By MICHAEL EBOH

The ongoing reforms in the nation’s petroleum sector and the uncertainty in the global financial landscape will adversely affect the Nigerian capital market, as the over 70 per cent foreign involvement in the market through Foreign Direct Investment, FDI, will be diverted to the energy and power sectors, according to a report by Resources and Trust Company, RTC, Limited.

The report titled, ‘Nigerian Political-Economy and Business Outlook 2012,’ prepared by Mr. Opeyemi Agbaje, Managing Director, RTC Limited, however, expressed hope that after a period of flattening, the Nigerian capital market will enter a period of recovery in the second half of 2012.

According to Agbaje, uncertainty in the global financial landscape will lead to lower oil export revenues, with lower reserves cushion; larger budget deficit; Naira devaluation, further capital market declines; global supply chains and counterparty risks; pressure on federal, state and local government budgets; increased socio-economic and political pressure.

He further stated that the factors that will drive the Nigerian economy in 2012 include the Sovereign Wealth Fund, lower petrol subsidies, proceeding power sector reforms and expected privatization.

Other factors, according to him, include possible downstream oil sector deregulation, especially if global oil prices decline significantly and improving telecommunications and internet penetration.

He said, “We expect high inflationary pressures in 2012 as higher oil prices, electricity tariffs, interest and exchange rates, food tariffs, among others, all reflect in price levels. We expect improvements in budgeting, fiscal transparency, power, trade and investment policies and foreign relations commencing 2012.

“FDI inflows may have been deferred by post-election violence and terrorism; global uncertainty; and recent strikes. Nevertheless rather than stay away completely, FDI will more likely flow towards energy and power sectors and Southern Nigeria.

Agbaje expressed optimism that the expected power sector privatisation by December 2012, will lead to a gradual improvements in power generation and distribution, and private sector investments from 2012 and will also engender a financial sector and capital market recovery from the second half 2012 and beyond.

He, however, declared that in the current year, key business concerns will remain taxation — especially multiple taxes, charges and dues —  by federal, state and local governments and agencies; regulatory overlaps and often overreach; corruption and capriciousness.

On the implication of the various reforms in the economy and the global economic uncertainty for businesses in Nigeria, He said, “Higher global risks will elevate the need for global risk management especially with respect to global logistics and supply chain, counter-party and exchange rates.

“Cost optimisation and increased operating efficiencies will be a necessity, rather than a desirable strategy. Companies will have to develop strategies and contingency plans for ensuring security of physical assets and human capital.
“Financial risks, both global and local will revive the imperative of maintaining corporate liquidity and reducing excessive leverage.