Allegations of polls result anomalies raise new market risks

The first phase of the nation’s elections may have gone, but the results and allegations of irregularities have raised new risk calculations for investors, as they still see the political environment as vague.

Besides, the return of the president is seen as a continuation of a government based on regulatory interference and security challenges, with interest rates and stocks in a low growth environment, but now better compared to the 2015 oil price crash era and 2016recession.

Already, the development has hit the Nigerian Stock Exchange (NSE), as it lost N85 billion in panic sell-off, just six hours after the official announcement confirming incumbent President Muhammadu Buhari as winner.

The losses are basically made up of depreciations in the value of shares of some listed companies, as virtually all the sectors in the market closed downward.

The development also affected volume of transactions, which make up the market’s indices.

Specifically, at the close of transactions yesterday, market capitalisation depreciated by N85 billion (0.7 per cent). It fell N12.11 trillion to N12.02 trillion.

The All-Share Index (ASI) suffered the same fate, shedding 229.58 points (from 32,473.82 points from which it opened on Tuesday to 32,244.24).

Head of Coronation Research, Guy Czartoryski, said while the elections proceeded, for the most part, without violence, and seen with relief by the international community, the allegations of irregularities are renewed worries.

“Nigeria looks stable and orderly. At the same time, the political picture in Nigeria is not entirely settled. There are still governorship and state assembly elections. In some of the 36 states, we expect these to be hotly-contested.

“Low growth has been associated with rising unemployment, which not only took off in 2015 and 2016, as the economy slowed and went into recession, but continued to rise during the weak recovery that followed.

“The administration’s policy emphasis during this period was on: security, the fight against corruption, tax compliance, and tight regulation, which included exchange controls.

“If external shocks in the coming period (2019 to 2023) are not as great as those from 2015 to 2019, then the nascent economic recovery might give this administration an opportunity to address pressing domestic issues,” he said.

For research analyst at FXTM, Lukman Otunuga, there is a sense of uncertainty following the election outcome, but now gradually clearing up as investors refocus on what Nigeria needs to do to ensure stability.

“Now the presidential and national assembly elections are over, and the focus returns on Nigeria’s efforts to diversify from oil reliance. I believe Buhari’s election victory suggests continuity and offers the government an opportunity to build on what has already been achieved over the last four years.

“If infrastructure development is worked upon and there is diversification, especially in agriculture, coupled with strategies to mitigate external risks, Nigeria can still surprise the world stage this year.

“Nigeria’s major economic downside still revolves around oil. Falling oil prices will not only shave off government revenues, but also disrupt foreign exchange stability by complicating efforts of the Central Bank of Nigeria (CBN) to defend the naira.

“The quicker Nigeria is able to derive sustainable growth from non-oil sectors, the quicker there will be a change of sentiment and confidence towards the nation,” he said.

Capital market operators, who spoke to The Guardian, said the re-emergence of Buhari was completely contrary to expectations of the market, as forecasts had earlier tilted towards the main opposition Peoples Democratic Party (PDP).

“The market is not happy. It is completely contrary to expectations of the market. The slowdown has persisted because volume is still increasing while value is not increasing commensurably with value.

“The whole nation is in distress. The emergence of Buhari as winner is a dark page in the history of Nigeria. It portends danger for the economy,” the Managing Director of HighCap Securities Limited, Imafidon Adonri, said.

A broker dealer and Chief Learning Officer of City Cold Trust and Investment Limited, Charles Fakrogba, said: “The market is in the southward direction, losing almost one per cent of index and virtually all the sectors are in the red.

“This same candidate in 2015, when declared the winner, boosted market sentiment by almost eight per cent, which was unprecedented because the market was looking for a change.

“Coming in 2019 as the winner for another four years and the market nosedived showed that, probably, Nigerians were looking for something new and they did not get it and the market is reacting negatively,” he said.

For the Head of Research at FSDH Merchant Bank Limited, Ayodele Akinwunmi, the government’s new strategy will determine the market’s response, especially on pending economic and social issues.

According to him, the market will be waiting to see the government’s new financing options in the face of growing expenditure and low revenue, which will inform new direction.

“Will the government expand borrowing from the domestic market or foreign market? Whichever option it takes to increase borrowing, the ratio of interest expenses to revenue will increase.”

“How will the government deal with the issue of deregulation in the downstream oil and gas sector, particularly petroleum subsidy? How will it deal with the issue of cost-reflective tariff in the electricity sector? How will it make do with its promise of N30,000 new minimum wage and how will the small scale private sector and state governments fund the increase?

“What is government’s response to high unemployment rate in the country? What actions will accelerate the economic growth in the country?” he queried.

Meanwhile, Buhari has been charged to use his re-election to sort out the Petroleum Industry Bill (PIB), to bring more investment into the Nigerian oil and gas sector.

As the flagship of Africa’s energy industry, and naturally the toast of prospecting petrodollars’ fund managers, Dr. Alex Vine of the Royal Institute of International Affairs, (a.k.a. Chatham House), argued that by sorting out the PIB, investors would be less anxious about bringing their money into the country.

Vines, who alongside the Group Managing Director (GMD) of Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, spoke at one of the parallel gatherings at the ongoing International Petroleum Week in London on Wednesday,

Speaking on the theme ‘The new frontier for Africa’s Oil and Gas’, Vines said: “Now that Mr. Buhari has won the election” and not Mr. Atiku, who was tipped by the Economist Intelligence Unit, the re-elected president “must convince investors” on the seriousness of the PIB now.

This, he said, can be done by addressing the relevant issues.

Baru, in the keynote speech on ‘Unlocking Opportunities in Nigeria’, said aside whetting investors’ appetite with the prospects and challenges of prospecting oil and gas in Africa, NNPC was doing more drilling and with huge reserves still untapped.

“Nigeria’s ultra deep terrain should be of interest to investors,” he said.

Although he was quick to note that oil discoveries were fuelling conflicts among some East African countries, he urged such those nations to take a cue from Nigeria by transparently engaging the host communities.

According to him, when the Buhari government came in 2015, “we were at low levels of production, so the government had engagement with Niger Delta stakeholders,” on the need for cooperation to derive maximum benefits for everyone.

He urged other African countries to address stakeholders’ concerns, as it had worked for Nigeria.