Why the capital market will remain depressed in 2017

History is the sum total of everything that could have been avoided.” – Konrad Adenauer,

Last year, the Nigerian Stock Exchange, NSE, emerged as the worst global exchange, shedding a little bit over N1 trillion. Those who lost money on the exchange last year have only themselves to blame because they can now add that loss to the list of “everything that could have been avoided”.
A cousin of mine returned from abroad early last year and asked for the important news. He was told “go and sell your shares because a recession is coming”. He did not heed the warning until late October – by which time he had lost several million more. Those reading this early warning and who fail to act deserve their unhappy fate.
Nor should anyone listen to the operators of the NSE – especially the Director General. In many respects, the DG-NSE symbolizes most of what is wrong with the capital market and explains why it has declined for three years in a row and is set for the fourth year slump. The DG of the nation’s capital market and his top Assistants labor under very narrow understanding of their functions.
From all observations, it would appear that, individually and collectively, they assume their jobs done when investors pay for shares and certificates are duly issued. That is a grave mistake. In actual fact, they should realize that the capital market is a market selling hope. People patronize it because they hope to improve their financial situation and for security of their investments. NSE needs a master booster at the top, ably supported by people who constantly nurture hope and instill confidence.
The former DG-NSE, Dr Ndidi Oyuike, understood this perfectly. Granted, towards the end of what should have been a glorious career, she deviated into questionable projects – Corporate Nigeria fund raising for Obasanjo in 2003 and Obama fund raising later. But, one thing is undeniable; she was for years a booster. She also understood how to make the media her ally in promoting activities on the exchange.
Current leaders don’t understand this. They operate as if the NSE is like the New York and London exchanges which are so large they need no promotional effort. The NSE is thin on the ground and three or four securities can create a lot of collateral damage. Banks still constitute the heart of the exchange; and that is a pity.
Unfortunately, all the sales skills of the former DG could not save the capital market from the slump which began in the fourth quarter of 2008 and persists till today. The two largest business sectors – banking and food and beverages – remain the major problems and will most likely drag the indices down in 2017.
The first observation concerns the national economic outlook and the trends for the year. In that regard, the most important questions are: will the recession continue or will the nation experience growth and how much growth? Obviously, continuing recession will mean that Nigerians will have very little discretionary income to spend on anything but the barest essentials of life.

The market will remain depressed. Gross Domestic Productivity, GDP, growth of less than three per cent in 2017 will still leave people with very little excess cash for investment in other things. Both the World Bank and the International Monetary Fund, IMF predict GDP growth of one per cent or less. That is bad news for the NSE. Some Nigerian economists forecast a more robust growth, perhaps up to two per cent. That will help, but not significantly, to boost investment in shares. Unfortunately, even that stimulus for NSE investment is being nullified by the sad news from the major sectors dominating the capital market.
However, before examining the variables which will affect the capital market in 2017, investors need to be wary of market manipulators masquerading as saviours for certain securities. One of the hottest securities on the market about fifteen months ago was that of a conglomerate which had slumped from N7.50 when it was sold years ago during Obasanjo’s administration.
Its promoters were the biggest names in Nigerian business and all sorts of under-handed measures were taken to have it registered on the exchange. The price went steadily down and the promoters, who paid only fifty kobo (50k) for their shares had off-loaded then on unwary Nigerians. Fifteen months ago, the shares were on offer for less than 70 kobo when the “money-slinger” moved in. Very quickly the shares went up to N3.00 or more. Today, they are back to less than 80 kobo and the “saviour” is now quiet.
There is a lesson to learn from that. Before investing in “hot” securities, which are often cousins to MMM, investors should ask independent people for advice. Most Stockbrokers are compromised and would not tell you the truth.
Banks have not recovered from the withdrawal of Federal Government funds under the Treasury Single Account, TSA, scheme. The free government money which they operated with had vanished and all the efforts to mobilize deposits through all sorts of promotions had brought in very little. Aggregate deposits are down and loans are not given – except to powerful customers.
Interest rates are high and that continues to discourage many investors even when the loan in available. However, the main reason banks shares might not be attractive investments is in connection with several cases of alleged roles of several banks in money laundering transactions involving some officials of the Jonathan administration and their associates.
Banks found guilty of such offences are at risk of paying fines running into billions of naira. At least five banks have been discovered to be involved. More investigation might reveal other banks which were exposed to the same risks. But, even if only five eventually get charged and convicted, the collateral damage to other banks will be enormous.
The Food and Beverage, F&B, sector had in recent years been dominated by a Nigerian conglomerate which had brushed aside the Multi-National Companies, MNCs – Nigerian Breweries. Guinness, Nestle, Cadbury etc. Early in January, the Nigerian company announced the closure of its tomato processing plant in Kano for lack of imported materials to produce.