It’s easier finding a needle in a haystack than signs today that Nigeria will get its act together and fulfil a long-touted potential that has seemed farther away than ever in the last half a decade.
Nothing is working, according to the country’s most senior business leaders, who cite contracting GDP per capita, collapsing infrastructure from power to roads, falling consumer demand and rising insecurity.
These factors are deterring local and foreign investment, with Nigeria lagging smaller African countries in attracting investment.
While Nigeria’s relatively low FDI inflow compared to peers in the last three years has been well reported, a key dimension to the United Nations Conference on Trade and Development (UNCTAD) report has managed to fly under the radar – FDI outflows.
FDI outflows from Nigeria stood at $1.38 billion in 2018, the second highest since 2005. The highest outflows came in 2015, when $1.4 billion of FDI found its way out of the country. What this implies is that new investors are not only snubbing Nigeria, old ones are also packing their bags and leaving.
The dearth of new investments and the exit of some partly explain why Nigeria has been stuck in what credit ratings agency, Moody’s, calls a “low growth cycle” characterised by weak, non-inclusive and jobless growth, since exiting recession in 2017.
Unemployment hit an all-time high of 23 percent in the third quarter of 2018. That’s double the 10.8 percent rate in Q3 2015, in the space of just three years.
At the current rate, the number of unemployed and underemployed Nigerians (nearly 40 million in Q3 2018) could be the size of Germany, which is home to slightly more than 80 million people, by 2021.
“The investment climate is poor and every sector that can boost growth or create jobs seems hamstrung by one challenge or the other,” said Muda Yusuf, director-general of private sector advocacy group, Lagos Chamber of Commerce and Industry (LCCI).
LCCI draws membership from over 2,000 companies.
“A lot of investment in the oil sector is being held back by the lack of policy clarity,” Yusuf said, referencing the long-stalled passage of the Petroleum Industry and Governance Bill (PIGB) which investors say is a deterrent to new investment in the oil and gas sector.
“The manufacturing sector continues to suffer from decrepit infrastructure, same as the agricultural sector, which must now also grapple with insecurity,” Yusuf added.
Also worrying is that for all the public trillions that have been thrown at the economy to reflate it, a third of which was borrowed locally from pension funds and banks, and internationally from foreign investors, the Federal Government has little to show.
Despite doubling its debt stock in five years, economic growth has been stuck at around 2 percent when it hasn’t contracted.
Even high-flying agriculture sector that used to post growth of 7 percent has deteriorated to about 3 percent. Despite the government’s many interventions in the sector, growth has been capped, thanks to rising insecurity that has kept many farmers out of work.
Bankers and economists say the government has not spent wisely and risks a debt crisis if it keeps borrowing to fund consumption.
They argue that an expensive petrol subsidy that gulps in excess of N1 trillion a year and a federal budget that prioritises recurrent expenditure and debt servicing over capital expenditure are a recipe for ballooning debt yet low economic growth.
What’s worse than the government’s misplaced spending is that businesses have been crowded out of the debt market and are not investing as required. One South African fund manager calls it double jeopardy for the economy.
The lack of robust reforms to stimulate growth has been met with ire by investors and companies, particularly the listed ones, are paying a heavy toll for that.
The abysmal stock market performance has been a useful indication of that ire. Aided by a relative stable currency, the All Share Index (ASI) recorded a loss of 4.7 percent in dollar terms in the first half of 2019.
Even South Africa, with its many troubles this year, did much better in that period (+12.5 percent), while Egypt (+16.0 percent), and Kenya (+5.3 percent) as well as the MSCI Emerging (+11.9 percent) and Frontier Market (+9.2 percent) indices have also done better.
Stocks were down some 13 percent since the start of 2019, one of the world’s worst performers, according to Bloomberg data.
The much-awaited listing of the country’s largest telecommunications company, MTN Nigeria, brought some relief to the market. But it was short-lived, as investors longed for a catalyst to turn negative sentiments around. It never came, and so many have since stormed out, as evidenced by net portfolio outflows of N42.8 billion as at May 2019, compared to a net outflow of N28.6 billion in the corresponding period of 2018.
Listed corporates are finding it difficult to shake off the general lull in the economy, by posting lower revenues and trading at record low prices on the NSE.
“We note that around 50 percent of our coverage companies reported either a decline in profit after tax or a loss position in Q1’19,” a team of investment researchers at Cardinal Stone said in a note to clients.
“Post the election excitement, investors may have also redirected their attention to more fundamental concerns, so much so that even a positive wave of corporate listings failed to prevent the equity market decline,” the team, led by Phillip Anegbe, said.
Amid the gloom, policy analysts say President Muhammadu Buhari missed a glorious chance to provide a catalyst for stocks and the economy with ministerial appointments.
As if Nigeria’s situation isn’t worrying enough, oil prices have been sliding in recent days, hard hit by a trade spat between the US and China that has led to worries over lower global economic growth.
Lower oil prices, with Brent crude now below the Federal Government’s $60 per barrel 2019 budget benchmark for the first time since 2016, is also putting fresh pressure on the naira which the CBN has fought tooth and nail to defend.
Albeit marginal, the naira has weakened to the lowest level this year – N363.4 per US dollar in the market-reflective foreign exchange window, Friday, after pretty much holding steady at N360.
The CBN, with gross external reserves of around $44 billion, is tipped to have enough firepower to stave off any sharp depreciation in the short term.
But if oil prices fall below $40 per barrel, it becomes a different proposition.
Brent crude dropped Tuesday, as US President Donald Trump said planned trade talks with China next month could be called off, stoking concerns the deepening dispute will damage global growth. At $58 per barrel, oil prices are on course for the sixth straight day of trading below Nigeria’s budget peg.