Nigeria’s downturn worries investors
LAGOS: When Muhammadu Buhari clinched victory in Nigeria’s presidential elections in March, stocks soared as investors looked to the former military ruler to reverse decades of economic mismanagement and policy inertia. Now hopes have fizzled in his ability to turn around Africa’s largest economy and oil producer.
Money that flowed into stocks and bonds in the West African nation, which McKinsey & Co says could become one of the world’s 20 biggest economies by 2030, is now fleeing as growth prospects diminish along with oil prices.
While Mr Buhari, 72, has prioritised stamping out the corruption that has plagued Nigeria since independence from Britain in 1960, policy-making appears as uncertain and haphazard as ever.
“After the initial euphoria, people have become disillusioned,” said Ayodele Salami, who oversees about US$500 million of African equities as chief investment officer of London-based Duet Asset Management. “He would probably say that he’s being deliberative and cautious. But we expected more.”
Mr Buhari waited five months before naming his cabinet, has yet to propose a clear plan to revive growth and backed foreign exchange controls aimed at defending the naira. His retention of petrol subsidies, plans to raise spending in the face of declining revenue and silence about a $5.2-billion fine levied on mobile phone operator MTN Group have added to investor unease.
Nigeria’s benchmark stock index has plunged 22% since reaching a year-high on April 2, the day after Mr Buhari was declared the winner of the presidential race against incumbent Goodluck Jonathan. That’s the third-worst performance globally in the period, after the bourses in Ukraine and Egypt.
To be sure, Mr Buhari inherited depleted government coffers and a bureaucracy that multiple probes have blamed for looting billions of dollars of oil revenue. The president has said he delayed appointing ministers because he needed time to vet suitable candidates.
The hiatus has compounded the pain caused by the slide in the price of crude oil, which accounts for two-thirds of government revenue and 90% of export earnings. Growth, which averaged 6.3% annually over the past decade, is set to slow to a 16-year low of 3.3% this year.
Many filling stations ran dry this month as the government withheld fuel subsidies to suppliers, preventing them from restocking.
While next year’s budget has yet to be finalised, Mr Buhari wants to raise spending by 56%, according to sources. Vice President Yemi Osinbajo says the government plans to spend its way out of a slowing economy and that an infrastructure fund will be created with public and private financing.
The penalty imposed on MTN’s Nigeria unit last month for failing to register about 5 million subscribers may be an attempt to plug the hole in government finances, according to Cobus de Hart, an economist at NKC Independent Economists.
“You cannot deny there might be a fiscal element to the massive fine,” he said. “It will make investors a little bit more wary of investing in Nigeria.”
An even bigger concern for many investors is the naira policy. The Central Bank of Nigeria has burned through $4.3 billion of reserves this year and choked off supply of foreign exchange to banks.