Prioritise Capital Market For $1trn Economy – Uwaleke Tasks FG

BY CHINYERE OBIORA, LAGOS – A Professor of Finance and Capital Market, Uche Uwaleke, says the ambitious one trillion dollars ($1trn) economy is possible for Nigeria if the government unlocks the huge potential of long-term financing inherent in the capital market

Besides, he said there is an urgent need for the government to also ensure that its borrowings are tied to infrastructure bonds going forward.

Speaking at the 2023 Capital Market Correspondents Association of Nigeria (CAMCAN) conference held in Lagos, Uwaleke said such bold steps must be taken for the nation’s economy to grow steadily at 16 percent per annum over the next six years to attain the projected $1 trillion economy by the year 2030.

He said given the nation’s infrastructure investment needs that continue to widen, as well as the government’s high debt profile, mobilising long-term financing through the capital market and deploying domestic market borrowings into infrastructure bonds are critical in achieving this laudable target.

Speaking on the theme; “Leveraging Capital Market In Financing The National Development Plan“, Prof Uwaleke said despite creating the development plan designed to tackle the nation’s huge infrastructure gap, Nigeria still ranks among the lowest stock of infrastructure to GDP among emerging economies.

In a bid to narrow the gap, the government, through the creation of the National Integrated Infrastructure Master Plan, proposes that Nigeria must invest about $3 trillion in infrastructure over the next 30 years and $100 billion annually.

This translates to a yearly investment of over N42 trillion which constitutes more than the size of the total annual budgets of the federal and sub-national governments.

Acknowledging that financing this huge infrastructure gap presents a formidable challenge to the government given Nigeria’s low revenue-to-GDP ratio of less than 10 percent, Prof Uwaleke said taking the capital market route is inevitable.

According to him, the nation’s capital market is currently beset with myriads of challenges, which have continued to constrain its full development despite the giant strides achieved in the last two decades.

Uwaleke, who argued that the capital market’s facilitation of economic development and growth is a function of its level of development, listed some challenges affecting the market as a weak domestic economy; poor savings mobilisation; the small size relative to the GDP; and market concentration among others

Importantly too, he said the government must focus more on reviving the manufacturing and agricultural sectors as key drivers of sustainable economic growth, noting that economic growth in Nigeria has remained weak, particularly in recent times, owing in part to the economy over-reliance on crude oil.

For him, while the unemployment rate has grown from 27.1 percent in the second quarter of 2020 to 33.3 percent in the fourth quarter of 2020, the situation is made worse by rising inflation resulting in negative real rates of return on investments in the capital market.

He also said the pursuit of low inflation and GDP growth had been hindered by a huge infrastructure gap, even as infrastructure stock represents only 35 percent of the GDP far below that of peer countries.

This is against the backdrop of the National Bureau of Statistics (NBS) data indicating that the inflation rate surged to 27.33 percent in October, representing 0.61 percent from the 26.72 percent that was recorded in September.

While stressing the need to tackle the rising cost of food prices, Prof Uwaleke said the unfortunate development has continued to drive stagflation, a situation of high inflation with weak and tepid economic growth. This is because, on a year-on-year basis, the headline inflation rate stood at 6.24 percentage points higher compared to the rate recorded in October 2022, which was (21.09 percent).

This showed that the headline inflation rate (year-on-year basis) increased in October 2023 when compared to the same month in the preceding year (October 2022).

Available data indicate that major contributors to rising inflation were housing, water, food and non-alcoholic beverages, clothing, footwear, transport, electricity gas, and other fuel among others.