Bracing for Post-election’s Economic Realities
Beyond the appreciation of the naira at the parallel market and the recent gains recorded in the stock market, economic affairs commentators say the earlier the in-coming administration grapples with the economic reality the better for Nigeria, reports Fe
The initial euphoria that greeted the triumph of the All Progressives Congress (APC) Presidential Candidate in the March 28 election, General Muhammadu Buhari, may be ebbing but the economic impact of the victory has remained a subject of discourse in the country.
Economic affairs commentators are of the view that as results of the governorship and state Houses of Assembly elections are filtering in, one of the prayers of the victors in the elections, especially the in-coming states’ chief executives, is the sustenance of the recent appreciation in the value of naira. Free Fall Foreign exchange users in the past two weeks have witnessed a marginal fall in the value of dollars especially at the parallel market. The greenback which rose sharply before the March 28 election, selling for as high as N225 lost its value few hours after the conclusion of the Presidential poll. At a point, a dollar sold for as low as N190 at the unofficial market.
Many had been nervous about the potential for the election to spill into uncontrollable violence and as such stashed up dollars in anticipation of the worst outcome. Now that the election turned out well and uncertainty out of the way, the economy is witnessing a post-election bounce.
According to an online media platform, Nairametrics, just as Nigerians were circumspect about the impending elections, many businesses also felt the same way. Some of them fled the naira for the dollar as a hedge against further depreciation should things go bad post-election. Whilst that made sense on the short-term, the long-term problem created was that many businesses perhaps soon ran out of naira and could not fund naira obligations. Add that to the positive mood in the country they have no choice than to liquidate some dollar holdings to fund naira obligations.
“The huge depreciation of the naira earlier in the year has also made a lot of people either cancel their dollar obligations or simply deferred it. For example, those who probably planned to buy cars from overseas or go on expensive holidays changed plans when the naira depreciated beyond control. Some of them have probably still not decided to come back,” Nairametrics said in a report. Nothing Has Changed In spite of the moderate gains recorded at the unofficial foreign exchange market and the nation’s stock market where the positive sentiment is driving massive investment in stocks, economic analyst argued that the economy was still in bad shape as many businesses and ordinary Nigerian can feel the cash crunch. Prices of goods and services have also gone up further eroding the disposable income available to most Nigerians. Add that to the post-election bounce and you get fewer people spending their little cash on hoarding dollars.
Although the momentary appreciation of the naira value has put smiles on the faces of forex users in the past two weeks, financial market watchers appeared to have spoken in unison that the moderate gains may not be sustainable.
The argument is that nothing fundamentally has changed in the system and that the stock market rebounce and the current threshold in the naira value were all driven by market sentiment in favour of the change of leadership in the country.
In his analysis of the market, Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane, described the two weeks appreciation of the naira value as mere market sentiments that are not sustainable.
He told THISDAY last week that “nothing fundamentally has changed. The market will correct itself very soon. I can tell you that the naira will lose value again and the stock market will correct itself. It’s an indication of confidence for now but there is nothing fundamental about it.”
According to him, the new administration will not effectively take over till the first week in the month of June. So the question is what happens between now and June when the new party takes over? Discount of Fear Premium Rewane explained that whatever takes place in the market without any correlation with the prevailing fundamentals will not last. He said: “You can’t run away from the fundamentals. What has happened is there was a discount of the fear premium. People were afraid, so there was a fear premium. If the true value of the naira is N202 per dollar before now, the fear premium took it