LETTERS FROM LAGOS
Markets vote democracy
By Rose Umoren
The country's markets - foreign exchange (FX), domestic money (naira) and stock - are famed for their imperviousness to environmental conditions, but they do react, clearly, at critical moments. For most of the 1993- 98 excruciating Gen. Sani Abacha dictatorship, for instance, all three markets were remarkably emaciated. Although the government froze the exchange rate at N95/$, even interbank loans dried up, while most stock prices were in free fall. Stocks especially swallowed a magic bullet when Abacha died and his successor swiftly implemented a return to democracy. Since democracy in 1999, however, disappointments with the general economic trend have tempered the momentum with foreign portfolio investments, for instance, retreating sharply. It, therefore, seemed natural that the markets would suffer severe pre- election jitters, especially amidst escalating violence whose latest victims include vice chairman of the main opposition All Nigeria People's party (ANPP) Marshall Harry who in 1999, in the same capacity in the People's Democratic party (PDP) got the oil- imperilled Niger Delta to vote almost en- bloc for President Olusegun Obasanjo.
Apparently sharing such fears, the government from end-2002 became more forceful in directing the money markets by, among others, armtwisting bankers into capping lending rate at 22.5 percent compared with upwards of 28 percent normally, and slashing the minimum rediscount rate from 18.5 percent to 16.5 percent, despite beginnings of excess liquidity from election-related spendings.
The central bank (CBN) has also managed its FX auctions such that the exchange rate has settled around N127/$. By mid- March though, the arrangements were coming under severe strains because big depositors, including government agencies, were demanding much higher rates than the government had promised bankers, and maximum tenor of loans had collapsed to 60 days with the CBN suspending its 180-day certificates.
Events on the wholly private stock market, however, suggest that the government may have been over-careful and destabilised the money markets for little reason. The Nigerian Stock Exchange's all-share index has risen from 12,137.72 at end-2002 to 13,664.43 mid-March, This is a rise of 1526.71 or 12.58 percent, compared with 10.71 percent for the whole of 2002. Market
Perhaps the long awaited evidence of Nigerians' faith in their economy is emergingcapitalisation has risen from N763.9 billion to N864.354 billion; a rise of N 100.454 billion or 13.15 percent compared with 15.3 percent in 2002. One new company has already been listed, Intercontinental bank whose shares were oversubscribed, compared with two last year. The prices of most stocks, but especially those 20 the exchange identifies as most active - mostly financial services companies led by Union Bank of Nigeria with a sprinkling of multinational oil, brewery and personal products companies - have either kept within their normal ranges or appreciated. Some may argue that investments are leaving the money markets into stocks because of rates. Signs, however, are that even more money than usual, especially for the first quarter, is going into the naira market. The CBN's two discount windows - open market operation (OMO) and primary market auction (PMA) - have been oversubscribed, sometimes twice over, at rates lower than banks are offering for huge placements.
Reasons for this seem internal and external to the markets. Politically, the violence so far is not as vitriolic as had been feared and the murder of Harry within hearing distance of the Abuja police formation may have positively concentrated minds at the highest political level. Also, directly Obasanjo won his parry's
primaries, corporate Nigeria decided that the man astute at exercising his incumbency will win the election, capping their decision with more than N2 billion donations and shrugged off every other thing including the violence. Economically, government pension funds especially, no longer protected by military rule and feeling mounting pressure to meet long due payouts are now seeking optimal returns on their investible funds. The Nigerian Ports Authority (NPA) pension fund, for instance, joined the stock market last quarter. Complementing these, more quoted companies are aggressively upgrading their operations while the NSE is making trading more transparent by, among others, launching an internet portal through which investors can access their accounts at its central depository real time. These, however, insufficiently explain the surge of liquid investments in a parlous economy, especially as real estate and other property prices are also appreciating sharply due largely to demand.
The scale, against the 'hold' position foreign investors have since adopted on Nigeria pending the elections, suggests much monies are being repatriated. Perhaps the long awaited evidence of Nigerians' faith in their economy is emerging. That might sustain democracy better than a thousand laws.
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