‘Effects of lost N846bn NSE money on the economy’

Nigerian Stock Echange

Nigerian Stock Echange

08 February 2015, Lagos – The crisis facing Nigeria’s economy following the decline in crude oil prices at the international market is already taking its toll on foreign investment flow into the country, as foreign investors just pulled N846.53 billion investments from the Nigerian Stock Exchange (NSE). The National Co-ordinator, Centre for Societal Values and Development, also a legal practitioner, Mr. Silas Udoh, spoke on the need for the three tiers of government to invest more in Small and Medium Enterprises (SMEs), blaming the Central Bank of Nigeria (CBN) on Naira devaluation and other issues in the economy.

Foreign investors just pulled about N846.53 billion from the Nigerian Stock Exchange (NSE), at a time the economy is experiencing enormous challenges. What are the economic implications of this?

Well, to start with, N846.53 billion is a huge amount, but we have to look at the nature of foreign investments that we are talking about here. This is foreign portfolio investment and not manufacturing, so the foreign investors are looking for an economy where they can put their money to make profit within the medium term. We should also realise that portfolio investment is profit and not service-oriented. So, investors monitor the market, invest when the market is stable to make more money and move their investment away any moment they perceive uncertainty in the system.

This is exactly what is happening to us right now. These portfolio investors speculate a lot because they invest only in an economy capable of bringing more returns to their investment. Other reasons for pulling their investments include the dwindling oil prices at the international market and the anxiety about what becomes of Nigeria’s economy after 2015 elections. The reality is that N846.53 billion portfolio investments outflow cannot cripple our economy, but the exit of these investors from the stock market has negative impact on our economy. For instance, statistics show that the total transactions at the nation’s bourse increased by 41.83 per cent from N181.97 billion realised in January to N258.08 billion in December 2014. But the exit of these investors from the stock market contributed to the poor performance recorded at the end of 2014 fiscal year, as the market closed with a negative return of 16.14 per cent.

This calls for the urgent need for the three tiers of governments to channel their resources into the industrial sector, to ensure that local manufacturing firms function optimally. This is the best way to grow our economy. Government must create an enabling economic environment and encourage Small and Medium Enterprises (SMEs) to thrive at every part of the country. Governments should also support operators of SMEs with good business ideas to stand. This is the only way through which we can tackle the unemployment challenge in the country. Over 60 percent Foreign Direct Investors (FDI) in Nigeria are portfolio investors, who are out to make profit, to recoup their investments.

Your Centre is about economic development, do you think the recent devaluation of the Naira by the Central Bank of Nigeria was in the best interest of our economy?

Though some people said the CBN acted to ensure stability in the economy, to ensure that the economy does not derail from the macro-economic fundamentals already on ground, I do not share such sentiment. In my own opinion, I think the CBN acted hastily by devaluing the currency without taking time to study the situation to see what would be the aftermath of the devaluation on the entire economy. Naira devaluation is also part of the problems confronting our economy now. At present, the exchange rate is about N200 to a Dollar and the devaluation is affecting every sector of our economy, the stock market inclusive.

Unemployment has become an issue of national debate in the country. An international agency at the just concluded World Economic Forum in Davos, rated Nigeria as a country with 50 percent youth unemployment. What is your stake on this?
It is true that there is unemployment in Nigeria but I do not agree with the figure released by the company. Saying that Nigeria has 50 percent youth unemployment is not correct because government is doing quite a lot in the area of creating jobs, especially for the youths. For example, look at what government is doing with Subsidy Reinvestment and Empowerment Programme (SURE-P). Government has done so much to mitigate the spate of youth unemployment in Nigeria through this programme. Also, through SURE-P initiative government in collaboration with the Ministry of Labour and Productivity developed a Technical Vocational Education and Training (TVET) programme for the citizens, and youths are the major beneficiaries of this scheme. So, rating Nigeria with 50 percent youth unemployment, to me is faulty.

Also, the scheme is designed to empower the youths with specialised skills to take up existing job vacancies in both private and public sectors. Aside from SURE-P, the federal agencies are still employing people as well.

In this case, what would you advise government to do?

They should turn attention to the housing sub-sector to create more jobs. In 2014, government launched the mortgage re-refinance scheme aimed at making easy access to loans for housing for the citizens. This programme must be well implemented. At present, we have a population of over 170million and the demand for housing annually is estimated at about 700,000 units, which is far more than the current production level of below 100,000 units. So, resuscitating the housing scheme is quite imperative.

This implies that an average Nigerian should be able to own a house by accessing up to 20-year loans from mortgage or commercial bank, which is what the scheme is all about. This will make it easier for low income earners to own houses if the loans would be made available at a reasonable interest rate for the people. You would recall that by last quarter of 2013, government also approved $300m loan facility (about N48 billion) to be accessed from the International Development Association (IDA) to boost mortgage financing, in a bid to address the huge housing deficit in the country. This programme should also be adequately implemented.
*Udeme Clement – Vanguard

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