Nigeria Markets soar on Tinubu win as Saudi Aramco set to partner the country’s state-owned oil corporation
Bola Ahmed Tinubu’s declaration as the winner of Nigeria’s hard-fought Presidential election by the Independent National Electoral Commission (INEC) last week has set the economy abuzz with reactions. Industry experts have, in turn, latched on to the aura of the moment to seize the day in their analysis from diverse perspectives.
Already, Bloomberg reported three days ago as results trickled in and pointed to a Tinubu win in the pivotal election that Nigeria bonds rose higher than the trend prior to the election.
“Nigerian bonds are posting some of the best gains in emerging markets as investors bet that ruling-party candidate Bola Tinubu, who’s taken an early lead in the nation’s presidential election tally, will offer reforms to pull Africa’s largest economy out of a fiscal mess.
“Five of the West African nation’s dollar bonds ranked among the 10 best performers on Monday in a Bloomberg index of 71 emerging and frontier nations. The country’s sovereign risk premium narrowed the most this year on Monday, according to JPMorgan Chase & Co. data. The equity benchmark in Lagos rose to an eight-month high,” the report said.
Adedotun Olaoluwa, media consultant to the Crown Prince of the Kingdom of Saudi Arabia, Mohammed bin Salman, says on the spur of Tinubu’s victory, that he is working with his client to facilitate a partnership that would see Saudi oil giant, Saudi Aramco, working with the Nigerian National Petroleum Company (NNPC) Limited to dilate scale and scope, improve efficiency, productivity and profitability. Aramco is one of the world’s largest oil companies, generating $294.9 billion in revenue in2019, producing an average of 13.2 million barrels of oil per day.
They are not alone in their position that the victory of the kingmaker who is now the king would unleash a positive economic outcome. Anders Faergemann, an emerging markets fixed income portfolio manager at PineBridge Investments to Reuters: “We view the economic outlook for Nigeria as glass half full, subject to the authorities allowing the Naira to devalue and removing the oil subsidies.”
Other analysts have tied their perspectives to the oil and gas industry, which they assert, would witness higher momentum that would trigger growth in activities. Industry analysts remain optimistic that the victory of the president-elect would actualise Kolmani Oil exploration in Gombe State. This would also mean that the economy of the state is not only set to witness a boom in activities in the upstream, downstream and ancillary segments, but also have a new wave of capital formation and investment in infrastructure.
Generally, Dr Ayodele Teriba, an economist and Chief Executive Officer, Economic Associates, says: “Relative peacefulness and decisiveness of the 2023 presidential election cleared the huge cloud of uncertainty that the election had placed on Nigeria’s economic outlook. This had more to do with the fact that collation of results was not aborted midstream, as some wanted, and had little or nothing to do with the candidate that won. The success of the contest in producing a clear winner cleared the cloud of uncertainty. An inconclusive contest would have further darkened the cloud.”
Olaoluwa who is also a senior media adviser to the Government of the state of Qatar and Sri-Lanka further says that Tinubu’s presidency will reduce oil theft significantly. The implication of this is that the country’s oil production capacity and revenue would increase and boost foreign exchange earnings and foreign reserves.
Part of the pledges made by the president-elect is to boost oil production from it’s lowly 1.39 million barrels per day, which is well below the country’s 1.8 million barrels per day OPEC quota, to 2.6 million barrels per day by 2027. Investors hope his administration heralds sustainable reform to achieve these .
Aubrey Hruby, nonresident senior fellow at the Atlantic Council’s Africa Centre, a co-founder of Tofino Capital, and an adjunct professor at Georgetown University further shade some light on the expected impact of Tinubu’s tenure. His views: “In order to address the concerns of the youth, the septuagenarian Tinubu will need to turn his immediate attention to the economy. Food inflation, at a seventeen-year high, is up 28 percent year on year from 2021 to 2022, official youth unemployment hit 42.5 percent (according to the national bureau of statistics) and oil production has fallen to a forty-year low. Power is still expensive—Nigeria is home to sixty million diesel generators and fuel products are still imported—and the World Bank estimates that over 40 percent of Nigerians live below the poverty line. Borrowing on international markets to invest in infrastructure is not really an option for the new Tinubu administration, as Nigerian debt has nearly doubled since 2015 and is now over one hundred billion dollars.
“In the campaign, Tinubu committed to removing the fuel subsidies that cost Nigeria more than ten billion dollars in 2022, but this is not the first time a president tried to take on this beast. Then President Goodluck Jonathan’s efforts to remove the fuel subsidies ended after nationwide protests in 2012. This time around also promises to be politically difficult given the financial hardships faced by Nigerians.
“Tinubu will also be asking a lot of Nigerians who are dependent on day-to-day imports should he push for the free float of the naira. The central bank currently restricts access to foreign exchange and rations dollars to prop up the naira, which is now valued at half of what it was when outgoing President Muhammad Buhari was first elected in 2015, resulting in a large spread between the official and street exchange rates. By the time Tinubu officially takes office at the end of May, hopefully the current government will have rationalized the demonetization plan that has caused cash shortages and long lines at ATMs.
“Despite all of these economic challenges, the Nigerian spirit has remained resilient. The informal economy (which, based on my experience doing business in the country for twenty years, is two-to-three times the size of the official economy) continues to absorb newcomers to the labour market, and there is a bright spot within Nigerian tech and entrepreneurship. The country is home to Africa’s largest venture capital and tech hub, and Nigerian companies such as Sabi, SeamlessHr, Moniepoint, and Moove are expanding to other economies in the region.”
The market remains astir with activities and investors are hopeful that Tinubu’s tenure heralds sustainable reform to support the expected positive economic outcome.