The Nigerian stock market’s performance does not accurately represent the broader economy, which remains largely informal and dominated by agriculture.
Egie Akpata, Chairman of Skymark Partners, stated this during the Nairametrics Q4 Economic outlook themed- Nigeria Economic Outlook 2025 Focus: Exchange Rate, Interest Rate, Economic Growth, Geopolitics.
Akpata’s analysis provided key insights into the capital market’s performance in 2024 and its disconnection from Nigeria’s economic realities. He explained that while the stock market has shown resilience, it does not adequately represent the broader Nigerian economy.
“The Nigerian economy is largely informal. And when you bear in mind that Agriculture is the biggest sector, and that sector is almost non-existent in the stock market.
“Also, the Nigerian stock market is not a reflection of the Nigerian economy at all. There are very large companies in some sectors that are just not represented,” he said.
This gap, he noted, highlights the limitations of the stock market as a comprehensive measure of economic activity.
Resilience of the stock market in 2024
Despite these limitations, Akpata acknowledged the resilience of the Nigerian stock market in 2024 despite the economic challenges
“But from the stock market point of view, year-to-day return is just 30%. That 30% is kind of what was initially concentrated because the year-to-date return was 30% by April and it’s been flat since April.
“The initial run-up in that index, the all-share index was highly concentrated in a couple of very large stocks, the likes of Dangote Cement, BUA Foods, Geregu Power, and a few others that had very exceptional performance in Q1. But ever since then, the return position has kind of broadened out,” he stated.
Key drivers of market performance
Akpata identified the banking and petroleum sectors as the primary drivers of stock market performance in 2024.
Banking sector: Akpata explained how Nigerian banks have benefitted from significant economic changes in 2024, particularly in foreign exchange (FX) and interest rates
“The banks have somewhat benefited from big changes this year. One is the FX rates. There was a period where banks had very large FX gains.
“And so the government decided that they wanted 70% of those gains. And those gains seem to be disappearing from the accounts of the banks because nobody wants to hand over 70% of their money to the government.
“But at the same time, when you look at the interest rate environment, in February last year, the one-year discount on a Treasury bill was 2.25%. In the last auction last week, it was 23.5%. Now, when you have that kind of movement, basically a 10-fold movement in rates, somebody is benefiting in some way.
“And that’s typically the banks because high interest rates mean higher revenues for them, and more often than not, higher margins. Particularly when we are now in an environment where a bank can get about 30% risk-free from the central bank of the Nigerian government. So what are you paying on deposits? The average big bank’s cost of funds is less than 10%.”
He further explained that these dynamics mean that banks now have very big margins and are benefiting. They are happy to pass the costs on to customers and shareholders. The net beneficiary is from that
Petroleum sector: Akpata disclosed that both upstream and downstream petroleum companies experienced significant revenue growth. He attributed this to petrol price deregulation and favourable exchange rates.
“Petrol prices are now four times higher than they were at the start of last year, boosting downstream company revenues. Upstream companies, on the other hand, have benefited from dollar-denominated revenues’ he explained.
“Downstream petroleum companies don’t have a choice. There’s no cheap petrol anywhere so they pass those costs on to you 100%,” he said.
Challenges faced by listed companies
- Akpata also highlighted the challenges some listed companies faced due to macroeconomic conditions. A major issue was the naira’s depreciation, which negatively impacted firms with significant foreign currency liabilities.
“Very large companies like MTN, Nestle, and Dangote Sugar now have negative shareholders’ funds due to foreign exchange losses. It is not a normal situation for such large firms to theoretically have no capital,” Akpata stated.
- Additionally, rising costs and declining purchasing power limited the ability of some companies to pass on expenses to consumers, further straining their performance.