Buhari Bounce Becomes Bust as Nigeria Policies Irk Investors- BloomBerg News
When Muhammadu Buhari clinched victory in Nigeria’s presidential
elections in March, stocks soared as investors looked to the former
military ruler to reverse decades of
economic mismanagement and policy inertia. Now hopes have fizzled in his
ability to turn around Africa’s largest economy and oil producer.
Money that flowed into stocks and bonds in the West African nation,
which McKinsey & Co. says could become one of the world’s 20 biggest
economies by 2030, is now fleeing as growth prospects diminish along
with oil prices. While Buhari, 72, has prioritized stamping out the
graft that has plagued Nigeria since independence from Britain in 1960,
policy-making appears as uncertain and haphazard as ever.
“After the initial euphoria, people have become disillusioned,”
Ayodele Salami, who oversees about $500 million of African equities as
chief investment officer of London-based Duet Asset Management Ltd.,
said by phone. “He would probably say that he’s being deliberative and
cautious. But we expected more.” Duet’s Africa fund has cut its
investments in the country to about 24 percent of the total from 38
percent in the last year.
Buhari waited five months before naming his cabinet, hasn’t proposed a
clear plan to revive growth and backed foreign-exchange controls aimed
at defending the naira. His retention of gasoline subsidies, plans to
raise spending in the face of declining revenue and silence about a $5.2
billion fine levied on mobile-phone operator MTN Group Ltd. have added
to investor unease.
Nigeria’s benchmark stock index has plunged 22 percent since reaching
a year-high on April 2, the day after Buhari was declared the winner of
the presidential race against incumbent Goodluck Jonathan. That’s the
third-worst performance globally in the period, after the bourses in
Ukraine and Egypt. The index advanced 12.5 percent in the two days after
Jonathan conceded.
To be sure, Buhari inherited depleted government coffers and a
bureaucracy that multiple probes have blamed for looting billions of
dollars of oil revenue. The president has said he delayed appointing
ministers because he needed time to vet suitable candidates.
Garba Shehu, a spokesman for Buhari, didn’t immediately respond to written questions after requesting they be sent that way.
The hiatus has compounded the pain caused by the slide in the price
of crude, which accounts for two-thirds of government revenue and 90
percent of export earnings. Growth, which averaged 6.3 percent annually
over the past decade, is set to slow to a 16-year low of 3.3 percent
this year, according to the median estimate of 15 economists surveyed by
Bloomberg.
Many filling stations ran dry this month as the government withheld
fuel subsidies to suppliers, preventing them from restocking.
Lengthening lines forced Buhari to ask lawmakers for permission to pay
413 billion naira ($2 billion) in overdue payments, an amount that
hadn’t been budgeted for.
While next year’s budget has yet to be finalized, Buhari wants to
raise spending by 56 percent, according to a person who attended a
briefing on the government’s plans and asked not to be identified
because the matter is private. Vice President Yemi Osinbajo says the
government plans to spend its way out of a slowing economy and that an
infrastructure fund will be created with public and private financing.
The penalty imposed on MTN’s Nigeria unit last month for failing to
register about 5 million subscribers may be an attempt to plug the hole
in government finances, according to Cobus de Hart, an economist at NKC
Independent Economists.
“You cannot deny there might be a fiscal element to the massive
fine,” he said by phone from Paarl, near Cape Town. “It will make
investors a little bit more wary of investing in Nigeria.”
An even bigger concern for many investors is the authorities’ naira
policy. The Central Bank of Nigeria, with Buhari’s backing, has burned
through $4.3 billion of reserves this year and choked off supply of
foreign exchange to banks and their customers to defend the naira, even
as major oil exporters such as Russia and Colombia have let their
currencies slide. The restrictions prompted JPMorgan Chase & Co. to
remove Nigeria from its local-currency emerging-market bond indexes,
tracked by more than $200 billion of funds, in September, triggering a
selloff in the nations’ assets.
While the naira has been all but fixed at about 198 to 199 per dollar
since March, forward prices suggest it will drop by almost one-fifth,
to 243.5, in a year.
“The number-one issue is the exchange rate,” Andrew Howell, a
Citigroup Inc. frontier markets strategist, said from Lagos. ”Access to
foreign exchange is becoming a widespread problem.”
Nigerian Breweries Plc, the nation’s biggest brewer that’s controlled
by Heineken NV, said it takes two weeks to obtain dollars to pay for
its imports, twice as long as it required a few months ago. Nestle SA’s
Nigerian unit has had to wait six weeks for dollars, according to
Renaissance Capital Ltd. analysts.
“We have had an underweight position in Nigeria since before the
election,” Johan Steyn, a fund manager at Prescient Investment
Management in Cape Town, said by phone. “Until we see the depreciation
of the naira toward a more sustainable level, we are hesitant to add to
that position.”
Buhari has won plaudits from leaders including President Barack Obama
for his efforts to tackle graft. He replaced the management of the
state oil company, which was accused of withholding billions of dollars
from the government, and has stepped up the fight against an insurgency
being waged by Islamist group Boko Haram.
“The degree of transparency we’re starting to get with the new
administration is hugely positive,” Douglas Rowlings, an analyst at
Moody’s Investors Service, said in an interview in Lagos. “It gives
investors the perception that operating in Nigeria will now be done
following proper procedures.”
Jan Dehn, head of research at Ashmore Group Plc, which oversees
almost $60 billion of emerging market assets, remains unconvinced that
Buhari is up to the job. The fund manager sold all its Nigerian
government debt in the past year.
“So far the Buhari administration has done all the wrong things,”
Dehn said by phone from London. “Not only has he been incredibly slow in
taking any action, when he finally has taken action on the economic
front it’s been diametrically opposed to sensible policy. That is a
major disappointment given expectations prior to his election.”
