Nigeria’s Prolonged Presidential Visit Preening
Nigerian shares looked for further catalysts to sustain rebound as President Buhari became the first Sub-Saharan leader to meet individually his US counterpart on a state visit, where he diplomatically dismissed reports that President Trump had previously described the region in crude language. His trip served to bolster global prestige that can translate into votes at home after declaring a reelection bid next year against media and APC party age and health objections. Security was in the forefront with his government considering $1 billion in additional spending to fight Boko Haram and protect Northern border and Niger Delta villages. On anti-corruption he and his team have maintained relatively clean reputations in contrast with predecessors, and oil economic diversification has seen progress in agriculture and infrastructure despite the deliberate pace of promised privatization. GDP growth could reach 3% this year, as the PMI index neared 60 in Q1 on rising oil exports and foreign exchange access. Inflation dipped below 15% with the central bank policy rate kept at 14% with possible cuts in the second half. International reserves top $45 billion on current account and portfolio inflows, with continued currency intervention sterilized by open-market operations as the multi-tier system lingers to bar reinstatement in JP Morgan’s local bond index. Eurobonds, including a diaspora issue, have been placed easily as the chronic budget deficit is manageable at 2% of GDP with the country rejecting resort to a formal IMF program.
South African financial assets in turn were poised to extend momentum with President Ramaphosa’s takeover as ruling ANC head on a reform and investment platform starting to take shape. The investment-grade sovereign rating is preserved for now with the fiscal gap predicted at 3.5% of GDP on better 2% growth despite consumer slack. Capex spending and real wage gains support the uptick, with commodity exports holding steady. The President’s “New Deal” has removed state company chief executives and mounted prosecutions against alleged corrupt senior officials, but he remains under attack from party activists calling for harsh redistribution policies, including on land where section 25 of the constitution is under review to allow outright seizures. The minority white population still controls 95% of farms under the existing willing buyer-seller scheme adopted post-apartheid, and poor and middle-class advocates also urge a national minimum wage and more labor protections in the face of 25% unemployment. The central bank slimmed the repo rate 25 basis points in March with inflation in the 4-5% target band and rand stability, but the quasi-fiscal risks of state enterprise borrowing may resume upward pressure. The administration, rejoined by planning stalwart Gordon, aims to attract $100 billion with a “conducive investment climate” breaking from the last two decades, and it envisions a heavy Chinese dollop under the Belt and Road natural resources and infrastructure project initiative. Renewed mining interest is a priority as the basic charter is renegotiated and strategic stakes in Eskom and other major ailing monopolies could be sold off, but elite wealthy families may be ineligible to widen the buyer base. The government will press its case against the influential insider Guptas and their network of political and commercial allies at the same time to help rewrite the art of the deal.