Although
Nigeria’s economy is expected to accelerate during the first half of 2019
thanks to increased government spending ahead of the elections, the nation’s fate
will hang on the election outcome. The nation’s macroeconomic conditions remain
worrying with the unemployment rate sitting at 23.1% and the IMF cutting the
nation’s growth forecast for 2019. With oil prices heavily depressed and
geopolitical risk factors in the form of trade tensions compounding downside
risks, major changes are needed in Nigeria to weather against the storm. There
was initially a strong sense of optimism over President Buhari elevating the
nation by restoring economic growth, fighting corruption and restoring
security. However, with inflation rising to worrying levels, Nigeria
experiencing a recession and the Naira sharply depreciating under his
presidency, will Buhari be offered another chance to fulfill his promises?
Nigeria’s economic
potential is unlimited, but this can only be fully unleashed with the right
leadership. With a youthful population and fertile land, the ingredients for
self-sufficiency are already present. It is widely known that the nation’s
illness remains oil reliance with the cure found in diversification. But what
has truly been done these past four years to limit the nation’s exposure from
oil shocks? The IMF continued to warn Nigeria to intensify economic
diversification last year in the light of severely depressed oil prices.
Although there have been repeated talks about investment in agriculture and
sourcing growth from other non-oil sectors, economic growth in 2017 expanded a
tepid 0.8% with growth in 2018 seen hitting 2%. While the current president is pledging
to boost infrastructure spending on transportation and electricity, will voters
be willing to listen?
Taking a look at
the current macro-economics, high unemployment is a sore spot that needs to be
mended while inflation is slowly rising due to government spending. Although
the encouraging foreign exchange reserve figures for January are good news for
the Naira, the Central Bank of Nigeria’s repeated intervention remains a
short-term solution to a longer-term problem. A free-floating Naira if it becomes
a reality is poised to attract foreign investors as an element of confusion
over the multiple exchange rates is removed. While the encouraging
manufacturing figures for January are a welcome development, data needs to
respect this positive pattern for sentiment to improve in the near term. It
will be interesting to see how the Naira and Nigerian Stock Exchange both react
to the presidential elections. Investors may use these as proxies to gauge how
markets feel about the outcome.
When looking at
the Nigerian elections one must always expect the unexpected, especially when
considering how there are no reliable opinion polls. While the outcome remains
uncertain, it will certainly have a lasting impact on Nigeria’s economy in the
medium to longer term.
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