It has become crystal clear that the failure of the federal government to conceptualise and implement plans to stimulate the economy is affecting various areas. Add to this its unbending position not to reverse policies that dampen the economy and what you have is a damaging effect on the general welfare of economic agents. The Nigerian bourse is a prime example.
Current economic policies have had mostly deleterious effects as various economic indicators show. For instance, the Nigerian economy expanded at a sluggish rate of 2.28 percent in the third quarter of 2019, according to the National Bureau of Statistics (NBS). However, the seeming growth in headline figures is unlikely to resonate with many Nigerians. Despite seeming growth in GDP figures, it is shrinking in per capita terms. Moreover, inflation is tending towards 12 per cent by year-end after rising for the third successive month to 11.85 percent year on year by November 2019. Of course, higher inflation means a further reduction in the purchasing power of citizens amid shrinking wallets.
Actions have consequences and for the Nigerian economy, a crucial outcome is a negative perception of the economy by investors. It shows in their investment decision. Their decisions thus far have not favoured the 30 most capitalised firms on the Nigerian Stock Exchange (NSE). The market is heading towards its worst performance in a decade at -22 percent. The market value of about 80 per cent of quoted companies has halved in 2019.
The grim outlook for these companies shows a continued pessimism in the market since a record 42.3 percent rally two years ago. Although most stocks are currently at their lowest valuations, investors have shown little or no interest in taking a position on them. The economy does not motivate such desires. Investors are unsure about what policies the government would announce and how it would affect their investments; they are wary about how unpredictable the government and regulators can be.
Companies in the economy have been struggling. According to BusinessDay analysis, about 56 percent of NSE 30 companies reported a decline in profit by half-year. Further, earnings were weak across the board in the third quarter. The results speak to the general tendency and state of the nation’s economy yet to improve to pre-recession levels.
We commend the efforts of the Nigerian Stock Exchange. The authorities moved to improve market performance or reduce the effect of selloffs by increasing the minimum trade quantity required to change stock prices. The Central Bank of Nigeria also implemented its OMO access restriction policy aimed at navigating domestic stocks back to the stock market and treasury bills.
These policies have proven to be short-lived as the previous week recorded the longest streak of losses in the market since October.
So, what’s next when low stock prices and promising fundamentals have failed to strengthen investors’ (domestic and foreign) sentiment towards the stock market? Investors have proven not to be enthused by the current low prices nor about the wellbeing of companies listed on the exchange. Events in the macroeconomy have an overwhelming effect on the market.
Time is running out for the current administration as the best time to be intentional with its policies to drive investments and boost confidence in investors is yesterday. Now is another “best time” to reconsider bold market-driven policies.
The calming effect of picking a stellar cast for the Presidential Economic Advisory Council is wearing off. Time for real action is now. Policies, programmes and implementation, please.
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