Two years ago markets hoping for a quick pivot to reforms cheered the new President Muhammadu Buhari administration amid a wave of optimism.
On Tuesday, April 2, 2015, the stock market recorded a historic gain, with the All Share Index soaring by an unprecedented 8.4 percent or 2,635.32 basis points, to close at 34,380.14. The market capitalisation of listed equities rose a record N904 billion on the same day to close at N11.621 trillion.
Stocks then went on a run of 10 straight days of gains as all key sub-indices on the stock exchange rallied.
Analysts linked the gains to the optimism that President Buhari and his new All People’s Congress (APC) will be good for the Nigerian economy.
Two years down the line, that optimism has largely faded.
Nigerians are facing the worst economic crises since 1991 as the negative fallout from the collapse in oil prices that began in 2014 got exacerbated by unorthodox policy choices.
Economic growth in 2015 of 2.8 percent was the lowest since the return of democracy in 1999 as capital controls and the hard dollar peg imposed by President Buhari deterred foreign investors and led to large job losses in the manufacturing and services sectors.
In 2016 the economy contracted by 1.5 percent, the first negative growth rate since 1991.
The rigid naira foreign exchange rate imposed by the government has also failed to slow inflation which at 17.2 percent, represents a near doubling of the Consumer Price Index (CPI) from early 2016 levels.
Nigeria’s policy choices on foreign exchange (FX) led to the ejection of the country from two major bond indices, the JP Morgan Emerging Market (EM) Index and the Barclays EM bond index.
It is no surprise that Foreign Portfolio Investments (FPI) and Foreign Direct Investments (FDI) into Nigeria have collapsed as a consequence, further squeezing the local currency.
The currency (naira) also began to exchange for the dollar at the widest premium ever, between the official rate at (N305/$) and parallel market rate at (N480 – N520/$).
The CBNs insistence on selling scarce dollars at a non-market determined rate of N305/$, combined with lower oil output due to attacks on infrastructure, led to Nigeria’s gross FX reserves falling to a near 10 year low of $24 billion
The path taken by Nigeria contrasts with those of regional peers like Kenya, South Africa and Egypt.
The Central Bank of Egypt has allowed for the depreciation of the pound and adopted a flexible exchange rate regime.
The Egyptian pound is now the cheapest of all emerging-market and African currencies, after it scrapped controls in November, investment bank Renaissance Capital’s real effective exchange rate (REER) models show.
Investors have poured into Egypt, buying up cheap assets, while Nigerian stocks were the world’s worst performers in the past year in dollar terms, losing 35 percent, according to Bloomberg data.
Foreign investors were net sellers of Nigerian stocks in 2016 as total foreign transactions decreased by 49.51 percent, to N517.55 billion at the end of 2016 from N1.025 trillion recorded at the end of 2015, according to data from the Nigerian bourse.
Nigeria’s unemployment rate has risen to 13.9 percent in the 3rd quarter of 2016 from 9.9 percent in Q3 2015, while the underemployment rate (those working but doing menial jobs not commensurate with their qualifications, or those merely working for few hours) jumped to 19.1 percent in the period, according to data from the National Bureau of Statistics (NBS).
Youth unemployment is at a staggering 42.2 percent.
The Nigerian Stock market fell for two consecutive years 2016 (-6.2%) and 2015 (-17.4%).
Meanwhile Nigerian equities have lost about N1.6 trillion in market capitalisation since mid-2015.
The International Monetary Fund (IMF) forecasts that the economy will expand by 0.8 percent this year, which is below population growth rate of about 3 percent implying 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, according to World Bank and IMF estimates.
The fall in per-capita income growth is acting as a drag on consumption, with attendant negative implications for the wider economy, according to analysts.
The gloomy picture painted by the data points presented above, is slowly fading away lately, as investors sense that asset prices have bottomed out and the economy is beginning to grow again.
More specifically, stock markets have gained 8 percent in 2017, and market capitalisation of listed equities have clawed back to retake the N10 trillion mark.
The dollar-naira exchange rate has remained stable across both the interbank and new importers and exporters (I&E) segments of the market.
In the interbank market, the naira traded within the band of N305.40 and N306.40 to a $ on Friday, while at the, I&E FX window the closing rate was N380.23/$.
Oil prices have also bottomed near $50 per barrel for crude, a neutral to positive development for Nigeria, where the commodity accounts for two-thirds of government revenue and about 90 percent of its foreign currency earnings.
Recent data on capital importation from the NBS shows that foreign portfolio investors are slowly trickling back into the country, with portfolio inflows up 10 percent in Q1, 2017 compared to Q4, 2016.
Determining whether Nigeria’s current economic fundamentals should be viewed from a glass half empty of glass half full perspective, is therefore a somewhat challenging exercise.
Corporate profits for big listed firms remained resilient in 2016, but large firms are often better able to cope in a time of recession, than smaller ones.
Interest rates are elevated for the economy as a whole, with the risk free rate at 18 percent, risk taking and animal spirits are taking a backseat to fixed income investments and the play on yields.
While valuations are a positive from equities to real estate as our special report shows, investor sentiment is still neutral to negative, as wealth creation and growth remain subdued.
While data points on the economy will fluctuate from quarter to quarter, until a clear trend is established, for the time being, a majority of investors and battered consumers are still seeing the economy from the prism of a glass half empty.
PATRICK ATUANYA
