By Sunday Ojeme Monday, 12 Jul 2010   

 

With some other countries recovering fully from the effects of the global financial crisis, Nigeria is still patching its pieces almost three years after. Sunday Ojeme writes.

 

Almost three years after the global financial crisis, which threatened the world economy and defied the calculations of renowned economists, traces of instability are still present in certain sectors of the Nigerian economy.

 

Although some countries in the developing world, especially in Africa, were not as affected as the developed economies, the little quake that seeped into the continent appears to be taking too much time to disappear.

 

While countries like the United States, China, Japan and the United Kingdom have gradually strutted out of the threat, Nigeria is still struggling to find appropriate economic policies that will completely bail her out of the severe effect of the crisis.

 

In the wake of the crisis, which began in the US as what is now known as the Subprime Debacle, Nigerians‘ fears were allayed with a promise that Nigeria was immune to the crisis.

 

Signs of the global crisis, however, crept into the economy first with stocks at the capital market gradually crashing from their bloated prices to the very bottom where they have yet to fully recover from.

 

As the devastating and far reaching effects of the crisis spread across the various sectors of the economy, opinion leaders, economic analysts and several social commentators alluded various reasons for the causes with all pointing to the economic arrogance of the West, especially the US.

 

 

Analysts also feared that the case of Nigeria would be worse because of the attendant corruption that had dealt a blow on the economy before the crisis came into force, while others called for a quick financial bail-out from the Federal Government just as the US President Barrack Obama quickly injected about $800bn into the US economy.

 

 

An analyst, Mr. A.G Olisaemeka, argued that only physical injection of funds, which would shore up prices, could lift the capital market from its very low depth.

 

The Presidential Steering Committee on the Global Economic Meltdown also proposed short, medium and long-term palliative measures to address the concerns. Its position was clear on the issue of financial bail-out.

 

According to the committee, ”What is being worked out is a package of incentives that will ginger production, increase the purchasing power of the ordinary man on the street and help generate employment opportunities.”

 

”In the medium and long-term strategies, aside infrastructural development, the government is looking in the direction of agriculture, through commercial farming clusters and value chain, not only for food security, but also for employment generation.

 

”While the economic outcome does not look promising, given the price of oil, the President remains optimistic that Nigeria can seize the moment to redirect our economy and begin on the road to prosperity.”

 

Olisaemeka noted that it was clearly understandable that the focal point of the committee was on the general economy encompassing power, oil and gas, agriculture, the money and capital markets, adding that the emphasis was on increased production, employment generation, higher purchasing power, infrastructural development and food security.

 

At the Nigerian Stock Exchange, where most Nigerians actually felt the pangs of the crisis, it became a tune especially for first time investors, who pooled all their resources together and invested in stocks.

 

Between March 2008 and January 2009, the market capitalisation nosedived from an all time high of N13.5tn to less than N4.6tn. The All-Share Index also plummeted from about 66,000 basis points to less than 22,000 points in the same period. The stock prices experienced a “free-for-all” downward movement regime with more than 60 per cent of slightly above 300 quoted securities on constant offer (supply exceeding demand) on a continuous basis.The withdrawal of the foreign investor from the market did not also help matters as their departure led to the dumping of shares.

 

Shocked by the development, the Director-General of the NSE, Prof. Ndi Okereke-Onyiuke, revealed that available statistics showed purchase by foreign investors in 2008 to be in excess of N150.13bn, representing 6.3 per cent of the aggregate turnover. This was a decline when compared with the N256bn recorded in 2007. Concurrently, total sales during the year were in excess of N556.93bn, culminating in a net outflow of about N406.8bn.

 

The banks, some of which are still struggling to come out of the crisis, were not left out as they had invested large sums of money in playing the stock market as well as giving out margin loans that have today become toxic.

 

Although, various government officials are struggling to fix the situation, with the CBN Governor, Mr. Lamido Sanusi, leading the pack of reformists, experts are still of the opinion that things are yet to be properly stabilised three years after the crisis.

 

The Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane‘s analysis of the market shows that stability has yet to fully return to the floor, months after some countries have registered signs of recovery.

 

According to him, after an impressive first quarter, investors‘ hopes were again dashed in the second quarter as the market recorded two per cent loss in Q2. It recorded a 25 per cent gain in the first quarter of 2010 as against a 35 per cent gain in 2009. The average volume traded in June was 2.8 billion compared to 5.8 billion in April.

 

Within the same period, the All Share Index traded in the range of 25,000 to 28,000, while market capitalisation was 6.174tn as at June ending. ASI was 25,384 points.Factors that hindered the NSE in the second quarter were not unconnected to the global crisis as they were attributed to slow recovery in bank lending and the perceived delay as regards the fate of the rescued banks.

 

Other prominent features, according to Rewane, are, ”Retreat by foreign investors due to euro-zone debt crisis, increased broker-dealer regulation and possible name calling and shaming, slow down in trading activity, interest rate volatility, exchange rate depreciation and lower crude oil prices, among others.”

 

The stock market has not taken shape after the crisis. The banking sector that was also ravaged by the meltdown, is also now redefining its operational tactics after it lost over N2tn in margin loans. The sweeping changes introduced by the CBN governor has seen the exit of some chief executive officers, who were said to have given out loans or managed the affairs of their banks without following the laid down corporate governance principles.

 

Though the banks are gradually returning to profitability and firming up their operations, the issue of credit to the real sector is still a matter of concern as the economy has failed to pick up due to the inability of those in the real sector to access credit.

 

Even with CBN’s N150bn bail-out for the manufacturing sector, the journey to recovery is just beginning for the Nigerian economy, experts say.

 

(Source:Punch)