The Next Crash is………

Africa has been dubbed the untouched and virgin continent. This was due to the seeming unscathing of African countries in the global meltdown that characterised the latter part of 2008. African seems to have escaped almost wholly from the economic recession that hit the world and crushed many countries and multinationals in other continents of the world. Iceland is bankrupt, auto makers in the US are bankrupt; Mega Banks in UK, Japan, Switzerland, US, Belgium, Germany and many other countries of the world would have gone under but for aid from their governments. Albeit, many banks have still being crushed in the wake of the recession.

However, Nigeria for one has been touched by the recession. Even though the Governor, Central Bank of Nigeria has kept assuring Nigerians that we are beyond the reach of the economic whiplash swinging across the globe, happenings in our own economy are pointers to the fact that his assurances hold no water. Examples are:

1. The crash of the NSE

The Nigerian Stock Exchange fell through about the same time the economic crisis started in the west last year. The Central Bank of Nigeria ordered banks to refrain from giving margin facilities to investors and SEC pegged the condition for the rise in value of a stock to its ability to trade over 100,000 units. Investors immediately lost confidence in the market and the inevitable loss of the All Share Index started. One policy after another was released to the public by SEC, CBN and NSE at different times to help boost the market but it seemed to have tipped. The irrecoverable free fall cost the lives of many as people who had so much exposure with regards loans decided to end their lives as they couldn’t take the pressure anymore. The NSE has since lost more and more value as institutional investors (especially foreign ones) cashed out of the Exchange unable to vouch for the credibility of the market any longer. All those who had planned on creating a path to financial independence through the NSE are having to look elsewhere now as all their investments have at least been cut to about one-third the value a few months ago.

2. The crash of Oil

When the stock exchange started making people cry, and even die, another opportunity opened up in the Oil and Gas industry. Oil seemed to be the next panacea. Oil products were selling for unbelievable margins. The price of crude oil per barrel had hit $150 and was reaching for $200. AGO (Diesel) in particular was the next best thing to be involved with. The commodity is in high demand in Nigeria and completely deregulated by the Federal Government. This made it an all-comers market. People made as much as NGN1billion in single deals on oil products. DPK (Kerosene) and LPFO were not left out. As if the cloud that had hung over the NSE was moving in the Oil and Gas direction, the price of crude oil started to dip in the international market. People started incurring losses and getting heavily indebted to banks who were financing oil deals. The volatility in the market made it even harder to play in and ultimately it also bottomed out with the price of crude oil hitting below $40 per barrel. Banks stopped financing Oil deals. Gist had it that collectively they were exposed to the tune of almost NGN400billion. Bad debt that is.

3. The rise of Real Estate.

Immediately, opportunities moved from Oil & Gas to Real Estate. 3 bedroom flats were going for about $3million in places like Banana Estate. Rental rates increased by as much as 100% in some places. It seemed as if those who lost in categories 1. and 2. wanted to recoup through category 3.

4. The crash of Real Estate

This boom unfortunately like the golden era of real estate and mortgages both in Europe and America which has since crashed, appears to be headed for the precipice and signs abound to that fact. Banks had financed loans with which developers built houses. These houses are still on the market with no buyers in sight because of the low cash flow of buyers due to number 1. and 2. above. Even buyers who had bought had bought with loans from the same or other banks. One way or the other, banks have financed loans from both developers and buyers and neither of these have the cash flow to repay the loans. The banks are therefore foreclosing on the properties and selling at any price possible to regain their monies and developers are making distress sales at ridiculously low prices to offset their loans and keep the banks at bay. One way or another, the property market in Nigeria is headed for a crash and Lagos is leading the downward tumble predict analysts. Brace up for this eventuality and get out of the way if you can.

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