Spurring market growth through investment in infrastructure

Spurring market growth through investment in infrastructure

With almost 24 per cent losses recorded at the stock market in the last three years, exacerbated by the current COVID-19 crises; there has been no respite for investors. But more worrisome is that in the near term, the outlook remains uncertain, an indication that the search for respite by stakeholders may not come sooner.

Indeed, uncertainty in the domestic and global economy, triggered by the devastating effect of the raging COVID-19 crisis have continued to hit hard on the equities sector of the Nigerian Stock Exchange (NSE),

Nigeria’s economy had been grappling with weak recovery from the 2014 oil price shock to the 2016 economic recession with the gross domestic product (GDP) growth tapering around 2.3 per cent in 2019.

Recently, the International Monetary Fund (IMF) announced that the Nigerian economy would witness a deeper contraction of 5.4 per cent and not the 3.4 per cent it projected in April 2020. However, the global lender expects Nigeria’s economy to rebound by 2.6 per cent in 2021.

IMF said the forecast is influenced by the larger than expected storms to global value chains due to the coronavirus, affecting global demand for goods and services.

Africa portfolio strategy, and rightly so. Between 2005 and 2015, Nigeria’s economy grew by an average of 6.5% annually, driven largely by record revenue receipts from crude oil sales, which funded the country’s consumption-led growth model and propelled it to become the largest economy in Africa in 2014.

Also, not only does Nigeria possess the continent’s largest and one of the fastest-growing domestic markets, it also accounts for an estimated 29% of Africa’s total GDP (2016). In addition, the strong economic growth it experienced between 2005 and 2015, helped create new consumer groups with significant pent-up demand for goods and services.

However, despite Nigeria’s economic success in the last decade, strong economic growth was not followed by the required infrastructure investments and the infrastructure stocks have become inadequate to support its large population and level of activities.

As such, Nigeria is currently experiencing the effects of its overdependence on oil, and underinvestment in infrastructure.But experts at the weekend insisted that there is a nexus between infrastructure development and capital market growth.

A Professor of Economics, Olabisi Onabanjo University, Ago-Iwoye, Ogun State, Sheriffdeen Tella, admitted that improvement in infrastructure would stimulate capital market activities.

According to him, this would invariably lead to the expansion of businesses requiring the demand for more investments capital, which is ultimately sourced through the local bourse.

He said: “There is an indirect relationship between infrastructure and the capital market. Infrastructure, particularly power, port development and communication promote production and outputs in industry, which invariably lead to expansion of businesses requiring the need for demand for more capital for investments and thus resort to the capital market.