Consumer spending is set to receive a boost from the positive wealth effect of equities rising last week to the highest point since 2007.
The Nigerian Stock Exchange (NSE) added 2.5 percent Friday to close at 31,446.22 points, sending the market capitalisation of stocks in the All Share Index (ASI) to N10.1 trillion ($63 billion), its highest since year end (YE) 2007, as companies from Transcorp to Julius Berger posted gains.

The ASI market capitalisation of $63 billion is equivalent to 23 percent of Nigeria’s YE 2012 Gross Domestic Product (GDP).

“Our expectation of a stronger equity market in 2013 and 2014, which is indicative of wealth, is positive for consumer spending,” said Yvonne Mhango, an economist for sub-Saharan Africa at Renaissance Capital, in a note released last week.

“Although, retail investors in Nigeria’s equity market have dropped to 3-5 percent, from 15 percent pre-local banking crisis, the stock index is still significantly linked to consumer spending, according to our model,” Mhango said.

Stocks extended their 2013 advance to 12 percent, as bullish investors dominated the trade log.

The naira strengthened to N157.2 versus the dollar on the inter-bank as foreign investors brought dollars into the country to buy Nigerian debt, helping to depress yields, which is positive for equities, say analysts.

The Debt Management Office (DMO) sold N110 billion in bonds on January 23, with yields on January 2022 notes declining to a record low of 11.34 percent.

Transnational Corp. of Nigeria Plc which invests in hotels, agriculture and energy gained 6.7 percent to N1.11 on Friday- the most in almost six years- as investors bet the government will soon hand over a power plant the company won in a bid.

Julius Berger jumped 9.99 percent to close at N51.52 per share, bringing its year to date gains to a whopping 48.69 percent.

Analysts say consumer spending was undermined in 2012 by the partial removal of fuel subsidy, high interest rates, elevated inflation and a growth slowdown in sectors such as agriculture that employs the majority of the workforce.

Private final consumption expenditure amounted to 59 percent of GDP in 2012, down from 61 percent in 2011 and 71 percent in 2009, according to data from the National Bureau of Statistics (NBS).

Upside pressure on inflation or naira weakness may however compel the Central Bank of Nigeria (CBN) to maintain a high-interest-rate environment, which may dampen consumption.

Inflation which eased to 12 percent for December 2012, from 12.3 percent in the previous month, will be slower in 2013 compared with last year and may be close to 10 percent in January, CBN governor, Sanusi Lamido Sanusi, said in an interview at the World Economic Forum in Davos, Switzerland.
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All na story without action. Empty promise that has no effect on consumer spending..