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 pressure.
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.
-Vanguard
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