The Present State of the Nigerian Economy

I have not been able to make any post on this blog over the past month because of the dismal performance of the Nigerian Stock Market and the lack of any initiative by the drivers of the economy. A lot of investors, including myself, are presently not happy with the turn of events, which has seen some astronomical losses in all equity portfolios. The state of the Nigerian economy at the moment leaves one in doubt if the present government knows what they are doing. I do not mean to castigate anyone but the truth needs to be told.

In the world of investments, analysts do one or two forms of investigation before committing their own or anybody’s money into any kind of investment. There is the bottom-up analysis and the top-down analysis, whichever one is preferable. The former involves analyzing the economy, then move down to the industry where the investment will take place and then finally the particular company of interest. The latter is the other way round. If there is any problem along the way, the analysts shift focus to another direction. If it is the industry is sound but the company of interest is not doing well, then we go to another company within the industry. If the industry is underperforming, then that means there is no company worth looking at in that place and we look for another industry. If the economy is bad, then there is no point investing anywhere. This is the case we are presently facing in Nigeria.

There are certain companies that are trying to add value to their shareholders at the moment but they can only do so well under the present condition. No matter how well they do, the present situation of the economy is not encouraging enough. I will try to make my direction of thinking as simple as possible.

There are some economic indices that analysts use to evaluate an economy. These indices are mainly influenced by the monetary policy (Central Bank control of money flow) and the fiscal policy (Government spending) of the country. This is August 2008, the year is coming to an end but Nigeria presently does not have a working budget for the year; so one can safely assume that there is presently no fiscal policy in the country at the moment. Inflation has risen from 4.5% to 14% within this year and the upward spiral seem not to bother the CBN enough to do anything about it, as at the time of writing; so one can also safely assume that the monetary policy is moribund.

As at the time of writing, there is no control over the Nigerian economy as all the people who are supposed to be at the helm of affairs are practically sleeping. The economy is practically running itself at the moment and it is running itself aground with no help in view.

To be continued…