Fitch warns Nigeria of political risks after 2023 elections

By Onome Amuge

The upcoming 2023 general elections in Nigeria has been described by many analysts as one of the defining moments in the country’s history as the voting populace throng into polling units to elect their choice candidates in the hope of an economic turnaround from the country’s extremely fragile state.

However, Fitch Solutions Country Risk &  Industry research analysts have predicted that the troubling realities including backdrops of violence associated with the cash scarcity,could present a rise in political risks followed by security and social unrest irrespective of who emerges victorious of the presidential candidates.

The leading provider of credit ratings, commentary and research for global capital markets, in a recent webinar presentation titled “Beyond The Election: Nigeria’s Macroeconomic & Political Outlook”, explained that political stability is on a downward trajectory  going into the election as violence against civilians has more than doubled since 2019. It added that public Safety and security has deteriorated in the North West and South East and intergovernmental sentiments have also arisen which compared to previous elections, is clearly illustrated by the recent protests in naira redesign policy and fuel scarcity across the country.

“So we believe that a closely followed election will clearly aggravate these existing security challenges and amplify policy and regional tensions which is likely to result in higher levels of social unrest,” the agency said.

Mike Kruiniger, senior analyst,SSA Country Risk, Fitch Solutions,in his presentation, pointed out that another reason  why the agency believe that the election will be followed by more political risks is that a victory for Bola Tinubu, the APC presidential candidate, would break with Nigeria’s unwritten tradition that the presidency alternates between muslims and christians.

“Given that the current president, Buhari is a muslim, a Tinubu victory will keep a muslim as the head of state and what could make that more significant is that Tinubu has a muslim running mate. Again, breaking with the unwritten tradition that the president and vice president are of different faiths.

 We essentially believe that a victory for Tinubu is likely to increase perceived marginalisation among christians which could aggravate religious tensions in the country and thereby challenge the already precarious security situation,”   Kruiniger said.

The senior analyst also hinged the agency’s opinion that social unrest and public dissatisfaction would follow a Tinubu victory on the assertion that Peter Obi’s supporters could potentially question the integrity and fairness of the electoral process which could lead to protests across many parts of the country, especially in the South East and South South regions of the country which are already areas of which Obi is most popular.

“While we expect higher political unrest following the votes, we believe that a rerun or post election violence is unlikely at this point,” he said.

Presenting the economic outlook for Nigeria in the year ahead, John Ashbourne, Global EM economist,Fitch Solutions, said Nigeria has been a significant economic underperformer for some time.

Ashbourne noted that  Nigeria had been growing faster than  other countries in the sub-Saharan region at the turn of the century, but since 2015, the growth has been much slower as a whole and the growth since 2015 has only averaged 1.3 per cent per year. This, he noted,  is a very poor performance for  Nigeria where the population growth is about 2.3 per cent.

Fitch, in its assessment of Nigeria’s fiscal sustainability, external finances and economic outlook, downgraded the country’s rating to ‘B-’ from ‘B’ in November 2022, with a stable outlook, reflecting continued deterioration in debt servicing costs and external liquidity.

 It also noted that increased financing constraints or signs of difficulty in meeting debt servicing costs could lead to negative rating action.

“Our forecast is that growth which had a tick up after the covid will slow again in 2023 and in the coming five years will only average about three per cent which is a very poor result even if it is a bit better than what we saw in recent years,” Ashbourne said.

He identified structural decline in the oil sector, poor policy making framework, and increasing fiscal risks as three major reasons Fitch believes the Nigerian economy will remain weak.

Commenting on the poor policy making framework in Nigeria, Ashbourne pointed out that there are a variety of different policies that are actually not ideal.

“I think the two biggest ones are the currency regime and fuel subsidy. Both are efforts by the government to control the market in order to lower inflation and to make imported goods and fuel more affordable to Nigerians but they aren’t policies that are working very well and we think they are policies that are becoming very costly and having significant negative implications,” he said.

On this point, the economist said that policy making in Nigeria has tended to be very unpredictable, making it difficult for businesses, particularly foreign businesses to have positive expectations.

“An example is the recent effort to demonetise a large portion of the currency base. The government is forcing Nigerians to turn in their existing currency notes for new notes and that’s not a bad idea for valid reasons but the implementation of it has been quite poor and has led to shortages of new notes, huge bank queues and the inability of many to access their money. This is the kind of policy making that has held back the economy and led to lack of investments,” he remarked.

On a positive note,Ashbourne said even a slowly growing Nigerian economy is still seen as a resource for economic activities because even a slowly growing Nigerian economy is still the largest economy in sub-Saharan Africa by some margin. He added that despite the bleak economic outlook,the incremental increase in demand provided by Nigerians will still be enormous.

“Our core view is that things will remain the way they are because the APC will remain in power. Even if APC doesn’t emerge as winner, the backdrop of the inflation will make it very difficult for any president, even with the best intention to really push through any sort of major reform,” he added.

Ashbourne also noted that reforming the fuel subsidy scheme or allowing the currency to weaken will both be very positive moves in the long term, but both will add to inflation in the short term.

The problem here, he explained, is that inflation in Nigeria is very elevated and any  kind of policy that will lead to a short term rise in inflation will be very economically brave but  unlikely to be announced by a new government.

He added that the next president in Nigeria is going to inherit a very fragile situation with little resources to invest in major projects needed to boost the economy but instead is struggling to keep funding going which is very challenging considering the poor debt service to revenue.