This entry is for anyone who interrupted my workday in the past few months via instant message. Anyone quick to inform me that the US economy is slowing down while the Nigerian, Gabonese etc. economy seem to be outperforming all expectations. I still keep up with some of my college class mates scattered in cubicles across the planet via instant message. Many of these back and forth make for interesting armchair economic theories. Popular amongst these theories ‘was’ the decoupling theory. Here is the back story.
Earlier this year a few market analysts, mostly in the emerging economies clung to the idea that a slow down in the US economy will not result in a slow down of the global economy. Decoupling holds that emerging economies, have broadened and deepened to the point that they no longer depend on the United States for growth, leaving them insulated from a severe slowdown there, even a fully fledged recession. Unlike before when the United States sneezes the whole world would be resistant to her cold virus. Some went on record to suggest that a slow down in the United States economy may lead to a boost in productivity and capital flows to emerging and frontier economies. While this may have looked good on paper the reality seem to be quite different. Asian markets have yo yoed all quarter long and the Nigerian economy is bracing up for the approaching shrinkage in receipts from the sale of crude oil.
The Nigerian economy is too far removed from the US economy to be affected by the dearth of business credit. Wrong. Who would have thought that Nigerian banks who make up 60% ($60billion) of the total market capitalization of the Nigerian Stock Exchange depended heavily on credit lines from US banks to fund trade finances. Which incidentally happens to be the staple of Nigeria’s banks. Now that those credit lines have dried up importation of goods have been largely impeded. Escaping the strong grip of globalization is like attempting to nail a blob of jello into a wall (okay I swiped that from Senator McCain). Globalization is very organic too slippery to quantify.
The Nigeria stock market has had its own fair share of downturn this year. Losing 30% of its equity to factors totally unrelated to the global market. However with the price per barrel of crude falling which will in turn reduce the flow of cheap money into the banks. The lose of value in the NSE may have just begun. Making it even more evident that Nigeria refusal to do like the UAE did will only exacerbated her losses due to the the decline in the global market. Nigeria should not have put most of her eggs in the finance and oil basket. Maybe with some planning we will do better in the next cycle, which will be around the year two thousand and ..never mind.
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Tags: Economic, nigeria, Nigerian Stock Exchange
