With the US Presidential elections set to take place on November 3rd – America has a choice between two major parties with vastly different economic views. Expectedly, the policy positions of each of these presidents will have far-reaching effects globally, including Nigeria.
The Republican policy
President Donald Trump’s signature phrase is “America First”. This is an economic policy that seeks to promote US based manufacturing, a weaker dollar to promote exports, energy independence via increased fossil fuel output, and targeted immigration policies to reduce illegal immigration and raise local US wages.
Internationally, Trump has favored bilateral trade policies over multilateral policies and has deployed trade tariffs under a policy of reciprocity. He has also pulled out of the Paris Climate Accord.
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The Democratic policy
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Former Vice President, Joe Biden, also has a “Buy America” economic plan funded by a hike in corporate and personal income taxes. His plan will expand the affordable Care Act (Obamacare). The Biden plan will restrict fossil fuel investment on federal land, rejoin the Paris Climate talks and expand renewable energy use in the US.
Biden is also planning a huge fiscal expansion (tax hikes) to invest in infrastructure and expansion of Obamacare to States. He also plans a new tax called the U.S. Global Intangible Low-Taxed Income (GILTI), which is a tax on patents, trademarks, and copyrights generated by an affiliated foreign corporation.
- The stock market has performed better under Democrat Presidents than it has under Republican presidents, according to data going back to 1946.
- From 1947 to 2006, the average annual return for stocks under a Democratic president was 10.5% versus 6.1% under a Republican president.
- The average annual US GDP growth rate under a Democratic president was 3.6%, compared to 2.6% for a Republican president.
- Why? The type of fiscal multiplies both parties use, Republicans use tax cuts while Democrats stimulate via consumption.
- Tax cut introduced by Republicans boost economic growth by 0.3% to 0.4%, but expanding unemployment benefits and other policies often pushed by Democratic presidents has a fiscal multiplier of 1.2 to 1.7.
Effect of policies in the US
The Trump Presidency promises a new middle-class tax cut and further regulatory pullbacks on Energy and Financial Services, which are highly regulated. These sectors will see a revenue boost; thus, banks, natural gas & pipelines, and local manufacturing will benefit under a Trump reelection.
The Biden presidency wants to focus on the Affordable Care Act, renewables, and infrastructure; thus, any sector in Wind and Solar power, and construction equipment will benefit. Health stock will also jump as Biden will boost Medicare expansion.
What about Nigeria?
The Nigerian economy is connected to the US economy in 4 main ways.
- The Dollar exchange rate
- The price of crude oil
- The US Federal Reserve Rate
So which candidate’s policy will have a net positive effect on Nigeria and the Nigerian Stock exchange? To be clear, Nigeria benefit from a
- Weak dollar. So, the cost of debt and imports is low.
- Higher crude oil price. So, forex earnings are up.
- Low Federal Reserve policy rate, to make emerging market securities attractive on a yield basis.
- The certainty with China.
If Trump is reelected and continues his trade and energy policies, it will mean more Capital Investments in the US to avoid import taxes. America’s energy independence also means less import of foreign crude and more US exports of oil and gas.
This should boost the US dollar and drop the price of crude oil & gas which will be negative for Nigeria. The positive for Nigeria is fossil fuels will not come under heavy regulatory guidance; thus, boosting new investment. Under Trump, the dollar is stronger, crude prices fall, federal rates stay low.
A Biden victory will see massive deficit spending, and a refocus on green policies and healthcare. This will affect investments in the Nigerian oil and gas industry. The positive is that the trade environment in the US will be more open to imports and outsourcing from Nigeria.
Under Biden, the dollar will be weaker, the crude oil price will stay up (dues to lower US Supply) and fed rates rise. Thus, emerging market security with higher yields is attractive.
China is Nigeria’s biggest opportunity – both candidates seek to crack down on Chinese imports, which presents an opportunity for Chinese and American companies to offshore to Nigeria and avoid Chinese import tariffs.
Worthy to note is that in each party, there exists polices net positive or neutral for Nigeria
Which stock will benefit from a Trump win? Seplat, what about a Biden win? Nigerian Eurobonds will do well.
Remember, the risks to this forecast are significant, Covid 19 is not defeated, it can kill global demand.