Tuesday, January 20, 2015

Nigeria's Economy Forecast- 2015

In as much as I'm probably the most optimistic person you will find about the economic fortunes of Nigeria, it is always prudent to point out that Nigeria's success stories have been inspite of her national government - which has badly managed the economy on a whole lot of fronts to be honest. Indeed, the economy have grown largely due to state level governments (thank God we practice federalism like US) and probably faster in opposition controlled states starting with Lagos.

That said, Nigeria face some significant economic headwinds brought by these years of federal government mismanagement which states cannot possibly help head off or balance. But most public analysis of Nigeria's strenght have been wrong projecting optimism despite clear indications to the contrary:  skewed optimistic based on the last few years of performance. So for the next 2-3 years, macroeconomic factors - more on this later- flowing out of mismanagement (of crude oil revenues, tax policies, infrastructure policies and monetary policy) may now come to hunt us regardless of our latent strengths.
 
The interesting thing is that the only possible way to head off this disaster is a change in government, and reality on ground is that there is s 52-48 chance the opposition will actually win the elections of February 14 - again contrary to this report. So this might be good for Nigeria, but will not eliminate completely the upcoming pain.
 
A more nuanced view of the upcoming elections here from former US Ambassador to Nigeria - http://africanarguments.org/2015/01/19/nigeria-time-for-more-international-community-attention-and-action-by-johnnie-carson/

Speaking of macroeconomic factors:
  • The foreign reserve is $30 billion plus, but it has fallen 50% in less than 6 months. Many state governments could not even meet their payroll in December. The entire reserve will not be available to defend the naira and the dwindling price of crude oil has not bottom just yet as OPEC is not budging
  • Speaking about depreciation; the official depreciation was 12% but nobody trades official dollar. The parallel informal market went as far as 25-35% depreciation by EoY 2014. I exchanged the $$ at Lagos Airport for 200 naira to 1 USD; it used to be 160 naira up until October.
  • Furthermore, the MPC have been very political especially since the new governor replaced a previous one that blew the cover off a $20billion scam by the President's men. So MPC have not depreciated the naira prior to the election as much as it should and have instead been defending the naira with the dollar reserve. Expect that to change quickly once the election is over - either way and regardless of who emerges victor.
  • As a proof of my point and to counter deflationary impact of fuel imports, the official price of gasoline was cut by 10% this week when world prices have moved down by more than 40%. This is because of the discount imposed devaluing the naira, and the fact that a country that produces 2.5 million barrels of crude oil, still depend on import (80%) to meet her local demand due to comatose state owned refineries crippled by corruption. The good thing is that entrepreneurs are now taking cue and will soon cut off the dependence on the government or imports ( http://www.bloomberg.com/news/2014-11-17/dangote-says-nigeria-lagos-refinery-to-start-by-mid-2018.html ) but the use of arcane subsidy schemes can distort the market and discourage investment. Change of guard can help this cause as well.
  • While I don't expect post-election violence, this cannot be written off and remains a huge risk on the economy; banks as a result are experiencing outflow into election financing or flee to quality outside the country due to this as well as devaluation fears.
In sum total, wait until March ending to decide and until after May 29 to put your money to work. I have significant exposure to Nigeria equities, but I won't buy just yet until some degree of certainty in policy direction is restored after the election. The greatest risk to any foreign investor remains the uncertain valuation of the currency due to economic mismanagement by the Feds.
 
The best sectors to invest in Nigeria remain the consumer and technology sectors. It is however best to utilize domestic funds for this purpose.
 
Impact of Crude Oil Price Drop on Nigeria Indigenous E&P
 
Do you think the price drop is temporary or will be externed? On one hand, I will like to think it will be extended given prevailing general wisdom, but we have to remember other key drivers of oil price i.e. geopolitical forces (an imbalance of supply from Libya or Iraq or Russia can increase pressure on the market without warning) and net increase in world demand due to economic growth (a 6-9 months sustained lower price of crude oil will inevitably lead to economic growth in China and South America which will lead to higher net demand and then higher price)
I think we will be very lucky to see prices stay below $60 until summer. But I also don't think we will see $100 any time soon. Best median price is $55, and I hope Nigerian small producers are using something discounted to this figure to manage their books

Monday, October 27, 2014

Previewing the Mid-Terms 2014 & US Senate Outcomes

2014 is not a wave election, and both GOP and Dems should be very afraid going to the last stretch. Unless we get some major October surprise, upper Tuesday may be a major surprise for either major parties..here is why:

Busanga.com prediction for Midterm 2014 - Balance of US Senate


1. Despite what you hear in the media, GOP is not closing. Many races still remain in the air, and more traditional red states like Kansas and Georgia, previously not in play are now coming into play. Coming at the last minute with Ebola and ISIS in the news and all the advantage, this is not good for GOP. 

2. Incumbents be it Democrats (in Arkansas and Colorado) or Republicans (in Kentucky and  are in trouble. This means the GOP must defend and attack simultaneously.  This is reflected in races where incumbents are running, and no one is getting 51%. Question on all inquiring minds are, who will the undecided voters break for and will they even show up?

3. Major party brand is in shambles, and voters don't want to reward GOP partisanship. This is why Independent candidates are having impact from NC to Alaska.

4. Governor races matter; the Governor race in Colorado may save the Senate for them there; this is also true for Kansas where the republican incumbent had overreached. In Georgia as well, the son of President Carter may win the race and help Nunn remain competitive for a run-off.

5. The poll may be over-estimating likely voters, as the GOP assumes it has intensity and there is no concrete evidence from 1 through 4 above that shows this. Early ballot, superior game by the Dems on ground and the mountain of evidence that the voters are not in the mood to reward GOP points to a surprise outcome in many close races.

6. This said, the Obama brand is killing democrats in Alaska, Arkansas, Louisiana and even Gubernatorial races in Connecticut and Massachusetts. So while the Dems have hope, the overwhelming mood of the country is to send a message to the President.

So what will happen on Tuesday, and what should you be watching for?

1. Outcome indicators? Sharp political analysts always like to select odd number of bellwether states to use as predictor of the night. My three states are Iowa, Colorado and Kansas. Whoever wins two of the three will win the night, with Independent win in Kansas counting for the Dems.

2. No Decision? This is particularly so, because two states will DEFINITELY end the night UNDECIDED. There is a requirement for 50+1 in both Louisiana and Georgia. While both states have been challenging for Dems historically, the GOP have bad candidates there and the black votes is carrying the Dems to postpone the decision day. I expect a split outcome if the Dems triumph under scenario one above (Louisiana will like to keep a committee chair in place) and a one sided decision in favor of GOP if the GOP win two of my 3 bellwether state. Hence why my 3 picks above matter.

3. Long Night Indicator? Well, if the Dems can't keep North Carolina or have it called for them early to mid-way of the night, then a terrible tragedy have befallen them. If the GOP don't have Kentucky called for them early, then they should forget their dreams of majority in the Senate.


Monday, August 11, 2014

The Obama Doctrine

New report that Mailki was eventually forced out today, confirms my thinking that Obama have managed to construct the most complex but equally effective foreign policy and defense doctrine. Proper analysis will reveal that what Obama doctrine is all about; it is not as humble as democrat make it seem, or as docile as republicans assume.

1. Obama doctrine is predicated on a near classical liberal outlook of the world i.e. that America's military should be hardly used to intervene in international matters, and that when they are they should be used for first humanitarian purposes that enhances the soft narrative of American power but also dissuades challengers. This clearly favors projection of aerial and naval powers; instead of ground troops. Ahoy me navies! Ultimately, this President will use force when convenient, but doesn't like to be boggled down. Democrats right from the days of Harry Truman that dropped the only Nuke bomb in the world, always favor massive superior air power to door-to-door fighting. Those kind of fights are cleaner and you need not live with the pictures after the deed is done. 

2. Obama's doctrine specifically for the Middle East is to ensure maximum distraction for the near anarchic forces that compete for attention in there. That is why, he won't step in as ISIS which hates US backed Iraq government battles it out with Syria which US hates too, or intervene meaningfully when Libyans, Egyptians, Iranians or other troublemakers light up themselves. In his mind, a fight among Middle Eastern actors is good. It keeps them distracted from the common enemy, which is America. In fact, evidence shows that 9-11 followed 5-8 years of relative peace in the region. It is better for America that the region become controlled chaos than quiet. 

3. Ultimately, Obama believes in Local Leadership. He won't put forces to support factional leadership if the local leaders won't figure out they need peace to govern and prosper. He reasons that America's involvement only makes the situation worse, and leaves one party feeling entitled and another burned (read future enemy). It also allows the victor to have the luxury of not cooperating with rivals albeit minorities. He recognizes the fundamental problem of the Middle East is a lack of respect for the less powerful or fortunate: it is a winners take all culture. Hence, his refusal to back Iraq National Government as ISIS pressured them, but ran in aid to Kurdish Regional Government that is more cohesive and reasonable. In fact, crisis that pressures the incumbents in the Middle East will intentionally be allowed to fester under Obama unless the get out of hand. 

4. The most defining plank of Obama's foreign policy is that results are more important than braggadocio or semantics, as opposed to what is favored by the GOP. He won't talk big or brash, but be very afraid of this cold son of Africa when he wields his drones or Mother of all Bombs (MOABs). He will use it, effectively and cleanly. Ask Osama, Ghadaffi and the thousands he has been shooting like an assassin in the air. 

Thoughts are of course welcomes on the points made. Feel free to drop me a line at administrator@busanga.com 

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