The political
uncertainties, arising from pending policies and issues affecting major
industries in Nigeria, including the oil and gas sector, coupled with
the postponement of the long awaited elections last week prospective
investors will watch from a distance while existing foreign investors
would be on their toes. On Saturday, the nation’s parliamentary
elections were postponed until Saturday after voting materials failed
to arrive in many areas. This brought huge disappointment and distrust
in the nation’s electoral body and also came as a major bluster to
hopes of many of a peaceful election in the country. Even before the
elections, industry watchers have been apprehensive of investors who
have begun to shy away from major investments in the country,
anticipating when the elections would be over. Dele Ige, an analyst had
earlier said that “as we approach general elections, investors prefer
to play on the sidelines of the market”.
First quarter
The performance of
the market in first quarter was largely subdued as a result of a
sell-off on the back of a perception of higher sovereign risk following
the crisis in the Middle East and North Africa (MENA) Region,
uncertainty related to the April elections and the late release of
banks’ 2010 financial year end (FY10) results. Market capitalisation
ended at $52.5bn (at 25 March) from $52.8bn as at 31 December 2010.
Daily market turnover averaged $24.0mn as compared to $20.2mn in the
first quarter, 2010. Experts say this is way below pre-crisis levels of
$66mn in 2007.Outlook for second quarter, Post April elections, we
expect political risk to be almost fully dissipated. Election-related
violence and uncertainty will continue in the run-up to the elections”
the firm said in a report on its expectations for the nation’s second
quarter” Renaissance capital, an investment bank said in its outlook
for the nation’s second quarter. “Post the completion of elections,
however, we envisage that there will be challenges to a number of
election results and that these will be dealt with by the judiciary as
has been the case in the past. Most likely, the second quarter (2Q11)
will be quiet in terms of policy execution and reforms”. The firm says
external factors like the sell-off in frontier markets and heightened
uncertainty ahead of the April elections continue to weigh on the
market. Industry watchers say high oil prices, the potential
appreciation of the naira, completion of elections, conclusion of
privatisation transactions in the power sector, the creation of a
Sovereign Wealth Fund (SWF), the completion of Asset Management Company
of Nigeria (AMCON) loan purchases, the completion of banks’ MA,
the extension of trading hours and the finalisation of Dangote Cement’s
purchase of its parent company’s African cement assets are all
catalysts to watch for in this quarter. “Inhibitors to watch for in
2Q11 include inflation, a lull in policy execution and reforms, the
renewed threat of attacks on oil facilities by the Movement for the
Emancipation of the Niger Delta (MEND) and the continued conflict in
policy direction on fiscal consolidation” Renaissance capital said.
Much in stake
A lot of projects
and investments are on hold till the elections are over. The passage of
the Petroleum industry bill has been delayed for years and executives
in some of the oil companies have confirmed that major projects are on
hold. In March, the Central Bank governor, Sanusi Lamido Sanusi had
said he believed the jump in demand for forex is “temporary” and
reflects fears of violence in the run- up to the elections. Experts say
once the elections are over, the naira will begin to stabilise and
retrace, after months of uncertainties and battles to keep it within a
band. “It is believed that the cessation of election-related spending
after the polls should result in a drop in demand for dollars, which
will ease the pressure on the naira to depreciate. Moreover, the
capital outflows in recent weeks, which relate to uncertainty
surrounding the elections, should dry up. We thus expect the naira to
recover and begin to reflect fundamentals once the elections are behind
us. After the elections, an increase in fiscal spending could post a
downside risk to the naira” Yvonne Mhango, analyst, Renaissance Capital
said. Last month, the presidency launched the gas revolution which
would require billions of dollars as foreign direct investment. The
road power map launched is still in the incubator. It is also believed
that the currency’s slight devaluation is indicative of political risk
concerns. It is expected that the reluctance of investors would be
addressed if the elections are successful.
