By November 3, the United States of America (USA) will be making a choice between a Trump or Biden presidency. Increased uncertainty on the outcome of the elections drove jitters on major US equity indexes last week, as the markets priced in the possibility of an election contest given the increased adoption of mail-voting as opposed to congregating at polling stations. While online polls favour a Biden presidency with a 51% lead, the 2016 elections lent credence to the fact that online polls do not win elections as Hilary led by higher margins in 2016 despite loosing to Trump in the actual elections.
The faceoff between the two has implications for foreign policy, commodity prices, global trade and capital flows into emerging and frontier economies. Like many emerging economies, African economies look towards the outcome of the elections. In the past, the region has benefited from both parties. With a Biden presidency, a return to multilateralism will occur as against Trump’s America-first policy. Thus, Biden is more likely to revisit the Paris Agreement, World Health Organisation and the Joint Comprehensive Plan of Action (JCPOA) and international diplomacy could improve under Biden.
With respect to commodity prices, we believe oil prices would be affected by the return to the JCPOA, which will ensure reduced sanctions on Iran and improved oil supply. In the face of a second wave of lockdowns and weak oil demand, oil prices may stagger from reduced US-Iran tensions. In addition, Biden plans to invest up to $7trillion over 10 years in renewable energy. This could also thwart demand potentials for fossil fuels. As a result, oil producing nations like Nigeria and Angola may experience lower oil prices in the medium to long term, which may translate into the external sector vulnerabilities via wider current account deficits and currency weakness.
On the flip side, we expect global trade tensions to subside if the Democrats emerge winners. Though not directly impacted by the trade war, the passthrough of souring US-China tensions culminated in lower commodity prices. The imposition of tariffs reduced Chinese demand for raw materials, which are sourced from African economies. Thus, a de-escalation of trade wars would support recovery of already weak commodity prices as there is a likelihood of a reversal or review of Trump’s tariff policy under a Biden presidency. The Africa Growth and Opportunity Act (AGOA), which allows African countries duty-free access into the US may not witness an extension in 2025, if Trump re-emerges as President. We may see establishment of more bilateral trade relationships in Africa, in line with ongoing talks with Kenya on a deal with the United States. We recall in 2018, President Buhari maintained his protectionist stance when the US clamoured for removal of trade barriers.
In conclusion, we expect the outcome of the elections to heighten risk-off sentiments towards EM currencies and assets, if contested. Gold will continue to be investors’ delight with the resurfacing of lockdowns in Europe and possible US election results tussle.