The Elections and the Macro

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We hear often that major elections bring a loss of macro discipline and have always suspected that the connection is made without supporting evidence. So we looked in previous daily notes at data for the run-up to the Nigerian presidential elections in April 2007, April 2011 and March 2015, and found scarce evidence of slippage in the series for FGN spending, inflation, domiciliary account holdings and offshore investment on the NSE.

We accept that a loss of discipline may not always be evident from regular data series.

  • In the fifth instalment of our mini-series, we have analysed the CBN data series for currency in circulation. The one discernible trend is a spike in December, followed by a retreat in January: the driver, however, is the holiday season rather than the election cycle. Generally, a rise in currency in circulation in December is matched by a fall in demand deposits.
  • We have found one anomaly for which there is no obvious explanation, namely increases of N200bn and N90bn in currency in circulation and demand deposits respectively in March 2015 (the month of the elections).
The Elections and the Macro - Brand Spur
Sources: CBN; FBNQuest Capital Research
  • We hear the cry from the corner of the virtual room that, although we have drawn a blank with the last three elections, it may be different this time.
  • Slippage can be expected if a leading candidate has a radical, anti-business agenda and/or the outcome is very close, and challenged. The first does not apply and we hope the second does not arise.
  • The elections in 2011 and 2015 were followed by short relief rallies on the NSE. 2011’s amounted to about 150bps and 2015’s a little more of about 350bps (perhaps because of the novelty that the incumbent was the loser).