Nigeria Opposition’s Buhari Could Win, Disrupting Oil

There is a 60% probability that Nigeria opposition leader Muhamadu Buhari could beat President Goodluck Jonathan in this month’s election, according to Eurasia Group.

The Global X MSCI Nigeria ETF (NGE), up 1.6% today, has tumbled 14% year to date and is down nearly 36% over the past 12 months. The Vanguard FTSE Emerging Markets ETF(VWO), up 0.5% today, is down nearly a point this year, and up 3.2% over the past year.

Africa practice head and Analyst Philippe de Pontet writes today that while Jonathan was a favorite in the March 28 election, representing a victory for the country’s Christian south, the electoral map is tilting to Buhari in swing regions in the southwest and middle of the country. Buhari would be a technocrat, and investors could expect business-oriented policies, de Pontet writes, but Eurasia Group remains neutral on Nigeria for the long term, given downside risks to oil production and challenges to policy implementation. He adds:

“The election will still be difficult to call, but our expectation of a narrow Jonathan win was predicated on several factors that are losing some saliency late in the campaign.

Chief among them is the incumbency and financial advantages of the rulingPeoples Democratic Party (PDP). While this still helps Jonathan, its impact is blunted by the intensity of support for Buhari, lackluster grassroots campaigning by the PDP, and new anti-rigging measures by the electoral commission. New permanent voting cards and card readers will sharply reduce the level of rigging seen in 2011, when Jonathan beat Buhari in a landslide …

While we expected the electoral map to favor Jonathan, current trends suggest that the swing regions may side with Buhari, including the Christian-majority and heavily-populated southwest around Lagos. That could be the decisive demographic factor in the election …”

A local think tank, the Center for Public Policy Alternatives, gives Buhari a 58% to 32% lead in Lagos state, where Jonathan won the last election. Eurasia Group thinks Jonathan’s approval rating is below the 40% threshold under which incumbents have a hard time getting reelected.

“Despite some important military gains against [the Islamic terror group]Boko Haram in the northeast, and a partial exoneration of its oil revenue management in a recent PWC audit, [Jonathan’s] Peoples Democratic Party is starting to look desperate. … [But] it is not clear … that Buhari has a strong economic policy orientation. This uncertainty is a chief risk for investors.”

Jonathan is likely to contest an unfavorable outcome, especially a close election, and that could mean protracted violence.

“The reason we aren’t upgrading Nigeria’s outlook to positive, however, rests in the potential for an oil disruption and the likely pushback to Buhari’s policy agenda in a highly polarized political climate. His victory is likely to unleash a resurgence of militancy in the Niger Delta (Jonathan’s home region) that targets the oil sector. Former Delta militants have threatened to blow up oil pipelines, platforms, and personnel as in the past when they routinely took up to 500,000 barrels per day offline. There is likely some bluster in their threats …“