28 June 2018 ( Lagos ) :The shadow of the 2019 elections looms ubiquitously over the Nigerian economy, with market jitters already manifesting in the first half of the year – even earlier than expected. Analysts foresee elections having an outsized effect on the rest of 2018; electioneering in Q4’18 would inevitably distract from policy and governance, higher government spending would boost aggregate demand but spur inflation, and investment is likely to stall. 

Analysts note that the impending elections introduce greater economic uncertainty in two ways. First, uncertainty over the stability of the business environment and economic activity in the run-up to the elections (due to political or policy disruptions), and then uncertainty about the shape of the post-election policy landscape. 

A victory for the incumbent government at the 2019 polls would assuage these concerns, but not completely eradicate uncertainty. Thus, analysts expect government and political activity to drive aggregate demand for the rest of the year, with the private sector assuming a secondary role, but project a mildly positive impact of election spending on near-term economic activity – barring any severe political or security shocks. 

In particular, analysts see insecurity as a primary risk to the economy in the near-term given Nigeria’s combustible mix of ethnic politics and militant groups. Whilst they foresee continued stability in the Niger Delta as the government pulls out all the stops to ensure oil production remains unperturbed, they see the ongoing herdsmen conflict as a key pressure point and expect it to hit food prices and investor confidence while intensifying the political stakes. 

Previous concerns in the form of Boko Haram and Biafran secession are on the backburner but remain relevant in the insecurity matrix. Nevertheless, analysts see the demand effect of stronger government spending outweighing its inflationary impact, and do not expect to see any major political or security shocks before votes are cast in February 2019. 

Source: Analysts at Vetiva Capital Management

Reporting for EasyKobo on Thursday, 28 June 2018, in Lagos, Nigeria.