12 December marks Kenya’s 54th year of independence. It is also the day on which opposition leader Raila Odinga intends to hold his own inauguration as the ‘People’s President’, rival to re-elected President Uhuru Kenyatta. Without naming Odinga directly, Kenya’s Attorney General Githu Muigai hinted at what may be in store for Odinga and his supporters when he posited that, as per the Constitution, anyone who partakes in the swearing-in of anyone except a duly elected winner of elections will be committing an act of treason. This still taut political situation sits atop a mixed bag of economic data exemplified by:
- Ratings agency concern over debt sustainability and the recent downward revision of 2017 World Bank growth forecasts (5.5% to 4.8%), citing inadequate institutional reforms and higher than expected spending.
- A post-election rebound in business activity. Stanbic’s monthly Purchasing Managers Index for example, has shown a slowdown in the contraction that has characterised the months leading up to and following the election. Speaking with our analyst, a spokesman from the bank said that they expect the uptick to continue in to the New Year as many businesses return to full capacity and confidence returns. However, he also nuanced that ‘many of the businesses we talk to are keeping a very keen eye on the potential flashpoint on Independence Day as that could spark another wave of protests, violence and market disruption’.
On the other side of the continent, Supreme Court decisions in Liberia and their reception by major stakeholders actually attenuate short-term political risk surrounding real estate and construction sectors. Specifically – the Supreme Court has rejected demands for a rerun of October general elections from the ruling Unity Party (UP) and third-placed opposition, the Liberty Party. All parties have accepted the judgement and the National Electoral Commission has been cleared to organise the second-round presidential election run-off between UP candidate Vice President Joseph Boakai and Senator George Weah of the Congress for Democratic Change (CDC). With a 10% margin veteran opposition leader and ex-footballer Weah looks closest to the finish line but it is far from given. In 2005, current President Ellen Johnson-Sirleaf came from behind to defeat Weah.
For regional hegemon Nigeria too, though general elections are more than a year away, political developments eclipse policy making for now. Former vice president Atiku Abubakar has quit the ruling All Progressives Congress to re-join the opposition People’s Democratic Party, from which he hopes to run for president in 2019. Abubakar is a somewhat polemical figure particularly vis-à-vis his governance record. Nevertheless, his defection gave the opposition early momentum going into its convention for the selection of party executives over the weekend.
Against this background, last week President Muhammadu Buhari took a two-day trip to northern Kano state in his core political base to send ‘a clear message to the opposition’ about popularity. Our forecast therefore continues to assume that government activity will be geared towards staying politically competitive ahead of the 2019 elections rather than economic reforms. For instance:
- Rather than trim government overhead to cut back on debts and make room for more capital spending, this month President Buhari set up a committee to negotiate a new national minimum wage with labour unions demanding a 200% pay raise―a difficult goal line given revenue constraints. Nearly all federal revenue currently goes into salaries and other overhead, and many state civil servants have been going months without pay. One of the bodies represented on the committee told our analyst in Lagos, “It’s true the minimum wage is too low at USD60 a month, but right now the government should be thinking about fixing the economy and improving the standard of living, not increasing the minimum wage.”
- Signs of petrol scarcity last week also stoked rumours that government would cut petrol subsidies and let the pump price rise, but the government strongly denied this. As one motorist put it to us, “They better not let the price of petrol go up again, except they want to lose the election.”
The end of last year’s recession – the first in 25 years for Nigeria – is welcome news for Nigeria’s real estate sector, as is declining inflation, increased foreign exchange liquidity and recent bureaucratic reforms e.g. changes to business registration, construction permit and customs procedure. However, the long-term outlook is bracketed by the diversion of political will described above.
The above letter draws on Songhai Advisory’s client advisory note (originally sent 10 December 2017).
