The Serious Problem with taking Nigerian Econometrics Seriously

There is a serious problem with taking Nigerian Econometrics seriously; they are almost always wrong and built on foundations of sand.

We are a nation of academics and would be academics. So far, so laudable. However, in trying to apply modern market and  economic theory to Nigeria, the efforts almost always fails.

There are many Nigerians engaged earnestly in the writing of reports and analysis on the Nigerian economy and financials markets. Many of these are working for commercial institutions.

Unfortunately, most of what is written should be consigned to the waste bin immediately.

This is not the fault of the writer (many of whom are highly intelligent and articulate) nor is it the fault of the institutions that are trying to bring order to chaos.

The problem is that the theories are built on shaky ground.

An excellent case in point is the NSE who have announced the implementation of new software that spots market irregularities in trade and is therefore an aid to crime prevention.

This is an excellent tool in any market we would assume.

The problem here is that the foundations (I repeat) are made of sand.

The aforementioned technology is implemented in other jurisdictions around the world where the rule of law is universally applied and basic market hygiene is adhered to.

In Nigeria we have missed all these steps.

Individuals looking to manipulate the market for their own gain do not have to create complex trade structures, spoofs or other mechanisms.

All they have to do is buy shares and then release fake news concerning the company or its competitors and sit back to see the effect, OR buy shares on the basis of privileged information they have gained about company performance, OR call a friend in another bank and agree that it is time to over buy/sell a sector having taken a counter position already.

So you see, as a nation we are implementing world standard software at the NSE, where the fundamentals of law enforcement do not exist. When was the last time anyone was charged or prosecuted for committing insider trading?

And if that isn’t a threat, then it begs the questions, what’s the point?

Also, given our love of “talking grammar,” it is not a surprise that we have an plethora of analysts and economists offering opinion in the press and at institutions.

Unfortunately, they are offering opinions on a market that is not developed to any form of maturity or freedom.

So all those spouting free market theories are immediately wrong footed due to the fact that Nigeria does not operate a free market (see Naira Insider article on Nigeria being a communist state).

A fine example is the current rubbish being written about recovery. All the market analysis on sectors and macro and micro economics is piffle.

In reality, the Nigerian economy is all driven still by the oil price and oil price sentiment. Everything else is decoration.

Sometimes we too get carried away at Naira Insider.

Market analysis is interesting and can partially explain some behaviour. But let’s compare ourselves to another country to remove the sentiment from this thesis.

No one seriously applies market fundamentals to the Russian economy. It’s a waste of time. Why? Because the market is controlled and driven by the government and oligarchs for their personal benefit.

The tools used are tariffs, waivers, support from the state for a cabal to maintain control and cash flow, exchange rate manipulation, dependency on the price of oil and gas, lack of contact enforceability, “fluid” interpretation of tax regulations, bullying of foreign investors when it suits a short term purpose, corrupt stock market…..

The list is endless. The same list proves the futility of serious market and economic analysis in Nigeria.

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