Accra, Ghana, January 24, 2019//-Political uncertainty over the outcome of next month’s general election has clouded Nigeria’s economic outlook for 2019, according to FocusEconomics, a leading provider of economic analysis and forecasts for 127 countries in Africa, Asia, Europe and the Americas.
On 16 February, Nigerians will head to the polls to elect their next president and representatives in the National Assembly.
Amid the absence of reliable poll data, the presidential election seems set to be a tight race between incumbent President Muhammadu Buhari from the ruling center-left All Progressives Congress (APC) and Atiku Abubakar, a wealthy businessman and former vice president, from the center-right opposition People’s Democratic Party (PDP).
Considering both frontrunners’ differing approaches to economic management—Buhari is seen as more interventionist whereas Abubakar more market-oriented—the possibility arises that the election outcome leads to a policy shift in certain economic areas.
While the candidates share common proposals such as creating jobs and increasing infrastructure spending, they differ sharply over how the foreign exchange regime and the vital oil industry ought to be managed.
Buhari supports the Central Bank’s system of controlling the value of the naira, which has been criticized as inefficient and for deterring foreign investment.
In contrast, Abubakar has said he would deregulate the foreign exchange market and replace Central Bank Governor Godwin Emefiele, whose term ends in June, 2019.
He also plans to liberalize the oil and gas industry by selling all the state oil refineries, partly privatizing the state-owned oil company and scrapping gasoline subsidies.
But according to Jane Morley, Head of Sub-Saharan Africa Country Risk at Fitch Solutions, despite Abubakar’s bold proposals, he would face an uphill battle to implement them fully.
“It is likely he will struggle to deliver on reform. He will face resistance from disparate vested interest groups, even if he has a parliamentary majority, while key structural obstacles, including corruption and complex bureaucracy will undercut the extent of immediate gains.”
Meanwhile, commenting on the outlook for monetary policy under Buhari, Cobus de Hart, Chief Economist for West, Central and North Africa at NKC African Economics, noted: “If [Buhari] remains in power as expected, we expect more of the same. In turn, FX pressures are seen mounting, and reserves will likely remain on a downward trajectory which could hold implications for FX liquidity conditions”.
Portfolio flows will play a very important role in determining the path of reserves this year, as oil exports receipts will take a knock from lower oil prices.
How the central bank responds, in turn, could hold adverse consequences for growth and unemployment. To drive diversification, FDI is sorely needed and for this to occur, the FX framework needs to be corrected.”
Panelists at FocusEconomics, a leading provider of economic analysis and forecasts for 127 countries in Africa, Asia, Europe and the Americas, see GDP increasing 2.4% in 2019, down 0.1 percentage points from last month’s estimate, and 2.9% in 2020.
In their February 2019 estimate released this month, they noted: “Inflation climbed from 11.3% in November to 11.4% in December, a sevenmonth high. Although inflation has been on a downward trajectory since early 2016, it has remained persistently above the Central Bank’s target range of 6.0%–9.0%”.
“FocusEconomics panelists see inflation averaging 11.8% in 2019 and 11.9% in 2020”.
At its last meeting of 2018 on 21–22 November, the Central Bank held the monetary policy rate at a record-high 14.00% against the backdrop of above-target inflation and elevated inflationary risks stemming partly from election spending.
“Our panelists expect monetary conditions to ease going forward and see the policy rate ending 2019 at 13.53% and 2020 at 12.92%”.
The naira remained broadly stable over the past month, propped up by Central Bank interventions in the foreign exchange market.
On 18 January, the NAFEX exchange rate—used by both investors and exporters—traded at NGN 362 per USD, strengthening only marginally from December, while the official interbank rate traded at NGN 306 per USD on the same day. Our panelists see the official interbank naira ending this year at 333 per USD, while the NAFEX exchange rate is seen ending at 376 per USD.
African Eye Report
