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Political tension cuts equity market gains by 50%

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• Investors seek isolation of business from politics
• Nigeria may lose out on $1tr trade facilitation benefits

Nigeria’s investment inflow, especially the stock market, is taking a hit as political intrigues gain momentum ahead of the 2019 general elections. Already, investors have lost over 50 per of the gains recorded in 2017, a development that is pushing the country’s equity market into dangerous waters.

The unprecedented lull occurred after a January rally spurred strong anticipations amid improving macro-economic indicators in domestic and global economies. But with more of the listed firms currently hitting lower lows, analysts have linked the downturn to heightened political risks, as the elections inch closer amid a gale of defections, yet without a clear economic plan by the politicians on how to revitalise the economy.

Politicians often mop up excess liquidity in the system, ahead of general elections, thereby starving the economy of investible funds. And ordinarily, investors would resist any action or pronouncement that might lead to the loss of their investments.

The Nigerian equity market recorded improved performance in 2017, with a year-to-date increase of N4.5 trillion in market capitalisation from the N9.158 trillion it opened with on January 3, to N13.519 trillion on December 28.

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Also, the Nigerian Stock Exchange (NSE) All-Share Index (NSE ASI) rose by 45 per cent during the year under review from 26,616.89 to 37,990.74, thus emerging the third best performing exchange in the world. CNN rated the NSE among the top three worldwide. By this assessment, the market is ahead of Argentina, Turkey and Hong Kong. Argentina’s Merval index surged 77 per cent and hit a record high in the final week of 2017.

In Nigeria’s case, last year’s rally extended to mid-February 2018, but the market recorded unprecedented reversal in performance afterwards, contrary to predictions by analysts. The market capitalisation, which stood at N15,691 trillion on January 26, now stands at N11.879 trillion as at September 21, representing N3.812 trillion or 32 per cent loss. Also, the All-Share Index, which opened at 43,773.76 during the same period, lost 11,233.59 points or 34 per cent, plummeting to 32,549.17.

Of further concern is the likelihood that the current weak performance could linger, as liquidity in the market will remain low until after the February 2019 presidential election.

The chief research officer, Investdata Consulting Limited, Ambrose Omodion, said turbulence in the political arena has continued to dampen investors’ confidence. He noted that the development has sparked massive dumping and induced sell pressure on the equity sector in the last few months.

According to him, “Historically, the NSE’s performance in September over the past five years has been positive except for 2014, which this month could mimic, judging by the prevailing trends so far. Factors already militating against the market are mostly the socio-political risks impacting emerging markets since January 2018, due to rate hike and the trade war between the world’s two biggest economies – the U.S. and China. This has influenced the MSCI emerging markets index, which has fallen by 20 per cent.”

He said the shadow election for selecting candidates for the various polls in 2019 would give a clear direction on how the presidential poll will play out. He said this would guide investors’ positioning in the market before and after the elections.

Omodion also argued that the ongoing volatility is likely to persist, as bargain-hunters take advantage of the low-price regime, amid continued selloffs and political risks, especially as shadow elections by political parties kick off any moment.

The founder, Independent Shareholders Association of Nigeria, Sir Sunny Nwosu, spoke from the standpoint of politicians mopping up excess liquidity.

“Some chief executives are also involved in politics. They want to go to the Senate and House of Representatives. And by extension, because of the nature of our thinking, people will say, ‘this business will fall if I do not take away my money because the man will use my money to play partisan politics’. As a result, the economy is dwindling, likewise the capital market, because government has failed to isolate business from politics.”

He continued: “The problem is the unconcerned attitude of our government. And the reason is because we are operating a political business model, whereas there are countries that are very volatile politically but yet their investments move on, like Italy . They ensure that they do not mix investment with politics. But in this country, when the government sneezes, business goes down.

“We are all suffering for this. Early in the year, the capitalisation was more than N15 trillion. But today, it is N11 trillion. We have bad politicians and once it is a political year, people start taking out money from all the businesses to pursue election. Government should create an enabling environment for pure business people, capitalists, and advise them to leave politics. That is what we want – a business-oriented economy. You either go for politics or retain your business.”

The founder, Noble Shareholders Association, Gbadebo Olatokunbo, however believes the situation is not hopeless. He said: “I do not think the economy is really as bad as the financial gurus are portraying it. We went through a recession and we’ve just come out. You have to stabilise before you start growing; it has to be gradual,” he said.

“We have been having elections in Nigeria. But when foreigners start hearing different opinions about any election they begin to entertain fears. There is nothing to be afraid of. There was a change of government from former President Jonathan to President Buhari and nothing happened, despite all the hype from the foreign powers,” he added.

The director general, Lagos Chambers of Commerce and Industry (LCCI), Muda Yusuf, said: “Political issues have negative effect on investors’ confidence. They have affected the perception of investors that the 2019 elections might not go peacefully. Investors will want to exit due to anxiety over the fallout of the election.” He also mentioned sanctions slammed on listed firms by regulators as another factor that erodes investors’ confidence in the market.

Agreeing, Prof. Uche Uwaleke, the head, Banking and Finance Department, Nasarawa State University, Keffi, told The Guardian: “Political uncertainty is one of the factors. Our market is highly sensitive and driven by foreign investors and they determine the performance of the retail investors.”

He noted that economic uncertainties arising from the non-implementation of the 2018 budget is another factor impeding market growth. He cautioned investors not to panic, saying: “The bearish trend will not last; they should take a position. There is hope that after the primaries or general election, the market will rebound because the fundamentals of Nigerian listed firms are still strong. Investors should be patient and avoid selling off their holdings.”

Meanwhile, Nigeria is on the verge of losing out the $1 trillion (about N365 trillion) projected benefits of the global trade facilitation, if the implementation of the national single window platform and other trade support facilities are not considered urgently.

The Minister of Transportation Rotimi Amaechi, who gave the warning earlier in the week, said Nigeria has not been able to implement the national trade platform, which is expected to aid clearance of cargo in 24 hours, in line with the trade facilitation agenda. “It is rather unfortunate that Nigeria is the only country in West Africa that is yet to implement this (single window) scheme,” he said.

The minister made the disclosure while officially declaring open the sub-regional workshop and joint standing committee of Union of African Shippers’ Council (UASC) and United Nations Conference on Trade and Development (UNCTAD), hosted by the Nigerian Shippers’ Council (NSC) in Abuja.

He however said the Federal Government has made remarkable progress in the development of trade support infrastructure such as railways, roads, and other facilities.

Chairman of the Governing Board, Nigerian Shippers Council (NSC), Mai Mala Buni, said trade facilitation became an important subject in the world trading system and World Trade Organisation (WTO) Trade Facilitation Agreement (TFA), effective February 22, 2017.

He added that it is heart-warming that many countries in the West and Central Africa Africa Sub-regional have ratified it.

He noted that the full implementation of TFA could reduce trade costs by as much as 14.3 per cent, and boost global trade by up to $1 trillion yearly with biggest gains accruing to the poorest countries.

“The development of port and hinterland connectivity infrastructure are critical to the economic development of any country, be it coastal or land-locked. It is imperative that all necessary facilities and processes be systematically provided to enhance the supply chain and seamless operation to improve the efficiency and competitiveness of the Sub-regional trade within the global trading system,” he said.

The Executive Secretary, NSC, Hassan Bello, agreed that the non-implementation of the National Single Window platform has affected the efficiency of the port.

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“National Single Window is a trade facilitation platform, preferably electronic that will bring all users and providers of shipping services together; it is not only for fastness. It will eliminate inefficiencies and lead to simplification of documentation. It will lead to transparency and short dwell time of cargo.

“National Single Window and the Cargo Tracking Note are all trade facilitation platforms, which the Federal Ministry of Transportation is overseeing already. There is a committee set up by the Vice President to look at this, which is being chaired by the Nigerian Ports Authority (NPA), and the Nigerian Customs Service (NCS), and the Nigerian Shippers Council is also a member. We are going through the procurement processes, and it is hopeful that this Single Window will come on stream very soon.

“The same thing with Cargo Tracking Note, which is a very important platform for trade facilitation; and all these when they come together, we hope, will have a very meaningful efficient transportation agency,” Bello said.

The Chairman, UASC, Sebastian Ilboudo, said the transport sector is dynamic, as such, the infrastructure must go in line with the dynamism, adding that the meeting would enable delegates to review freight costs, and agree on necessary solutions.

The Secretary General, UASC, Giscard Lilian Ogoula, noting that ports concession have been carried out in many ports over the years with a view to enhancing efficiency, and boosting contributions to economies of member states, but said the concession is rather bringing high costs that shippers are unable to afford.


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