Nigeria’s new president-elect Bola Tinubu has a reputation for raising taxes and appointing technocrats that international investors hope will carry through to his presidency and usher in reforms to the exchange rate and costly fuel subsidies. Tinubu, whose victory in Saturday vote with 37% of the vote is being challenged by rivals in court, is widely regarded as a “godfather” who controlled the megacity Lagos long after his own tenure as state governor, leading some analysts to worry that market-friendly changes will fall victim to politics. Africa’s largest economy, Nigeria is struggling with widespread insecurity, shortages of cash, fuel and power and weak growth. Many economists say the country’s problems have been compounded by multiple exchange rates, foreign exchange rationing and the cost to government coffers of a $10 billion fuel subsidy in 2022.
“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,” said Anders Faergemann an emerging markets fixed income portfolio manager at PineBridge Investments. “Bola Tinubu has been making positive noises during his campaign with regard to these issues.” Prior to the election, many investors had said that any successor to the incumbent President Muhammadu Buhari, who comes from the same party as Tinubu and has favoured statist economic policy, would likely be an improvement. “The proof’s in the pudding,” said John Mumo, a partner at Blakeney, an Africa-focused equities fund management firm. “He is a political godfather and kingmaker, he does know the political machinery and hopefully that will allow him to push through quite difficult reforms.
” Some analysts said that Tinubu’s reliance on political patronage may make some reforms less likely, citing the benefit that many politicians are said to get from the petrol subsidy, which the president-elect has pledged to phase out. “Tinubu will hike taxes, that’s something he knows how to do. So he will try to offset (the fuel subsidy),” said Tunde Ajileye, a partner at Nigerian firm SBM Intelligence. Tinubu has pledged to boost oil production, currently languishing around 1.39 million barrels per day (bpd) and well below its 1.8 million bpd OPEC quota, to 2.6 million bpd by 2027. “I think he’s going to be able to deal with oil theft and raise oil production… for the primary purposes of being able to control it,” Ajileye said. Getting the fiscal situation and interest payment burden under control needs to be a top priority for Nigeria’s next president, said Sergey Dergachev, a fund manager at Union Investment. The International Monetary Fund estimated that Nigeria’s government spent 96% of its revenue on debt servicing last year. “It is a huge challenge,” said Dergachev. Reuters
