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Thursday, June 2, 2016


     Since early 2014, the performance of the Nigerian stock exchange (NSE) is in fact abysmal, resulting in shading of value by the market. At the end of year 2014 the market ended as one of the worst in the world, prompting more investors to be cautious in putting their money in the NSE. According to Oscar Onyema, current chief executive officer of the NSE, the market has lost $30bn since July 2014.  But in 2013 the market performance was good as it ended the year as one of the most performing markets. In 2015 the uncertainty associated with the general election made matters worst, as nobody was sure of what was going to happen after announcement of the final results. It is also not unconnected with the fall in oil price, our major foreign earner, and the global economic slow down. In China alone, the world second largest economy, the stock market has lost a lot of value in the last one year. Likewise other emerging stock markets of Russia, Brazil, and South Africa have all lost values during the last one year. But, how does Buhari economic policy or lack of it contributes to the poor performance of the market?

     Nationalism and restoration of Nigeria prestige in the eyes of the global community is at the centre of President Buhari economic agenda. It is the same policy that anchor President desire to restore the value of Naira as well as his refusal to devalue the Naira. His drive to make Nigeria self sufficient in manufacturing and food production is part of the same policy. In many ways i do not blame Mr President, this is his first year in office (even former President Obasanjo suffered the same fate during his early years). Buhari inherited an economy that was in worst shape in decades, Naira was already performing poorly in the market, crude oil price had collapsed, mounting subsidy debt of the previous government, insecurity, corruption, to mention just a few. Added to that, Mr. President himself was still believing that the economic policies that worked in the 1970 and 1980s would work today. Many of his advisers also believe the same. In his last visit to china, President Buhari was sold the idea of currency swap between Nigeria's Naira and Chinese Yuan. It was done with the intention of reducing the demand for Dollar (which many analysts believe is the source of the problem in the market), therefore, avoiding the devaluation of the Naira. Just like with Chinese Yuan, which every one agree is under valued, a nation have to devalue her currency in order to make her export cheaper to the outside world. But, like Mr President rightly argued, a nation that export nothing but crude oil has not much to worry about making her export cheaper through devaluation.

      Critics of President Buhari have pointed out his lack of passion for the economy (leaving the economy to take care of itself) through his unwritten philosophy that if you fight corruption in Nigeria everything will be right. The economy is now in a critical condition, inflation in double digit, GDP in negative growth for almost two consecutive quarters as well as growth in unemployment. The stock market crashed by N1.732 trillion within one year of his government .But, that notwithstanding, the President seem to have realized some of his policy mistakes, as seen from his renew focus on the economy, inviting some professionals to do the job of advising the government on what to do to put the economy on growth path. The delay experienced before the passing of this year budget has contributed in slowing down the growth of the economy, but now that the budget has been passed things will turn for the better. I will advise that President Buhari listing to his critics on the manner he handles the economy, because by paying attention to some of their positive criticisms, it will no doubt help him to run the economy better. The President decision to allow CBN to adopt flexible exchange rate is a wise decision and this blog support it. Nigerian authorities have held the Naira at N197-N199 to the US Dollar since March of 2015, when other oil exporters from Russia, Colombia to Malaysia have let their currencies drop amid the slump in global crude prices since the middle of 2014.

   Immediately after the announcement of the expected liberalization of Nigerian currency market, in one single day the stock market has added some N354 Billion as foreign investors rushed to return their money back.There are empirical evidences that links liberalization of foreign exchange markets with greater inflow of foreign investments. For example a study by Dimitrova (2005) find a link between higher stock price and week currency in the US during the short term period. The notion of capital control is at the back of nations attempt to impose fixed exchange rate. Since early days of this government, Central Bank of Nigeria has imposed some capital control in a move to stop deterioration in the value of Naira, that include banning of importation of 41 items, limiting daily withdrawals with domiciliary accounts, control of Bureau De Change, etc. The decision to impose capital controls have led to the withdrawal of Nigeria from emerging market indices such JP Morgan’s Government Bond Index-Emerging Markets as well as from Barclays index and Morgan Stanley Index. On the other hand, the capital control has help reduces speculative attacks on the currency and the equity markets, it has also control the importation of luxury goods that the country can do without as well as reorient the priorities of Nigerian business community toward looking inward instead of always rushing abroad to import things we can produce internally. 


    Dimitrova, D. (2005), "The Relationship between Exchange Rates and
   Stock Prices: Studied in a Multivariate Model", Issues in Political Economy, Vol. 14