Investors wary amid Nigeria uncertainty

Almost 80 days after his sudden disappearance from the public eye, Nigeria’s President Muhammadu Buhari shocked friend and foe alike with a surprise appearance at an event in July.

Defying the naysayers who had predicted his demise, the sprightly 74-year-old beamed amid a group of regional politicians in official photos taken at Abuja House, London and shared with the president’s Twitter followers. For supporters of Buhari, who has taken two extended but unexplained medical absences from Nigeria during his presidency, there was more good news to come.

Rochas Okorocha, a regional governor and member of the visiting delegation, predicted that the president would be home in less than a fortnight. With Nigeria mired in recession amid continuing foreign exchange shortages and policy inertia, investors might be expected to welcome the returning president with open arms.

Yet with vice-president Yemi Osinbajo receiving plaudits for his energetic interim management of the country, some investors fear that Buhari’s return to Abuja could see the unwelcome return of what they consider to be his sluggish leadership style and ill-advised economic measures.

“There seems to be a sense that Osinbajo has effectively been in power, and really from a markets standpoint he’s viewed as more of a reformer and behind the new exchange rate regime,” says Kevin Daly, portfolio manager, emerging market debt, at Aberdeen Asset Management.

“There’s a perception that he’s trying to move ahead and push the country in terms of macro reforms, which is good news.” For the urbane Osinbajo, a Lagos-born commercial lawyer and academic, Buhari’s extended absences have offered a priceless opportunity to road-test his leadership credentials.

From meetings with security chiefs on the threat posed by Boko Haram to talks with restive communities in the troublesome Niger Delta, Osinbajo has proved a visible, restless presence across the country, in stark contrast to the silence of his stricken leader.

Investors say that Osinbajo’s encouraging approach to the country’s economic problems – particularly his clarity on last year’s foreign exchange debacle – first marked him out as a man of substance.

In the midst of a largely self-inflicted currency crisis prompted by an artificially high naira exchange rate, Osinbajo publically questioned government policy by calling for a substantial devaluation. That was eventually ushered through last year after months of resistance from the president. 

This May Osinbajo again appeared to speak for his party’s economic reformers by suggesting that the country could lift foreign currency restrictions on 41 imports. For many, Osinbajo’s record of measured dissent compares favourably with Buhari’s malign economic role.

“There was a sense from shortly after he was put in office that economic issues just aren’t Buhari’s key priority,” says John Ashbourne, Africa economist at Capital Economics. You had a long gap where he didn’t appoint a finance minister and every budget has been delayed and there’s this sense of drift on economic policy. That’s partially because the president is ill but even when he was back home he wouldn’t seem to be pushing on these policies.”

Tentative optimism

Under the interim administration, investors are holding out hope of a modest turnaround in the stricken economy. While the country has been mired in recession for five consecutive quarters, the gradual removal of currency controls and improved oil output following the restoration of sabotaged infrastructure offer tentative optimism for second quarter growth.

“You’re talking about a country that was starved of dollars for the last several years and now you’re slowly starting to see access improve,” says Aberdeen Asset Management’s Daly. “I’m certainly a little more optimistic on the story now than I was six months or a year ago. Inflation is still a concern, and there’s still some scepticism over the FX regime, but it’s getting closer to a market which can function again in terms of the ability to entice offshore portfolio investments back in the country.”

No big policy moves

Yet while Osinbajo appears to have boosted his leadership credentials, the limits of the vice-presidential portfolio mean that only incremental legislative changes are possible under his interim administration. Buhari retains widespread support for his military campaign against Boko Haram and his ongoing bid to reform and root out graft at the Nigerian National Petroleum Corporation.

But while he remains incapacitated abroad or at home, the robust policy leadership and major structural reforms that the country needs are likely to remain delayed for the foreseeable future. 

“There’s a sense that as long as the arrangement remains as it is with Buhari seen to be very ill and Osinbajo only acting president, we aren’t likely to see really big policy moves… The economy is on a gradual recovery path, but if nothing changes and policy remains harmful to growth and you don’t see a shift in terms of investment, growth could get stuck at 3% which would be a pretty bad result over the medium term… it would be a huge missed opportunity,” says Ashbourne.

However, the coalition of vested interests that backed Buhari’s election campaign are unlikely to countenance leadership challenges, especially those who hold to the unwritten rule that power must alternate between Northern and Southern presidents. As Buhari has only served part of his term, Northern powerbrokers will be opposed to any permanent attempts to replace him with southerner Osinbajo. While few have questioned Osinbajo’s loyalty to his boss, a future succession crisis would be fraught with peril.

“To speak frankly, either Buhari gets better and comes home or Osinbajo becomes president. I don’t think either of those situations lead to a sudden push for faster policymaking, because either he’s home and recovering or you have jockeying for positions as Osinbajo leads the party to the next elections,” says Ashbourne.

“How do the ruling party stay together and figure out what they want to do? It’s all very unclear to me and the current situation will look very settled in comparison to what we could be seeing in a few months.”

David Thomas