts at RenCap think that taxes will be increased, and previous tax waivers and import duty concessions will be reversed.

Thirdly, investment brokers and traders insist that the Central Bank will have to restore 2 way quotes to deepen the forex market and increase confidence among FPI investors, as JP Morgan continues its review of Nigeria.

Concerns of forex liquidity, which could potentially wipe out portfolio gains has risen as the chief concern among foreign investors. The abolition of two-way quotes is seen to have caused more harm than good for market liquidity. Currency dealers believe that a final round of devaluation will help to douse foreign investors’ fears, and deal the final blow to speculation and uncertainty. With Non-Deliverable Forward quotes providing a guidance of N226 / $, a devaluation to this extent will undoubtedly unify all exchange rates.

But Buhari’s immediate challenge will be in his cabinet selection.

“The constitution of the people around General Buhari is what one should pay attention to while trying to guess the economic leanings of his administration”, Ajoku says.

With the amount of governing talent at his disposal, along with the lessons learnt from his previous stint in power, political inexperience shouldn’t be a problem.