• Thursday, March 28, 2024
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BusinessDay

How #EndSARS crisis may impact Nigerian financial markets, economy

Nigeria’s economy

A slide in investments into the country, government revenue, and consumer confidence are some of the negative outcomes the EndSARS crisis could have on the financial markets and the already worsening economy, according to analysts polled by BusinessDay.

Businesses shut down, lives were lost and several properties destroyed after the hoodlums hijacked the peaceful protest against the Special Anti-Robbery Unit (SARS) and police brutality by Nigerian youth across the country.

On the financial market, Olalekan Aworinde, Senior Lecturer, department of economics, Pan-Atlantic University, Lagos, sees a sharp decline in the level of foreign direct investment and foreign portfolio investment, loss of customers confidence and a bearish trend in financial market.

Aworinde outlined the negative implications of the crisis on the economy to include low level of output, increase in the level of unemployment, decline in government revenue, and bad reputation for the government.

He envisages a reduction in the volume of trade between Nigeria and her trading partners. Also, there will be low level of investment and destruction of government infrastructure and assets.

Olusegun Akintunde, analyst at Polaris Bank Limited, said the crisis will affect the quality of bank loans to Small and Medium Enterprises (SMEs) and corporates. Lack of economic activity is also expected to have negative impact on the earnings of SME’s and corporates owing banks. This will in turn affect their ability to service such loans and invariably affects the banks loan book.

The economy in general he said will be impacted negatively as the country’s major economic hubs are grinded to a halt.

“Expect a negative impact on Government revenues, loss of jobs and more GDP contraction as it were,” Akintunde said.

On his part, Uche Uwaleke, professor of capital market and president Capital market Academics of Nigeria, said “As the cloud of uncertainty thickens, an erosion of confidence in the economy will lead to increased capital flight and plunge in capital importation leading to further pressure in the forex market. It may also attract downgrades by Rating agencies.”

He said the crisis has the potential to roll back gradual progress being made in economic recovery as Bearish stock market may likely result. Curfew and more restrictions he said would disrupt supply chains, induce panic buying and worsen the inflation rate.

“The government should do everything to restore normalcy including demonstrating willingness to listen to the genuine demands of the protesters,” Uwaleke said.

Based on the significant contribution (c. 30%) of Lagos State to Nigeria’s total GDP and as over 50% of Nigeria’s non-oil industrial capacity is located in Lagos, Ayodeji Ebo, senior economist/head, research & strategy, Greenwich Merchant Bank, expects the impact of the crisis to be enormous on the struggling economy.

Ebo was concerned that the he economy is just reopening for business and hasn’t been restored to the pre-COVID-19 era, thus this crisis may reverse progress achieved so far.

“Beyond this, the international perception is also vital, we may see a hold on some major investments in the short term. The shaking pattern that has been observed in the equities market can be linked to the crisis. A resolution must be reached as soon as possible to allow business activities to return to normal as this may create a more devastating situation if not addressed on time because most Nigerians live on daily earnings to survive,” Ebo said.