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Growing political tension worsens capital market woes

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By OKEY ONYENWEAKU

 Those who expect the Nigerian capital market to turn-around magically for the better overnight may have to wait a little longer. This is because the overhanging political environment has remained not-too-favourable for business players to determinedly harness the opportunities of the huge market that abounds in the country.

The equities market all over the world responds to the vagaries of its environment and the Nigerian market is not an exception. There is a consensus that an economy can only grow in a stable polity. But many professionals fear that the gravest problem plaguing Nigeria, especially in the last few years, is and remains, political instability.

There is growing political tension in Nigeria as a result and this appears to affect every aspect of the peoples’ lives, business activities inclusive. Many unpalatable disturbances, industry analysts say may have conspired to dampen the prospects for growth in the economy and accelerate the pace of development in the equities market in Nigeria.

Experts agree that politics is superior to economy and that an unstable political environment cannot therefore produce any contrary outcomes. The political environment has been heated up, aggravating the challenges which seem to have emanated from the political imbroglio.

Many industry analysts have heaped the blame majorly on the inability of the government to live up to expectations and navigate the nation to sustainable growth. One of the challenges that they say seems to have become worse even now is insecurity. There is a feeling in literally every part of the country that lives and properties of the citizenry may have been abandoned to the whims and caprices of criminals and bandits. This development has also provoked accusations and counter accusations and charges that certain persons and groups may be uncannily beating ‘drums of war.’

Before now, it was the menace of the radical Islamist religious group, Boko Haram which has caused a devastating effect on the economy of the North East and it’s environs that was the star challenge. However, whereas the government is still grappling with Boko Haram, an allegedly more dangerous group, the killer Herdsmen are raising havoc in most nooks and crannies of Nigeria, killing and maiming innocent and defenceless citizens. This rampaging horde, has also been labeled as the fourth deadliest terrorist group in the world by the Global Terrorism Index.  Indeed, the ‘drums of war; appear to have become louder in recent times, especially with the murder of Mrs. Funke Olaknunrin, daughter of Afenifere leader, Pa Reuben Fasoranti.

Before its latter suspension, the Federal Government’s plan to build RUGA settlements for Herdsmen in all 36 States of the federation raised huge controversies as well and led to heightened anger especially in the Southern part of Nigeria where communities suspect that it is a ploy to take over their ancestral lands.

Not long after the election of President Muhammadu Buhari for a first term in office, in May 2015, the Nigerian economy plunged into a recession. It posted a negative growth showing of  -0.36, in the first quarter 2016. Things continued on a downhill slide as it plunged further by- 2.06 between April and June 2016. The economy remained in recession and even tanked lower to record equally negative postings of -2.24 in the third quarter of 2016 and –1.3 in the fourth quarter 2016.

Thankfully however, by Q2’17, the Nigerian economy exited recession recording a positive growth rate of 0.5%y/y. Today the economy which has grown at a snail pace since then posted a growth rate of +2.1 per cent in the first quarter of 2019.

Notwithstanding this relief, there have however been warnings that the economy which largely depends on Crude oil for about 90 per cent of its revenues has still not made comfortable land-fall. Comments by both the Central Bank of Nigeria and the World Bank indicate that the economy could easily slip back into recession if the government does not give sustained vigour to some of the policies and the activities that had helped to rescue it from the red region in the first place.

Equities market performance in a weak economy

An analyst who does not want his name in print told Business Hallmark that having an upswing equities market at this moment of high instability and high country risk would have been most surprising. He shares the view of many experts that the capital market is the barometer through which the economy of any nation is measured.

As at the close of business on Friday July 18, 2019, the equities market closed negative at -11.43 per cent Year to Date.

The All-Share Index which opened on January 3, 2019 at 30,771.32 basis points closed last Friday, July 19, 2019 at 27,919.50 points. Even more alarming is the fact that none of the sectors of the market are spared. From the banking index through the insurance index, Oil and Gas and on to the Consumer Goods Index, all are trending South. Not even the listing of heavy stocks like MTN and Airtel Africa have made a sustained impact on trading performance as the best that they have done has been to boost market capitalization.

Findings by BH reveal that the market is still very weak and it is difficult to predict with any amount of certainty its future. However, before now, it had gained 65% in 2003;18.5%in 2004;1.01% in 2005;37.80% in 2006 and 74.73% in 2007. It had in the past also lost -45.77% in 2008 and -33.80% in 2009 before it took a rebound to gain 18.50% in 2010. The market slipped back in the negative by -17% in 2011, gained – 35.4% in 2012, gained 47.19% in 2013, lost by -16.14%. It closed in the negative by  -17.36% in 2015, -6.%  in 2016. It gained 42.30 per cent in 2017, market closed negative by 17.81 per cent in 2018.

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Even though some believe that the Nigerian Market is not predictable, the macro- economic environment does not betray any pleasant future in the short and medium term if the government refuses to directly fashion out a direction for the market. Many have suggested that the government should invest in the market to help restore investor confidence.

Dr. Afolabi Olowokere of Financial Derivatives Company Limited; believes that human beings will always be optimistic. However, he noted that investors are already not expecting to earn much from the capital market this year give that market was closing the year in the negative. He explained that Nigeria should not expect huge foreign inflows this year as investors seem to be waiting on the edge until policies become clearer, particularly as it has to do with the exchange rate and the budget among other macro-economic challenges.

In his view, Managing Director, Highcap Securities Limited, David Adonri, reckons  that the  situation in the macro-economy  now  was reflecting in the capital market given that the market reacts much earlier before the deeper signs and symptoms start manifesting in the overall economy. Demand, he said is very low in equities because investors are foreseeing a gloomy future. He also noted that prospects of the market can only be positively affected if the macro-economy improves. He noted that the Nigerian economy, which is hinged on the mono-product, oil, has sharply declined in price, resulting in lack of funds and lack of liquidity.

Before now however, Group Chief Executive Officer of Emerging Africa Capital Group, Mrs. Oluwatoyin Sanni, had earlier in the year posited that the market would witness full rebound in the second half of the year.

“The general expectation is that the first half of 2019 will be more of the same as last year because investors will be playing a wait-and-see approach due to the elections. Investors will wait to see how the elections are accepted and confirm that there will be peace in the post-election period up till May 29, which will be the day the new government will be sworn into office. So, there is hope that the second half will be better, depending again, on how well and smoothly we conduct the election depending on investor perception of the government that wins the election,” she had said.

But that has yet to materialize given the volatile environment which has not only put foreign investors on the edge but is also frightening local investors given the uncertainties in the polity. And this should give both the government and market players a lot to ruminate over.

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