Nigeria’s Subsiding Subsidy Subordination
Nigerian stocks shook off 2011’s lethargy of a near 20 percent MSCI drop as the government proposed elimination of $8 billion in yearly petrol subsidies which doubled the overnight station price and drew labor union and opposition party condemnation before partial backtracking. Violence erupted in Lagos and other cities on the announcement in the wake of northern religious attacks mounted by Muslim extremists which have also prompted a security crackdown. The cabinet convened in emergency session to reiterate its commitment to better fiscal discipline which will permit additional infrastructure and anti-poverty spending, and analysts commented that the program savings will be roughly equal to the annual budget amount diverted to corruption. Such reform scope was cited by S&P in a recent outlook upgrade and the subsidy removal, which still faces numerous parliamentary and administrative implementation hurdles, and complements broader oil industry overhaul designed to set participation and royalty terms for Western and Asian multinationals. Almost 8 percent GDP growth was registered last year on inflation just into single-digits. The central bank lifted the benchmark rate to 12 percent, and the central bad debt resolution agency AMCON went operational as a $1 billion sovereign wealth fund was established. Financials continued to be the biggest exchange losers with bellwethers like UBA off 75 percent while consumer staples were performance leaders. The Sub-Saharan frontier MSCI sub-index matched Nigeria’s fall with Kenya (-30 percent) and Botswana and Ghana, down each over 5 percent at the opposite result extremes. Zimbabwe, which just rejoined the investable universe, finished flat with a 1 percent decline. A year ago Nigeria launched its first external sovereign bond and with the relaxation of controls local-currency instruments have reappeared in global diversified portfolios.
Under the returning Finance Minister who championed the concept during her World Bank Managing Director stint, a dedicated international diaspora issue is foreseen in the new budget. Kenya targeted both expatriate and retail investors in its latest effort, and in West Africa neighboring Gabon and Senegal may be considering repeat Eurobond efforts. 2012 presidential elections are scheduled in both places and commodity-driven GDP growth is 4-5 percent on low inflation. Gabon’s hosting of the Africa cup and “green” initiatives are part of a $10 billion spending spree financed by fiscal surplus, although possible startup of a state airline has prompted ratings agency and multilateral lender criticism. Senegal’s octogenarian chief executive Wade is seeking another term and popular singer N’Dour has come forward to pose his candidacy without political experience he considers of questionable value. It is under a policy monitoring arrangement with the IMF which called for improved debt management as near-term strategy envisions large borrowing on the regional CFA franc market which may command a premium on fiscal and current account foibles.
