Nigerian investors sold stocks last week, shrugging off plans announced by Vice President Yemi Osinbajo to set up a $25 billion infrastructure fund that would invest in the country’s transport and energy sectors.
Osinbajo said money for the planned fund would come from local and international sources, including Nigeria’s Sovereign Wealth Fund (SWF) and domestic pension funds.
“The fund would be used to address the nation’s decaying road, rail and power infrastructures,” Osibanjo said.
Assets under management by Nigeria’s SWF infrastructure component ($400 million) are however only equivalent to 1.6 percent of the proposed fund, while risk averse pensions funds currently have little or no exposure to infrastructure.
“At the moment, I doubt if there is anything from government that can spur equities market significantly. The equities market appears set for an extended weak performance, given macroeconomic weakness,” Abiodun Keripe, head of research at Elixir Investment Partners, said in response to questions.
Stocks shed N284 billion ($1.42 billion) in market capitalisation last week, with the broad market index closing at 29,190.54 points below the psychologically important 30,000 mark.
Industrial, construction, consumer and property stocks, should in theory outperform in the event such a fund fuels an infrastructure boom.
Dangote Cement, the nation’s largest listed company, which reported flat Nigerian revenues in its most recent quarter, shed 0.63 percent to close at N163 per share, construction giant, Julius Berger was unchanged to bring year to date losses to 0 -36 percent, UACN property development closed unchanged for a -26 percent performance year to date.
“I think the market believes the Government can do more to show seriousness about this fund,” said a senior investment banker speaking on condition of anonymity.
“For one, it can end the fuel subsidies to free up to $2 billion a year that could go into the fund. But that has not happened and the macro environment continues to suffer,” he said.
Nigeria’s economy, the biggest on the continent, has been hammered by the fall in oil prices. The country relies on crude exports for around 70 percent of government revenues.
Real GDP expanded by 2.35 per cent in the second quarter of 2015, a significant decrease, when compared with the 3.96 and 6.54 per cent in the preceding quarter and corresponding period of 2014, respectively, according to the National Bureau of Statistics (NBS).
A $25 billion fund dedicated to infrastructure would be a huge boost to growth in Africa’s largest economy that suffers from creaking infrastructure.
Funds budgeted for capital projects in Nigeria have averaged $5 billion (N1 trillion) a year between 2011 and 2014, with final expenditure often well below the budgeted level due to absorptive capacity issues and corruption.
Osinbajo who has been asked to oversee economic policy by President Muhammadu Buhari, referred to the infrastructure fund proposals while speaking to diplomats, including ambassadors from Italy and Canada, the vice presidency said in a statement.
While a scarcity of dollars and a pegged naira choking growth is the biggest risk for investors, a successful take-off of such a huge fund dedicated to infrastructure may help lift growth above the current trend.
The Central Bank left interest rates unchanged at a policy review last month and Governor Godwin Emefiele said in his statements that “countervailing measures are immediately needed to act as a fillip to growth.”
The nation of 170 million people is Africa’s top oil producer, but it requires infrastructure development to help boost economic growth.
The new President Muhammadu Buhari has pledged to boost Nigeria’s economic growth to more than 10 percent per year during his term in the office, from about 6 percent last year.
