It is often said that elections disrupt the macroeconomy. The recent elections in Kenya have prompted us to apply a beginner’s test to the theory. Economists generally subscribe to it. When asked to provide a forecast of core variables, the temptation is to build in a slowdown in growth, a boost to public spending and subdued private investment. This is the result of either laziness or thorough analysis.
Nigerian planning officials are divided on the point. The Economic Recovery & Growth Plan 2017-2020 has growth slowing from 4.8 per cent in 2018 to 4.5 per cent in 2019 (election year), and then picking up to 7.0 per cent in 2020. We understand from conversations with senior officials that the elections were built into the forecasts. It is the work of the federal ministry of budget and national planning, and is dated February 2017. The more recent 2018-2020 Medium-Term Expenditure Framework from the same ministry has growth rising steadily from 3.5 per cent next year to 4.5 per cent in 2019 and 7.0 per cent (again) in 2020. These projections we have taken from local media reports.
Since the framework has been approved by the Federal Executive Council, the official line seems to be that the elections will not be disruptive. Our next step therefore is to examine the revised quarterly national accounts at constant prices for any trends around the presidential elections of April 2011 and March 2015, making allowances for the fact that the data series is not seasonally adjusted.
Q1 2015 saw double-digit contraction of the economy on a quarter-on-quarter (q/q) basis. The first-quarter phenomenon (reaction after the holiday period) would have been a factor, and perhaps the elections too. Predictably, for private consumption, the q/q contraction was still greater (-26 per cent). When we look at the accounts on a year-on-year (y/y) basis, we find that that economy slowed from Q2 2014 through to Q3 2016 (with one small blip in Q3 2015). This coincides exactly with the slide in the oil price, which has exposed Nigeria’s vulnerability to the Dutch disease. One symptom of the disease is paucity of government revenue so we are not surprised to find that government consumption contracted y/y throughout 2015 and 2016.
Any impact of the elections of March 2015 was dwarfed by the decline in the oil price from above US$100/b and its negative passthrough to the economy. Q1 2011 also saw q/q contraction of the economy (of 9 per cent), and again we identify the first-quarter phenomenon. When we look at q/q consumption trends in Q1 2011, the find the reverse of what we might have expected: private consumption increased (after the holiday period) by 9 per cent q/q while the government element shrank (when the authorities might have been distributing the largesse) by -28 per cent q/q.
Gregory Kronsten
Head, Macroeconomic & Fixed Income Research
Source: Business Day, 21 August 2017.
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