Looking at the 2011 Crystal ball
2010 was quite eventful on the NSE. The beginning of the year was marked in the absence of the late President that was accompanied by a bullish run in the market.
There is a palpable fear in air the that the elections in Nigeria may not go well; this feeling has also been reinforced by a security report written by a former US envoy to Nigeria who hypothesized that the country will disintegrate in 2011 because of the polarity driven by the so called Christian South and Muslim North. Nothing can be farther from the truth. During the leadership vacuum, a pressure group, the Save Nigeria Group, ensured that the Vice President was given powers to act as the President. This same group is headed by a Pastor from the Christian South who has publicly declared his desire for Buhari, a radical muslim from the North, to be the next Nigerian president. Ribadu, another Muslim from the North, has his campaign driven by youths from the predominantly Christian South. President Jonathan, a Southern Christian who is also running for the post in 2011, has most of his political machinery located in the North while his National campaign director is a Muslim from the North. The Nigerian masses do not care who rules the country as long as there is equity and justice, which the President has promised. The fact that the ruling party has lost several court cases instituted against them by opposition parties has proven the seriousness of the President not to meddle with the judiciary.
The fact that investors are skittish about the Nigerian market, because of the theatrics playing out in the political terrain, have created very good entry opportunities for smart investors who can take advantage of the juicy low hanging fruits. The best returns on the NSE were made during election years after the politicians have threatened fire and brimstone to make the country ungovernable; the NSE returned 64% in 2003 and 75% in 2007, both election years that experienced a lot of political drama. These political talks are mere rhetorics as the politicians always have a way of compromising to keep the country together based on historical trends. Investors, with short memories, jump into the market after the elections have gone "hitch-free" and I expect 2011 to play out the same way.
Another threat to the Nigerian economy is the corruption and fiscal irresponsibility rife in the executive and legislative arms of the Government. This is also reinforced by the fears emanating from the threat of rising inflation in 2011. It should be noted, however, that the Government has reduced the 2011 budget by almost 20% from about N5 trillion in 2010 to about N4 trillion in 2011. How does that affect the economy? Despite the "huge" budget deficit, as claimed by several local economists, the budget deficit to GDP ratio in 2011 is going to be close to 3.5%, which is still below the red flag of 4%. The total Government debt to GDP ratio is around 25% and no way near the red flag of 60%. The reduction in Government spending and the ability of the Central bank to manage the exchange rate at an average of N150/$, which helped curb imported inflation is a also good sign for the economy. This will be enhanced by the fact that foreign reserves will receive a boost since the Government has reduced the benchmark for crude oil from $67 per barrel in 2010 to $62 per barrel in the face of oil prices that is inching closer to the $100 per barrel mark.
A good thing to note is that the economic reforms that was kickstarted by the previous Government has passed a critical point and no matter how slow it might currently be, these can no longer be reversed. The capital markets are set to deepen as corporate bonds begin to take hold.
The ability of the Nigerian economy to grow at over 8% in the fourth quarter of 2011 means that this tempo is likely to be sustained in 2011 as the banks begin to recover from the recent crises. The Asset Management Company is officially set to make its first major transaction tomorrow and this will also create a boost for investor confidence in 2011.
I have deployed funds into the Nigerian equity market and I wish everyone who have the guts to invest along with me a bountiful harvest in 2011.