By Dele Sobowale
A LITTLE more than two months ago, the alarm was sounded on these pages about the imminent crash of the capital market. After rising for a few days following that forecast it has been one long decline occasionally broken by one or two days of gains which were inevitably succeeded by several more days of losses wiping out the gains. On the whole close to 16 per cent has been erased from share prices since that first prediction.
A second one followed about two weeks ago and just as before the market shed more wealth. Owners of some blue chip stocks, especially in packaged foods and banking are now several hundred billions poorer than when they started the year. Unfortunately, what had gone on before is the rehearsal for a drama which can only be classified as tragedy foretold. Between now and December just as much money will again be lost as before today – whichever day you might be reading this. And, the reasons are not too difficult to understand. The problem with most Nigerian investors in the Nigerian market is that we believe in prayers and ignore the writing on the wall. Certainly, prayers help but there are things to about which a more scientific attitude will help instead of blind faith. Investing in the capital market is one of them.
Two major economic tropical storms or hurricanes are blowing across Nigeria and the world which are destined to have adverse impacts on the Nigerian economy. The first is internal and the second is external. But, they are inextricably linked – like Siamese twins – and together will wreak havoc on our share prices. Since the second article two weeks ago, several calls have been received from people wanting to discuss what to do with their securities. Very soon arrangements will be made to address their concerns.
However, before proceeding to explain the forces gathering momentum to destroy Nigerian shares values, it is necessary to repeat the warning made earlier. The longer an investor waits to dump the shares the more likely that they will go for a lower price. It is like fire incident in a building with few or narrow exits and lots of people. The first people to get out when the smoke develops are the most likely to escape unhurt. Those who wanted to wait and see almost always end up in ambulances or, worse still, mortuaries. The slowest investors to try selling their shares dump them on glutted markets at far lower prices and the shares again take much longer time to turn to cash.
The first storm slamming into the Nigerian economic landscape is related to the nation’s economy which is growing at far lower rate than the Federal Government wishes and the lack of funds by the Buhari administration to prosecute this year’s economic programmes. The slower Gross Domestic Product, GDP, growth for the second quarter than the first is disturbing enough. Both first and second quarter GDP growth rates are far less than the three per cent which the Minister of Budget and National Planning considers minimum to stop more Nigerians from sliding into poverty.
Especially troubling is the fact that farmers nationwide are now being devastated – some by herdsmen and Boko Haram, the rest by flood. Anyway you look at it, immeasurable quantities of farm produce will not reach the market this year and the farmers will earn almost nothing. So, where will the money come from for them to purchase processed consumer goods and other items? With millions of rural and urban dwellers at the receiving ends of merciless human and natures’ attacks, nobody needs a degree in Economics to understand that branded products are getting set for a drubbing.
Salaries and entitlements are still not being paid as and when due by public and private sector employers and the end is not in sight for that one. In some states it might just be starting afresh. Given Nigeria’s high dependency ratio, one worker to about five unemployed, each employee owed salaries or allowances takes five people partially or fully out of the consumer market with him/her.
If the domestic market is full of turbulence, the external economic environment is just as threatening. The United t and China – top two global economies – have just started a trade war from which neither is prepared to back down. Even the village idiot now knows that when two elephants fight a lot of shrubs and trees must fall. Nigeria is one of the tender shoots that will get trampled in this face-off. Unfortunately, nobody in this government is conducting a study to determine how much damage will be done to our economy as a result of imported inflation and dollar outflow from Nigeria. We are like people dying slowly in the desert while the vultures wait to devour the carcasses.
Just as dangerous to our economic health as cigarette smoking is to the human body is the series of bad news hitting the global media about poverty in Nigeria. All of a sudden several reports have put Nigeria in the spot light for the wrong reasons. First it was the World Poverty Watch. Second, the Brookings Institute weighed in. Third Theresa May, the British Prime Minister came from Britain, not with love but bad news. Finally, our eternal friend, Bill Gates Foundation dropped another load of report about Nigerian poverty. Nkne of them is designed to get foreign investors hopping on the most available plane to come to Nigeria seeking investment opportunities.
While the first three reports confirmed that Nigeria now has the largest number of people living in poverty and six or seven of our fellow citizens descending into the jaws of crushing poverty every minute, the Gates Foundation study just told the entire world that 40 per cent of the poor people in the world in 2050 will come from two countries – Nigeria and DR Congo. Calamitous news made worse by adding this fact from the files of demographers. Nigeria now has a population estimated at 198 million out of which 87 million are now experiencing extreme poverty. By 2050, the population of this country is expected to rise to 400 million – or double what we have now. Economists and demographers in Nigeria must wonder how Nigerians alive in 2050 will cope given the fact that with a population increasing at three per cent we need an economy also climbing at least the same speed. Right now we don’t. And as long as we don’t, instead of 174 million poor in 2050 we might have up to 230 million.
Buhari’s administration is not only bereft of ideas about how to get 3 per cent GPD growth, it is unwilling to learn how. Instead they focus on denial and excuses. Few foreign investors will ever want to invest in an economy in which the majority of people are almost destitute. You can bet on that. So, portfolio investors are going home until Nigeria has a government which can grow the economy at three per cent. Is that difficult to understand?
So, if you continue to stay in the capital market, you may lose your trousers and your underwear as well. Call and ask me more about it – before you go naked.