“The Nigerian stock market is not a reflection of the economy” – Egi Akpata

The performance of the Nigerian stock market does not accurately reflect the economy as a whole, which remains largely informal and dominated by agriculture.

This was stated by Egi Akpata, Chairman of Skymark Partners. Nairametrics Q4 Economic Forecast thematic- Nigeria Economic Forecast 2025. Focus: exchange rate, interest rate, economic growth, geopolitics..

Akpata’s analysis provided key insights into the performance of the capital market in 2024 and its disconnect from Nigeria’s economic realities. He explained that although the stock market has shown resilience, it does not adequately reflect the Nigerian economy as a whole.

“The Nigerian economy is largely informal. And if you consider that agriculture is the largest sector, and this sector is practically non-existent in the stock market.

“Furthermore, the Nigerian stock market is not a reflection of the Nigerian economy at all. There are very large companies in some sectors that are simply not represented,” he said.

This gap, he noted, underscores the limitations of the stock market as a comprehensive measure of economic activity.

Stock market sustainability in 2024

Despite these constraints, Akpata acknowledged the resilience of the Nigerian stock market in 2024 despite economic challenges.

“But from a stock market perspective, the annual return is only 30%. That 30% is kind of what was initially concentrated because the year-to-date return through April was 30%, and it’s been flat since April.

“In the initial phase of the growth of this index, the all-stock index, there was a high concentration in a few very large stocks such as Dangote Cement, BUA Foods, Geregu Power and several others that performed exceptionally in the first quarter. But since then the opposite position has expanded somewhat,” he said.

Key factors of market efficiency

Akpata named the banking and oil sectors as the main drivers of stock market growth in 2024.

Banking sector: Akpata explained how Nigerian banks benefited from significant economic changes in 2024, especially in the areas of foreign exchange (FX) and interest rates.

“Banks have benefited to some extent from big changes this year. One of them is the exchange rate. There was a period when banks made very large profits from exchange rate differences.

“And so the government decided they wanted 70% of those profits. And those earnings seem to be disappearing from bank accounts because no one wants to hand over 70% of their money to the government.

“But at the same time, if you look at interest rates, last February the annual discount on Treasury bills was 2.25%. At the latest auction last week it was 23.5%. Now when you have a move like that, essentially a 10x change in bets, somebody is benefiting somehow.

“And this usually applies to banks because high interest rates mean higher income for them and, more often than not, higher profits. Especially now that we are in an environment where a bank can get about 30% of its risk-free return from the central bank of the Nigerian government. So how much are you paying on deposits? The average large bank’s cost of funds is less than 10%.”

He further explained that this dynamic means that banks now have very large profits and are benefiting. They are happy to pass on the costs to customers and shareholders. The net beneficiary of this

Oil sector: Akpata said both upstream and downstream oil companies have achieved significant revenue growth. He attributed this to deregulation of gasoline prices and favorable exchange rates.

“Gasoline prices are now four times higher than at the beginning of last year, which increases the profits of oil refining companies. On the other hand, mining companies benefited from revenues denominated in dollars,” he explained.

“Oil refining companies have no choice. There’s no cheap gas anywhere, so they pass those costs on to you 100%,” he said.

Challenges faced by listed companies

Akpata also highlighted the challenges faced by some listed companies due to macroeconomic conditions. A major issue has been the depreciation of the naira, which has negatively impacted companies with significant foreign currency liabilities.

“Very large companies such as MTN, Nestle and Dangote Sugar now have negative shareholder funds due to foreign exchange losses. It is not a normal situation that such large firms theoretically have no capital,” Akpata said.

In addition, rising costs and declining purchasing power have limited the ability of some companies to pass on costs to consumers, further weakening their operations.