Nigeria’s Independent National Electoral Committee(INEC) today announced that it has postponed the country’s presidential elections by six weeks. This, it said, is to enable a joint multi-country military action continue its campaign against the Boko Haram insurgents in the North-Eastern region of the country. This decision, regardless of its justification, could further harm the already suffering economy.
The Naira, Nigeria’s local currency, has fallen by over 30 percent in the last six months. This was driven by the global fall in oil prices, and dampening investor confidence due to the elections. It will only tumble further with a hike in political tension, which the postponement of the elections has a high potential of doing.
The main opposition party, the All Progressives Congress (APC), earlier resisted the ruling PDP’s call for the postponement of the elections. Both parties are neck-in-neck in the presidential race. Such tense disagreements between the two leading political blocs could ignite angry political rhetoric, a scenario that scares away business. Foreign investors sold off Nigerian stocks valued at 846.5 billion naira ($4.5 billion) last year, Reuters news agency said last week, citing the country’s stock exchange. The shares sell off, 65 percent more than in 2013, was impacted on by the 2015 election tension as investors are unsure about keeping their funds in a volatile market. With the two rival parties at loggerheads, and postponement in the centre, there could be more divestment in the coming weeks.
The United States’ Secretary of State John Kerry, during his visit two weeks ago, urged Nigeria to obey the February 14 election date. The country’s refusal to do so could also cause a loss of the confidence of one of its biggest allies with whom it shares $18 billion in trade. While the postponement may not necessarily lead to a reduction in those trade numbers, it could have an adverse affect on the economy through other areas. In January, US banking giant, JP Morgan, revealed that it could pull Nigeria off its Government Bond Index (GBI-EM) over the next three to five months because of a lack of liquidity in the African country’s forex and bond markets. The lack of liquidity is caused by the dwindling revenue from Oil-Nigeria’s main export as well as the resort to supporting the naira with the foreign reserve. Nigeria’s foreign reserve has already fallen by 20 percent over the past year, and should the election tension cause the Naira to fall further, and the Central bank spends more Forex to support the currency, JP Morgan– which already has Nigeria in the negative watch– may carry out its threat. If Nigeria is removed from the index, it would force funds tracking it to sell off the country’s bonds from their portfolios, which would cause significant capital outflows. Such an incident will raise borrowing costs for the country whose finances have already been thinned by a drastically reduced oil revenue.
With this postponement almost certain to deepen the current economic woes, the best bet for the government and the political parties involved will be to try and de-escalate the polity. Regardless however, only the elections and its successful completion will be able to remove the current cloud of uncertainty that is threatening the recent achievements of one of Africa’s fastest growing economies.
