Home Finance Nigerian capital market worst in the world in 2009, GDP may drop to 3.6% — BMI

Nigerian capital market worst in the world in 2009, GDP may drop to 3.6% — BMI

by Business News Report

By Omoh Gabriel
The Nigerian Stock market has been described as the worst performing stock market in the World for the Month of January 2009 stating that the country’s Gross Domestic Product GDP will drop from 6.3 per cent in 2008 to 3.6 per cent in 2009. According to a report published by a London based research company Business Monitor International, which advises foreign investor where to invest, it said “you could not have done much worse than investing in the Nigerian stock market in 2009. With the Lagos All-Share Index down 27.5 per cent since January 1, it’s the worst performing equity index in the world so far this year. Add to that a 9.2 per cent drop in the currency, and you are looking at a third of your investment gone in one month”.
Only yesterday the Speaker of the House of Representatives Dimeji Bankole painted a gloomy picture of the stocks market before the captains of industry. The value of the market, he said, has dropped from N14 trillion to N5 trillion due to the global financial meltdown. He said the greatest challenge to the financial sector in Nigeria and elsewhere was the global financial crisis. Bankole said there was a need for innovative and “serious hard creative thinking” to solve the problem. He said: “Our experience has indicated that the global turmoil has affected Nigeria‚Äôs economy in the areas of capital flight, exchange rate of the naira, upward pressure on inflation and dwindling foreign reserves.”
According to the monthly report released yesterday “With the price of oil down more than $100 per barrel from the July peak, it is not particularly surprising that sub-Saharan Africa’s biggest until recently producer has run into problems. The lack of oil money circulating through the economy is sure to impact businesses. Business Monitor International is forecasting GDP growth of just 3.6 per cent in 2009, from 6.3 per cent in 2008, and risks are to the downside, and also make available less liquidity for investment in the market.
“But it is not just oil that is giving the stock market a headache. Foreign investors largely packed up and left after the capital market authorities imposed a maximum downside limit of 1 per cent on the index back in August 2008 which had the effect of seeing the market fall by a small margin for 34 straight trading days before the limit was removed.

“Given the rise in global risk aversion, I do not see a return of these investors in the near future. More worryingly, I have warned before about the looming potential for crisis in the banking sector, shares of which make up a not insubstantial 48.6 per cent of the exchange’s total market capitalisation. Should some of the banks go down, there could be significantly more downside ahead.
The report further said “In that spirit, I am keeping my eye on 20,000 first, the market closed yesterday at 22,737, with a drop to 12,000 increasingly possible, especially if there’s trouble with the banks. If the index does end up hitting 12,000, that would put its total losses from the March 2008 peak to 81.9 per cent. That’s not as bad as the 93.6 per cent drop seen in the Icelandic index, but it’s still catastrophic”.
According to BMI “The swift turnaround in commodity prices, coupled with the growing international financial crisis, is likely to lead to an economic slowdown and a narrowing of the current account surplus in 2009. Should oil prices continue to fall, there is a risk for the current account to flip into deficit and economic growth to slow substantially more. Conversely, a rapid rebound to high levels presents upside risks to growth, the current account surplus and government revenues. On the political front, violence in the Niger Delta has recently accelerated, and there is potential for conflict to remain at elevated levels in the months ahead. It said that significant drop in oil prices could increase the government’s incentive to implement a strategy to reduce violence, but that a rise in oil prices would bode poorly for the region’s stability.
‚ÄúWith the average price of oil forecast to drop in 2009 before increasing in 2010, we are projecting a corresponding drop and recovery in real GDP growth, primarily on the back of swings in investment. Declining oil exports will also negatively impact the current account in 2009, though this is likely to be partially offset by diminished oil company revenue outflows. At the same time, fiscal laxity, cessation of price controls, and unscheduled Central Bank of Nigeria interest rate cuts could stoke inflation in the early part of 2009″ the report said.

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