The coming presidential election will be crucial for the national economy
THE POLITICAL ECONOMY OF 2023
FELIX OLADEJI writes
Nigeria is a country of immense diversity. Its physical terrain ranges from the mangrove swamp and rain forest in the southern most part of the country to the grassland and semi- arid terrain of the extreme northern reaches of the country. This vegetation structure has imparted a variety of agricultural and economic activities across the length and breadth whose complementarities underlined well developed economic exchanges that predated the colonial processes that created and unified the country. It also encompasses ecological and environmental peculiarities that are not only the sources of economic and social exchanges, but also tensions and conflicts within and between various social groups.
The huge expanse of land of these historic complementary exchanges is inhabited by people of differing ethnicities, the number of which ranges between 250 and 450. Interspersed with this is a religious diversity that is essentially expressed in two major imports, both of Abrahamic origins (Christianity and Islam), and the indigenous African Traditional Religion. While usually advanced as of monolithic character, the latter aligns closely with its peculiar ethnic and cultural origins, giving it a plural character that may in fact rival the multiplicity of ethnic groups in Nigeria.
Ecological, environmental and primordial pluralism are accentuated by social class divisions which are especially mirrored in income levels and access to political power. Gender and generational issues are equally well pronounced and are especially exacerbated by growing economic inequalities. The Nigerian state has perennially tried to grapple with the management of this complex pluralist make-up.
However, presidential elections are considered as the most powerful political events and the bedrock of any economy; hence its influence on macroeconomic performance occupies and attracts considerable empirical concerns. Against this backdrop, the impact of presidential elections on broad economic variables and economic performance is a wide economic event study that is currently attracting empirical attention. As a country ruled by successive military governments for more than half of its 56 years as a nation, political instability have had effects on the economic performance. Sound presidential elections rooted in democratic structures and the rule of law are therefore indispensable for improved economic performance.
It is observed that the incredibility in the presidential election has been observed to hinder growth in the country over time. This is why the onus is on improving the credibility of presidential elections since it is the largest and most important political event in any country. The macroeconomic performance of Nigeria during the period of 1999 to 2014 was impressive, until recently when economic growth rate and other macroeconomic performances variables took a downward dimension on account of the fall in crude oil price which Nigeria mono-culturally depends on. The growth rate increased on account of the increased oil income that was realized during the period Nigeria’s macroeconomic performance over the last decade has been strong.
Growth averaged 7 percent per year during 2005-2014 which, together with a sharp increase in revenue collection and increased donor funding, provided room for a substantial expansion in public spending. For the period 2013, 2014 and 2015, the growth rates were 6.2%, 6.5% and 6.9% respectively.
Despite the impressive economic growth rates witnessed during these periods, the general economic performance and standard of living did not improve, depicting the growth-poverty paradox or poverty in the midst plenty in which a resource endowed nations remains perpetually poor. Today, the economy is characterized by huge fiscal deficits, rising unemployment coexisting side by side with accelerating inflation, destabilizing exchange rate instability, escalating interest and lending rates, decrepit infrastructures and epileptic power supply which militates against industrialization and growth, and a disgracing and disappointing general growth deceleration and economic performance. Against this backdrop, the World Bank classified Nigeria as one of the poorest nation in the world.
Moreover, evidence from developed democratic societies such as the United States, Germany, Canada, Australia, among others, has shown that presidential election announcement have impacts on economic performance usually measured in terms of broad economic aggregates such as GDP, consumption, investment, inflation, and exchange rate. For instance, it is generally believed that announcement of presidential election has a gearing effects on aggregate demand reflected in consumption, and investment, with a consequent impact on economic growth. This is because the news or announcement of presidential election will generate increased spending on the part of intending presidential aspirants, the ruling party and all other stakeholders using same as political merchandising to sway the public and electorate to voting them. The increased spending and the consequent increase in private and public consumption and investment increases economic growth rate.
Apart from these effects, presidential election announcement (news) is believed to affect key economic and performance variables such as exchange rate and inflation. For instance, on the news of the announcement of presidential election, prices of goods generally rises since the increased demand for goods and items on account of the election will consequently increase ,thereby necessitating inflation.
Presidential election announcement in Nigeria is believed to have a dampening effect on economic activities since such news has the tendency of decreasing aggregate demand. The 1999, 2003, 2007, 2011, 2015 and 2019 are clear case of presidential in Nigeria with differing economic effects. The cut in public expenditure in order to accumulate resources for the election, led to a lull in economic activities with a consequent negative effect on stock prices since a direct relationship is presumed to exist between economic output (size) and stock returns. On account of the low economic patronage arising from low economic activities, key macroeconomic variables may be affected.
This is because the government, discerning public, investors and other stakeholders may embark on a ‘wait-and see’ attitude before deciding future course of economic action. In general, economic performances during presidential elections in Nigeria have been rather mixed on account of varying domestic and international economic dynamics. Given the fact that Nigeria is oil-dependent, its fiscal and economic operations usually follow development in the oil market. Thus, the very dependence of the economy on oil revenue streams, combined with the global pattern of the world economy dictates the pattern and performance of the economy.
Hence, on account of the uncertain and unstable political atmosphere, domestic and foreign investors are usually reduced and economic growth is consequently hindered. No economy can achieve meaningful economic development in atmosphere of political uncertainty such as the one that had characterized Nigeria in the recent past. For economic growth to be enhance, the political environment must be stable, certain and predictable to give credence and credibility to policies and investment, particularly by foreign investors. A stable political environment is therefore a sine quanon for sound economic and meaningful performance.
Conclusively, presidential election announcement has strong effects on macroeconomic variables in Nigeria. Although the effects on overall economic performance are not direct, there are channels through which they occur, including investment, government spending and the capital market.
Oladeji writes from Lagos
