Elections, not only oil price batters the Naira

Falling oil prices may be a major cause of the current decline in the value of the naira, but it is not the only one. Among the several factors mitigating against the Nigeria’s currency is the forthcoming 2015 elections. A trip down memory lane show a close relationship between elections and the naira. Election spending has always had a significant effect on the naira, especially since the return to democracy in 1999.

This is how it happens. In the months leading to elections, Nigerian politicians spend frivolously, leading to excess liquidity in the system. Excess liquidity basically means too much cash, and this causes inflation – a situation that occurs when so much money is chasing few goods or demand surpasses supply. Speculation on political tension caused by the jostling for public office also affects the stability of the local currency.

Here is how the naira has suffered during previous election periods;

Although the focus is on 1999, but how can we leave out Nigeria’s 1993 election, described by international observers as the country’s freest and fairest election ever. Nigeria had been under military rule since 1983, but hope for a democratic government came with the June 12 1993 presidential elections. Moshood Kashimawo Olawale Abiola of the Social Democratic Party defeated Bashir Tofa of the National Republican Convention. However, the elections were annulled by military ruler Ibrahim Babangida, leading to a crisis that ended with Sani Abacha heading a coup later in the year. The months leading to the election – one of Nigeria’s hotly contested polls – after an extended military rule, brought not only socio-political problems, but also economic ones.

The naira fell to an all-time low of N25 to a dollar. It has continued ever since, with excessive spending by politicians, political uncertainty, among several other factors, affecting the stability of the local currency. History has also shown that speculative tendencies that characterise election periods often have significant negative impact on the naira.

Nigeria was experiencing democratic rule again, after decades of military dictatorship. While the world celebrated with Nigeria, a future unknown affected the value of the naira. Pre-election exchange rate; as at January 2008, was N77.5 to $1, but five months after the February 1999 election, a dollar exchanged for N101.2.

President Olusegun Obasanjo and his party were the clear favourites in the 2013 presidential election. Nigerians were still basking in the euphoria of the new democratic rule. Obasanjo had also won some Western support for strengthening Nigeria’s nascent democracy. The effect on the economy was a relatively stable naira.

The 2003 presidential election was tumultuous, with violent ethnic and religious overtones. However, the economic growth experienced by the country under Obasanjo and the setting off of the country’s debt, held the naira. The debts accrued from loans secured by past corrupt officials. The Economic and Financial Crimes Commission (EFCC) established in 2003 also added good points to Obasanjo’s presidency, as it portrayed a government committed to fighting corruption. All these achievements were too much for his third term ambition to upset. The value of the naira thus stabilized before and even months after the 2007 elections. It fell further after a smooth transition of power from Obasanjo to President Umar Yar’adua, who is now late.

A lot had happened since the last elections. President Yar’adua had died, and his Vice, Goodluck Jonathan had taken over. He ran for presidency and won against Former military Head of State, General Muhammadu Buhari and Former EFCC Chairman Nuhu Ribadu. However, Boko Haram insurgency was already heating up Nigeria’s North, with attacks becoming frequent. The naira was affected as the value dropped. The election year ended with the naira exchanging for a dollar at more than N160.

Although, the pressure on Nigeria’s currency began some months ago, when the US Federal Reserve’s tapering policy was introduced, frivolous spending by politicians ahead of every election, and the political uncertainty was always going to take its toll. Falling oil prices however made matters worse this time, leading to the devaluation of the naira, as foreign reserves dwindle. The exchange rate earlier pegged at N155 to a dollar was changed to N168; the value of the naira dropped again.

While the governor of Nigeria’s Central Bank has won plaudits for the policy decision, the future of the naira remains uncertain, as several analysts say a further drop in value is expected.

“The value isn’t necessarily about what it’s actually worth, but rather what investors think it’s worth. Perception is often reality in the forex markets,” currencytrading.net once wrote about the US dollar. For the naira as well, as long as political uncertainty remains ahead of the 2015 elections and global oil prices continue to fall, the currency’s decline may continue.  (VENTURES AFRICA)