We took part on 5 October in a Menas Associates webinar on Nigeria’s upcoming elections. We provided a brief overview of Nigeria’s macro outlook, while keynote speaker Anthony Osae-Brown provided a detailed analysis of Nigeria’s political environment ahead of the February 2023 elections.
The candidate of the third-placed party – Peter Obi – is currently leading the APC’s Bola Tibunu and PDP’s Atiku Abubakar in early polling in a vote of dissatisfaction against Nigeria’s old guard; however, it is unclear if, without the political connections and deep pockets of his rivals, he will be able to sustain his early momentum. Either way, the existence of four candidates (with Rabiu Kwankwaso in a distant fourth) means it will be difficult for any candidate to win in the first round, making a run-off likely.
Whoever wins will inherit a poisoned chalice, with Nigeria facing rising insecurity, declining oil production, ballooning fuel subsidies, falling government revenue, a rising debt service burden, rampant monetisation of the budget and a plummeting naira in the parallel market. Politically unpopular decisions will be required to tackle many of these challenges, meaning there will be no honeymoon period for whoever succeeds Buhari as president and only a slim chance of re-election for a second term.
Further, it is unclear if any candidate will be able to tackle Nigeria’s deep-seated structural challenges, including corruption, weak governance and the absence of a social contract. While the election holds out some hope for a change of tone on some of the key macro policies that have been botched under the current administration (like the fuel subsidy and FX regime, among others), deep structural change is needed for Nigeria to achieve meaningfully positive per capita growth over the longer term.
That said, Nigeria’s debt problem is largely domestic and, with a current account surplus and a relatively manageable external debt service burden, the risk of external debt distress is low in the near term. Moreover, with Nigeria’s 10-year eurobond yielding above 14% and priced around US$68, investors are more than compensated for those risks.
As such, we retain our Buy recommendation on Nigeria eurobonds at US$68.15 (14.11% YTM) for the NGERIA 7 ⅞ 02/16/2032s on a mid-basis as of cob on 7 October on Bloomberg.
Click here for a replay of the webinar, and on the "Download full report” button for the associated slide deck, including Tellimer's section, which summarises Nigeria’s macro outlook in 16 charts.
Nigeria annual macro overview: The song remains the same, February 2022
Nigeria: FX overhaul promised post-Dangote refinery, October 2021
Nigeria: Ban of abokiFX furthers FX folly, September 2021