Nigeria’s equity market has staged a remarkable rally in recent months, defying the persistent weakness of the broader economy.
This paradox reflects a widening disconnect between financial market optimism and the realities of the productive economy, the true engine of sustainable growth.
While investors continue to show confidence in listed firms, the sectors that create real value —manufacturing, agriculture, energy, and services — remain underperforming. These are the pillars that drive innovation, generate employment, and enhance living standards.
Yet their contribution to national output has remained modest.
For instance, the manufacturing sector accounted for just 9.98 per cent of GDP in Q1 2024, while agriculture contributed 21.07 per cent. Despite the overall GDP growth of 3.84 per cent in Q4 2024, these figures underscore the narrowness of Nigeria’s productive base and the limited structural transformation of the economy.
A breakdown of GDP by sector shows that services and non-productive activities dominate national output, a structural imbalance that weakens job creation, industrial output, and export diversification. When the real economy underperforms, productivity stagnates, domestic capacity erodes, and dependence on imports grows, all of which heighten inflation and currency instability.
The recent market surge has been largely powered by investor sentiment, liquidity flows, and strong corporate results within a handful of sectors, notably banking, telecommunications, and oil and gas.
These firms continue to post robust profits despite macroeconomic headwinds, attracting both local and foreign portfolio inflows.
High interest rates, designed to rein in inflation, have made credit expensive for manufacturers while making equity and money-market instruments more attractive.
Consequently, capital is increasingly flowing toward financial assets rather than productive ventures.
While Nigeria’s real GDP growth between 2018 and 2024 suggests moderate recovery from the 2020 recession, expansion remains too weak to absorb labour market entrants or significantly boost production capacity.
Financial sector buoyancy, though positive, cannot compensate for persistent weakness in the industrial base.
Nigeria’s experience is not unique. Globally, stock markets often rise even when real economies falter.
After the 2008 financial crisis, global equities rebounded sharply amid liquidity injections and monetary easing, despite high unemployment and sluggish output.
Similarly, during the COVID-19 pandemic, equity valuations surged even as economies contracted.
These episodes underscore a broader trend: financial markets can decouple from real-sector fundamentals, fueling asset bubbles and widening inequality.
In Nigeria, the stock market capitalisation-to-GDP ratio rose to 28.97 per cent in 2024, up from historical averages of 10–15 per cent.
This sharp increase points to speculative activity and portfolio diversification rather than genuine expansion of productive capacity.
Moreover, the Nigerian Exchange remains highly concentrated: about 15 firms accounted for over 85 per cent of total market capitalisation as of late 2023, a sign of vulnerability to shocks.
An economy driven primarily by financial markets risks widening inequality and deepening volatility.
Employment creation remains weak, industrial output is stagnant, and inclusive growth is elusive.
History shows that excessive financialisation, as seen in Japan in the 1990s or the U.S. before the 2008 crash, leads to long-term stagnation once speculative bubbles burst.
Nigeria must therefore re-anchor its growth strategy around real-sector revitalisation.
This means expanding access to affordable credit for manufacturers and SMEs, improving infrastructure, especially energy and logistics and offering targeted fiscal incentives for value addition and export diversification.
Improving the ease of doing business, reducing regulatory bottlenecks, and promoting innovation-led industrialisation will also strengthen competitiveness.
The soaring stock market should not distract from the urgency of rebuilding Nigeria’s productive base.
Financial markets may generate short-term wealth, but lasting prosperity depends on a vibrant real economy that creates jobs, goods, and opportunities for households and industries alike.
If current trends persist, the gap between market performance and economic reality could widen, deepening inequality and exposing the nation to systemic risk.
True growth must reflect not just in market indices, but in factories, farms, and families where real value is created.
(Punch)
