As an incumbent, President Muhammadu Buhari is coming into the elections in a strong position. By reason of access to government financial resources and control of coercive institutions, he has an arsenal of incentives with which to affect voters’ behaviour. An incumbent, by default, still possesses the biggest bully pulpit in the public space and the ability to commandeer national attention at any time and place of his choosing. Buhari’s support base – millions of voters in the north-west and in the north-east – is still intact. His populist message of fighting elite corruption and modelling integrity in public office, however implausible they seem to neutrals and to his opponents, continue to resonate among large sections of the electorate. Even so, the president is not without chinks in his armour.
Having a guaranteed voting bloc is important but their electoral impact is limited if that voting bloc is sequestered in just one or two geopolitical zones. The legal requirement of a majoritarian presidency, which is to secure at least 25 percent of the votes cast in two-thirds of the states of the federation, means a president can only be elected by a broad, diverse and national support base. Victorious politicians win by building the broadest coalitions and alliances. Buhari’s victory in 2015 was made possible because he assembled the broadest alliance, poaching key political actors and their networks from the PDP. Indeed, it may be argued that it was the defection of disaffected renegades under the aegis of the ‘New PDP’ faction from the PDP to the APC that decisively turned the tide in favour of the latter.
A significant concern for the Buhari camp is that the coalition that delivered victory in 2015 has collapsed. The political cost of the defections of key figures such as the Senate President Bukola Saraki, the Speaker of the House of Representatives Yakubu Dogara and Rabiu Kwankwaso among others will be significant. These men, along with Atiku Abubakar, were instrumental to the APC’s victory in 2015. Buhari’s failure to keep the coalition that brought him into power, or at least preserve relations with most of the supporting cast that helped him secure the presidency, has created a significant impediment to his re-election. This is compounded by the fact that the APC was enmeshed in internal discord in certain states, and this has been further exacerbated by discontent with the primaries recently conducted by the party in some states.
Ultimately, there is a sense that both sides are largely settled. Both Buhari and Atiku are figures that divide attention albeit in different ways. The president’s opponents see him as obdurately provincial and constitutionally incapable of presiding fairly over a diverse society without lapsing into nepotism and irredentism. Atiku’s naysayers consider him a corrupt politician and the embodiment of the political class whose depredations are responsible for Nigeria’s ruin. For them, Buhari represents a thesis of public integrity of which Atiku is a blatantly flawed antithesis. The partisans and their supporters have dug and ensconced themselves in their immovable trenches. Only a thin sliver of neutral voters remains available to be swayed by campaign rhetoric. Thus, the election outcome will likely hinge on which candidate can translate sympathetic sentiments into voter turnout on polling day. This is all the more important as there is a risk that in Buhari and Atiku, Nigeria has two candidates whose flaws and strengths are so familiar that they will be unable to inspire sufficient turnout at the polls.
Politically, we envisage that in the best case scenario for the incumbent, he may win but face a hostile national assembly where we will have an opposition party having the majority in both legislative houses for the first time. In the worst case scenario, he will lose the election.
Nigeria’s economy is sadly still largely dependent on oil prices. Economic planning uses a $60/barrel benchmark and a 2.2 million bpd for planning. Already oil prices are trending dangerously close to this benchmark price and we believe that this downward trend will continue next year. Also, not only has production levels never reached 2.2 million bpd in 2018, 2019 levels will trend lower, as the Niger Delta which has been relatively quiet will experience some upsurge in militancy. The impact of this is multiple folds. First, the government’s already strained revenue position will become totally untenable, and we predict that debt service to revenue ratio will reach 80%, limiting Nigeria’s ability to continue to borrow money internationally. In the first half of the year, it will be a political priority to continue to defend the dollar and hence we don’t expect the exchange rate to move significantly before the elections. However, once the elections are over, we expect a steep rise in the exchange rate by between 30% and 40%. We expect that the government will attempt to control this price for as long as it can, opening arbitrage windows akin to 2016 and leading to significant capital flight.
Secondly, we expect the trend of poor budget performance to continue, due to the precarious revenue profile of the central purse. Key investments will unfortunately not be made.
Whatever the new wage structure that is negotiated with the unions ends up to be, unpaid salaries will remain a clear and present reality.
Another impact of poor budget performance will be an inability to continue to fund some of the social intervention programmes the government is currently championing.
As we do not expect the policy choices to be different, it is likely that Nigeria will face another recession in 2019.
In security, we expect the political will to face the numerous security challenges and attempt to deal with them to finally arrive because of the necessity of conducting election in the troubled states.
Nigeria has shown a remarkable ability to deal with issues if dealing with these issues align with the overarching interests of its political elite. For them, nothing is more important than securing elections that will directly determine the flow of political patronage for the next four years. Therefore, banditry in Zamfara and Northern Kaduna, Boko Haram in Borno and Yobe, pastoralists in the North Central and other pockets of violence will be faced with renewed vigour.
The biggest threat, however, lies at the centre of the government’s treatment of the Islamic Movement of Nigeria. If the treatment continues and the military presence that is bound to escalate as efforts to keep the peace for the elections continue, we expect more clashes with the IMN and one of these may be the spark that lights a larger tinder.
Regardless of the winner of the 2019 election, there will be a change of guard at the leadership of security agencies.
If the opposition manages to make it into Aso Rock, there will be a clamour for the current heads to face the “Dasuki Treatment”.
We expect that as the elections draw nearer, the government of President Buhari will increasingly resort to populist policies to shore up support, an action which will aggravate the country’s indebtedness.
Given concerns over INEC’s preparedness for the elections, and the potential for a pro-APC bias in conducting the elections, we believe that a close result will be followed by allegations of fraud and irregularities.
The elections will be tight. Buhari will dominate in Nigeria’s most populated zone – the North West from where he hails but unlike previous years, his majority will not be as absolute as Atiku will more than meet the 25% minimum electoral requirement in each state in the zone. The Pastoral Conflict will be the deciding factor in the North Central and we expect Atiku to defeat Buhari in that zone. This issue will also factor to shift votes away from Buhari in areas of the North West and North East dominated by minorities. In the South, Atiku should carry the South East and South South states handsomely, so that as in the 2015 elections the South West zone will once again decide the presidential elections. While we think it that an elite consensus, and popular discontent will be favourable to Atiku, Buhari’s control of the apparatus of state will be a factor, and we do not think that he will hesitate to use it, so at this point we think that the elections are too close to call.
A disputed result is very likely for the 2019 general elections, raising the prospect of pre- and post-election violence.
Based on the intervention of state and local actors, we believe that electoral violence in 2019 will be of a greater magnitude than in 2011. The following states are at particular risk: Abia, Adamawa, Akwa Ibom, Bauchi, Benue, Cross River, Imo, Kaduna, Kano, Kogi, Nasarawa, Osun, Oyo, Rivers, Taraba and Zamfara.
The Pastoral Conflict has disappeared from the mainstream media because of election coverage. It has indeed undergone a sort of lull, but attacks and reprisals have continued in a slow burn manner, and the underlying issues have not been resolved. We expect this conflict to intensify after the elections.
Q1 will be a difficult one for Nigeria as ISWAP will launch an offensive when the security services get distracted by the elections. Attacks against major city centres, particularly Maiduguri, Bama, Baga and Monguno can be expected. However, the Buhari government might yield to pressure and contract a PMC to take the fight to the insurgents. We expect an increase in IDPs over the course of the year, stretching Maiduguri almost to breaking point.
The stock market has taken a beating in 2018, with the All Share Index down by more than 18% year to date as foreign direct investors (FDIs) have departed the market due, mainly, to political and economic uncertainties. The market will start the year with a majority of stocks priced well below analyst valuations. The impetus needed to get the market ticking should be successful elections and positive economic news – particularly the rebound of oil prices. This rebound is unlikely, given announcements of Qatar’s decision to leave OPEC as well the US commitments to driving lower prices by increasing supply and putting pressure on the Saudis. Given the government’s likelihood of ramping up price controls on the FX market, coupled with electoral uncertainty, it is unlikely that portfolio investments that drove the stock market will flow back in. We do not expect FDIs to storm back into the market in huge volumes as seen in previous years because of the increased yields investors now enjoy in the US will see FDIs demanding higher risk premiums from emerging markets. Due to the current debt expenditure to revenue ratios, the Nigerian government will be cautious of borrowing costs.
With regards to public offers, companies will continue to take the option of Rights Issuance which is cheaper, less stressful and generally achieves the aim of raising funds, at least for small volumes. The macro situation is likely to affect the financial sector adversely again, especially banks that have been shown to be structurally weak. We expect that certain banks will either become acquisition candidates or require further CBN intervention.
With oil prices at sub $60 levels, the government will find it hard to fund its capital budget considering that implementation of the new minimum wage will significantly increase spending on the recurrent side. We do not expect any big ticket deals for the government in 2019. It is, however, likely that China will further become involved in the few infrastructure deals that will be done.
In 2019 there will likely be a new CBN governor as Mr. Emefiele’s current tenure wraps up. The governor’s stance on AMCON and bank takeovers will determine the status of troubled banks. Diamond Bank still has the opportunity to sort out its internal governance issues before the regulator is forced to step in. Major activities will be in the payment service bank and micro-finance bank spaces, where many savvy investors are now staking claims of being technology driven financial service providers. We expect increased CBN regulatory activity in this area, with fintech operators being required to comply with more CBN regulation, which may ultimately lead to increased costs, higher entry barriers and regulated pricing of the segment.
Oil prices are ending 2018 at much lower prices than anticipated. The major driver of oil prices in 2018 have been supply and actions (and tweets) of Donald Trump. 2019 oil prices will be determined by the actions of OPEC, the fall out of the Jamal Kashoggi murder for Saudi Arabia and U.S. sanctions on Iran. We believe that oil prices will stabilise around the $60 levels in 2019.
Nigeria’s economy is in a fragile state. 2018 has seen negative growth in the oil sector due to absence of substantial investment. Considering that the sector provides the government with more than 70% of its revenues despite providing less than 10% of the nation’s GDP, 2019 will be a tough year due to declining oil revenues.
Unemployment will continue to rise, and unofficial figures will put unemployment at half the population by the end of 2019. This will be seen in increased social unrest such as crime.
Nigeria’s police will come under increased assault in 2019, and more policemen will begin to openly express dissatisfaction with the way the force is being run. More current and former policemen will also be involved in criminal activity.
These will continue to take centre stage as revenue shortfalls, repeated failures to meet IGR targets, among others will lead to further delays in salaries and increase the agitation by workers, and the deterioration of Nigeria’s public infrastructure. This will hold regardless of who is sworn in on May 29, 2019.
This will be the year that Nigeria finally begins the painful but necessary cut in civil service numbers. The fiscal situation will demand it, and it will start in some of the states, but soon spread to the federal government.
We expect 2019 to be filled with industrial actions as unions press home welfare demands. As the elections draw near, the government will be eager to get rid of such distractions, and will cave in to the unions. However, and regardless of who wins the 2019 elections, the unions will be back in the battlefield in H2 as the government will be unable to meet its commitments.
The proposed 2019 budget has already failed in its assumptions of $60 oil price and 2.4 m b/day. The country’s daily production has averaged below 1.7m b/day due to pipeline vandalism, oil bunkering and inadequate oil infrastructure.
©️ SBM Intelligence 2018