NIGERIA'S ELECTIONS - AFRICA'S SHINING MOMENT

Razia Khan, Standard Chartered.

The All Progressives Congress (APC), led by former military leader General Muhammadu Buhari, has won Nigeria’s presidential election, unseating the People’s Democratic Party (PDP) that has dominated the country since its 1999 transition to civilian rule.

The election symbolises the institutional change that made the PDP’s election upset possible. Against considerable odds, INEC, Nigeria’s independent electoral commission, played a key role in delivering credible elections. The implications run deep. This glimpse of institutional strength speaks powerfully about Nigeria’s future as the African economic powerhouse that might yet emerge with continued, sustained reforms.

In overseeing relatively peaceful elections that will transfer power from one government to another, Nigeria joins the ranks of other African countries such as Ghana, Kenya, Zambia and Senegal that have already seen successful multi-party transitions.

In terms of its economic and political importance, however, Nigeria outweighs all the others. Almost one in four sub-Saharan Africans is Nigerian. Nigeria has an economy of $540bn, accounting for over a third of SSA’s GDP. What happens in Nigeria matters for Africa. This latest maturing of Nigeria’s democracy will have region-wide implications.

Some have already described the unseating of an established political party in Nigeria as Africa’s “Berlin Wall moment”. This is no overstatement. Much change is now anticipated – we believe with potentially positive economic effects. While current low oil prices create a challenging backdrop for Nigeria, there are nonetheless considerable economic positives that deserve a greater focus.

First, and most significantly, we should not underestimate the impact of greater inclusion on economic growth. Nigeria has a growth stellar record, with GDP growth averaging near 7 per cent levels for much of its first decade after military rule. But Nigeria was not severely tested by weaker oil prices over this time. Behind this headline growth rate, absolute, relative and subjective measures of poverty all increased.

Many, including the National Statistics Bureau, query these findings. Nonetheless, Nigeria’s prosperity has not been evenly shared and this has contributed significantly to political and security risks. Too many Nigerians feel economically marginalised, too many feel that they were left behind by a growth narrative that did not apply to them.

Nigeria’s elections now provide an important opportunity for this to change. It will not be easy but with lesser perceived exclusion of a large swathe of Nigeria’s north, economic growth should receive an important boost. This may even help to blunt some of the impact of a weaker oil price, benefiting all Nigerians.

However, it is important that the lessons of economic inclusion apply to Nigeria’s oil-producing Niger Delta as well. Sustained growth for Nigeria will only come against a more stable backdrop – one in which all Nigerians feel that they have an equal share in prosperity.

Second, this is a crucially important time to proceed with economic reforms. As the seventh most populous country globally, Nigeria’s long-term potential runs far beyond its current oil wealth. In order to realise this potential, Nigeria must lessen its dependence on oil. Currently, Nigeria’s diversified economy is not reflected in its fiscal revenue. When the oil share of fiscal revenue is excluded, Nigeria’s revenue mobilisation barely totals 5 per cent of GDP.

An important effort aimed at raising non-oil revenue mobilisation has been spearheaded by Ngozi Okonjo-Iweala, Nigeria’s Coordinating Minister for the Economy. Given the strength of expectations regarding government delivery and the constraints on fiscal spending imposed by Nigeria’s low level of fiscal savings, these reforms will need to accelerate. With its low debt levels, Nigeria arguably has significant borrowing capacity in place.

But in a world of double rather than triple-digit oil prices, Nigeria will need to demonstrate more rapid progress in raising fiscal revenue, in order to preserve its borrowing capacity and its ability to invest in infrastructure for long-term growth.

Third, investor interest in Nigeria will return. Investors have been waiting nervously on the sidelines for elections to pass and political risk to diminish. They will be encouraged by the passage of the elections and investment dollars should flow in. This will happen despite the debate over ideal entry levels, which is largely determined by perceptions of continued risk to the foreign exchange rate. The promise of greater transparency will be key to the long-term sustainability of these investor flows.

Accompanying this, Nigeria will have to prove its ability to move away from its old oil-dominated economic models with all the baggage of the rentier state that accompanied it.

In the past, the key question facing Nigeria’s economy was how oil wealth should be shared. In the future, the key economic question will be how new, non-oil wealth will be created. In essence, this is the implication of Nigeria’s political transition.

Razia Khan is Head of Africa Macro Research, Standard Chartered.