The equity market is headed for its third-straight election year decline – the last two which President Muhammadu Buhari won – but a more unsettling fact is that Nigerian stocks have recorded positive annual returns just once in the last five years, raising concerns ahead 2020.
The stock market is one measure of the health of an economy. With year’s return at negative 15.16 percent as of Wednesday, President Buhari would have to hasten reforms necessary to boost the economy and increase investors’ confidence.
The stock market according to BusinessDay data has performed the worst under President Buhari than under any other administration since Nigeria’s return to the civilian government.
The annual stock market return shows that Buhari has seen just one positive year return out of the five years of his presidency.
By comparison, Jonathan saw three positive returns out of six years of his presidency (this includes Umaru Musa Yar’Adua’s tenure that he completed).
Late Yar’Adua saw one out of three years he ruled while Olusegun Obasanjo has the highest with a record seven out of seven years (based on the data available).
The trend underscores the underperformance of the economy which has struggled with growth since the 2016 recession.
In the last three years, the economy has not exceeded 2 percent annual growth whereas the population has expanded at a much faster rate of 2.6 percent.
Amid infrastructure woes, corporate earnings have not been really impressive which has made investors less pessimistic about the market which is one of the cheapest among its frontier and emerging market peers.
President Buhari has recently made bold moves to sign into law a new finance bill that has been praised for some changes to tax policies, and he has also announced plans for infrastructure development. However, experts have raised concerns about Nigeria’s rising debt profile and utilisation of its borrowings.
Nigeria recently suffered a downgrade from international ratings agency Moody’s which sent stocks on a downward spiral. Moody’s changed Nigeria’s sovereign outlook from stable to negative and this rubbed off on big firms as their ratings fell too.
Moody’s said the downward review was informed by the belief that “Already weak government finances will likely weaken further given an extremely narrow revenue base and persistently sluggish growth that hinders fiscal consolidation.”
The global ratings agency said as pressures mount, there is a risk that the government would resort to increasingly opaque and costly options to finance a moderate but rising debt burden.
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It also warned about Nigeria’s weak external position which is worsening given an increasing reliance on foreign investors to fund the foreign exchange reserves.
Moody’s expects Nigeria’s real growth to remain weak, at just over 2 percent over the next few years. National income in the third quarter of 2019 grew by 2.28 percent but remained below the population growth rate of 2.6 percent meaning Nigerians are not any better off.
The World Bank warns Nigeria could house a quarter of the world’s poorest by the end of the next decade if it doesn’t embark on much-needed reforms.
While President Muhammadu Buhari has recently taken steps to increase its revenue next year, Moody’s expects general government revenues to remain very low at around 8 percent of GDP until 2022.
“Consequently, debt affordability will remain weak, with general government interest payments at around 25 percent of revenues in the next few years,” Moody’s said.
The grim outlook has severe implications for the market as Nigeria heads for a new year.
