Nigeria’s general election is fast approaching, with polls for the president, Senate and House of Representatives on 25 February and governors and State Houses of Assembly on 11 March. For the first time since the return to democratic rule in 1999, the field is wide open, with 18 presidential candidates running, of whom four are heavy hitters and three stand a legitimate chance, in contrast to the typical one- or two-party race.
To win the presidency, a candidate must receive a majority of votes nationally and at least 25% in two-thirds of Nigeria’s 36 states plus the Federal Capital Territory of Abuja (although there is some ambiguity on exactly how this is counted). If no candidate passes this threshold – which is a distinct possibility given the open field and fragmented vote – then a runoff must be held within 21 days between the candidate with the most votes and the one with a majority of votes in the highest number of states.
In either case, the winner will be inaugurated on 29 May, after a brief transition period.
Who are the candidates?
After ruling for two terms, the current incumbent President Muhammadu Buhari of the APC is set to step aside. The four primary candidates to replace him are:
Bola Ahmed Tinubu (70) of the ruling APC;
Atiku Abubakar (76) of the PDP;
Peter Obi (61) of the Labour Party (LP); and
Rabiu Kwankwaso (66) of the NNPP.
With Kwankwaso a distant fourth in the opinion polls, it will likely boil down to the former three candidates. Of these three, Tinubu and Abubakar represent the old guard, with Abubakar serving as vice president from 1999-2007 and making his sixth attempt at the presidency and Tinubu cutting his teeth as the governor of Lagos State from 1999-2007 and exercising his power as a kingmaker at the national level in the years since.
Meanwhile, Obi is a relative newcomer who broke away from the PDP to form the LP last year when he failed to secure the PDP’s presidential nomination. He has tapped into a wellspring of grassroots support from Nigeria’s disaffected youths and cultivated a loyal and enthusiastic following of so-called 'Obi-dients' – including many of the young activists from the October 2020 #EndSARS protests against police brutality and government corruption – shaking up what many had expected to be a two-horse race.
Ethnicity and religion play a central role in Nigeria’s elections, with an informal 'zoning' arrangement that the presidency must rotate every two terms between the Muslim-dominated north and Christian-dominated south and that a Muslim president should have a Christian vice president (and vice versa). Like Buhari, Abubakar is a northern Muslim hailing from Adamawa State, but has chosen Ifeanyi Okowa, a southern Christian and current governor of Delta State as his running mate to assuage the concerns of southern Christians.
Meanwhile, Tinubu is a Southern Muslim from Lagos State and has chosen Kashim Shettima, a northern Muslim and former governor of Borno State as his running mate, which could upset Christian voters. Lastly, Obi is a southern Christian and former governor from Anambra State and has chosen Yusuf Datti Baba-Ahmed, a northern Muslim from Kaduna State as his running mate, seemingly forming the least assailable ticket from a zoning perspective.
Policies
All three candidates have very similar policy agendas at first glance, but there are also some key differences in priorities and how those policies will be delivered.
Overall, Abubakar has positioned himself as the most market-friendly candidate and has the clearest and most detailed policy manifesto (which, to be fair, he has updated from his previous run at the presidency in 2019). That said, Obi seems to have a similar policy orientation and would represent a clear break from the old guard that has failed to deliver meaningful reforms over the years, and in which Abubakar and Tinubu are firmly ensconced. Overall, we view Obi as the most market-friendly candidate, with Abubakar in second and Tinubu bringing up the rear.
Which candidate has the edge?
Recent polls have put Obi in the lead, with a December poll commissioned by the Nigeria-based NGO Anap Foundation showing 23% support for Obi versus 13% for Tinubu and 10% for Abubakar and a Bloomberg poll in September showing 72% support for Obi versus 16% for Tinubu and 9% for Abubakar.
Both Tinubu and Abubakar have questioned the credibility of the Anap poll, and recent experience globally has shown that polls are not always reliable, but Anap has correctly predicted the outcome of the last three presidential elections. Still, with 29% of survey participants still undecided and 23% refusing to answer, things are still very much up in the air.
Below, we look at some of the key factors that support or detract from each candidate’s chances at the polls.
Obi (LP)
In a nation where the median age is 18 and 40% of registered voters are between the ages of 18 and 34, Obi’s relative youth is a major advantage. While his home Southeast region is the smallest voting block of Nigeria’s six regions, at just 12% of the total, this will help him attract support from educated and urban youths elsewhere in the country (including Tinubu’s stronghold in Lagos, which is home to a considerable population of Igbos, which is Obi’s ethnic group). Obi has also reportedly attracted large crowds at recent rallies in the north, proving that he holds broader appeal.
He has received the endorsement of former President Olusegun Obasanjo of the PDP, who published an open letter at the beginning of the year urging Nigerians to vote for Obi and saying that "none of the contestants is a saint” but that Obi “has an edge”. Indeed, the relatively clean record of Obi, who appeared in the Panama Papers for alleged tax evasion but whose corruption allegations are more minor than those against Abubakar and Tinubu, is one of the key attractions of his campaign.
However, without the political machinery and deep pockets of his competitors, it is unclear if he can convert his popularity in the polls into votes on election day. While ongoing advancements will make this election the most credible yet, there is still a risk of voter intimidation and vote buying, and Obi will struggle to mobilise enough election agents to monitor the country’s 177,000 polling stations. Further, the separatist Indigenous People of Biafra (IPOB) has called for an election boycott, which could reduce voter turnout in his Southeast stronghold.
Tinubu (APC)
Tinubu, on the other hand, has the deep pockets and election machinery needed to deliver at the polls. He enjoys widespread support from his time as governor of Lagos, the economic heartland of the country, where he is credited for improving infrastructure and mobilising internally generated revenue better than most other states. Lagos is positioned in the Southwest region, which is the second-largest voting block, with 19% of the total (although Obi’s support among the educated urban youth could siphon off some of his votes in the region).
However, Tinubu has reportedly travelled to London repeatedly for medical treatment in recent years and has struggled to speak clearly throughout the campaign, fueling speculation that his true age could be as high as 87. This is a touchy subject in Nigeria, where President Buhari’s health has led to repeated absences and speculation throughout his eight-year tenure. He also has refused to participate in any formal debates in Nigeria. His case was not helped on any of these fronts when he appeared at London’s Chatham House in December, where he delegated many of the policy questions to his aides and appeared to read off a script when asked about his age (Obi’s performance at Chatham House earlier this month was judged to be significantly better).
Tinubu’s opponents have repeatedly tried to disqualify him over claims of forgery, age falsification and perjury, while Tinubu and Abubakar have also spent much of the campaign slinging mud at each other over alleged corruption. Allegations include state capture during his time as the governor of Lagos, where – among other things – he allegedly handed a tax collection contract to a consulting firm in which he had beneficial ownership, while he also forfeited US$460,000 to the US authorities in 1993 for his alleged role in a drug trafficking ring.
Lastly, while Tinubu enjoys the endorsement of the President, Buhari has had a limited presence on the campaign trail and his support has been tepid at best. Given Buhari’s poor track record, this is not necessarily a bad thing, but nor is he likely to enjoy the typical advantages of party incumbency and the weak endorsement from Buhari and other party bigwigs like Vice President Osinbajo may be read by some as tacit disapproval.
Abubakar (PDP)
Like Tinubu, Abubakar has deep pockets and well-established electoral machinery given the PDP’s historical position as the party of power. As a northern Muslim, he is well-positioned to capture a plurality of votes in the north, including the vote-rich Northwest (which is the largest voting block, with 24% of the total). Further, he has the most well-articulated policy agenda (see below) and has not succumbed to the same rhetorical pitfalls as Tinubu, despite his advanced age.
That said, his campaign rallies have been sporadic and poorly attended compared with those of Obi and Tinubu. The PDP is also facing significant divisions, with a group of five governors publicly breaking away under the leadership of Rivers State Governor Nyesom Wike, who was Abubakar’s main challenger in the PDP primaries. There are rumors that some of this faction may endorse Tinubu, while others reportedly might throw their weight behind Obi, which would be a huge blow to Abubakar’s odds while boosting whoever they endorse. On the other hand, Abubakar claims to be courting Kwankwaso’s support, which could give him a meaningful boost.
Like Tinubu, there are also concerns surrounding Abubakar’s health and age, and a visit to London earlier this month prompted speculation that he was there for medical treatment. Likewise, Abubakar faces many credible allegations of corruption, including a 2010 US Senate Committee report that implicated his family in a bribery scheme and a recently leaked audio recording where Abubakar allegedly admitted that government appointments and contracts would be based on party loyalty and that he used special-purpose vehicles to siphon off public funds during his time as vice president under Obasanjo.
The verdict
The race is a toss-up with all three of the main candidates likely to garner significant support and Kwankwaso’s fringe candidacy complicating things further. Abubakar’s seemingly weak momentum and poor performance in the polls may mean that it is shaping up to be a two-horse race, but he could still stand a chance if Kwankwaso throws his support behind him. In any case, it is not clear if any candidate will be able to pass the requisite thresholds to avoid a run-off, which would make the third-place candidate a kingmaker in the second round.
Although Obi appears to be the more popular candidate, for the reasons articulated above it is not clear if he will be able to convert that popularity into a win on election day, where Tinubu’s funding advantage and deep political networks could give him the edge. Ultimately, the result is anyone’s guess, and the election is sure to be a wild ride after years of comparatively staid two-party polls.
What are the policy agendas?
All three candidates have very similar policy agendas at first glance, but there are also some key differences in priorities and how those policies will be delivered. Below, we outline some of the similarities and differences across a range of key policies and topics, drawing on public remarks by the candidates and their respective policy manifestos (see here for Abubakar, here for Obi and here for Tinubu).
Economic growth model
All three candidates have spoken about the need to diversify Nigeria’s economy and increase investment in infrastructure and education. Abubakar has positioned himself as a champion of the private sector, with his economic policies focused on shifting Nigeria towards a more private sector-driven growth model. Specific policies include privatisation to break the government’s monopoly in infrastructure-related sectors, increase the use of public-private partnerships (PPPs) in infrastructure provision, attract domestic and foreign investment, allow the market to determine prices, and expand Nigeria’s export base by reviewing and expanding export incentives, improving the business climate, creating special economic zones, and expanding intra-Africa trade within the ECOWAS and AfCFTA trade blocks.
Obi has also emphasised the need to increase private participation in the provision of infrastructure – including through PPPs – and to ease the cost of doing business and trade – including by taking advantage of the opportunities provided by the AfCFTA. Obi’s policies differ from Abubakar’s in his emphasis on the “4th Industrial Revolution” and the application of scientific and technological innovations to create a digital economy, which seeks to “leapfrog” the industrial manufacturing stage.
Lastly, Tinubu also plans to encourage private sector investment and leverage PPPs to improve Nigeria’s infrastructure, but places a greater emphasis on import substitution and the coordinated use of fiscal and monetary policy to spur manufacturing growth and investment, which sounds similar to Buhari’s failed industrialisation policies.
Exchange rate management
All three candidates have promised to reform Nigeria’s multiple exchange rate regime, which has been a major obstacle for Nigeria’s economy throughout Buhari’s tenure and is in dire need of reform. However, there are subtle differences in rhetoric on the topic. Obi’s plans for “transparent liberalisation of the foreign exchange market and the dismantling of the opaque multiple exchange rate regime” sounds the most like a proper liberalisation.
Abubakar has also promised to “reform Nigeria’s multiple exchange-rate regime” and to “guarantee the repatriation of funds” by foreigners but has said that he would allow a “maximum of two rates”, which implies that he may not be willing to fully liberalise the FX regime.
Tinubu, meanwhile, has said that the exchange rate “cannot be ignored nor left to the vagaries of an unrestrained market”, blamed the naira’s woes on “global factors well beyond the scope of our control” and said that FX policy “shall be guided by our desire for a stronger, more stable naira”, suggesting he may follow a more interventionist approach.
In any case, the removal of Central Bank on Nigeria Governor Godwin Emefiele before the end of his term in June 2024 could be the best chance for a positive monetary policy and exchange rate shift, with new legal troubles potentially giving the incoming president the pretext to replace him.
Debt management
Obi sparked concerns during his recent appearance at Chatham House by promising to reprofile Nigeria’s debt by extending payments over a longer period. He may have been referring to a “liability management exercise” rather than a “restructuring”, with Finance Minister Ahmed generating confusion with similar comments in October, but market apprehension will be elevated until his stance is clarified. Abubakar made similar comments in an interview with the FT, saying that he would “approach our creditors to see how we can renegotiate and reschedule repayments”. Tinubu has made no such comments and has promised to reduce external borrowing.
Regardless, with interest absorbing 51% of total government revenue and 108% of federally retained revenue over the first nine months of 2022, something eventually must be done to avoid a debt crisis (although a credible medium-term disinflation and fiscal strategy may be a more optimal way to reduce debt service costs).
Fiscal management
Revenue mobilisation is a key priority for all three candidates given the large debt service burden and limited space for the government to invest in much-needed physical and human capital, with a focus on broadening the tax net and improving tax administration rather than instituting new taxes or hiking rates. Tinubu also plans to institute a spending ceiling, while Obi plans to shift to “zero-based budgeting” at the national level.
Revenue mobilisation has been a key policy priority throughout Buhari’s tenure and under previous administrations but there has been little to no progress on this front, with gross government revenue of just 5.8% of GDP over the first nine months of 2022 and federally retained revenue of just 2.7% of GDP, so this will also prove easier said than done.
Fuel subsidies
All three candidates have promised to remove the fuel subsidy – which alongside Nigeria’s FX regime has been one of the key policy pitfalls in Nigeria in recent years – and to redirect the savings towards more targeted social support. However, subsidy removal has been promised repeatedly throughout Buhari’s administration to no avail, and this will prove politically difficult in practice and will test their commitment.
Failure to remove the subsidy would be costly, with Finance Minister Ahmed estimating that the subsidy will cost NGN6.72tn (2.9% of GDP) this year if it is left in place versus NGN3.3tn (1.4% of GDP) if it is removed by mid-year (corresponding to c50-100% of federally retained revenue – see above).
Anti-corruption
All three candidates have played the requisite lip service to anti-corruption but it has not played a major part in campaigning as it did for Buhari. The corruption allegations against Tinubu and Abubakar and their long tenure at the centre of Nigeria’s political system diminish the credibility of any anti-corruption plans, with their election likely pointing to 'business as usual' on this front moving forward.
Obi may have some skeletons of his own – as former President Obasanjo said in his open letter, “None of the contestants is a saint” – but he has a clear edge on the anti-corruption front.
Insecurity
Each candidate has also spoken of the need to improve security, which has continued to deteriorate under Buhari despite it being his highest strategic competency and priority. The strategy seems to vary little among the candidates, with a focus on hiring additional personnel and equipping them with better equipment and technology. But, again, it remains to be seen if any of the candidates will be able to make headway on such a difficult structural issue.
Oil & gas
All three candidates have promised to reverse the sharp decline in oil production, with crude oil production declining from a peak of c2.5 million barrels per day (mbpd) at the beginning of the 2010s to just 1.14mbpd in 2022 due to a lack of investment and rising oil theft. All the candidates have also pledged to improve domestic refining capacity, with Abubakar planning to liberalise the downstream oil sector. Again, this will prove easier said than done and it is unclear who is best positioned to deliver.
Power
Policies don’t seem to differ much for the power sector, with an emphasis across the board on cost-reflective tariffs and improved billing/metering practices. Obi and Abubakar have also spoken of the need to reform the Transmission Company of Nigeria, with Abubakar referencing privatisation.
Devolution
Abubakar and Tinubu both plan to devolve more power to the states and local governments, while Obi does not seem to be focused on decentralisation.
The verdict
Overall, Abubakar has positioned himself as the most market-friendly candidate and has the clearest and most detailed policy manifesto (which, to be fair, he has updated from his previous run for the presidency in 2019). That said, Obi seems to have a similar policy orientation and would represent a clear break from the old guard that has failed to deliver meaningful reforms over the years and in which Abubakar and Tinubu are firmly ensconced.
Overall, we view Obi as the most market-friendly candidate, with Abubakar in second and Tinubu bringing up the rear.
Insecurity risks
Endemic violence is a key risk heading into the election, with religion and ethnicity-based violence increasing as it approaches. There have been reports of two particularly tragic incidents recently, with 38 people killed by a gunman in a predominantly Christian area of Kaduna State and armed bandits killing 32 when they opened fire at a train station in Edo State. IPOB has also mounted targeted attacks on local Independent National Electoral Commission (INEC) buildings in Biafra, while terrorism continues to be a threat in the northeast and farmer-herder conflicts have continued in the middle belt.
Some Christians in Kaduna State have alleged that the attack is an attempt to prevent them from voting, while INEC Chairman Yakubu Mahmood has warned that the elections may have to be postponed or cancelled if violence continues to escalate around the country. In any case, insecurity risks may make it difficult to hold safe and credible elections in certain parts of the country or may dissuade people from voting, which could impact the results. Insecurity is therefore an important risk to monitor as election day nears.
Bond implications
We upgraded our recommendation on the NGERIA 7 ⅞ 02/16/2032s to Buy in June and made it one of our top 5 picks for 2023 in December, with the ‘32s rallying sharply from a low of cUS$60 (1,237bps z-spread) in October to US$75.55 (878bps z-spread) at the end of 2020 and US$84 (751bps z-spread) by 18 January. However, the bonds have since sold off sharply, reaching US$75.7 (910bps z-spread) at the end of January due to a combination of restructuring concerns (see above), a credit rating downgrade by Moody’s from B3 to Caa1 on 27 January (citing the “ongoing deterioration” in Nigeria’s fiscal and external position), and a pending US$11bn arbitration award that is currently being challenged by Nigeria in London’s High Court (which is equivalent to 30% of Nigeria’s FX reserves and would be financially devastating for the government if enforced – more research to come on this at a later date).
Setting these developments aside and zeroing in on the potential impact of the election, prospects for a positive policy shift seem to be the highest they have been in years after a disastrous eight years of economic mismanagement under outgoing President Buhari, although that's what we all thought when Buhari and the APC got elected in 2015, and that shift ultimately failed to materialise (even on Buhari’s purported core competencies of security and anti-corruption, with Nigeria falling by 28 places since he was elected to 154th out of 180 countries in Transparency International’s Corruption Perceptions Index and the Council on Foreign Relations’ Nigeria Security Tracker signalling a near doubling in average annual deaths from political, economic or social violence over the past two years, compared with the two years before the peak of the Boko Haram insurgency and the start of Buhari's tenure in 2014-15).
A policy shift could support Nigeria’s eurobonds after the election, although, with the new administration not coming into power until the end of May, there is still a long way to go before changes can be set in motion. And, with rising concerns over debt sustainability, Nigeria may not be able to afford to muddle through without a clear policy direction over the next 4+ months. Election-related security risks could also weigh on Nigeria’s bonds, and, if the election goes to a run-off – which is a distinct possibility – then that uncertainty will be prolonged, and the risk of violence may intensify.
We think Obi represents the best chance for bona fide political and economic reforms in Nigeria, and that markets will react most positively if he wins. And, whether or not Obi is able to convert his grassroots popularity into victory at the polls over two political heavyweights, he has undoubtedly changed the political landscape in Nigeria by proving that third-party candidates stand a chance and sparking hope for a generational shift among Nigeria’s disaffected youth.
Ultimately, whoever wins will inherit a poisoned chalice. Nigeria’s structural challenges are deep-rooted, and successive governments have failed to make meaningful progress on diversifying Nigeria’s economy and shifting it to a sustainable growth model. It is not clear how any of the current pool of candidates will fare any better, with political/structural constraints and vested interests likely to hinder even the most earnest reformer.
Still, the upcoming election is likely to usher in marginal improvements on the macro front, with broad consensus on the need for fuel subsidy removal and exchange rate liberalisation (which is low-hanging fruit administratively, but difficult politically). Improvement on these policies alone will be a major boost to Nigeria’s creditworthiness.
As such, we think there is upside for Nigeria’s eurobonds if elections go smoothly, with greater upside if Obi wins and more limited upside under Tinubu (status quo), with the latest sell-off potentially providing an opportunity to buy the dip. We retain our Buy recommendation on the NGERIA 7 ⅞ 02/16/2032s at US$75.7 (12.42%% YTM, 911bps z-spread) on a mid-basis at cob on 31 January on Bloomberg.
Equity implications
A policy change that at least removes friction in the FX market and eases repatriation of capital would make Nigeria potentially investable again for foreigners.
However, there are two problems.
First, valuations are not distressed, largely because equities have provided a partial inflation hedge for local and trapped foreign investors.
Trailing PB of the NGX All Share Index is 2.2x, for 21% ROE and a 25% premium to the five-year median.
Forward 2023 PE is 10x, for 15% earnings growth in 2023 and 5% forward dividend yield, broadly in line with the five-year median.
Second, foreign investors have gone through a number of periods over the past decade or so when the dysfunction of the FX market has inhibited the easy repatriation of capital and accurate mark-to-market of portfolio investments in Nigeria.
They may need to see the consistent implementation of market-friendly policies to revisit Nigeria.
The example of Argentina, with its nine sovereign defaults, demonstrates how quickly foreign investors can return, but there are three differences: the accessibility of the largest stocks via US listings (ADRs), the larger more liquid size of the market, and the proximity to the US and other well-trodden EMs (Mexico and Brazil).
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