Nigeria: Buhari wins second term
Muhammadu Buhari has been re-elected as president of Nigeria, following another very entertaining election process. Following the lowest voter turnout in 20 years of Nigerian democracy (82 million people registered, but only 29 million turned up to vote), and this not boding well for the democratic process as a whole, Buhari’s party has won the majority in the senate. While the governor and national assembly results are still to be announced, it seems Buhari now the mandate to rule for another four years, despite achieving painfully little during his first term.
If some had believed the opposition faced a decent chance of winning, Buhari’s removal of the supreme high court judge just three weeks before the election limited any potential recourse again him for vote rigging. However, one optimistic view is that this is the right result for Nigeria. To have a transition to another party right now would cause unnecessary delay, and see much of the work done by Buhari thrown out the window. In that sense, it’s probably in Nigeria’s best interests to have continuity at this stage, even considering the lack of progress over the past four years.
While there hasn’t been much to report on the reform front during his first term, in reality this has paved the way for a stable exchange rate and declining yields on local bonds. The local bond yields are still in the ‘mid teens’ which isn’t good in terms of the debt service costs to the country, but when combined with Buhari’s authoritarian view over foreign exchange, it does present an opportunity for foreign investors to capitalise on high local interest rates with very low risk of devaluation. We therefore think the risk return on local currency instruments is pretty attractive and likely to remain so for the foreseeable future.
Looking forward, we don’t see any major impetus for policy change. The oil price is sticking between $60 and $70, there are no major crises on the horizon as militancy in both the north and south has been relatively contained, and while there’s a current account surplus, there’s not a fiscal surplus to support extensive government spending programs. We expect to see some tinkering around the edges with regard to policy changes, and there has been some speculation about change at the central bank and a cabinet reshuffle, however we don’t expect any meaningful fundamental changes in policy.
We will be keeping a close eye on Nigeria, looking for moderate growth, at a level that keeps the country on a path of relative stability with attractive local interest rates, and even local equities offering a potentially attractive investment option going forward.
Author: Wesley Davis