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Forget Nigerian election delay, devaluation fears will drive markets

By David Whitehouse
Posted on Wednesday, 20 February 2019 13:17, updated on Friday, 8 March 2019 12:04

Sunday Alamba/AP/SIPA

Investors in Nigeria fear a large devaluation later in the year

It will take much more than a one-week delay in Nigeria’s election to influence stock and currency markets.

  • Delays previously occurred in the elections of 2011 and 2015.
  • Intellidex head of Capital Markets Research Peter Attard Montalto told Reuters the delay is due to logistical challenges and that it is not obvious that either side will benefit.
  • The delay will have “no impact at all” in terms of investor confidence, argues Charles Robertson, Global Chief Economist, Renaissance Capital in London.
  • “Investor views won’t change as a result of the election … people understand the logistical challenges of holding an election this big,” Robertson says.
  • Robertson underlines that this is Africa’s biggest ever exercise in democracy, and says that it is hard to see an obvious beneficiary from the delay. The delay results from Nigerian “optimism that everything will work out on the day,” he said.

SBM Intel estimated that the delay will cost the Nigerian economy more than $1bn. The director-general of the Lagos Chamber of Commerce and Industry, Muda Yusuf, told Sunday Vanguard that the delay will cost about $1.5bn. Such figures are exaggerated, Robertson says.

  • Saturday is not a full working day, Robertson says, and many voters did not need to go home to be able to vote.

RMB Nigeria’s February newsletter argues that, irrespective of the election outcome, economic activity will be muted in the first half of the year, gaining momentum from the second half as policy clarity emerges. RMB Nigeria expects stalled M&A transactions to be reviewed post elections with a potential increase in activity. It predicts a recovery in equities after the elections, with lending also expected to benefit.

Aubrey Hruby, Senior Fellow at the Africa Centre at the Atlantic Council in Washington DC and advisor to investors in African markets, says that a further delay remains possible, but it would need a delay of six months for it to become a problem for investors. For investors, “everything was on hold anyway” until the inauguration scheduled for May, Hruby said.

  • Nothing gets done during the election, and a lot of local and international capital is being held back, she said.
  • Hruby believes that there will be a “significant devaluation” of the naira later this year.
  • This will happen regardless of who wins the election.
  • The prospect and scale of the devaluation will be much more important than the election timing and result in driving market performance.
  • Market returns for investors will depend on whether they are based in dollars or local currency.
  • In naira terms, Hruby expects that the stock market will show some improvement later this year.
  • Vetiva Capital predicted a naira devaluation of 7% in 2019 to stem capital outflows in its Nigeria 2019 Outlook published in December.

The election is the sixth to be held in the 20 years since Nigeria ditched military government in favour of civilian rule. Hruby does not expect a turbulent outcome marked by mass protests, as neither candidate is sufficiently loved or loathed by the population: “Nigerians just want it over with.”

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