Nigeria: Are Oil & Politics Headed For “Polarizing Transition?”
Nigeria's Christian-Muslim divide could be laid bare in a presidential succession, an RBC commodity strategist warns.
With Nigeria’s ailing President Muhammadu Buhari seeking emergency medical treatment outside the country for a second time, the prospect of a "polarizing political transition" is real.
So says Helima Croft, head of commodity strategy at RBC Capital Markets. Croft worked for the U.S. State Department in Africa, with a focus on Nigeria, before moving to the private sector, and told Barron's last fall that Nigeria has been a perennial disappointment in efforts to smooth out its tribal politics and harness its considerable oil wealth. She writes:
" ... a polarizing political transition could exacerbate regional and sectarian divisions as well as have implications for oil output. This marks the second time this year that the 74-year-old Buhari, a northern ex-general, has sought medical assistance in London for an undisclosed ailment. His last stay stretched from January to mid-March. Though he did greet the rescued Boko Haram captives before leaving, he has rarely been seen in public in recent weeks and is reportedly having trouble eating and drinking. In his absence, Vice President Yemi Osinbajo, the former Lagos State attorney general and Christian Pastor, will run the day-today affairs of the country. While Osinbajo received considerable praise for past performance in the presidential seat, a permanent elevation could cause considerable discontent in the mostly Muslim north. Such an elevation would once again upend the informal regional power rotation agreement that helped end military rule in 1999 and would deny the north a full eight years of the presidency. Hence, northern power brokers would likely move to block such a transition. Though there could be considerable hard feelings in Nigeria’s northern region, an elevation of Osinbajo would likely be well received in the Niger Delta region. His visits to the embattled oil region and his pledge to address the core grievances of these communities have been well received by local leaders. President Buhari to date has yet to visit the Niger Delta and he ended the large-scale payments to former Niger Delta militant leaders, which helped ensure the relative peace in the oil region from 2009 to 2015. A return to past practices could help boost oil output in the near term while leaving the structural problems unchanged."
The illiquid Global X MSCI Nigeria exchange-traded fund (NGE) has been trading erratically: it is down more than 6% this year, and down nearly 1% in May, but the ETF is up 7.5% this week despite negative political headlines. The VanEckVectors Africa Index ETF (AFK), which is only slightly larger with $69 million in assets, is up 8.6% this year, up 1.6% this month, and up 3.9% this week.
See our post "Ex-CIA Analyst On Nigeria Oil: Perennial Underperformer." Subscribers can read the full September 2016 Q&A with Croft, "Why Oil Could Rise 35%" for her thoughts on OPEC, Venezuela, Saudi Arabia and Russia.
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