NIGERIA: STATE OF AFFAIRS BY KOREDE OLOGUN, RESEARCH ANALYST AT GTI SECURITIES

“A weaker currency won’t solve everything for an economy with falling reserves and weaker exports.”

In the times of oil boom in Nigeria, wastage was the order of business defiling the adage “make hay while the sun shines”. Monies were being looted in huge amounts out of the country. It would have been a different story if these corrupt leaders understood the time value of money principle as they worked hard to secure their future in hard currencies without recourse for the local currency with NNPC’s alleged stolen funds accounting for more than 2% of FDIs within the last five years.

As part of the emerging market community and latest status as the giant of Africa, Nigeria is constantly missing in the big picture of global tussles for recognition. Most recently, the country’s financial market has been hit by JP Morgan’s announcement of exclusion from its Government Bond Index for Emerging Markets from September 30, 2015 – the stock market reacted with a 2.98% contraction and bond yields rose to 17%. While some faction of the industry applauded the government’s timely response to the JP Morgan threat, others remain skeptical about a viable strategy to steer the economy in the right direction. Analysts have updated recessionary opinions about the Nigerian economy and painted a dark picture for the future ahead with oil prices not responding to lobbying and perceived increase in demand.

The naira has officially dropped by more than 18% against the USD in the last 6 months while the black market depicts an even worse picture. The pressure on the naira for further devaluation has been the focus of foreign observers with supposed intentions of investment in key sectors in the country. This is aimed at having the currency’s value steered by the market. Unlike China whose sudden currency devaluation should have pleased critics who accuse China of controlling its currency to help exporters at the expense of other nations amidst other reasons, the interest of Nigeria might not be optimized by such move. Perhaps the reduced devaluation pressure from the exclusion (JP Morgan Index) will influence the next MPC on a more flexible monetary policy for long term purpose.

The market reacted with a dead cat bounce to the March 2015 election success by the opposition party on the premise of “change” with no perfect picture in mind. Nigerians have continued to believe in this administration and expect that a ministerial list of competent individuals will do justice to the slow pace of the economy. Considering Nigeria’s debt profile and the weaker position of banks, huge capital outflows is another bad omen. Bottom line is that investors are pulling out and are willing to stay out for as long although Nigeria remains fundamentally attractive with news of big IPOs exciting the market.