The impact of covid-19 pandemic on the global economy is so enormous that it cuts across every sector particularly in Nigeria. The novel outbreak which caused standstill in world economic activities obviously shook financial structures of many countries of the world. Recession is imminent for most countries as GDP of most countries is projected to contract in the nearest future. In a chat with Mallam Garba Kurfi, Managing Director of APT Securities Limited, the capital market guru gave a deep insight on the impact covid-19, outlook and expectations of the capital market in the post Covid-19 season. Excerpts
It is no longer news that the Economic havoc associated with the COVID-19 pandemic has wide-ranging and severe impacts on financial markets across the globe but in your own view and by your wealth of experience, how severe is this impact on our local market and to what degree will its implication be on average Nigerians?
Well you look at it, in the first instance, our market lost 24% by end of March, what it means is that the market has lost over 3 trillion, this is just in the last 3months, and we have seen that some stocks have reach its lowest price in the last 3months.
Take a look at PZ and Nigeria Breweries, I have never seen Nigerian Breweries trading at N22 in the last 10 years; the same thing with PZ and many other stocks. So it heavily did a big blow to the financial system. Looking at the economy entirely, the effect is enormous.
A statement made by the Minister of Finance made us aware that they have lost about 80% of their revenue in crude oil. This is a very big blow. Our average cost of production is $22 per barrel so we are producing at a loss. That is how bad the situation is. Look at the history of Nigeria since 1961; that is more than 50 years, Nigeria has never attempted to withdraw its deposit with IMF. This time around we formally applied and it was granted for us to withdraw our deposit of $3.4 billion. That is how bad the situation is, not to mention the loss in other sectors. Look at the airline, many of them closed down or declared bankrupt. I can tell you in the history of the market as far as I know, we have never witnessed the enitire Lagos, Abuja and Ogun completely lockdown apart from other cities like Kano. This is not good for our economy and the financial system in general; and it will take us longer time to recover.
Many have opined that this novel event has exposed the long concealed structural, intuitional and economic failures of this nation, as regards to the wellbeing of its citizenry, would you disagree or agree to this opinion?
I totally agree with this opinion. When you look at us back to 1970, when assemblies like Volkswagen, Peugeot in Enugu were all functioning, we had hoped that by now we will be producing our own vehicles. Today where are we? In Nigeria we have over 20 million cars running across the country without a single assembly functioning.
Look at the tryes for these vehicles, if you know how much is spent on buying tyres alone; but all of our tyre industries have closed down. Where is Michelin? Where is Dunlop? So you see, we have completely disregarded a structure that will help us. We all relied on oil; now look at where we are, the oil money is no longer available. If you are selling below the cost of production, where do you get an assistance to continue production? This is the situation our country finds itself.
Don’t forget that a week ago, naira was exchanging for N385 per dollar; and before in 1980 when you exchange N1, you get more than $1. Honestly we have failed and it is obvious to all that we need to go back to the down ladder. They say that necessity is the master of invention, the issue of shared allocation from the Federal Government may no longer hold because those instruments that held it like the crude oil price may no longer be obtained. So we should all go back to the basics; back to 1960 where regional governments generated their own revenue and contributed to the central government.
Let us look at various policies of government this period both fiscal and monetary, would you say that the government is hitting the right nails at the right point and time?
To some extent yes because we have gone to IMF to withdraw our deposit. If you are in a difficulty, what do you do? Do you go and borrow? The best way is to look at all your available resources and fall back to it. I remember in the last FAAC, for Federal Government allocation, they had to take from the severance fund. This severance fund is being saved by the federal government for the future. If it was withdrawn to cushion us, it would have been better. But we still have a long way to go. The little we have saved, we have started withdrawing from there. So it shows that some of the policies, we have no choice that to go by them. The other issue is the fiscal. If the federal government decides not to borrow foreign loan but borrow from the domestic; we all want small interest rate for our SMEs. The implication of this is that the interest rate will go higher and will become more difficult for the local industries because a lot of our small scale enterprise that controls over 70% of the employment cannot survive this. Many of them have lost their capital in the lockdown. Their capital is small; staying 6 weeks indoors have made some of them exhaust their capital, so what is left? We have a very long way to go to revive this so that these people will continue with their production life.
Let’s talk particularly about the adjustment in the price at which naira exchange with dollar. How would this affect my investment generally, especially as a local stock trader and investor? And in what direction should this influence my choice of investment vehicle?
The truth of the matter is that when there is devaluation, anybody that decides to hold money is a loser. If you keep your money in fixed deposit as long as it is in naira, you are the looser. The beneficiaries are those who hold assets whether it is land, property or stock. So you can see we have not gone anywhere and the stock has started bouncing back.
Guaranty Trust Bank was trading as low as N16, now it is N23. Zenith Bank was trading at N10.85, it is now N15, almost getting to N16; so we have seen it all. I earlier mentioned Nigerian Breweries that was trading at #22 now it is N33; you gained more than 50%. What it means is that, if you put your money in shares or in any other assets, devaluation of the naira will help to push your money up rather than keep your money in the monetary form or physical; except for those who decide to keep their money in hard currency.
How would you appraise the current market performance vis-à-vis the March FPI reports?
Well I would say that the market performance will take a lot of effort which is not completely down. When you look at the value and volume traded, it will give you the hope that there is gradual recovery in the market. When you look at the general performance of the market in the first quarter, you will see that the foreign investors are gradually returning to the market. It means they see hope that it’s likely the market will appreciate more. If this persist before June ending, we will be in the positive or at least at the break even. What this means is that there is hope that the financial system especially the stock market will respond positively to the devaluation and of naira.
How soon do you see Nigerian economy recover after the whole turmoil?
If you look at the statement made by the Minister of Finance, we are anticipating negative 3.5% GDP and technically, that is economy in recession. In a recession, every aspect of the economy will suffer including the capital market; and as reports have it, the recession is not only restricted to Nigeria, it cuts across the whole Africa and the world.
Some of the African countries that have good returns in the region of 2%, 3%, 5%, 7% are likely to end in the negative; but not very much. Compared with most of the European nations whose most of their GDP is only 2%, maximum 2.5 percent may likely be hit by double digits like 5% or more in the negative.
So generally the recession cut across Africa and the world at large; but we are expecting that most African economy will not feel the impact of this too much. Don’t forget that we are the producers of raw materials. So if the industries recover, it’s likely for the price of raw materials to go up. If industries remains at lockdown, the prices of raw materials will go down the more, this will really affect our economy. But we are hopeful as the European are gradually unlocking, we expect that US will follow suit, China and other Asian countries as well. So we are expecting that the recession won’t last for too long and if this happens, it will be in favour of the Africans.
The takeoff flight of FPI use to be much dreaded and detrimental to the wellbeing of our local market. Agreed that the involvement of foreigners is a boost but don’t you think this time and season is teaching us how to be locally dependent, considering the NSE March FPI reports?
We need to do a lot to boost the local investors and I can tell you that this will take us years to achieve that. You can imagine when the Federal Government introduced federal government saving funds, did you hear anybody who invested not getting returns as at when due? Until when the registrars and the regulators imbibe this culture and not waiting for signatures before dividend is paid but use BVN and bank accounts. You can have your alert because BVN makes you unique from other investors even if you have the same name.
The moment this practice is adopted, people will start getting alerts that will rebound the local investors. But before then, the foreign investors have to continue playing their role for two reasons: first as long as there is devaluation of naira, the foreign investors will bring in little money and get a lot of naira. What this means is that they will pursue our stock, the price of stock will go up because you cannot increase the number of shares because the price is up. The process of increasing the number of issued shares is a long one that will take almost six months or more; and when there is more money coming in and pursuing the stock, the only way is up. So we see that the participation of the foreign investors need to continue.
Don’t also forget that we are in a global village, most of the portfolio and private equity have what they call the emerging and frontier market. There is a portion of their fund earmarked for those segment and therefore Nigeria is inclusive, and will benefit from it.
For the local market to come up, we need the reactivation of the pension fund because today pension fund is controlling over N11 trillion. If they decide to invest just 20% of that money, we are talking about over N2 trillion. If you add 2 trillion investments into the capital market, it can change the whole direction of the market. It can also change the position and perception of the local investors to the market. Until then, the foreign investors will continue to play a financial role.
Let us holistically look at the economy, there are projections of how bad things could go, going forward, especially post covid-19. Could you in your own view and opinion paint a picture of what to expect?
Already the economy has suffered what it never envisaged or expected. Locking down the economy is a disaster to us because over 50% of our employment is managed by small scale entrepreneurs; and these small scale entrepreneurs are heavily affected by this covid-19.
So we need a serious policy by the federal government particularly by the controlling arm which is the Central Bank to ensure that credit is extended to these small scale entrepreneurs with a single digit. I can tell you that even the transporters that have parked their vehicles for 1 month, if they want to put it back on the road, the battery may have gone down. What does it cost to buy a battery? May be N20, 000; and what if he doesn’t have? What it means is that the vehicle cannot move. So we need to extend this credit facility to cut across all the small scale entrepreneurs and make sure it gets down the ladder at a single and reasonable digit; with good moratorium time, so that we can revive the market; and 70% of our employment to be active. If we succeed in doing that, I can assure you that we will recover faster and better.