Ashmore’s Jan Dehn: The impact of the upcoming Nigerian election

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Jan Dehn, head of Research at Ashmore discusses the upcoming election in Nigeria and what it will mean for the economy.

Barring any last minute surprises, Nigerians will go to the polls on Saturday 28 March to elect a new president. While the choice of president matters to Nigeria’s outlook, the greater significance of the election is that the government will finally find room to get on with a much needed adjustment to last year’s decline in oil prices. We expect this adjustment to occur whoever wins.

Nigeria’s place among Emerging Markets oil producers

Oil producers in Emerging Markets (EM) are a diverse bunch, but they broadly fall into three categories. Saudi Arabia epitomises one extreme, having used the oil boom of the past decade to reduce its debt stock from more than 100% of GDP to just 2% of GDP. This means that it can soften the blow of lower oil prices with fiscal spending without incurring any major fiscal or wider economic stress. At the other extreme is Venezuela, an example of a country which has not only spent all its oil revenues, but has also borrowed against expected future income and overstimulated its economy with over-easy monetary and fiscal policies. Venezuela is now facing a serious adjustment challenge. Nigeria falls somewhere between these two extremes. It has managed to spend almost every Dollar it has earned from oil, but it has resisted the temptation to borrow or to overstimulate the economy. Nigeria’s external debt is only 3.4% of GDP and the total public sector debt stock is only about 20% of GDP.

Nigeria’s problem is therefore a relatively conventional adjustment problem, which can be solved with the usual medicine of external and domestic adjustment.

The election

Barring any last minute surprises, Nigerians will go to the polls on Saturday 28 March. Opposition candidate Muhammadu Buhari of the All Progressives Congress is leading in the polls against incumbent President Goodluck Jonathan of the People’s Democratic Party.

Buhari is a controversial leader. He ran Nigeria from 1983 to 1985 as part of a junta that took power through a coup. He therefore has an authoritarian reputation, although he has since attempted to win power legitimately in three previous elections. On the other hand, Buhari’s time in government services (in the military, as governor for North-Eastern State, as Federal Commissioner for Petroleum and Natural Resources, as Head of the Petroleum Fund and as Head of State) has been characterised by pursuit of better governance and aggressive reforms and adjustment.

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