Businesses delay decisions on uncertainty over 2019 elections
Nigerian businesses are putting critical investment decisions on ice ahead of the 2019 elections amid rising uncertainty over the outcome of the elections and its economic impact.
Africa’s largest economy will hold presidential and governorship elections between February and March 2019 but the increasing fragmentation of the leading political parties means that no one is now certain of the final outcome of the elections.
Incumbent President Muhammadu Buhari is certain to pick the ticket of the ruling All Progressives Congress (APC) as the party is banking on his perceived popularity in the North East and North West to give them another four years in power.
However, it is still uncertain who will pick the presidential ticket of the main opposition Peoples Democratic Party (PDP). Even though former vice president Atiku Abubakar appears to be the leading candidate to pick the PDP’s ticket, other major contenders have appeared on the scene, who look ready to snatch the ticket away from him.
The emergence on the political scene of the Reformed APC (rAPC) led by the immediate former governor of Kano State, Rabiu Kwankwaso, has further complicated the political race. Kwankwaso, who allegedly has very strong support base in Kano and other parts of the North, is also known to have presidential ambition, and is reportedly seeking some form of alliance with PDP in a bid to unseat Buhari in 2019.
Behind the opposition are a group of former military generals led by former president Olusegun Obasanjo, who are also determined that President Buhari is not given a second term in Aso Rock. Faced with the rising political uncertainty, businesses and investors are taking a cautious approach to investing more money in the Nigerian economy or even raising new money to expand their existing operations.
Dangote Cement and IHS towers have both postponed their planned initial public offerings on the London stock exchange and Nigerian stock exchange respectively, until after the election.
“These are big organisations looking to raise funds and they will be relying on large foreign institutional investors, but Nigeria is perceived a high-risk environment in the minds of those investors until after elections,” said Taiwo Oyedele, partner and head of tax and regulatory services at Price Waterhouse Coopers (PWC).
“Because our democracy is not yet mature, there’s always uncertainty leading up to elections,” Oyedele said by phone. “But next year’s election will not be worse than in the past. There will be progress compared to four years ago,” he added.
Dangote Cement on Friday announced that its intended listing on the London Stock Exchange will not take place until after the 2019 elections. Even though the company did not say if the date of the proposed listing has anything to do with the 2019 elections, analysts say it can be linked since Dangote Cement has its biggest operations in Nigeria and investors may be cautious about putting money in the company if there is a high level of uncertainty in its biggest market.
“Dangote’s Cement’s IPO will definitely have a better chance of succeeding if there is clarity on the political situation in his home country,” said a financial analyst who did want to be named.
IHS Towers, Africa’s largest tower company, whose shareholders include Goldman Sachs Group, Wendel SA and MTN Group, has its biggest operations on the continent in Nigeria. The company is now also not considering doing any listing until after the 2019 elections.
Interswitch which has also planned an IPO valued at up to US$1 billion and dual listing on the London and Nigerian stock exchange, has also said that the process will not be completed until the end of 2019.
The company had told Bloomberg in September 2017 that the decision to delay its listing to the end of 2019 was because the “market was not as favourable” as it would have liked.
Sources have told BuisnessDay that many other companies that had considered riding on the boom witnessed in the stock market in 2017 to raise new money in 2018 are reconsidering their decision as sentiments turn sour.
The Nigerian stock market was the third best performing market in 2017 with a total return of 43 percent. But the stock market has returned -1.61 percent in 2018, a situation that has been linked with the rising political uncertainty in the country, and global selloff in Emerging Markets.
Data also shows that foreign portfolio investors are pulling funds out at alarming pace, particularly from equities.
Figures from the Nigerian stock exchange on foreign portfolio investment into equities in May show a 224 percent jump in outflows of foreign investment in stocks to N131 billion while inflows dropped to N62 billion in May from N64 billion in April.
Also data from the stock exchange shows that the stock market actually closed flat in the first six months of the year, with a return of just 0.09 percent as growing investor apathy has failed to lift market performance.
The only major IPO still likely to go ahead this year is the regulator-induced MTN Nigeria IPO, which is still scheduled to begin August, according to BusinessDay sources.
But besides political uncertainty, businesses are also having to deal with the issue of rising insecurity across the country signposted by the increased incidences of herdsmen attacks on farmlands that has led to hundreds of people being killed and thousands displaced.
This has affected business activities in North Central compounding the woes of businesses which have before now been struggling to push sales in the North East due to the attacks by Boko Haram.
“An economic impact of the violence is the loss of agricultural production that would ordinarily come from the region. While the North West geopolitical zone (key parts of which are engulfed in a different variant of recurring violence) is the home of Nigeria’s grain production, the Middle Belt is the primary production centre for roots, tubers, fruits, vegetables and various spices. Much of these have not been farmed since the crisis began to escalate in 2013,” research firm SBM Intelligence said in a recent note.
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