The Nigerian inventory market’s efficiency does no longer accurately direct the broader economic system, which remains largely informal and dominated by agriculture.
Egie Akpata, Chairman of Skymark Companions, acknowledged this throughout the Nairametrics Q4 Economic outlook themed- Nigeria Economic Outlook 2025 Focal point: Substitute Price, Ardour Price, Economic Assert, Geopolitics.
Akpata’s evaluation supplied key insights into the capital market’s efficiency in 2024 and its disconnection from Nigeria’s economic realities. He explained that while the inventory market has shown resilience, it does no longer adequately direct the broader Nigerian economic system.
“The Nigerian economic system is largely informal. And within the occasion you undergo in mind that Agriculture is the largest sector, and that sector is kind of non-existent within the inventory market.
“Also, the Nigerian inventory market will not be any longer a reflection of the Nigerian economic system in any appreciate. There are very mountainous companies in some sectors which would be exact no longer represented,” he acknowledged.
This gap, he wisely-known, highlights the obstacles of the inventory market as a comprehensive measure of commercial project.
Resilience of the inventory market in 2024
No subject these obstacles, Akpata acknowledged the resilience of the Nigerian inventory market in 2024 no subject the industrial challenges
“But from the inventory market point of behold, One year-to-day return is exact 30%. That 30% is roughly what turned into as soon as at the foundation concentrated as a consequence of the One year-to-date return turned into as soon as 30% by April and it’s been flat since April.
“The initial accelerate-up in that index, the all-piece index turned into as soon as highly concentrated in just a few very mountainous stocks, the likes of Dangote Cement, BUA Foods, Geregu Vitality, and just a few others that had very distinctive efficiency in Q1. But ever since then, the return keep has roughly broadened out,” he acknowledged.
Key drivers of market efficiency
Akpata identified the banking and petroleum sectors because the principle drivers of inventory market efficiency in 2024.
Banking sector: Akpata explained how Nigerian banks acquire benefitted from well-known economic adjustments in 2024, in particular in foreign alternate (FX) and curiosity charges
“The banks acquire a chunk of benefited from huge adjustments this One year. One is the FX charges. There turned into as soon as a duration where banks had very mountainous FX good points.
“And so the government determined that they wanted 70% of these good points. And these good points appear to be disappearing from the accounts of the banks as a consequence of no one wants handy over 70% of their money to the government.
“But at the same time, within the occasion you ogle at the curiosity price atmosphere, in February final One year, the one-One year lower tag on a Treasury invoice turned into as soon as 2.25%. Within the final auction final week, it turned into as soon as 23.5%. Now, within the occasion you acquire that roughly circulate, customarily a 10-fold circulate in charges, any individual is benefiting in some capacity.
“And that’s in overall the banks as a consequence of high curiosity charges indicate increased revenues for them, and as a rule, increased margins. Particularly after we are in actual fact in an environment where a monetary institution can come by about 30% probability-free from the central monetary institution of the Nigerian govt. So what are you paying on deposits? The frequent huge monetary institution’s price of funds will not be any longer as a lot as 10%.”
He extra explained that these dynamics indicate that banks now acquire very huge margins and are benefiting. They are relaxed to bolt the prices on to customers and shareholders. The acquire beneficiary is from that
Petroleum sector: Akpata disclosed that both upstream and downstream petroleum companies skilled well-known earnings growth. He attributed this to petrol tag deregulation and favourable alternate charges.
“Petrol prices are in actual fact four times increased than they had been first and foremost of final One year, boosting downstream firm revenues. Upstream companies, on the alternative hand, acquire benefited from buck-denominated revenues’ he explained.
“Downstream petroleum companies don’t acquire a alternative. There’s no low-price petrol wherever so they bolt these costs on to you 100%,” he acknowledged.
Challenges faced by listed companies
- Akpata also highlighted the challenges some listed companies faced as a consequence of macroeconomic circumstances. A predominant problem turned into as soon as the naira’s depreciation, which negatively impacted companies with well-known foreign substitute liabilities.
“Very mountainous companies admire MTN, Nestle, and Dangote Sugar now acquire negative shareholders’ funds as a consequence of foreign alternate losses. It is no longer a conventional wretchedness for such mountainous companies to theoretically don’t acquire any capital,” Akpata acknowledged.
- Additionally, rising costs and declining buying vitality restricted the capacity of some companies to bolt on prices to patrons, extra straining their efficiency.
