According to the Managing Director, Partnership Investment Company, Victor Ogiemwonyi, at the Financial Correspondents Association of Nigeria (FICAN) bi-Monthly discourse held in Lagos, the impact of the sectarian violence, political instability and ripple effects of Euro economic crises have brought the Nigerian Capital Market and investors’ confidence to its lowest status in recent years.
Aside security threats facing the country, the analysts said the increase in pump price of petrol has imported inflation in to the country, and such will deprive the stock market of its real value to investors.
He explained that such inflation will raise cost of operation for companies, leading to fewer profit and declining returns on investment.
He said with these, there will be more pressure on the naira and increase volatility on the foreign exchange market.
Ogiemwonyi said that whenever the world economy slows down, there will be less demand for oil and that means reduction in Nigeria’s foreign exchange earnings. He said that unemployment remains another major challenge facing the country, as the economy is not strong enough to accommodate the unemployed.
He said the country is currently facing a high level of capital flight and declining interest of foreign investors in the economy.
According to him, the huge impact of these crisis reminds the country’s investors that they are part of one unified global entity, as seen in the impact of the Euro economic crises in emerging markets like Nigeria.
He said that the crisis in Europe has increased the rate of capital flight in the country, thereby further reducing the rate of capitalisation at the NSE.
“The level of insecurity has increased, and has hampered investors’ confidence in the country. Don’t forget that the stock market is a barometer to measure a country’s economy. The insecurity in the country affects Foreign Direct Investment and investors’ confidence. This is because crisis brings uncertainty, which also affects investors’ confidence,” he said.
He further explained that the level of security guaranteed in any country determines whether the country will grow or not.
The analyst said that 2011 was a year that investors would want to forget in a hurry, because of the uncertainties and huge loss on their investments, adding that 2012 is going to be a challenging year for the country economically.
For him, the issue of high inflation, high interest rate, political instability, insecurity are still prevalent in the country and there is no way the country can grow at double-digit interest rate.
However, there are still some positive indications in the economy. He said that the Asset Management Corporation of Nigeria (AMCON), has done well by solving the debt overhang problems in the country which will enable banks to be more supportive of the economy through lending.
He reiterated confidence that both local and international investors have on the Economic Management Team and that privatisation of public corporations will equally boost the market confidence. Such exercise, he said, will make more funds available for investment into the market.
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