‘Elections will determine direction of Nigeria’s economy’

Robert Tashima is Oxford Business Group’s (OBG) Africa Regional Editor and expert on Nigeria. He spoke to our correspondent on the phone from Istanbul Turkey. He is optimistic that investment into Nigeria is likely to grow phenomenally if the elections are concluded peacefully. He spoke on the effect of the elections on oil production, business environment in Nigeria, trade imbalance in Africa among others. Excerpts:

Now that Nigeria’s elections are underway, what is OBG’s assessment?

Oxford Business Group (OGB) focuses mainly on business and economics. So, basically, I will be commenting on the effect of the elections on Nigeria’s economy. Essentially, in terms of the elections, one of the crucial things for the business community and the economy generally, is the fact that the elections have finally gone ahead. Prior to the elections, a lot of things were apparently on hold like investments.

Now that we have the first round of parliamentary elections finished, we will have more investor comfort and people feeling more confident about the economy of Nigeria and what would happen in the near future. Also, once the presidential election processes are completed, we will see more economic activities in Nigeria in terms of budgetary and other economic activities including the private sector because people will know the focus of the economy and who will be in charge in the coming years.

What effect have the elections on the economy so far?

One of the most obvious effects of the elections on the economy is that there are a lot of pending legislations and regulations. There are a lot of potential reforms from the NNPC, restructuring in the energy sector, new regulations for bonds, securities, capital market and it’s quite a big reform going on. Nigeria is a country where its people have big ideas and there is quite a lot of work to do in a number of sectors.

Once we have the elections completed, once we have the governors, the president and the legislators’ elections done with, there will be a lot of movement in legislations and regulations. But at the moment, a lot of things have been put on hold including the legislature. Not much activity there.

An issue like the Europe Bond which took up very well and was oversubscribed and it’s being traded for about 7 percent because of pre-election jitters of foreign investors. Its Nigeria’s first international bond sale.

Should Nigeria get done with the elections successfully and more foreign investors come to invest, what are the sectors that will attract more investment traffic?

If the presidential and gubernatorial elections conclude peacefully, it will witness a boost of confidence in Nigeria and a boost of investments too. Nigeria, for long has attracted foreign investors for a variety of reasons, not just oil. Nigeria has a lot of fundamentals that are appealing to foreign investors like being the largest market on the African continent. It has a wide range of geography and environment to take advantage of. You can introduce a wide range of projects as a result of the diversity and all of that.

Also, because Nigeria is part of ECOWAS, it has ability to access the regional market. So, Nigeria has always been of interest to investors but its reputation in the international market has always prejudiced investors from taking it serious like other countries. There have been a lot of foreign investors who moved into Nigeria but the reputation has dissuaded an equal amount.

Obviously, a lot of the investment activities will be geared towards the oil and gas sector but there is quite a room of expansion in manufacturing. For instance, you’ve got the Lekki Free Trade Zone and other projects like roads construction and seeking to improve airports connectivity so distribution for manufacturers can be made easier.

Based on your studies of Nigeria, what specific reforms would you advise the next president to pursue?

Based on our research and discussions with the private sector players and government officials, obviously it is to ensure reliable supply of energy and making sure that businesses and individuals get electricity 24 hours a day. If you don’t, productivity is compromised. President Jonathan has been doing a lot in that regard already but it is clear it is a big issue Nigeria needs to grapple with if the economy must reach its full potential.

There are other sectors as well that are important – the upstream oil sector and the restructuring of the NNPC will have a significant impact on oil production and the ability of the NNPC to raise funds in the capital market. There are quite a number of sectors besides oil that offer huge potentials to investors. For instance the financial sector – with AMCON taking over some bad debts with about N20 billion bonds offer, it’s quite a lot of progress to clean up the balance sheet and improving the health of the sector as a whole. Sanusi is still pushing a lot of new banking regulations. For instance, the CBN introduced new license regime for banks and the reforms are expected to continue after the elections when we expect that most of the reforms would have been firmed up.

Do you see the elections in Nigeria affecting oil production and supply? If yes, what will be the impact on oil prices on the international market?

Nigeria’s election is coming at a very interesting time from the international perspective. Obviously, with the unrest in places like Libya and Egypt which has affected oil supplies around the world and pushed oil prices to a band of $120 to $124 dollars mark for Brent crude. This is really interesting times for oil production in Nigeria because capacity is really stretched across the world so changes in Nigeria’s production capacity can have a lot of repercussions on global market particularly for large consumers like the United States which depend quite heavily on Nigeria.

We have seen quite interestingly that for now, Nigeria’s elections have played a low role in decisions of speculators and oil traders. Libya, not Nigeria, has had more influence in global oil prices. But Nigeria has the potential to change the way oil prices are going. In terms of Nigeria’s oil production, we saw the attack last month on oil facilities by MEND which was a kind of reminder of supply disruption that comes with Nigeria’s elections in the past. I think by and large, the disruption in the oil production is less than what people speculated.

We haven’t heard of major disruptions in our oil production, yet the naira keeps losing value against major currencies. What could be responsible for this?

Taking a look at the naira value involves taking a look at several issues though oil prices also play a critical role in the naira value. There are other factors like monetary policies and the macroeconomic environment and sovereign credit ratings in currency value. This year, Fitch downgraded Nigeria’s sovereign debt readings which obviously would have impact in terms of its currency ratings.

You have expressed huge optimism about foreign investors coming into Nigeria after a successful elections, but is the environment good enough to keep these investors?

Yes, the business environment generally has ability to attract foreign investors but that doesn’t mean more cannot be done. There is a lot that can be done to improve the business environment. For instance, the issue of infrastructure, be it energy, roads, broadband which has also been Nigeria’s Achilles heel; if there are improved investments in these areas, Nigeria will witness improved doing business climate that will attract a lot of foreign investors.

Lagos and Abuja are big hubs of activities and thus experience huge traffic. Often times, you spend several hours in the traffic and it’s a waste of time for business people. So these issues can also be addressed.