29 March 2015, Lagos – President Goodluck Jonathan left the floor of the Nigerian Stock Exchange after a visit two weeks ago to traders singing “For He’s a Jolly Good Fellow”. Some investors would prefer that he keeps walking.
According to Bloombery since rising to a five-year high in July, Nigeria’s benchmark stock index has plummeted 30 per cent and is now only 11 per cent higher than when Jonathan took office in May 2010. Stocks in South Africa and Kenya rallied 90 per cent in the period, while those in Zambia and Ghana more than doubled. The naira fell to a record in February and domestic government bond yields of almost 16 per cent are the highest among 31 emerging markets monitored by Bloomberg indexes.
“It’s been horrible,” Ayodele Salami, who oversees $200 million of Nigerian assets as chief investment officer of Duet Asset Management, said by phone from London on February 23. “Foreigners have been getting out of equities and fixed income. Bond yields in Nigeria are now astronomically high.”
Jonathan’s failure to wean Nigeria off its reliance on oil and save surplus revenue when crude prices were trading at record highs, is coming back to haunt his campaign for a second term in office. A plunge in crude of almost 50 per cent since June risks slowing economic growth in 2015 to half the pace set over the past 15 years. A win for his opponent, Muhammadu Buhari of the All Progressives Congress (APC), may tempt foreign investors back to Africa’s biggest economy and spur a rally in Nigerian assets, according to Holger Siebrecht at Boston-based Acadian Asset Management.
The election was delayed by six weeks after security forces said they needed more time to defeat an insurgency by Islamist militant group Boko Haram, which killed 4,700 people last year, according to UK-based risk consultancy Verisk Maplecroft. With lower oil prices slashing export revenues, the International Monetary Fund forecasts growth of 4.8 per cent this year, about half the average of the past 15 years.
Buhari, a 72-year-old former military ruler, is seeking to unseat Jonathan, 57, in what is set to be the nation’s closest election since Nigeria ended military rule in 1999.
Standard & Poor’s downgraded the West African country on March 20 to B+, four levels below investment grade, citing loss of income from oil and rising political risks. Nigeria, which has long had a reputation for endemic graft, ranked 136 of 175 countries in Transparency International’s 2014 Corruption Perceptions Index, level with Russia and Iran.
Buhari’s APC aims to boost economic growth to 10 per cent and increase employment by providing cheap loans to small businesses, according to a manifesto on its website. Jonathan said on March 12 he will sell more state companies to the private sector if he wins and encourage oil, power and telecommunications firms to list on the stock exchange. His spokesman, Doyin Okupe, didn’t respond to Bloomberg’s telephone calls and text messages seeking comment.
“We think the market may welcome a win by General Buhari,” Siebrecht, who helps oversee $360 million of emerging-market debt at Acadian, said in an e-mailed response to questions on Tuesday. “Buhari is likely to be more effective than Jonathan” at tackling corruption and Boko Haram, and managing the government’s finances amid falling earnings from oil, he said.
Acadian joined investors including Morgan Stanley and TCW Group Inc. in cutting exposure to Nigerian assets in the last quarter of 2014. Foreign investors have reduced their holdings of naira government bonds to 14 per cent of the total from as much as 27 per cent in 2012, according to Standard Chartered Plc. Outflows from the equity market were the highest in November since at least 2012.
“If the government had saved substantially during the period of high oil prices, the nation would have had buffers to cushion the slide in the naira and by extension the stock market,” Sewa Wusu, head of research at Sterling Capital Markets Ltd, said by phone from Lagos on March 20.
The main problem for investors remains the naira, which has weakened 18 per cent against the dollar in the past six months. While the currency rebounded 1.9 percent this month to 199.05 per dollar as of 12:50 p.m. in Lagos, trading restrictions imposed by the central bank mean it is overvalued and will probably weaken after the election, according to Investec Asset Management.
“Investors are waiting for the election to pass, and they’re also waiting for the naira to devalue,” Joseph Rohm, a money manager at Investec, which oversees $107 billion, said by phone from Cape Town on March 20. “Once you see the naira devalue further, you’ll see foreign portfolio flows back into Nigeria again.”
Forward prices imply the naira will weaken to 244 against the dollar in six months and 261 in a year, according to data compiled by Bloomberg.
Nigerian stocks trade at 7.9 times forward earnings, the lowest level among African bourses tracked by Bloomberg. They will probably rally whoever wins the election, but will be more buoyant if Jonathan is voted out, according to Lanre Buluro, head of research at Lagos-based Primera Africa.
“If Buhari comes in we believe the rally will be much more sustained,” said Buluro. “It would be a breath of fresh air. The country’s been ruled by the same party for 16 years.”