07 September 2015, Lagos — Investors in the Nigerian stock market lost N1.6 trillion in the first 100 days of President Muhammadu Buhari’s government, going by report of activities at the Nigerian Stock Exchange (NSE) as at close of business last weekend.
The NSE market capitalization (total value of all shares in the NSE) closed at N10.1 trillion, down by over 14 per cent from N11.7 trillion closing value on the last day of the former President Goodluck Jonathan-led administration, May 28, 2015.
Similarly, the key performance index of the exchange, the All Shares Index (ASI), dropped by over 13 per cent to 29,511.1 points from 34,310.9 within the same period.
Market analysts have described this development as a summation of local and foreign investors’ characterization of the economic policy environment as hazy and uncertain in the past three months.
They also attributed the negative turn of affairs in the stock market to the gloomy picture foisted on the economy by the combination of declining oil revenue and lack of a clear policy response to it.
In reaction to the economic developments in the first 100 days of Buhari’s regime, Afrinvest Group, a Lagos-based investment banking house, said: “Investors in the financial markets have remained on the sideline as a result of lack of fiscal policy direction from the president coupled with exchange rate uncertainty.
Equities market lost 14% since June
“The Nigerian equities market has lost 14 per cent since June till date while the bonds market (as measured by FMDQ index) shed 3 per cent in the same period.”
They added that “in the absence of clear fiscal economic blueprint, the monetary authority introduced several exchange rate policies which have continued to pressure the market, constraining foreign portfolio inflows into the market.”
Similarly, investors’ unenthusiastic expectations for first half of 2015 corporate financial reports, especially in the consumer goods sector, has further dampened investors’ sentiments. This is evident in the unimpressive earnings posted by the companies that have released their reports for the first half where almost all of them show significant decline in earnings.
According to stockbrokers, earnings results published so far underscore the tough operating environment in the economy.
Notwithstanding, Afrinvest expressed optimism thus: “The President has promised to unveil his list of cabinet members in September. This is expected to catalyze the economy and the capital market to optimizing their potentials in the medium term.
“Our position is anchored on the fact that ministerial appointments, which are set to be concluded by September 2015, are expected to give the market a sense of direction of the Buhari-led government, consequently, activating improved market performance.
“Correspondingly, we expect economic activities in the second half of 2015 to improve relative to first half of 2015; thus, corporate earnings performances should mirror the economic outlook.
“Therefore, we place a higher weighting on the possibility of a fantastic positive overall return for medium to long term investors and also preach caution on short term speculative trading.”
Afrinvest Group had earlier said the economy growth rate would be down to 3.5 per cent as against 5 per cent it had projected this year.
Updates on economy and markets
Reacting to the updates on the economy and the markets, Renaissance Capital (Rencap Group), a multinational financial institution, downgraded Nigeria’s economic growth rate expectations. According to them, Nigeria’s economy will grow year-on-year (Y-o-Y) by 2.8 per cent, down from its earlier forecast growth rate of 3.4 per cent.
In its report, Rencap Group stated: “We revise down our 2015 growth forecast for Nigeria to 2.8 per cent (from 3.4 per cent) following this week’s release of exceptionally weak growth data from Nigeria and South Africa.
Rencap was referring to the data from the National Bureau of Statistics (NBS) in its latest economic statistical report focusing on the Nation’s Gross Domestic Product (GDP) for second quarter (Q2) 2015.
The NBS report indicated that the real growth rate of the monetary value of all goods and services produced in the country during the period slowed to 2.4 per cent Y-o-Y, down from 4.0 per cent in Q1, 2015 and 6.5 per cent in Q2, 2014. This was on the back of the low crude oil prices and decline in oil production to 2.1mbpd from 2.2mbpd in Q2, 2014.
Growth rate mark-down
Giving reason for the growth rate mark-down, Rencap Group said: “We revise down our 2015 growth forecast for two reasons: First, half 2015 growth of 3.1 per cent Y-o-Y came below our 2015 forecast of 3.4 per cent and second, we expect supply constraints, related to foreign exchange restrictions and the de facto import ban, to undermine growth in second half 2015.”
The impact of continued decline in the international oil price has dragged down growth indices in the Nigerian economy in the second quarter, 2015.
According to a report by the NBS, Nigeria’s GDP expanded 2.35 percent on an annual basis, compared with 3.96 percent a quarter earlier.
Reuters, world’s leading financial media, in a commentary last week said ‘’as Buhari prepares to mark 100 days in office on Saturday, his critics are now using the less flattering sobriquet, Baba Go Slow.”
Reuters said, “Chief amongst their complaints is the 72-year-old’s decision not to appoint a cabinet until later this month, putting the economic policy of the country of 170 million people in limbo, and leaving the likes of the central bank to fill the vacuum’’.
According to Reuters ‘’a Western diplomat said the last few months, in which Buhari has governed alone with briefings by civil servants, had caused a bottleneck because he had failed to delegate authority’’.
However the Reuters report quoted Mr Femi Adesina, the president’s spokesman as saying “When the ministers are appointed, some will constitute an economic team and then formulate a policy,”
Commenting on the government economy policy gaps Muda Yusuf, director general of the Lagos Chamber of Commerce and Industry LCCI) said “The fact that the CBN has been allowed to take steps that look more like fiscal policy decisions is a source of major concern. “The president doesn’t seem to appreciate the enormity of the disruption that the CBN policy on foreign exchange is causing in the economy,” he said, adding that international trade had been hit and some firms had lost their credit lines.
CBN, in the wake of sustained demand pressure on foreign exchange reserves and exchange rate, had introduced several demand management policies that has equally restricted transaction leverages.
The results have been mixed but key amongst them was stabilization of the foreign reserves at above USD31 billion for over two months now as well as stabilization of the exchange rate at the official windows at about N199/USD1.00. But the parallel market has fluctuated widely between N210/USD1.00 and N230/ USD1.00 while the premium has been very high, an indication, according to market operators, of a fundamental distortion.
But CBN appears to be having its own peculiar challenges with the policy situation in the country. The apex bank has indicated that fiscal policy gaps resulting from absence of functional government economic policies and other factors outside its control have constrained the ability of its policies to rein in on price stability in the economy.
In its post Monetary Policy Committee (MPC) report CBN expressed worry at the developments in the inflationary pressure since this year amidst its monetary policies aimed at curtailing excess liquidity, one of the main drivers of inflationary pressures.
It stated ‘’the drivers of the current upward inflationary spiral were of a transient nature and mostly outside the direct control of monetary policy. Consequently, the opportunity for further policy maneuver remains largely constrained in the absence of supporting fiscal measures’’.
The general statement of the MPC signed by the CBN Governor, Mr Godwin Emefiele, therefore, urged for coordination of monetary, fiscal and structural policies to stimulate output growth, and stabilize the exchange rate.
Economy observers believe that emplacement of a functional federal executive council especially the finance minister and other ministers in the economy segment would have helped the situation in the area of policy formulation and strategy as well as implementation of the 2015 budget and formulation of 2016 budget and medium term expenditure framework (MTEF).
A top executive of the ministry of finance told Vanguard last weekend that the ministry has existing economic policy framework part of which was in the 2015 budget but lamented that the policies have to be stepped down following the outcome of the last presidential election lost by the federal executives that created the policy.
Though he defended the absence of a replacement or modification three months after the take off of the new regime he however stated that the President Buhari would task the in-coming economy sector ministers to rework the policies or create new one.
He defended the present regime’s apparent delay in making policy pronouncements in the backdrop of rising apprehension over the economy, saying the new regime needed time to settle down before making major pronnouncements.
As a result of this situation many investors especially multinationals, are holding back major investment decisions. One of them in the oil and gas sector told Vanguard last weekend that his company in the United States of America still believes Nigeria is a good space for their overseas expansion programme but they have decided to wait until a clear policy is announced before they can make concrete moves towards committing resources.
Members of the House of Representatives last week summoned Finance Ministry, Budget Office, Fiscal Responsibility Commission, National Planning Commission, Debt Management Office and Revenue Mobilisation, Allocation and Fiscal Commission to explain why the 2015 Appropriation Act is not being implemented.
Also, the ad-hoc committee set up by the 8th House of Assembly last week commenced a public hearing over non-implementation of 2015 Budget. It was reliably gathered that officials of other agencies related to finance may also be summoned to appear before the ad-hoc committee headed by Rep. Ahmed Pategi, Kwara APC, at the public hearing.
Officials of the MDAs are expected to come with enough evidence to convince the lawmakers that the 2015 Appropriation Act is on course.
The House, at plenary on August 13, 2015 had constituted an ad-hoc committee to investigate the non- implementation of the budget following a motion promoted by Rep. Patrick Asadu, Enugu PDP, under matters of urgent public importance.
Asadu had accused the Federal Government of abandoning the implementation of the 2015 budget and capital projects, almost mid way into the third quarter of the financial year.
He submitted that the non release of the funds deprives the country of highly needed basic facilities and subjects its citizens to infrastructural and economic hardship, stunting the nation’s economic growth.
*Emeka Anaeto – Vanguard