NIGERIA ECONOMIC HIGHLIGHTS FOR JULY

Outlooks

• Growth continues in Q3
• Growth to be driven by consumer and finance sectors
• Market growth of about 5%
• No pleasant surprises expected in Q2 earnings releases
• Foreign investors return cautiously to Nigerian equities
• Market driven by domestic investors
• Politics to limit deals
• But direct effect on the market is negligible
• Disconnect between equities market and the economy persists

Political Update - 2015 Window is closing as Options narrow

• The 2015 election was meant to be a Referendum on Power supply
• Refined petroleum availability
• Jobs and unemployment
• Amnesty for MEND
• It was supposed to be a slam dunk for an incumbent party that had been in power since 1999
• The Presidents approval rating was expected to be 60%
• It was supposed to be about oil blocs, subsidy allocation and patronage politics
• Instead, it is a continuation of the Russian model of regime-related oligarchs
• The political calculus was based on assumptions that include:
• The Governors have power, resources, reach and immunity
• They want an automatic ticket to the Senate and must pick their successors
• PDP has 18 states and controlled the Governors Forum
• The PDP had an iron grip on the traditional rulers, mainstream media, churches and Nollywood
• Also the police, security agencies, military and prosecuting bodies
• The opposition was fragmented, under-resourced and disorganized
• PDP consolidated its hold on the party machinery
• Undermining the party apparatus in the states
• Started in Adamawa, the bedrock of the North East
• The Governors balked at the attempt and asked for the head of the Chairman
• In the end, the President broke the Governors Forum and sacrificed the Party PDP Chairman
• The PDP lost some Governors and a few others are only hanging in there
• In a dramatic twist of fate, there has been an escalation of the North Eastern insurgency
• The abduction of 265 girls and an escalation of violence now has the PDP on the ropes
• An expansion of the scale and scope of violence to North central states of Kano, Kaduna and Abuja
• The use of suicide bombers and the kidnapping of foreigners and indigenes is likely to take the insurgency to another level
• The Ekiti election is evidence of an electorate rejecting incumbency at all levels
•  Have come to accept corruption as the norm and do not trust the opposition while having no confidence in the PDP
• The PDP was waiting for the APC to implode before their convention
• The Chibok girls saga changed the political dynamics
• It has painted a sordid picture of the Nigerian government
• As helpless, confused, incompetent and corrupt
• The Western press helped fan the negative perception
• The PDP is fighting back using high profile lobbyists and PR firms in Washington
• It may be too little late because the negative image has stuck
• The 2015 election dynamics will be down to 2 major issues
• Dealing with insurgency
• Combating corruption
• The economic manifest is meaningless if these two issues are not confronted
• Which of the candidates have the credentials and pedigree to fight corruption and insurgency
• The PDP is going through an internal makeover and going for a FACELIFT
• The APC has to shake-off its toga of an Islamic party
• The image of ‘just as corrupt as us’ is political baggage
• The APC says we are not as incompetent, in fact we are efficient.....
• Just look at Lagos and Fashola
• The electorate is saying we are not so sure
• The electoral dilemma is between the lesser of two evils on the one hand and taking a leap of fate on the other

Scenario A - 60% Probability

1. Jonathan will declare his candidature in July in a low key format
2. The Chibok girls are a major impediment
3. How do you campaign when the girls are missing or lost??
4. He will keep the current ticket
5. No debates, we need four more years to complete the project
6.  No need to change the Dream Team

Scenario B - 30% Probability- Tinkering with the ticket

1. The head of ticket remains
2. A new VP from among the aggrieved governors
3. Reach out to the opposition and concede some states and a government of National Unity
4. Don’t look any further – Duncan Edwards
5. The window for candidates to change their political parties will close in July
6. You must be in the party as a candidate for at least 6 months before the election in February
7. Many politicians will be stuck where they are standing or a last minute scramble

Scenario C - 10% Most unlikely

1. Violence escalates and spreads to Lagos and the South
2. Reprisals lead to sectarian tension and mass movement of people back to their states
3. Elections postponed under the doctrine of necessity
4. Election will be very keenly contested
5. Outcome too close to call
6. INEC is neither trusted for integrity nor competence
7. The jury is out as to the possible outcome
8. The incumbent has a good chance but it will be a long shot

Outlook for July

 Expect a supplementary budget

 The Government will step up its spending on security in the FCT

 It will also increase military patronage

 The MPC will make no changes to the monetary policy stance

 Liquidity in the system will increase bringing the average opening balance to above N500bn

 The cost of intervention and mopping up will exceed the target of funding the CBN balance sheet

 External Reserves will remain flat at $37bn

 The naira will be supported at the current levels by the CBN

 The pressure for adjustment will continue to build as the import and payment bill mounts

 The stock market rally will slow as market manipulation becomes obvious

 Expect increased regulatory scrutiny as cases of pumping and dumping stocks manifest

 The PDP will hold a surprise mini-convention to confirm the chairman and Oyinlola as Secretary of the party

 Conflict between the state and national party machinery will increase

 The election of candidates will be acrimonious, leading to some defections