by Ibrahim Ola Balogun,
A fundamental premise of doing Business requires economic activities to stipulate sound rules and favorable environment. Businesses operate better in an environment where the rule establishes and clarifies property rights and reduces the cost of resolving disputes. The rule expectedly should increase the predictability of economic interactions and on the one hand, provides contractual partners with certainty and on the other, provides protection against volatile state policies, unstable government regulations and misuse or abuse of power.
Governments have a critical role in managing systemic risks, providing an enabling environment for shared action and responsibility. It also has a crucial role of channeling direct support to vulnerable people and businesses. The state in this context should contribute to reducing the uncertainty that can be wrought by erratic policies, protracted implementation of reforms, and frequent regulatory changes. Markets of course, dislike uncertainty in any form and that is why no reasonable policy maker will increase market tension in any form.
Having said that, political transition in many not very advanced democracies is typically characterized by intense apprehensions and uncertainties for businesses and investors. Consequently, prolongation of the period usually impacts adversely on investors’ confidence. During this period, investors and business find it difficult to take major decisions and the tempo of economic activities decelerates as a result of the impending elections. That is why policy makers in organized societies ensure quick dispensation of this situation to facilitate quick returns of investors to business.
In the current Nigeria’s situation, prolonged suspense occasioned by six-week election postponements has and is bound to further impact negatively on business and investors’ confidence. Ii business, assurance of definite direction of political and economic governance to manage risks is non compromisable. Financial Economists rest on an assumption that prices of securities in financial markets are a reflection of all available information just as stock prices move on information about the firm. Traders and investors attempt to trade in advance of latest information or shortly after it is revealed to financial markets; buying on good news and selling on unsavoury information.
In this context, when Prof. Attahiru Jega came on air, claiming to have consulted extensively before concluding to postpone the February 14 and 28 elections respectively. One may then ask, did his extensive consultations’ involve finance and economic experts. Was the Coordinating Minister Economy consulted? But reactions from the sector rather raised more concerns over the implications of the hurriedly taken decision on the nation’s economy. Watchers of the economy contest that the postponement will, and has worsen the existing tension in the business environment and may keep the economy in a state of coma for the first half of 2015.
Mr Razia Khan, Prince Dapo Adelegan, Mr Elija Ezendu, Mr. Rotimi Fakayejo with many other policy analysts and social commentators among various other finance specialists frowned at the decision.
The small and medium enterprises and startup entrepreneurs are already being faced with numerous micro level impacts on businesses. The election postponement disrupted many plans, programmes, meetings, academic calendar, conferences, and important business decisions; locally and internationally. Many businesses and investors have already drawn a calendar that free up February for election. Rescheduling these activities and the attendant disruptions came at a cost to investors and citizens’ alike. A lot of businesses and investors had taken position before the announcement and have to readjust not only their budgets but also their strategic business decisions. They had to wait for the outcome of the February elections just as they presently wait impatiently for thec March/April polls to enable them take appropriate financial steps.
Aside the businessmen, perhaps, another set of people that bear directly, the crucibles of the postponement are political parties and politicians that have to go extra miles to sustain campaign budgets for the various elective positions. There was the need for additional funding requirements to sustain the tempo of mobilization and service the campaign apparatus of the parties and the candidates. This of course has been taking its toll on the finances of the candidates and the political parties.
Meanwhile, while this may be good news for the beneficiaries of such campaign spendings– media houses, logistics providers, printers of posters and banners, billboard providers, PR and Advert Agencies among many others, for politicians, the momentum of spending will have to be sustained for another six weeks.
On the Nation’s Economy
The Nigerian currency plunged to a record low against the dollar and stocks continue their decline as investors reacted to news that presidential elections had been postponed for six weeks. The Nigerian Stock Exchange All Share index dropped 0.4 per cent, extending its decline this year to 14 per cent, the worst performance in the world after Ukraine. A sensitive government must have known that an extended timetable would weigh heavily on market sentiment and could hold up investment decisions. Did the Coordinating Minister of Economy and the presidency have a second thought on the implications of the postponement on the economy?
With the falling price of oil on which the Nigeria depends for nearly 70 per cent of revenues, the country is already in a difficult situation, and one will expect the Economic Advisers of the president to call his attention to that possibilities. Uncertainty in business comes with a price. Election itself is enough uncertainty and its postponement can only exacerbate it.
The postponement of Nigeria’s elections would potentially lead to the delay of formulation of policies aimed at helping the country to cope with lower oil prices. At present, state governments finances are especially pressured, pointing to more frequent supplier arrears.
It is however unfortunate that by the extension, our government officials had thought of garnering cheap political gains: using the time to showcase their belated achievements and out-class the opponents that probably might have run out cash. Conversely, the attendant economic downturn rather played against them, particularly our President. Nigerian government’s failure to save oil revenues during the boom years eventually comes back to hunt it, hitting Nigerians directly as the currency depreciates, leading to a delay in salaries of public sector workers.
In a sane society, serious-minded policy makers would want the elections dispense with in good time. This would have greatly enhanced government efforts to address the oil price shock. In so doing, it would have prevented the avoidable delay being experienced in the passage of the 2015 budget. In terms of policy, they will be dragging implementation as most of the politicians are now more focused on campaign rather than focus on fixing and driving the economy.
President Goodluck Jonathan while attempting to caution and reprimand former President Olusegun Obasanjo on his critical statements about the government postulated that: ‘The stability of this country is critical in terms of the economy. Rating agencies downgrade countries that are going into elections because the feeling is that there would be crisis. When you paint the colour of instability for your own nation, you are doing so much injustice to the country because it affects the economy of the country, not just affecting the country in terms of security and social issues alone. It affects the economy directly. So, I plead with very senior citizens that Nigeria is dear to us; we don’t have any other country than Nigeria. So, actions and inactions, or utterances, should be guarded so that we don’t expose our country to the international community as if it is a country in danger, a country that is about to collapse. You are frightening investors, especially those who invest hot cash, to pull out their money from the country and that would affect the stock market and it would affect the economy.”
I was particularly stunned by the level of the President’s comprehension and appreciation of what tension could to a nation economy. But why did he refuse to consider the economic impact of election postponement? If it was for collection of PVCs, maximum of three weeks would have sufficed. And again, if President Jonathan is so passionate about economy and very much perturbed by any inflammatory statement that could impinge on the already battered economy, why then did he keep his cool when his National Security Adviser arm-twisted INEC to postpone election without the knowledge of the Commander-in-Chief? Why did he not take constitutional option of allowing the exercise to go on as planned and reschedule elections in parts of the states where there are crises? Many simply conclude that such option would not augur well for the inordinate ambition of winning election at all cost, but at the detriment of the nation’s economy.
In a country where in dollar terms, the devaluation has knocked off more than 40 billion dollars off the value of the economy, the last few weeks after the election postponement have been a bit of a disaster for many companies listed on the Nigerian Stock Exchange (NSE). Quite a lot of topnotch stocks such as Dangote Cement, Zenith Bank, Transcorp and United Bank for Africa among several others have hit one-year-low as a result of the fall in oil prices, a general uncertainty regarding the 2015 general election.
Our own Aliko Dangote drops from twenty five richest in the world to sixty seven with his worth dropping from 25 billion Dollars to 14 billion!This situation is thumping up negative market sentiments as foreign and institutional investors that hold equity stakes in companies have mostly fled their positions. Naira’s slump, coupled with falling stock prices as a result of the uncertainty in the country have erased more than $10 billion from Aliko Dangote whose worth dropped from 25 billion dollars to 14 billion dollars. Tony Elumelu stake in Transcorp as at Monday 24th of February is now worth roughly $400 million, down from $700 million and Nigerian multi-millionaire banker Jim Ovia’s stake in the financial services provider was $240 million as of late Monday 24th, down from more than $350 million last month.
Government Track Record
It will be recalled that it was this same government that suspended the former Governor of the Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi for crying foul in the corridors of finance without any consideration for the
implications and the dangerous development it would have on the banking sector and the national economy. If an arbitrary removal of such a person can take place in an economic environment for no just cause, can one then guarantee investors’ confidence?
No investor will want to take a long or medium term view if given an investment opportunity without first ensuring that what is in place is stable. With the sudden change of the CBN Governor, there was always a possibility that certain policies would be reviewed or changed or even removed and that could affect the confidence of investors on the economy. It will also be recalled that Nigerian business community and international investors in Africa’s most populous country were jolted at the suspension of Central Bank of Nigeria (CBN) Governor, Lamido Sanusi who was renowned and applauded world-wide for his reform in the banking sector. No president has ever suspended a CBN governor in the past in Nigeria, let alone being fired. Just as no Nigerian ever heard of election postponement a week to the polls even when the electoral umpire insisted it was ready to fly.
It will also be recalled that President Goodluck Jonathan jettisoned his administration’s decision on the planned introduction of the N5000 note when he agreed with the leaders of the National Assembly, saying the proposal “can be reversed”. Goodluck Jonathan reversed his decision to rename the University of Lagos when the students of the institution protested the decision and the alumni threatened to sue the government. He had announced that the name University of Lagos would be changed to Moshood Abiola University in honour of late Chief M.K.O Abiola. The same President reversed his ban on the national team in 2010 from all international competitions for two years following a disappointing World Cup in which the Super Eagles finished bottom of their group, collecting just one point from three games. That performance was massively below expectations; he reversed the decision within few days!
All of these point to cluelessness of a supposedly ‘power house/think tank’ that ironically churns out on regular basis, not well-thought-out decisions that would only be reversed when they meet brick walls in the court of public opinions. A man who always reverses his decision and reneges on his policy plan is not good for business because uncertainty in business environment should not be compounded by the supposed qualified but incompetent policy makers and economy coordinators.
Ibrahim Ola Balogun writes from Lagos, Nigeria