Investors fear uncertainties surrounding Nigeria’s 2019 elections


Nigerian elections

Nigeria’s economy faces continuous decline in investment inflows ahead of 2019 elections, some analysts who spoke to Business Day have said.

Projections from the analysts are a result of the recent decline in capital importation numbers from Q2 2018, and especially as cloud of uncertainties surrounding the 2019 elections increase averseness to investing in the rebounding economy.

Data released by the National Bureau of Statistics (NBS) for the second quarter of 2018 show the first slide in total value of capital importation into Nigeria, since the economy returned to growth after a difficult recession.

Capital importation dropped by 12.53 percent from $6.3 billion in the first quarter of the year to $5.5 billion in the second quarter of 2018.

Foreign Portfolio Investment (FPI), a very important component of the country investments, while maintaining its position as the largest contributor to capital importation fell by 9.76 percent and according to data tracked by the news outlet, has continued to dwindle month-on-month beginning with N318.3 billion in May 2018 to N133.84 recorded in August of the same year.

As the nation approaches major political change with the upcoming 2019 general elections, analysts and financial insiders say that further drop in capital importation is to be expected.

Johnson Chukwu, Managing Director, Cowry Assets Limited, echoed the same sentiments, stating that although capital importation fluctuates, the peculiar situation of the elections is bound to have a negative impact on it.

“Capital Importation doesn’t follow a particular pattern. However as we move into the election year, we should expect it to diminish as those bringing in capital either for investment or remittance purposes might hold back, because investors are always skeptical about investment into countries experiencing political change.”

Chukwu mentioned that in the face of this fall, home remittances might still hold strong.

“Home remittances might be neutral in the sense that since it’s reliant on the economy of other countries where they come from like the UK and US which have remained buoyant, it would stay strong even as people send money to support their families” he said.

Chukwu, however, is hopeful that the planned $2.4 billion Eurobond issuance to help fund part of the 2018 budget might be a one off flow capable of distorting capital importation decline, “although investors would require yields that would compensate the risk that comes with the high 9 percent interest rate.”

Following the release of the 2019 Doing Business Index released by the World Bank which saw Nigeria fall to 146 out of a ranking of 190 countries despite an ease of doing business score of 52.89, there are even more fears that this new development would likely deter foreign investors.

Chukwu, however, foresees that investment inflows could rebound after the elections- but then, dependent on whether the process will be properly managed and fair.

“I expect the decline to slow down and eventually reverse after the elections, if it is handled carefully. Confidence will be returned to investors if turmoil doesn’t follow after the elections and losers accept defeat, the elections have to be free and fair”, he said.

With statistics showing a decline in the contribution of the Oil and Gas sector to GDP between the first and second quarters, Tope Fasua, a financial analysts and CEO, Global Analytics Consulting Limited fear that apart from the direct impact of the uncertainties surrounding the upcoming elections, the continued drag on the passage of the Petroleum
Industry Governance Bill (PIGB) is another major threat to Foreign Direct Investments (FDI) into the economy.

“Most FDIs go into oil and gas and with the PIGB still hanging, there’s cause for worry because it doesn’t show that we are ready for business, especially in this period of record increase in crude oil price which stands at almost $80 per barrel.”

In October 2018, the Central Bank of Nigeria (CBN) recorded the steepest $2 billion drop in foreign reserves since February 2015, settling at $42.06 billion. According to Fasua, this can be described as a repercussion of the drop in capital importation.

“The fall in capital importation is going to put pressure on the Naira as CBN reserves have fallen over time in their bid to defend and stabilize the Naira at different times this year”, he said.

On actions that could be taken to pull the economy out of its current situation, analysts have called on the government to avoid intervening as factors are set to play out in the long run.

“I’m very pragmatic about these things and there are times when all you can do is hunker-down and see how everything plays out, there might be no need to influence the system”. Fasua said.