2022 was a bad year for Nigerian finance on the local and international scenes, with Moody’s and Fitch downgrading the country’s fiscal credit rating to all time lows of Caal and  B (-). 

But with the upcoming elections, investors will be cautiously hopeful that whoever is elected as the next president of Africa’s largest and most populous economy will be more market-friendly than the current government.

While there are also parliamentary elections, the focus is on the presidency. With incumbent Muhammadu Buhari not on the ballot, the main contenders are ruling party veteran Bola Tinubu, former vice president Atiku Abubakar, and third party candidate Peter Obi

WHAT ARE MAIN ISSUES FOR INVESTORS?

Multiple exchange rates, widespread insecurity and low oil production due to massive crude theft are all problems that worry investors. Another focus is soaring fuel subsidy costs that devour government revenues and drive up debt 

Reform of the foreign exchange market is the number one concern for international equity investors, said Steve Pollicino of U.S. brokerage Auerbach Grayson, adding that uncertainty over how long it takes to get money out of Nigeria was a big deterrent.

Foreign investors held 16% of shares on Nigeria’s stock exchange last year, sharply down from 58% in 2014, Nigerian Exchange Group data showed

Nigeria’s debt-to-GDP ratio is low compared to countries with similar credit ratings. However, its debt servicing burden is among the highest globally according to ratings agency Fitch. In 2022, the federal government spent 96.3% of its revenues paying interest, the IMF said recently.

Different candidates have different plans to tackle this problem with Abubakar stating that he plans to seek “debt forgiveness”, while Obi has said creditors will be “engaged for debt restructuring and possible cancellation /forgiveness”.

Mr Tinubu of course, is yet to issue his political manifesto to the public.

The next president will need to ramp up government revenues from a very low base to make debt manageable and provide citizens with services, say experts, who note that none of the major candidates have pledged to raise taxes.

Many investors, however, were cautiously optimistic that Nigeria would see improvements, whoever wins on Feb. 25.

“President Buhari has set such a low bar,” says IMF analyst Carlos de Sousa. “It’s really not difficult to do things better.”

Few investors have expressed a strong preference for who wins.

All three main candidates propose variations of similar policies – FX reform, fuel subsidy removal or phase-out and boosting the economy.

A peaceful outcome is key for Nigeria which has suffered violence around elections in recent decades.

If Tinubu emerges as the winner, there would likely be “a smoother transition,” said Joe Delvaux, a portfolio manager at Amundi, which holds Nigerian sovereign bonds.

A victory for Atiku would probably mean more uncertainty as power shifts, said Delvaux. Many analysts see Atiku as more pro-business.

Peter Obi, for many investors, is the uncertain factor because there appears to be little so far, on which to judge his fiscal proclivities. But being a former banker himself, it’s hard to imagine an anti-business stance, were he to assume power.

One thing seems certain; regardless of the outcome of the elections, national FDI is set to rise in 2023.