The issues at stake in Nigeria’s presidential vote for investors

As Nigerian voters prepare to go to the polls on February 25, international investors are cautiously hopeful that whoever is elected as the next president of Africa’s largest economy will be more market-friendly than the current government.

As of November, Nigeria was ranked 131 out of 190 economies on the World Bank’s Ease of Doing Business index.

While there are also parliamentary elections this month, the focus is on the presidency. With incumbent Muhammadu Buhari not on the ballot, the main contenders are ruling party veteran Bola Tinubu, former Vice President Atiku Abubakar and third party candidate Peter Obi. A fourth candidate, Rabiu Kwankwaso, is seen as a wild card in the race.

What are the main issues for investors?

Problems that worry investors include multiple exchange rates, widespread insecurity and low oil production due to massive crude theft. Another focus is soaring fuel subsidy costs that devour government revenues and drive up debt.

Reform of the foreign exchange market is the number one concern for international equity investors, said Steve Pollicino of the US brokerage Auerbach Grayson, adding that uncertainty over how long it takes to get money out of Nigeria is a big deterrent.

“No investor’s going to want to buy into a market where you can’t sell stock and get your money out,” he said.

Foreign investors held 16 percent of shares on Nigeria’s stock exchange last year, down sharply from 58 percent in 2014, Nigerian Exchange Group data showed.

Removing petrol subsidies, which cost $10bn in 2022, is also key but a “hard sell”, said Babatunde Ojo, emerging markets equities portfolio manager at Harding Loevner.

“This is the short-term pain you have to take in a long-term game,” he said.

Strong and clear regulation is important for international oil and gas companies, which are pivoting to cleaner gas, said Amaka Anku, head of Eurasia Group’s Africa practice.

Nigeria’s debt

Nigeria’s ratio of debt to its gross domestic product is low compared with countries with similar credit ratings. However, its debt servicing burden is among the highest globally, according to the credit ratings agency Fitch. In 2022, the federal government spent 96.3 percent of its revenues paying interest, the IMF said recently.

Abubakar plans to seek “debt forgiveness”, while Obi has said creditors will be “engaged for debt restructuring and possible cancellation /forgiveness”.

“I believe that he used that word in a very liberal sense that is not the same sense that the markets give to that word,” Carlos de Sousa, an emerging market debt portfolio manager at Vontobel, said of Obi’s use of the word “restructuring”.

“If the question is, ‘Is Nigeria’s debt sustainable today?’ Absolutely, yes, nobody has any doubt about that. Is it on a sustainable path? No, it is not,” de Sousa said.

The next president will need to ramp up government revenues from a very low base to make debt manageable and provide citizens with services, de Sousa said, noting that none of the top candidates had pledged to raise taxes.

Many investors, however, were cautiously optimistic that Nigeria would see improvements, whoever wins on February 25.

“President Buhari has set such a low bar,” de Sousa said. “It’s really not difficult to do things better.”

Do investors have a preferred candidate?

Few investors expressed a strong preference for who wins. All three main candidates propose variations of similar policies – currency exchange reform, fuel subsidy removal or phase-out, and boosting the economy.

A peaceful election is key for Nigeria, which has suffered election-related violence in recent decades.

If Tinubu emerges as the winner, there would likely be “a smoother transition”, said Joe Delvaux, a portfolio manager at Amundi, which holds Nigerian sovereign bonds.

A victory for Abubakar would probably mean more uncertainty as power shifts, Delvaux said. Many analysts see Abubakar as more pro-business.

“If you have a candidate like Peter Obi coming in, the challenge will be that [the] machinery isn’t there,” Delvaux said. “So I cannot judge what capacity will be there on implementation.”