By CHINEDU IBEABUCHI
Countries in Africa and other emerging markets risk losing N37.1 trillion ($238 billion) between 2012 and 2013 due to continued deepening of the crisis in the Euro zone, says analysts at Partnership Investment Company Plc said in their weekly economic report.
According to the analysts, it is therefore very crucial to diversify the Nigerian economy in order to reduce the shock associated with a volatile global market.
"Economies across Africa and the developing world risk a decline in exports, investment, remittances and aid as a result of the continued crisis affecting Europe. The developing world is expected to bear a cumulative output loss of $238 billion over 2012-2013 because of the continued deepening of the crisis in the euro area.
"We maintain the need to diversify the economy in order to reduce the shock associated with a volatile global market. Nigeria needs to begin to leverage on its huge population to create local demand for locally produced goods.
"Also, emphasis should be on foreign direct investment in the areas of comparative advantage rather than portfolio investments which do not really add value in the long run," they said.
The analysts expressed dismay that despite inflation easing to 12.7 per cent in May, from 12.9 per cent the previous month, the Nigerian economy still faces challenges in fiscal and monetary management, adding that the lack of fiscal discipline in public expenditure pattern and massive leakages in the system threatens the efficiency of public finances.
They said further that the foreign reserves which have risen in the last few weeks may start to retreat due to foreign exchange equilibrium pressure, just as the dwindling price of crude oil in the international market as well as the falling demand due to contraction in the global economy pose real threats.
Looking at activities in the capital market, they said that liquidity squeeze led to weak activities in the stock market last week. "The volume of trans-action was the lowest in several weeks. The performance indicators however surged upwards due to the activities of some strategic institutional investors which saw the appreciation in the price of some highly capitalized stocks such as Nigerian Breweries, Zenith Bank and First Bank."
Taking a cursory look at the banking sub-sector, the report said the banking sector has been grappling with several regulatory and operational issues in the last few years. Coming from the financial sector turmoil which began in 2008, several new policies put in place by the regulator jolted the operators but has helped to make the industry more stable.
"With a combined value of over $40 billion in 2008, the market value of the banks has shrunk to about $13.3 billion, following the capital market exit frenzy that followed the market rally up until March 2008. However, recent market downturn has eroded the subsector's share of the Nigerian stock market. Sectoral market capitalization which stood at N1.87 trillion in mid February and rose to N2.12 trillion as at April 20 has dropped to N2.05 trillion or 30 per cent of total market capitalisation."
Vanguard Nigeria