On Tuesday, 9th November 2016, the world was stunned by the victory of Donald Trump as president of the United States of America. During Trump’s campaigns, he made several racist comments about Africans, which included threats to send Africans away from America if he becomes president. This has led many to ask how his victory is going to affect Nigeria’s economy and her trade relationship with the US.
In an interview with Ventures Africa Anointing Momoh, a Research Associate at Centre for the Study of the Economies of Africa (CSEA) highlighted the potential impacts of Donald Trump’s on Nigeria’s economy:
Ventures Africa (VA): What will be the effect of Trump’s victory on the naira in the long run?
Anointing Momoh (AM): The Nigerian financial system (and for several other African countries) is not integrated enough to reflect immediate shocks and “information effects”. This was clearly what we saw from the indifference of the Naira-Dollar exchange rate to the outcome of the US elections. Similarly, in the long term, any major crisis in the US financial economy – as many thinks will be the outcome of Trumps’ policies – will have very minimal effects on the Nigerian financial system, as was the case during the 2008 global economic meltdown.
However, due to globalisation and interconnectedness of markets the Trump Presidency could have some other channels through which it could eventually have an effect on the Nigerian financial economy and the Naira. Here, a case is made for possible price fluctuations in global commodity markets due to Trump’s policies. For example, further fluctuations in the price of crude oil will definitely have significant effects on the Nigerian economy and exchange rates. Meanwhile, it is expected that the various economic, political and structural factors will continue to drive the dollar-naira exchange rate.
In essence, there is no simple, direct, long run effect to be expected from Trump’s victory. There is no clear policy proposition from Mr Trump yet.
VA: What will be the effect of Trump’s victory on the equity market?
AM: Investors look at domestic economic performance, outlook, and yields in deciding whether to invest in equities or not. I don’t see how the situation of these in Nigeria is determined by Trump’s victory. If anything will happen in the Nigerian equity market, it will be as a result of the domestic policies put in place by the Nigerian government to create an enabling environment to attract investors. Capital flows from the US are usually not politically driven.
VA: Will it affect Nigeria’s economic growth?
AM: US-Nigeria trade engagement has declined significantly in recent years and there is no direct impact to be expected on the growth of the Nigerian economy. However, Nigeria at this point is still largely dependent on commodity exports (crude oil particularly). So to the extent that Donald Trump’s victory and his policies going forward are able to affect the price of commodities in the global market, then it can affect Nigeria’s economic growth.
If he carries on with his threats to tear up existing US trade deals and revert to a protectionist America, it will bring about a slowdown in the global economy. Nothing particular to Nigeria or Africa.
VA: What would be the effect of Trump’s victory on Africa’s commodity market?
AM: Donald Trump rode to victory on the promise of a more protectionist America; one which will impose tariffs on other nations, tear-up existing trade deals involving the US and which will, in no small measure, jeopardise the open global economy. While it could be argued that this would be targeted majorly at industrialised nations – which in Trump’s opinion have taken American jobs, it does not in any way portend a better deal for African countries. A particular risk in a protectionist America world – if it sparks global trade wars – is that it will make it increasingly difficult for African businesses to compete globally, confining Africa to a shrinking share of international trade.
VA: What about trade and investment in Africa? What effect will his victory have on them?
AM: US trade with sub-Saharan Africa remains underdeveloped. Exports under the African Growth and Opportunity Act (AGOA) declined by 50 percent to $11.6 billion in 2014 mainly due to reduced petroleum exports to the US. This was after a period of sustained increase from $7.6 billion to $24.8 billion between 2001 and 2013. AGOA, combined with the GSP, provides duty-free access to the US for 6,400 product lines from 38 countries in sub-Saharan Africa. While the AGOA does not address all US-Africa trade concerns, it has provided preferential access for sub-Saharan Africa exports to US markets under its Generalised System of Preferences (GSP). More so, of total US imports from AGOA countries, around 70 percent enter under AGOA. Going forward, it is expected that greater engagement would be achieved for US- Africa trade relations under AGOA. However, on the platform of a Donald Trump presidency, the prospects of greater trade engagement between Africa and the US appears bleak.
VA: Do you see it affecting the global price of oil?
AM: Not in any significant way more than the current export of shale oil from the US has been affecting the oil prices. I think some of the previous responses speak to this question.
VA: What other ways can Trump’s victory affect Nigeria/Africa?
AM: We could be looking in the direction of security, the fight against terrorism, foreign aid, immigration of Africans to America, etc.