The Federal Government’s dithering on introducing complementing fiscal policies and lack of strategy to attract private capital is resulting in low investor confidence from both domestic and foreign investors, operators in the nation’s financial sector say.
The consequence of the lack of fiscal action is low foreign capital inflows, declining new domestic investment, illiquid capital markets, low employment and economic growth
“One can’t over emphasis the fact that the major challenge with attracting foreign capital remains the crisis in the currency market. However, the future may not be as bleak if the recent debate surrounding assets sales as well as alternative sources of income is critically considered. In our view, the government can choose between disposing some of the national assets in exchange for the much-needed foreign capital to prop-up the external reserves or borrow the equivalent. The third alternative will probably be to do both by borrowing big for immediate revamping of the system while paying up the debt with proceeds from the assets sales. In any case, we think the onus is on the government to choose” wrote Olawale Olusi of Investment Research at Lagos-based Afrinvest West Africa.
Friday Ameh, energy analyst says that government should be blamed for delay in taking some decisive decisions on the economy that would have impacted positively on the lives of the citizens.
“Federal government said it was going to raise funds through Eurobonds to stimulate the economy. We were told that advisers were going to be shortlisted since September. Also, last week government sent the proposal for the $30 billion loan to the Senate without the necessary documents. What does this speak of a country in desperate need of FDI ” Ameh asks.
“The budget relies exclusively on borrowing for fiscal stimulus in the absence of private capital strategy,” says Opeyemi Agbaje, chief executive, RTC Advisory Services limited in his recent outlook for 2017.
“Inconsistencies between monetary policy (which pursued monetary tightening through Treasury Single Account (TSA), and raising Cash Reserve Requirement (CRR) and Monetary Policy Rate (MPR) for banks versus the executive’s intended fiscal stimulus through budgeted borrowing persists. The big gap in policy is absence of a strategy to leverage and optimise private capital. The budget relies exclusively on borrowing for fiscal stimulus in the absence of private capital strategy.”
Nigeria’s economy has witnessed weak corporate earnings and surprising losses, particularly in the last third quarter, resulting in year-to-date market loss of 4.97 percent, average daily turnover (ADTO) falling by 32.5 percent to N1.60 billion in October as against N2.37billion in September.
“The consequence of policy factors above has resulted in low investor and market confidence from both domestic and foreign investors and impacted foreign exchange inflows, FDI, new domestic investment, capital markets, employment and economic growth,” Agbaje said.
Bismarck Rewane, chief executive officer, Financial Derivatives Company limited, in the current LBS meeting note released at the weekend observed that, “Illiquid market and weak currency value is driving volatility in the market.”
Consequently, Rewane said that the economy is faced with “temporary aberrational spikes being driven by bids for forwards and futures contract, short term government securities which are more attractive but debt servicing has become a cause for concern, mixed signals on the direction of government securities and lower debt service against attracting international investors.”
The prominence of the parallel foreign exchange market, which is fast becoming the ‘new normal’ with exchange rate hovering between N460.70 to the US$ against the official rate of N310 to the US$, analysts say will see more companies folding up and more citizens impoverished, with the expected bourgeoning of unemployment rate.