Elections in Nigeria: What businesses need to know

High stakes elections in Nigeria

At the best of times, elections in Nigeria tend to be unsettling events accompanied by sporadic outbreaks of violence and rising inflation. Will the February 14 general elections be any different?

Against the backdrop of slumping oil prices, Boko Haram’s worsening insurgency, and the rising chasm between north and south, the upcoming elections risk derailing Nigeria from its positive growth trajectory. However, the world should not underestimate Nigeria’s ability to muddle through crises and come out as a stronger and potentially more democratic country.

Image: The Guardian

Why do upcoming elections matter?

Since the end of military rule in 1999, Nigeria has known three elections, all won by the People’s Democratic Party (PDP). The run-off to the fourth elections in recent months has been tense as the PDP has lost popularity, while Nigeria has become more divided along ethnic, religious, and economic lines. These tensions could result in greater political instability even after the presidential, parliamentary, and state elections are completed in February.

  • Politics fuel the regional and religious divide: When Goodluck Jonathan–a Christian from the south–came in to power in 2010 after the death of then-president Yar’Adua–a Muslim from the north–traditional power structures were disrupted. Nigerian politics had thus been shaped by an agreement that the presidency would alternate between the mainly Muslim north and Christian south. Jonathan’s bid for presidency in 2015 means northerners feel betrayed because, according to the informal agreement, a northerner should return to the presidency in 2015. Some Nigerians also believe that radical Islamist group Boko Haram was able to emerge because these power structures were disrupted when the central power shifted to the south, leaving behind a power vacuum. Tensions along religious lines have become more pronounced in recent months. Inspired by ISIS’ advances in the Middle East and the global spread of radical Islamism, Boko Haram stepped up attacks in northern Nigeria. Muslims living in affected areas are increasingly frustrated by the government and the military’s inability to protect them.
  • Economic grievances split society: Other long-standing grievances result from the country’s already wide and widening wealth gap between the south, where most business activity is taking place, and the north, where over 70% of the population still lives in poverty. These tensions are exacerbated as the country faces a major economic crisis in light of low oil prices which will only truly manifest itself after the elections. While powerful elites fear to lose out on important revenue streams, Nigerian consumers are worried about their purchasing power as the naira has depreciated sharply.
  • Harassment of political opponents: Past elections have incited violence that claimed the lives of many Nigerians. The run-up to the 2015 elections is producing angry rhetoric among political constituents. So far in the election campaign, there have been attacks on both opposition members and ruling party representatives. Supporters of both have threatened violence should their candidate lose.

What are the likely election outcomes?

The election results will be tight as two candidates receive strong popular support.

  • President Goodluck Jonathan is standing for reelection at the helm of the ruling People’s Democratic Party (PDP). He enjoyed a 49% approval rating earlier in 2014, even though the PDP has been losing support.The current socio-economic outlook means Jonathan faces real risk of losing the elections.
  • After various high-profile defections from the PDP to the newly formed All Progressive Congress (APC), the APC now forms a strong opposition, and its popularity is rising because of Nigeria’s economic challenges. Former military ruler Muhammadu Buhari will run against Jonathan for the APC. He could win support for his reputation for successfully reducing corruption during his former stance as military ruler in 1983-1984. As a Muslim from the north, Nigerians could also believe he may be in a better position to tackle the Boko Haram insurgency. However, he has unsuccessfully attempted to run for president several times in the past. Buhari has selected a Christian southerner to run with him as vice president. This is increasing his popularity in Nigeria’s southwest and he is expected to win both in Lagos as well as Kano in the north – the country’s two biggest cities.

How likely is political instability after elections?

It is difficult to say. The stakes are high and there are various pitfalls which could lead to greater instability:

  • If Jonathan wins, supporters of Buhari could refuse to accept the election results and the APC could accuse the government of electoral fraud, given that many potential Buhari supporters in the northern states will be unable to vote as polling cannot take place in areas where Boko Haram has a stronghold, such as in Borno, Adamawa, and Yobe states.
  • If Buhari wins, Jonathan’s supporters in the River Delta could rise up as they fear losing out on the advantages they get from the PDP being in power. The region hosts Nigeria’s former MEND rebels and large oil reserves and is already tense due to low oil prices.

However, the presidential candidates have signed a public pledge for a peaceful election and the avoidance of violence after the polls. Nigerians have successfully muddled through various political and economic crises in the past only to emerge as a stronger country, benefitting from economic and political reforms that have enabled it to become Africa’s largest economy. The pains accompanying the 2015 vote could merely be a manifestation of the side effects of Nigeria developing into a more mature democracy. For the first time since 1999, two relatively equal political parties are up against each other, and the PDP, which has held the presidency since the return to democratic rule, faces a real competitor in the APC.

What can businesses expect?

  • In the short-term: The business environment will continue to deteriorate ahead of elections. Business customers, partners, and government agencies will be in a wait-and-see mode up until after the elections, as it becomes clear who will be in power and how Nigerians will react to the outcome. This could have implications for demand, investment plans, and the speed of moving through regulatory processes.
  • In 2015: If Nigeria manages to come out of the vote without major political instability, the country’s outlook will remain positive. This year’s economic performance, however, will be shaped by reduced government spending, as the country has to account for lower oil revenues. This will have a negative impact on the spending power of Nigerian businesses and consumers.
  • In the long-term: Nigeria’s outlook remains strong as the country’s economic and population size, spending power, and entrepreneurial spirit continue to attract multinationals. Nigeria remains the number one most watched frontier market within FSG’s Frontier Market Sentiment Index, highlighting that investors believe in the long-term opportunity Nigeria represents despite the short-term pain.

How can businesses be prepared?

Nigerian political elites depend on business and investment to maintain power. The business community can play an active role in calming down tensions in the country. Join forces with other business leaders and remind politicians of the importance of peace and security for your investment plans and the economic development of the country.

FSG clients should:

  • Monitor developments closely using FSG’s Monthly Market Monitor and outline a contingency plan to prepare for various election-related outcomes and their potential impact on operations in different states.

Not a client? Contact us to learn more.

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