Election Over Now the Heavy Lifting

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Election Over Now the Heavy Lifting LBS Breakfast Session Election Over Now the Heavy Lifting Presented by Bismarck Rewane CEO, Financial Derivatives Company Ltd. March 14, 2019 Outline Part A Part B Election Results at a Highlights in February Glance Analysis: What It Tells The Economy Us Likely Policy Outcomes & The Markets Unintended Consequences March Outlook Part A February election was more a class war than regional rivalry Class War or Regional Conflict The rich and elites abstained The poor voted for the incumbent The very poor voted for opposition Incumbent Wins Second Term “Margin Wider, Turnout Lower” Buhari wins fair & square The real work is now Next Level Buhari 1.0 – 1984 Buhari 2.0 – 2015 Buhari 3.0 – 2019 Military Commander • Economic patriotism • Unitary government • War against indiscipline Born again democrat The neo economist or • Economic protectionism • Do not live above your means back to the future • Counter trade with Brazil • Distant management style • Gradual economic recovery • Becoming pro market • Death to drug pushers • Delayed decisions • New agenda or old wine in old bottle • Blocking leakages • Changed the currency • The new agenda • Legislative jam • Mixed economy Buhari 3.0 World’s view on Nigeria’s elections Nigeria’s returning president has a chance to make amends Time to keep those promises Is Nigeria about to become the next Venezuela? The signs are Do the promises stack up? not good What the Result Say? (APC Vs PDP) PDP APC APC Minus Lagos Turnout as a % of 38.6 52.1 - registered voters Average income per capita ($) 1,545 1353 2,585 IGR (N’bn) 493 209.54 350 WAEC scores 1st 3rd - 5th 6th 7th Average inflation (%) 11.39 11.92 11.88 Unemployment (highest; 36.58 28.96 - %) Average FAAC (N’bn) 88.24 55.79 52.39 How Nigeria Voted - Geopolitical Zones APC Votes PDP Votes Margin APC States High Poverty level North Central 4 2,465,599 3 2,018,769 446,830 North East 4 3,238,783 2 1,255,357 1,983,426 North West 7 5,995,651 - 2,280,465 2,280,465 South West 4 2,036,450 2 1,773,670 262,780 South East - 403,968 5 1,693,485 -1,289,517 South South - 1,051,396 6 2,233,232 -1,181,836 Total states won 19 17 + FCT 1 PDP States Mostly Elitist • Highest margins recorded in the North West were in favor of APC: Kano, Kaduna & Katsina In Lagos, the PDP and APC were evenly split in the presidential polls • Source: BBC A2-Candidate Contest • The 2019 presidential election was essentially a two- Others Invalid horse race 4.7% 4.6% • Lowest turnout since return to civilian rule in 1999 • 35.6% of registered voters • Compared to 2015: 44% APC Partly attributed to election postponement • PDP 52.1% 38.6% • Of 91 political parties, 73 parties contested the presidential election • 2 dominant aspirants accounted for 91% of total votes • Remaining 71 parties: 4.7% 10 11 APC States Governorship Elections High Poverty level • Elections were declared inconclusive in 6 out of 18 states in the North • APC won in 12 states • High poverty level • Low income per capita PDP States Mostly Elitist • PDP – 9 states • Mostly elites • Electoral process suspended in Rivers and Zamfara What the Results Say? • Of the 5 states with the highest States with the highest inflation inflation rates States Inflation Party Bayelsa 13.3 No election (PDP) • PDP - 1 Zamfara 13.2 On-hold Kogi 13.2 No election (APC) • APC - 3 Ekiti 13.2 No election (APC) Jigawa 13.1 APC • Of the 5 states with the highest States with the highest unemployment unemployment rates States Unemployment Party • PDP - 3 Rivers 41.82 On-hold Akwa-Ibom 36.58 PDP • APC - 1 Bayelsa 30.36 No election (PDP) Imo 29.47 PDP Kaduna 28.96 APC 12 What the Results Say? • Of the10 states with the highest States with the highest WAEC score West African Examinations Council States Rank Party scores Abia 1st PDP Anambra 2nd No election (APGA) • PDP - 6 Edo 3rd No election (APC) th • APC - 2 Rivers 4 On-hold Imo 5th PDP Lagos 6th APC Bayelsa 7th No election (PDP) Delta 8th PDP Enugu 9th PDP Ebonyi 10th PDP 13 Class War or Regional War? • Election results were as expected • To the South & elites an anticlimax • To the far North it’s déjà-vu • Turnout low in the southern states where income per capita is much higher • Atiku and PDP good showing in all oil producing states • Also in areas of high commercial activity 14 What Does This Tell Us? • Buhari swept the areas with high poverty - emotional voting • Where card readers worked the APC lost ground – where card readers failed APC swept the stakes • Voter participation was 2.79% (0.82mn) less than in 2015 • The senate race upsets were profound • Senate president and at least 5 ex governors and serving governors lost in major upsets • Margins were higher compared to 2015 The electorate saw little difference between both parties • 15 What Does This Tell Us? • Voter apathy much worse in the governorship elections • As expected, they turned out to be more fracticious • Reports of killings and military involvement marred polls in Rivers • No surprises as the PDP swept its stronghold of SE & SS • Close calls and a few surprises in the SW and NW • A major upset is looming in Kano, after PDP’s victory in Oyo • APC struggling in states where it won with landslide at the national polls 16 Implications of Victory & Sharing of Spoils • Buhari needs to reward loyalists • There is hardly any relationship between effort and outcome • South West, where there is major investment of political capital, yielded negative returns • The Nigerian National Assembly could be a pro-Buhari rubber stamp legislature • Could be a breeding ground for dictational tendencies • The struggle for 2023 has started • The plump jobs are all in play for lobbyists 17 Agenda &Reforms Economic Patriotism Vs Market Reform • Setting the new agenda - the leopard must change its spots • The economy must exceed the following targets • The recession gap is 1% • Means Nigeria could slip back into recession • No inflation gap – means the inflation threat is not as potent as the recessionary gap Problems That Must Be Fixed Now Petroleum Subsidy • Subsidy provision of (N305bn) – 3.45% of 2019 budget • In 2017/2018 estimated at N1trn • New and existing refineries Exchange Rate Subsidy • Focus on forex market structure • Not exchange rate management Electricity Subsidies – New investments required • Target 20,000MW by 2021 • Cost reflective tariffs up Tax to GDP ratio must improve • Low tax-to-GDP of 4% • Ghana: 16% • Morocco: 25% • Kenya: 17% • South Africa: 26% • Compared to SSA peers 21 Nigeria’s Forex Market: Managing a Market rather than a Rate Managing an exchange rate • Reactive strategy • Oil companies • CBN • Focuses on the rate • Short term Managing a market • Manufacturers • Traders • Changing market structure • Corporates • Households • To produce an efficient rate • Smugglers • Ultimate objective is unified exchange rate Exchange Rate Outlook – Cosmetic Rate or Fundamental Rate • Scenario 1 – Market Forces Source: FMDQ, FDC Think Tank Exchange Rate (N/$;end) • True value o exchange rate will manifest after 380 308 structural change 370 307 360 306 • Exchange rate could slide marginally to N365/$ 350 305 • Scenario 2 – CBN defends the Naira Parallel (LHS) IEFX (LHS) IFEM(RHS) • CBN continues its forex intervention strategy External Reserves ($'bn) • Prioritizing exchange rate stability over external 49 48 47.62 47 47.12 reserves buffer 46 45.84 45 44 44.31 • Exchange rate would be stable at N360-N361/$ 43 43.12 43 42 42 42.17 42.3 41 40 • Reserves will deplete 39 Agenda – What Next? Minimum Growth Wage Fiscal Deficit Inflation Taxes Fix Forex Market 24 GDP Growth Must Leap Frog Y = C + I + G + X - M Scenario 1: Growth sub-optimal GDP growth: 2-3% $427.5bn $341.3bn $62.5bn $19.9bn $8.7bn Scenario 2: Full employment GDP growth: 6% $550bn $423.9bn $88.7bn $24.7bn $12.7bn Scenario 3: Transformation & improved quality of life GDP growth: 8-10% $700bn $534.2bn $116.1bn $32.2bn $17.5bn Investment is a catalyst for growth Has a multiplier effect on aggregate income 25 Source: EIU Reforms – Growth Strategy To Lift GDP From $427.5bn To $550bn • Consumer-led strategy • Government-led strategy • Pro-poor growth • Higher government spending • Increase spending - anchor borrowers, N-power, etc • Impact • Impact • Muted due to inefficiencies & • Heighten inflationary pressures leakages • Investment -led strategy • Export -led strategy • Increased infrastructure spend • Export promotion strategy • Impact • Impact • Increase in capital inflows • Revenue diversification • Spill over effect – sustainable GDP growth •26 The 2023 race has begun 28 • Power MAY shift to the south Power Struggle - 2023 in 2023 • Tussle between North • South-West • South-East • South-South 29 Players to Watch: The Government Prof. Yemi Osinbajo Muhammadu Buhari Abba Kyari Vice President-Elect Mustapha Boss Former Head of State Chief of Staff to and respected Current President of technocrat. Proven to the President- the Federal Republic of be technically Elect Nigeria competent in the absence of the President during the last administration Players to Watch: The Party El Rufai Bola Ahmed Adams Oshiomhole Ahmed Lawan Former FCT Minister Tinubu Former Governor of Contender for next Kaduna state governor Former Governor Edo State and Senate President and influential national chairman Chieftain under of the ruling party the ruling party (APC) Players to Watch: The Opposition Bukola Saraki Uche Secondus Ezenwo Nyesom Wike Atiku Abubakar Outgoing Senate Current Chairman Presidential President and of the PDP Rivers State Governor candidate in 2019 former Governor of National Working election Kwara state.
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