Why the Nigerian Elections Matter and How to Trade the News – Introduction
On Saturday, Nigerians will go to an election to elect the next leaders who will serve for the next five years. The presidency is being contested by the incumbent, Muhammadu Buhari, who is 76 years old and the former vice president, Abubaka Atiku, who is 72 years old. While this election does not appear to mean much for many investors, wise traders will be following it closely. This is because it will mean a lot to global investors for a number of reasons.
First, Nigeria is the biggest economy in Africa with a GDP of $375 billion and a population of more than 190 million people. It is followed by South Africa, which has a GDP of more than $350 billion and a population of 56 million people. As such, Nigeria is an emerging market that has seen large investments by global investment managers who focus on emerging markets. Therefore, if Nigeria’s election is not free and fair, it could lead to violence, which will affect many large international companies that have invested in the country. Therefore, while Nigeria is one of the poorest countries on earth, it still matters a lot to global investors.
Second, Nigeria is a member of OPEC and is one of the biggest oil producers in the world. Recent statistics show that the country produces almost 2 million barrels of oil per day. In fact, most of Nigeria’s economy is supported by the crude oil market. This was evidenced by the recession the country went through when the crude oil prices declined to below $30. Therefore, in case there is a conflict, the oil market will be affected, which could lead to higher oil prices. In case of a smooth election, it means that the oil market will not be affected and the current status quo will remain.
Third, as the biggest economy in Africa, Nigeria is a major trading country with many countries around the world. Every year, the country exports goods worth more than $50 billion and imports goods worth more than $35 billion. The biggest trading partners are India, United States, Spain, and Italy. While the election will not affect big countries like the US, it will have major effects on smaller countries like Spain, Italy, and Netherlands.
Fourth, Nigeria is also a major producer of cocoa, one of the most important agricultural commodity in the world. Other major cocoa producers are Ivory Coast and Ghana. Therefore, the cocoa price will likely be affected depending on how the election goes. In case of violence or increased volatility, there is a likelihood that investors will push the price of cocoa higher.
Therefore, there are a number of ways to trade the coming election. The first and most obvious one is to short the Nigerian naira ahead of the election. This is as international investors exit the country ahead of the election. Second, you can look at the oil markets and possibly buy crude oil futures. This is as investors expect violence and disruption from the Nigerians. Third, you can buy cocoa too ahead of elections. Finally, you can look at the most currencies that are mostly correlated by the Nigerian naira.