In the run up to the just concluded American presidential elections, a market indicator with 86 percent reliability, but little discussed by the mainstream media was flashing a signal that Donald J. Trump would be elected the 45th President of the United States.
Historically, the market performance in the three months leading up to a Presidential Election had displayed an uncanny ability to forecast who will win the White House, the incumbent party or the challenger.
When the benchmark Standard and Poor’s (S&P) 500 climbed during the three months preceding Election Day, the incumbent President or party won in 12 of those 14 instances since 1928, however, in 7 of the 8 elections where the S&P 500 fell over that three month period, the incumbent party lost.
Nigeria’s financial markets have been signalling since May 29, 2015 when President Muhammadu Buhari was sworn in as the country’s 4th democratically elected President since 1999 that the economy is in dire straits.
The broad market benchmark the NSE All Share Index (ASI) has shed 8,811.37 absolute points since May 29, 2015 to date, wiping out a whooping N2.893 trillion ($9.48 billion at $1/N305) in wealth for investors and the economy as a whole.
Africa’s largest economy has been slowing as oil prices fell by about 50 percent between 2014 and today. Latest figures from the National Bureau of Statistics (NBS) show just how much of a hole the economy is in.
Gross domestic product (GDP) contracted 2.24 percent in Q3 (three months through September) from a year earlier, after shrinking 2.1 percent in the second quarter and 0.4 percent in the first quarter, the NBS said in a statement on Monday.
This is the first time Nigeria’s economy is contracting since 1991.
Meanwhile, annual population growth rate of 3 percent combined with the economic contraction implies negative per-capita income growth.
Average incomes in Nigeria fell by about 18 percent in 2015 to $2,550 per annum from over $3,000 in 2014, as the over $500 billion economy shrank in size to about $420 billion according to World Bank estimates.
Yesterday’s GDP data series showcased an economy that is not working for Nigerians and a Government of the day that must reverse its policy direction and embrace free market principles or risk a prolonged depression.
The non-oil sector that makes up 91.81 percent of GDP eked out a 0.03 percent growth rate in Q3, while the oil sector made up of crude petroleum and natural gas slumped by -22.01 percent.
Of the 46 activity sector’s that make up GDP calculations, 25 (more than half) printed negative growth rates including Manufacturing (-4.38%), Motor Vehicles and assembly (-33.31%), construction (-6.13% ), Trade (-1.38%), Real Estate (-7.37% ), Education (-0.11%) and Human Health and social services (-2.31%).
Even the erstwhile high flying Telecoms sector, contracted by -0.95 percent in Q3.
As GDP collapses, the inflation rate hit an unprecedented 18.3 percent in October, 2016, cutting into consumer disposable income and further leading to a negative feedback loop for the economy.
This is unprecedented in modern Nigerian economic history and those at the helm of affairs must take responsibility for this ongoing economic challenge.
About 4.6 million Nigerians have been added to the unemployment rolls since President Buhari was elected (Q2, 2015) as the unemployment rate jumped to 13.3 percent in the second quarter, 2016, from 8.2 percent in second quarter, 2015.
The sad and head scratching take away from the heart wrenching job destroying economy that Nigeria faces today, is that it needs not be so, as other oil and commodity producers have enacted the right orthodox policy responses which has meant that their economies have largely rebounded from the slump in commodity prices.
Kazakhstan’s GDP growth will print at 0.5 percent this year, after the authorities in the Central Asian nation abandoned their pegged exchange rate policy due to the oil price slump. The World Bank expects Iran’s growth to rise to 4.2 percent this year, Colombia’s GDP expanded 2 percent from the same period a year earlier in the second quarter, South Africa’s GDP increased an annualized 0.7 percent in the three months through September, while Saudi Arabia should see growth of 1.3 percent for full year 2016.
The GDP contraction in Nigeria highlights the reform urgency still largely lacking for the government to remove structural impediments to higher growth in an economy with potential growth in the double digits range.
Reforms such as the removal of subsidy and deregulation of the downstream petroleum sector, railways privatisation, continued momentum on agriculture and a freeing up of the oil and gas sector for further private sector investments should help push growth rates higher while improving government finances.
A truly free market system for determining the naira dollar exchange rate must be in place to ensure clarity, confidence of investors in naira assets, easing of dollar shortages that have clobbered manufacturers and gradual recovery in the overall economy.
This is a political call that must be made by the Presidency.
The Federal Government must begin to talk up this economy to return confidence to both potential investors and its battered citizens.
Finally, the war on corporations must come to an end, whether it is MTN and the outsized fine, Stanbic IBTC and still unresolved issues with the Financial Reporting Council (FRC), threats to fine Fertilizer producer, Indorama or other non business friendly posture and statements from the government.
The lesson from around the globe is that where the ease of doing business is high and businesses thrive, countries and their citizens often prosper and the government is able to fulfill its promises through corporate and other taxes that businesses pay to invest in its most vulnerable citizens.
Nigeria’s economic managers who have been less than inspiring need to understand the misery behind these numbers as the fiscal lift from a proposed expansionary budget has failed to materialise, even as the pain deepens.
In 2018, politics will take centre stage in the country again as jockeying for the Presidential and Governorship elections intensify.
This leaves policy makers with perhaps only one year to make their mark. They should hope that the NSE All Share Index has returned to rally mode by then on the back of sound policies and a growing economy.
PATRICK ATUANYA, Chief Economist
