ALTHOUGH the stock market crash was a global phenomenon triggered by liquidity crisis in the United States, the peculiarity of the domestic business environment in Nigeria explains the more of market bubble than the global contagion. This logically explains the seemingly hopeless trend in Nigeria while other markets around the globe are showing remarkable signs of a rebound. Before the first quarter of 2008, the Nigerian stock market was rated as one of the most attractive in the world, based on “excessive” returns on investment, consistent rise in all-share-index, and a spectacular four-fold jump in market capitalisation in the three-year period before the market bubble of 2008. Even before the global market began its dive towards the trough, it was not too difficult to foresee such a deep plunge which the market is still struggling to recover from. It was obvious that the system was being excessively manipulated by banks and other corporate operators in the market through the use of various gimmicks to present attractive but unsustainable financial outlook which eventually led to the bubble.

THE pseudo-outlook and attractive flow of returns prompted a significant flow of investments from all parts of, and actors in Nigeria. The market attracted huge investments and significant stock trading from many players including civil servants, businessmen, petty traders, and students, apart from substantial inflow of foreign investments into the market. However, many investors were caught napping during the first quarter of 2008 when the market witnessed a sudden crash, leading to significant erosion of  investments estimated at about N4 trillion within the first four months of the market bubble.

IT is logical to think that the global financial meltdown caused a slowdown in the flow of foreign investment into the Nigerian stock market. However weak and fraudulent regulatory practices and widespread operational abuses in the system are a major explanation for the ongoing capital market bubble in Nigeria. There are evidences of lack of transparency in the system which provided opportunity for various core operators to successfully manipulate investors in the market for personal gains. Many investors disregarded performance of other forms of less risky investment opportunities to put all investible assets in the extremely attractive but volatile stock market, while many obtained loans to participate in the market all of which culminated in significant investment loss. The surge in the number of market participants prior to the bubble suggests that the effect of the market tip-over may be very wide. Shortly before the market meltdown, operational indiscipline and regulatory failure prompted foreign investors to significantly downgrade their stake in the Nigerian market leading to substantial capital flight which may plague market recovery for a long time.

THE road to recovery in Nigeria is more difficult and complicated than some of the comparable markets in the world. Unlike other parts of the world, stock market recovery in Nigeria is hindered by a combination of social, economic and political factors. Leaving core systemic concerns aside, the promising market outlook in other parts of the world is a result of availability of definite social protection for the citizen. Even in the core of economic meltdown, governments were on hand to ensure their citizens were protected from extreme effect of financial crises. In the thick of the global financial meltdown, governments in the United States, which is the most hit by the global crisis, initiated various innovative bailout measures, including providing low interest loans to borrowers irrespective of status. The objective of such initiative is to stimulate consumption, which is expected to stimulate production and then employment, finally translate into increase in income and, therefore, increase in investment. In Nigeria, however, investors are left to bear the pains of financial bubbles on their own. The situation is further complicated by the fact that the bulk of the investments in Nigeria was uninsured, and therefore the loss is borne by the investors only.

ADDED to that, economic policies in Nigeria have continued to fail to impact meaningfully on the livelihood of an average Nigerian. Going by the current indicator of poverty, more Nigerians are actually falling below the poverty line while definite social protection has continued to be elusive. Given this, the desire to save and invest among the majority of Nigerians is zero, which has negative implications for capital formation in Nigeria. Despite the remarkable recovery of crude oil prices, the gains therein remain elusive to an average Nigerian. It is, however, interesting that in the same country a senator and each member of the House of Representatives in Nigeria earn N15.18 million and N10.59 million respectively monthly, as bulk of which is spent on purchasing of properties abroad. But it is somewhat difficult to approve N18,000 minimum wage for Nigerian workers whose investment interests may be limited to Nigeria only. Unemployment remains very high with most of the unemployed depending on their families and relatives for survival which further strains capacity to invest in Nigeria.

RETURN of foreign investment to the Nigerian stock market may continue to be a mirage given the increasing spate of politically motivated crises and bombings in Nigeria in recent times. It will be difficult to bring investors’ confidence in the market back in an atmosphere of uncertainty, as no serious investor will bring capital into such a politically volatile destination. Increasing occurrence and geographical spread of politically motivated killings, bombings, assassination and abduction are capable of stigmatising the country as a dangerous investment destination, which is capable of constraining real sector development and stock market recovery in Nigeria.

THE hope for recovery of the Nigerian stock market in 2011 requires significant push from the government and its relevant agencies. Like other countries of the world, the government must be active in overhauling the market and restoring operational environment and discipline required to bring back investors’ confidence in the market. Clear guiding policies and rules, and implementation framework must be put in place and well publicised to sell the market as a renewed and profitable investment destination.

BEYOND rules and environment, government must address poverty, inequality and lack of definite programme of social protection in the land, such that people’s welfare is improved to accommodate investment. The government must also take a very proactive step to curtail the embarrassing trend in political threats.

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