Nigeria’s poor economic performance

A recent analysis by BusinessDay shows that the economic policies of the Buhari administration have had a deleterious effect on the stock market over the last three years. The Nigerian Stock Exchange broad index has only gained one percent in the last three years compared to the gains under former president Jonathan and Obasanjo which returned 29.7 percent and 904.2 percent respectively.

The stock market index is popularly used as a proxy for the performance of companies in a country as stock prices are determined by estimating the present value of future cash flow of a business. If investors feel that companies will do well over a foreseeable future, stock prices typically rally. The index tends to retreat when risks are higher and the tendency for companies to perform well financially is lower.

Also, during the same period, the stock market returned just three percent making it the worst market performance by any democratic President of Nigeria excluding former President Musa Yar’Adua who died in power.

The conclusion is inescapable: Despite stated attempts of the government to improve the ease of doing business, Nigeria has been quite inconducive for businesses since 2015 and this is traceable to the policy actions and inactions of the government. Upon ascending to power in 2015, it took six long months for the Presidency to name, screen and approve cabinet ministers, a process that never exceeded 2 months since 1999. The political uncertainty during this period pulled the index down by around 14.87 percent before the ministers were finally appointed in November 2015.

More trouble followed in 2016 as the problem moved from political to economical.

The continued decline in crude oil prices, followed by the first economic recession in 25 years weighed heavily on stock prices in 2016. Also in 2016, Nigeria suffered the biggest currency devaluation since 1999 in 2016 when official Naira to US Dollar exchange rate moved from the official figure of 197 N/$ to 305 N/$. In the parallel market, the Naira at a time exchanged for N500 to the Dollar. The inflation rate in the country doubled as a result of huge currency devaluation as inflation neared 20 percent at its peak in 2016.

As a result of the economic headwinds, 2016 became the year of the great loss for companies on the local bourse. A total of 17 companies from the NSE 30 index reported significant losses on the books as the economy slumped to a full year negative growth of -1.6 percent.

The stock market fell by around 9.41 percent in the first five months of 2016 as the administration delayed five months to pass an economic stimulus budget to pull the economy out of recession. The stock market rallied 4.56 percent till year end after the budget signing which helped to offset some of the losses earlier in the year, bringing the total market loss in 2016 to 5.27 percent.

In 2017 as the economy rebounded to a full year growth of 0.8 percent, the stock market rallied 42 percent as investors got excited by the economic recovery story which was largely supported by the strong rebound in crude oil price.

The stock market this year has given up a significant amount of its gains from last year as the NSE index is down 9.36 percent year to date largely due to the political upheaval in the country as the general elections draw closer.

The average economic growth during President Olusegun Obasanjo’s regime was 8.5 percent between 1999 and 2007. Under the stewarship of President Goodluck Jonathan between 2011 and 2015, Nigeria’s economy expanded an average of 4.7 percent, almost half the growth achieved by his predecessor. But under President Buhari, average economic growth fell to a paltry 0.61 percent between 2015 and 2017. If economic growth improves to 2.1 percent this year, average economic growth under Buhari will improve to 0.98 percent.

With analysts expecting stock prices to decline further as political uncertainty ravages the stock market, it is not unlikely that come February next year, the market performance under the current administration will fall into negative territory.

These evidences are clear enough: the administration has not managed the economy well. But rather than listen and turn a new leaf, it continues on the same ruinous path while disingenuously blaming past administrations for the woes of the country. With such an attitude, no one needs a prophet to know that things will only get bad!