Capital market boom, direct investment crunch

The Central Bank of Nigeria (CBN) is worried about Nigeria’s alarming unemployment rate. In a workforce of about 87 million workers, more than 22 million are jobless.

The alarming level of joblessness is clearly responsible for the country’s embarrassing poverty rate. There is a direct relationship between poverty and unemployment. In June 2018, Nigeria replaced India as the country with the highest number of people in abject poverty.

At that time the number of Nigerians in abject poverty was 87.6 million. That was when unemployment stood at 21.5 per cent.

By June 2020, the World Poverty Clock, the organization monitoring world poverty rate announced that the number of Nigerians in abject poverty has risen to 102 million. That is commensurate with the steady rise in unemployment which some sources estimate at 30 per cent.

The rising figure of people in abject poverty was recently validated by the report of the Food and Agriculture Organisation (FAO), an agency of the United Nations (UN) which showed in October that 9.8 million people in 16 northern states and the Federal Capital Territory (FCT), Abuja are starving. Their children are in advanced stage of malnutrition.

Those startling figures are tall tales of a country in abject poverty in the midst of the stupendous affluence of a selfish infinitesimal population of elite.

From all indications the CBN has traced Nigeria’s embarrassing poverty rate to the surging unemployment in the land and is, as usual trying to tackle it with monetary policy instruments.

The apex bank believes that Nigeria is endowed with enough liquidity that could be used to tackle the menacing unemployment if invested in the right instruments.

The CBN’s position is incontrovertible. Nigerians have the money to create enough jobs. Ironically, the money is not invested in employment generating ventures that would engage the idle young hands congesting a boisterous labour market at the moment and providing cheap labour for banditry, armed robberies and kidnappings.

The CBN has taken monetary policy measures that it believes would encourage Nigerians to use their money to start businesses that would create jobs.

All along, billions of naira had been tied down in risk-free federal government debt instruments which offered irresistible yields.

The CBN responded to the alarming subscription rate in government debt instruments by discouraging individual investments in some of them.

Aside from federal government debt instruments, huge sums were tied down in bank deposits.

The apex bank responded to the mountain of idle funds in banks vaults by forcing down deposit rates in savings to one per cent.

The CBN measures are yielding results. But it is not driving investments in the direction the apex bank expected. No one is creating jobs with the idle funds.

The money that CBN wants in direct investments that would create jobs is now being diverted to the capital market and it is mounting phenomenal pressure on share prices and the market capitalization of the Nigerian Stock Exchange (NSE).

For the first time in the history of the NSE, its market capitalization has hit the N18 trillion mark, up from N15 trillion three weeks ago.

The capitalization of the NSE dropped below N14 trillion in the opening days of September due to massive profit taking by investors who expected poor results by listed companies due to the devastating effect of the lockdown to contain COVID-19.

The reverse was the case. Results of some listed companies were more attractive than what was expected.

That was enough to attract the attention of investors with idle funds that CBN monetary policy has kept away from federal government debt instruments or saving deposits with banks.

They all invaded the NSE and mounted unprecedented demand pressures that pushed up share prices at unparalleled rates.

Share price of GTBank rose by more than N12 in three weeks to close last week at N37. Those who bought one million shares of GTBank at N25 per share would simply sell and make N12 million in less than one month.

The profit taking started last week and may continue until investors find it necessary to pump in money again.

One good thing about the recent development in the NSE is that domestic, not foreign portfolio investors are dictating the tune. Foreign portfolio investors have never pushed the Capitalisation of the NSE to the current level.

The advantage of the innovative role of domestic portfolio investors in the NSE is that there would be no pressure on the exchange rate of the naira as no investor would demand dollars to export the capital gains from the bumper harvest of the last three weeks.

The money that pumped up the capitalization of the NSE to the unprecedented rate of N18 trillion was largely from domestic portfolio investors.

The CBN has gained something from its moves to divert idle funds from government debt instruments.

It has induced Nigerian investors to dip into the recesses of their intellect to create wealth for themselves. However, the aim of encouraging direct investments that would create jobs to reduce Nigeria’s embarrassing poverty rate cannot be attained single-handedly with monetary policy measures.

Nigerian investors, like their foreign counterparts have shunned direct investment because the environment is very hostile.

The fiscal policy needed to create the environment conducive to direct investment can only be implemented by the federal government.

Nigeria’s eternal darkness and the alarming insecurity are responsible for the alarming unemployment. Unmitigated Banditry, kidnappings, armed robberies and decaying infrastructure hike costs of doing business and discourage direct investments.

A weird income distribution system has driven youth restiveness to frightening proportions. No one wants to establish a business that deprived, unemployed youths would raze to the ground one day in their blind bid to take revenge on a system that has kept them permanently in penury.

That is why Nigerian investors have opted for portfolio investments that cost them nothing but generate trillions of naira in three weeks.

The CBN has done its bid in trying to divert the attention of Nigerian investors to direct investment that would create jobs and reduce the alarming poverty in the land.

Ironically, the federal government has not provided the environment for direct investments.

The novel cycle of pumping up the capitalization of the NSE and tumbling it through profit taking would continue until the federal government learns to rehabilitate Nigeria’s collapsing infrastructure.

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