Elections, elections.....

Tomorrow’s marks the start of general elections in Nigeria; as such, it is only fitting to review the likely outcome and implication for the equity market in the short term.  As it stands, the election timetable provides for elections to begin with the National Assembly (Parliamentary) on the April 2nd 2011, followed by the Presidential on April 9th 2010, and then Governors and State Assemblies on 16th April. Though much has been made about the Presidential election, and rightly so, I am of the view that tomorrow’s Parliamentary election is equally important from a market perspective. Firstly, tomorrow’s election is likely to be a preview of the Presidential election a week later, as it will indicate voter preferences and give insight into the modalities of the election process, particularly as relates to credibility and election related civil unrest. Secondly and more importantly, Nigeria’s constitution empowers the National Assembly to pass legislation which is binding on the President and it is only organization with the authority to take precedence over the executive. The exercise of such precedence was apparent in the recent passage of the 2011 budget to the tune of N4.97 trillion (a far cry from the President’s proposal of N4.2 trillion). As such the success of tomorrow’s election is just as important as the success of Presidential election. It also marks a defining moment in the Nigeria’s history because the next National Assembly will be pivotal in consolidating recent economic gains and implementing of much needed reforms.

Currently, the ruling People’s Democratic Party (PDP) holds a 78% and 72% majority in the Senate and House of Representatives respectively and is largely expected to retain its majority in both legislative chambers after tomorrow’s election. If this scenario plays out with relatively credible and violence free polls, in the absence of significant post election litigation or violence, it is likely to be received positively by the international community and more importantly international investors who currently constitute ~68% of equity market activity. Logically, a smooth transition points to the maturation of Nigeria’s democracy, stability of the operating business environment and the likely continuity of policy particularity in the areas of; power sector reforms, peace in the Niger-Delta and electoral reform. On the contrary, a Parliamentary election marred with irregularities and significant post election violence may be viewed negatively by international investors, especially in the context of recent unrest in the MENA region and the stalemate in Côte d'Ivoire.  Furthermore, to the extent that Parliamentary election is likely to give an indication of the presidential polls, a decisive win by any political party may be a further positive signal of the eventual outcome of the presidential poll.

Though I note that a successful Parliamentary election may not necessarily shift investor perception, it is a step in the right direction and is likely to at least stem investor apathy. Indeed, I believe a successful Parliamentary poll will do much to pacify investor concerns and may result in renewed confidence, locally and internationally, in Nigerian markets. i look ahead elections and to major market indicators following the election to gain a better view on investor sentiment  in the short term even as recent declines in equities has resulted in increasingly attractive equity valuations . Nevertheless, I expect volatility to continue into the week as investors continue to search for a broad theme; I recommend that further declines be used as an entry point to take positions in attractively valued stocks.

Mandela Toyo