The Nation Newspaper

Tag: CAPITAL MARKET

  • Capital market seeks balance, efficiency in budget implementation

    Capital market experts have called for a balanced and efficient approach that takes into consideration the direct and indirect impacts of the national budget on the nation’s capital market in the implementation of the 2017 national budget and in the future preparation of the budget.

    They spoke at a seminar on the 2017 budget organised by the Securities and Exchange Commission (SEC). The seminar, the first of its kind organised by SEC, brought together experts with professional, policy and academic backgrounds and brainstormed extensively on the implications of the budget to the capital market in Nigeria. The theme of the seminar was: “The 2017 Budget of Growth and Recovery: Relevance, Implications and Perspectives of the Nigerian Capital Market”

    While financial experts noted with concerns that deficit financing could exacerbate the crowding out of private sector and increase costs of fund, they agreed that channeling deficit funding to critical infrastructure and a further restructuring of the budget with emphasis on capital projects would stimulate national growth and help to whittle down negative side effects.

    Experts also agreed on the need to harmonise fiscal and monetary policies in a way to engender national growth, noting that the high interest rate and the monetary policy stance of the Central Bank of Nigeria (CBN) are at variance with the national growth agenda.

    Director General, Securities and Exchange Commission (SEC), Mr Mounir Gwarzo, said the Nigerian capital market will play an important role in the economic recovery of the nation by fostering capital.

    Gwarzo noted that the primary concerns for investors, in regard to both the budget deficit and the public debt, are the two related issues of interest rates and inflation, pointing out that increasing levels of public debt and continuing budget deficits naturally lead to higher interest rates.

    According to him, the 2017 budget maintained substantially higher allocations for infrastructural projects and the capital market is in the better position to address Nigeria’s infrastructure deficit financing.

    He noted that Nigeria is currently experiencing the most challenging economic situation in its history and nearly every business in Nigeria is affected one way or the other by the current economic realities.

    The lead paper at the seminar was presented by Dr. Afolabi Olowookere, Head, SEC’s Economic Research and Policy Management Division while the panel of discussants include Dr. Ore Sofekun, Managing Director, Investment One Venture Capital; Mr. John Chukwu, Managing Director, Cowry Asset Management Limited; Dr. Biodun Adedipe, Chief Consultant, B. Adedipe & Associates and  Mr. Bayo Rotimi, Chief Executive Officer, Quest Advisory Services Limited.

    Afolabi observed that the expansionary 2017 budget is necessary to return the economy to the path of growth and recovery.

    According to him, in financing the budget deficit, the debt segment of the capital market would derive some immediate benefits while the performance of companies that produce and supply goods to government priority sectors will likely improve.

    He, however, noted that the process of financing the budget deficit will further crowd out private investment.

    “In the medium-to long-term, more companies and stocks will benefit though. But, this is conditional on government’s effectiveness in using the high expenditure and deficit to finance specific productive capital that will later raise private sector productivity,” Olowookere said.

    He said the equities market may likely post a positive return this year given historical trend with economic performances.

    Chukwu underscored the need to improve infrastructure with a view to reducing cost of production, noting that high cost of production and high cost of fund mean that Nigerian companies cannot sustain profitable production.

    He called for urgent review of the monetary policy stance of the CBN, noting that the apex bank is unwittingly working for the collapse of the banking system with its policy stance that encourages capital flight from banks and lending activities to the safety of high-yielding government securities.

    He said the apex bank should reduce the cash reserve ratio and monetary policy rate to support the growth agenda of the government.

    Adedipe called for further integration of the capital market into the budget formulation and implementation.

    He said the expansionary budget may serve as enabler for the economy because of its focus on infrastructure spending, which should enable the productive base of the economy.

    Rotimi added that a robust privatisation schedule could provide government with quick wins that would help to stem wastages and improve on national revenue and infrastructure.

    According to him, privatising several government corporate assets and corporations would free up government from the recurring leakages in the national account while putting the private sector in a better position to drive the economic growth.

    He noted the need to be cautious in debt accumulation, pointing out that the government should not only be interested in the debt to Gross Domestic Product (GDP) ratio but also debt to revenue.

    “Even in borrowing, we need to be cautious to ensure proceeds from borrowing go to infrastructure and capital projects. Even beyond borrowing, government can explore other options in the areas of private public partnership,” Rotimi said.

    Ore stressed the need to optimise the potential of the small and medium enterprises (SMEs) as engines of economic growth, calling for a more productive engagement with the private sector in the pre and post budget processes.

    She urged government to take a complete view of the funding requirements of SMEs under its intervention funding, noting that funding and incentives should go beyond machineries to other critical links in the production cycle to ensure the desired impact.

    At the end of the event, a communiqué was issued and adopted and to be circulated to the relevant authorities. Major highlight include the fact that government deficit financing ultimately increases cost of funds to the private sector and influences asset reallocation in favour of government securities, conscious efforts need to be made to drive initiatives that generally improve the financial performance of listed companies and by extension, performance of the equities market. The capital market needs to contribute to removing constraints witnessed by listed firms as these affect stock performance.

    The Federal Government has proposed a budget of N7.298Trillion for 2017 with an estimated N4.94Trillion of aggregate revenue available to fund the budget. The fiscal plan will result in a deficit of N2.36Trillion for 2017 which is expected to be financed mainly by borrowing. It is the intention of the Federal Government to source about N1.067 Trillion of this deficit from external sources while N1.254 Trillion will be sourced by borrowing from the domestic market.

  • Deals that ‘ll shape capital market in 2017

    Deals that ‘ll shape capital market in 2017

    Pundits are silent on the pricing outlook for the stock market this year. After negative returns in three years resulting in N3.98 trillion net capital losses, many analysts are taking another look at the likely dominant
    pricing trend. But beyond pricing, some major deals and initiatives are expected to be the market’s landmarks. Capital Market Editor, Taofik Salako reports

    Operators are regarding the capital market in the new business year with cautious optimism. A net capital loss of N215 billion in the first week of trading this year raised spectre of the dominant negative pricing trend in the stock market in the past three years. Following diligence and indepth analysis, experts are still testing the facts and gauging the mood to determine the greater possibility in the two possible positions for the stock market’s pricing trend-negative or positive. Nigerian equities lost N3.98 trillion in the past three years, with most equities crashing to their lows in 2016. The stock market has been on a losing streak since 2014. Investors lost N1.75 trillion in 2014 and followed this with another loss of N1.63 trillion in 2015. Against the general expectation that political transition and new government will quicken a rebound, equities closed 2016 with a net capital loss of N604 billion. Aggregate market value of all quoted equities on the NSE closed 2016 at N9.247 trillion as against N13.226 trillion recorded at the start of trading in 2014, representing a net capital loss of N3.98 trillion.

    Nearly all stakeholders-investors, analysts, operators and regulators, are worried and apprehensive over the direction of the pricing trend in 2017. To many, the deciding factors are still out there, and they are beyond the stock market-foreign exchange crisis denoted by distortive multiple and disparate rates and restricted access, high interest rate, soaring inflation, weak disposable incomes and savings and investments, low corporate earnings outlook and generally weak macro-economic fundamentals among others-all exogenous macro factors beyond the control of the immediate market stakeholders.

    “The exchange rate of N305/$ is neither a realistic nor an effective price of the currency at this time. This is because you cannot get dollars at this price unconditionally,” chief executive officer, Financial Derivatives Company (FDC) Limited, Bismarck Rewane, said in reference to one of the major disruptions to the stock market. Foreign portfolio investors, who see exchange rate risk as a major determinant, traditionally account for nearly half of transactions at the Nigerian stock market. Most analysts shared this view on the forex-meddling influence on share pricing trend. Analysts at Afrinvest Securities said the low foreign exchange liquidity that plagued the economy throughout the year contributed to the decline at the stock market as investors, especially foreign portfolio investors, were wary of being trapped within the forex illiquidity. But several analysts agreed that the huge undervaluation of Nigerian equities could attract sufficient bargain-hunting to push the market to its first positive close in four years in 2017. Group head, financial advisory, GTI Capital Group, Mr. Hassan Kehinde, said the sustained price depreciation in recent years has primed the market for a recovery this year, no matter how modest that will be.

     

    Developmental initiatives

    Several landmark developmental initiatives are expected to kick off this year. The National Assembly and capital market stakeholders are expected to round off and possibly enact new laws and amendments that will see remarkable changes in corporate laws and market structures. Drafts undergoing scrutiny already suggest major changes, including in the reconstitution of the Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC), under the headship of an executive chairman. New laws and amendments are expected to provide linchpins for full automation of the capital market and corporate reporting, including initiatives like electronic public offering, full dematerialisation, electronic dividend payment and electronic receipts among others.

    Nigerian capital market may finally do away with the issuance of dividend warrants as payments for dividends. A timeline of June 30, 2017 has already been fixed for the cessation of dividend warrants. As from the second half of 2017, shareholders will only receive their dividends through the electronic dividend (e-dividend) directly into their bank accounts. This is expected to reduce the menace of unclaimed dividends and help shareholders to recover previously unclaimed monies. Already, investors that had registered for e-dividend had reclaimed N29.27 billion from outstanding unclaimed dividends within the past 12 months, nearly one-third of the estimated total unclaimed dividends of N90 billion by November 2015.

    Also, the stock market is expected to witness a paradigm shift this year as the market transits to direct cash settlement that links investors’ bank accounts directly to their investment accounts. Under the arrangement, the stock market will transit from the current stockbroker-mediated payment system under which proceeds of shares sales are remitted to the stockbroker for onward remittance to the investor to a new system under which payment will be made directly to the investor’s account. The new payment system, known as ‘direct cash settlement’, will become the mandatory payment process for the stock market as against the current stockbroker-mediated payment system. However, any investor may apply for specific or continuing remittance of his net proceeds to his stockbroker.

    In what may be a major weeding off in several years, SEC will revoke the licences and remove the names of undercapitalised capital market operators from the master list of operators in the market. The apex capital market regulator had given such period a deadline of December 31, 2016 to comply with requisite capital base for their operations. Also, SEC and International Finance Corporation (IFC) are also scheduled to begin their joint implementation of the Nigerian Corporate Governance Scorecard early this year. In 2014, IFC and SEC partnered to develop the Nigerian Corporate Governance Scorecard which was launched in November 2015.

    Many rules coming into effect at the Nigerian Stock Exchange (NSE) are expected to redefine market behaviours and corporate disclosures and enforcements. These include the redefinition of the standards for declaration of interim and final dividends, stronger sanction regime for delay and default in submission of corporate earnings and pilot phase of auto-flow of corporate information. The NSE is this year starting implementation of a sanction regime for any company that makes spurious interim dividend payment without the fundamental basis to support such interim dividend distribution.

    Also, NSE is launching new sanction regime for delay in submission of companies’ results. Under the new sanction regime, companies may pay fines that range from N100, 000 to more than N100 million as penalties for delay in the submission of their corporate earnings reports.  Companies that also delayed their financial statements and accounts face threats of suspension and delisting in addition to the monetary fines. The NSE will also undertake the pilot test for the full auto-flow mechanism in its trading engine, which will allow companies to send their corporate earnings reports and other corporate information directly to the trading engine on a real time basis. While the complete auto-flow is expected to start in January 2018, the Exchange will conduct a comprehensive review of issuers’ filings and conduct a pilot test of the auto-flow mechanism this year, preparatory to the January 2018 take-off.

     

    Deals, mergers, acquisitions

    While the secondary market has been soft, the mergers and acquisitions market has been notably active in recent years. Many mergers and acquisitions deals are expected to be completed this year. The $301 million acquisition deal between majority foreign shareholder in Mobil Oil Nigeeria, ExxonMobil Oil Corporation and indigenous oil firm, Nipco Plc, which started in October 2016, is expected to be the signpost for mergers and acquisitions this year. Already, the processes for regulatory clearance and payment have advanced and the final closure of the deal looks real in the first half of this year. ExxonMobil and Nipco had in October2016 executed a sale and purchase agreement (SPA). Under the deal, ExxonMobil will sell its majority equity stake of 60 per cent to Nipco Investments Limited; a wholly-owned subsidiary of Nipco Plc.

    Lafarge Africa is on course to conclude its three-year consolidation this quarter with the conclusion of its takeover of Ashaka Cement. Shareholders of Ashaka Cement now have 90 days to decide on the various options to exit the company or retain their shareholdings in an unlisted company as Lafarge Africa concludes plan to voluntarily delist Ashaka Cement from the NSE.

    Qatar National Bank (QNB) is expected to further increase its equity stake in Ecobank Transnational Incorporated (ETI), with the ongoing conversion of its preference shares to ordinary shares. QNB has grown its equity stake in ETI by more than 60 per cent in the past two years and it is just a notch down to become the largest single shareholder in the pan-African ETI.

    Also, UAC of Nigeria (UACN) Plc is also expected to complete a mandatory takeover bid to acquire additional equity stake in Portland Paints and Products Nigeria (PPPN) Plc. In June 2013, UAC of Nigeria (UACN) Plc, Nigeria’s largest conglomerate, had acquired the majority equity stake of 51 per cent in Portland Paints. The acquisition thus triggered the MTO provision of the Section 131 of the Investment and Securities Act (ISA) and Rule 445 of SEC, which makes it mandatory for any institution or person that acquires at least 30 per cent of a company to make an MTO to other minority shareholders. UACN plans to launch an MTO for up to 2.0 million ordinary shares of 50 Kobo each in PPPN at N4.47 Kobo per share.

    Similarly, Veritas Capital Limited, the new majority core investor in UnityKapital Assurance Plc, is expected to complete its MTO to buy additional equity shares from the minority shareholders of the insurance company. Veritas Capital plans to make an MTO to acquire up to 693.33 million ordinary shares of 50 kobo each of UnityKapital from existing minority shareholders at a premium price of 77 kobo. Veritas Capital had early 2016 won the bid to acquire the 50.3 per cent majority equity stake of Unity Bank Plc in UnityKapital Assurance.

     

    New listings

    Med-View Airline Plc is on course to list its entire issued share capital on the NSE this year, in a move that will see the return of the airlines industry to the stock market after the delisting of the previous carriers. Med-View Airline will be listing 9.75 billion ordinary shares of 50 kobo each at N1.50 per share, indicating a start-off market capitalisation of N14.63 billion. The listing will be done by way of introduction, implying that Med-View Airline will be available initially through the secondary market, though the airline was said to be interested in floating its initial public offering (IPO) as the market condition improves.

    Jaiz Bank Plc, Nigeria’s first non-interest commercial bank, is scheduled to complete the listing of its shares on the NSE this year. Under the listing process, which started in second half 2016, Jaiz Bank will be listing a total of 29.46 billion ordinary shares of 50 kobo each at N1.25, indicating a start-off market capitalisation of N36.83 billion. The listing will also be done by way of introduction. However, Jaiz Bank plans to increase its current share capital base from N15 billion to N25 billion, signaling an impending IPO. Jaiz Bank, which is listed on the NASD OTC Plc, may set record as the first transition from the over-the-counter market to the NSE.

    The most expectant listing this year is that of MTN Nigeria, Nigeria’s largest telecommunication company. MTN Nigeria had already appointed advisory team and set out a roadmap towards listing on the NSE in 2017. The listing of MTN Nigeria may trigger a wave of listings in the telecommunications sector. Airtel Networks Limited, Nigeria’s second largest telecommunication company, has said it may consider listing its shares on the NSE as it considers various options to further upscale its business. The listing of MTN and Airtel is expected to enliven the telecommunication sector of the NSE. Previously listed telecommunication companies had failed to connect the much-talked about potential of the industry with investors’ returns. The hitherto flagship listed telco, Starcomms, was delisted after long-running losses.

     

    Delisting

    As the NSE expects new listings, the Exchange may also delist some seven companies this year under its compulsory delisting for companies that had repeatedly failed to meet corporate governance standards set by the Exchange. At least, the final delisting processes for five companies have been approved by the council of the Exchange. These  included International Energy Insurance, Deap Capital Management & Trust Plc, Evans Medical Plc, Mass Telecommunication Innovation Nigeria (MTI) Plc and MTECH Communications Plc. The NSE had delisted not less than 14 companies in 2016 under the same compulsory delisting programme. These included Lennards (Nigeria) Plc, P.S Mandrides & Company Plc, Premier Breweries Plc, Costain (W.A) Plc, Navitus Energy Plc, Nigerian Ropes Plc, IPWA Plc, G.  Cappa Plc, West African Glass Industries Plc (WAGI), Investment & Allied Insurance Plc, ALUMACO Plc, Jos International Breweries Plc, Adswitch Plc and Rokanna Plc.

     

    Capital raising

    The primary market promises to be busy in the year, although supplementary issues have mainly been a refunding of the companies by existing shareholders rather than issuance of new shares to new investors. Guinness Nigeria Plc plans to raise about N40 billion from its shareholders through a rights issue that may provide window for its parent company to increase controlling shareholding. Shareholders are expected to meet later this month to ratify the plan. Livestock Feeds Plc has also received approvals to raise about N1.1 billion new equity funds from its shareholders. Livestock Feeds plans to undertake a rights issue of 1.0 billion ordinary shares of 50 kobo each at a price of N1.10 per share.  Union Bank of Nigeria (UBN) Plc also plans to raise N50 billion new equity funds from existing shareholders of the bank.

  • MTN to list shares in capital market

    MTN to list shares in capital market

    MOBILE giant MTN Nigeria is to list its shares in the Nigerian capital market.

    The issuers for the Initial Public Offer (IPO) are Citi bank and Stanbic IBTC

    A Securities and Exchange Commission (SEC) source said: “Going public and the decision made by MTN to list its shares will be a major milestone in the market, considering the various efforts being made by both the SEC and Capital Market Masterplan Implementation Council (CAMMIC) to encourage major companies operating in the country to list their shares at the Exchange.”

    According to the official, “listing of the MTN shares will be beneficial to the company, our market and the economy because it will facilitate transparency in transactions of its shares and provide liquidity or ready marketability of the shares on the trading floor of the Exchange”.

    He added that “our market capitalisation will increase and there will be timely disclosure of corporate information”.

    As part of efforts to make the public listing of the shares a success, the CEO of MTN, Mr. Ferdi Moolman, was quoted to have said that they were “in SEC to seek its understanding and cooperation on some of the unique features that the proposed IPO will be coming to the market with”.

    The features include, combining retail offering with book building, electronic subscriptions, payments through the use of mobile phones and green shoe method of stabilising stock prices post listing.

    SEC, through its Director-General Munir Gwarzo has pledged its support for MTN on its planned fund raising through the capital market.

    According to sources privy to the meeting, Mr Gwarzo highlighted the fact that “although some of the features mentioned by the CEO seemed to be new in our market, the Commission had been leveraging the Information and Communication Technology in implementing its capital market MasterPlan”.

    Within the last one year, SEC, in collaboration with other stakeholders, has successfully implemented the E-dividend, Dematerialisation and Direct Cash settlement initiatives, which are all electronically-based. The Commission granted permission to use green shoe method of stabilising prices post offer when Seplat listed its shares at the stock exchange.

    SEC has been advocating for telecommunications and power generating/distribution companies to get listed as one of the measures aimed at reviving the capital market, which has been on the downward trend since the market meltdown of 2008.

  • ‘Ways to boost participation in capital market’

    The Federal Government should lead other stakeholders to develop a frontal purpose-driven domestic investment policy that will encourage participation by Nigerians in the capital market to create a sustainable pool of capital for development.

    Less than three per cent of Nigerians participate in the  stock market, while about 0.5 per cent patronise collective investment schemes, otherwise known as mutual funds.

    The President, Chartered Institute of Stockbrokers (CIS), Mr Oluwaseyi Abe, said the government needs to pay more attention to measures aimed at enhancing the development of the  capital market and reducing the volatility usually driven by inflow and outflow of the dominant foreign investors. This, he said, would be by instituting policies aimed at encouraging the participation of Nigerians in the nation’s capital market.

    According to him, while the capital market would continue to depend on the interplay of foreign portfolio funds and domestic funds, it is only the presence of a large domestic investors’ base that can mitigate the volatility of the capital market.

    “At the heart of the capital market is the issue of participation of local investors. Expectedly, it is the local investors who ultimately will bring stability to the equity market. The critical issue is that the Federal Government and other stakeholders must be prepared to address the need to encourage our local investors to return to the market,” Abe said.

    He added that though Nigeria’s natural endowments still make her a very attractive investment destination with potential to deliver competitive returns to investors, the market must be strategically supported by well thought-out policies.

    “The truth of the matter is that many foreign investors still regard Nigeria as a good investment destination because of our current political stability. However, they will be further encouraged if we also have some consistency with our foreign exchange policies in line with global best practices,” Abe said.

    He emphasised the need for the government to pay attention to the capital market, noting that history has shown that the capital market provides the surest route for developing countries to accelerate the pace of their economic development.

    According to him, some of the factors that draw investors into the capital market include positive expectation about the economy, adequate and positive information about the market, security of investment, good returns in the form of dividends and  capital gains, and favourable government policies.

    “The question we should be asking is: are we making maximum utilisation of our capital market in formulating and implementing development policies? Government urgently needs to focus more on the capital market and craft policies that will make the market thrive for local and foreign investors,” Abe said.

    He allayed fears over the prospects of the Nigerian capital market pointing out that the current depression is due to the prevailing macroeconomic environment as the market mirrors the fundamentals of the economy.

    According to him, it is normal for the market to swing upward and downward because that is what makes it a market, but the fact is that the direction of the capital market is a reflection of the economy.

    He said the downtrend presents opportunities for Nigerians to enter the capital market at very attractive prices and position to earn good returns as the economy recovers.

    “It’s a known fact that the economy has not been doing too well lately.  In this regard, it is even the best time to invest in the capital market because once the economy gets better, the capital market will recover as well,” Abe said.

    He urged capital market regulators and other stakeholders to strengthen the regulatory framework to forestall any loss of investors’ confidence due to lack of transparency and weak corporate governance structure.

    According to him, investors’ confidence is still low as a result of massive losses arising from the 2008 global recession, though this is being addressed. Quoted companies are also going through challenging times with regard to rising costs, which is affecting their dividend paying ability.

  • Obasanjo roots for commodity exchange, capital market to diversify economy

    Former President Chief Olusegun Obasanjo has urged the Federal Government to ensure immediate commencement of operation at the Abuja-based Nigeria Commodity Exchange (NCX) in order to provide leverage for the President Muhammadu Buhari economic diversification programme.

    At a meeting with principal officials of the Chartered Institute of Stockbrokers (CIS) at the weekend, Obasanjo cited Ethiopia where the economic revival was achieved through effective and efficient deployment of the commodity exchange by its government.

    He urged the principal officers of the CIS to provide technical support for the Federal Government to expedite action on the commencement of the NCX, pointing out that the Ethiopian model provides a good path.

    He also noted the need for the Federal Government to source medium and long term fund from capital market to execute capital projects.

    He said the capital market had always been a platform where individuals can undertake capital formation while corporate organisations and governments at all tiers can mobilise medium and long term funds for development projects.

    He noted that no economy could thrive without a strong and virile capital market as there is a correlation between the development of an economy and its capital market.

    He advised the Federal Government to take advantage of Nigeria’s capital market to revive the economy by sourcing  cheap funds to finance  budget deficit and execute the capital projects in the 2016 fiscal budget.

    Obasanjo, who appreciated the Institute for taking a bold step in addressing issues affecting the capital market, promised to support the Institute in its advocacy for market development.

    He advised that there was need to increase the level of financial literacy among the citizens and local investors in Nigeria with active government participation.

    Chartered Institute of Stockbrokers (CIS) President, Mr Oluwaseyi Abe  recalled that as Nigeria’s president , Obasanjo had taken keen interest in ensuring a sustainable capital market operation .

    Abe explained that when Obasanjo assumed office as the President, there was an increase in The Nigerian Stock Exchange’s market capitalisation from about N700billion while it had hit N14 trillion by the time he left.

    “However, after the exit of Chief Olusegun Obasanjo as President , the capital market had witnessed a downturn from N14 trillion to about N9 trillion, “ Abe said.

    He said the purpose of the visit was to discuss issues of market development with Obasanjo in continuation of the Institute’s efforts to ensure a stronger and sustainable capital market with renewed interest and confidence of all stakeholders.

  • Mobilising capital market for Nigeria’s economic growth

    The capital markets could provide an alternative source of funding for Nigerian corporate enterprises and also for Nigeria’s infrastructure development. We see around us examples of countries that have made a decision to develop their capital markets and transformed their economies as a result. After the 1997-1998 Asian crises, many Asian governments took action to reform their economic policies and deepen their capital markets. The resulting development in their economies has been astronomical.

    We have made remarkable progress in recent years to build the capital markets in Nigeria. However, we still have a lot of catching up to do. The market capitalisation  as a share of the Gross Domestic Product (GDP) in 2013 was about 27% of GDP compared to 247% for Malaysia, 207% for South Africa and 112% for Brazil. Imagine where Nigeria will be if billions of US dollars were to be invested in building our power companies, a rail network connecting all regions of Nigeria, telecommunications, hospitals, schools and more. Nigeria would be a great place to live and do business.

    The question is whether we can create an environment that attracts that kind of money. My instinct as a Nigerian is to say – if others can do it, surely so can we! How do we make Nigeria attractive to private investors? To determine how to proceed we must first ascertain who we are competing against.

    A quick look at what other countries are doing reveals that we are not alone in wishing to attract international institutional investors.

    All over the world – countries are clamouring for the same investors and building their capital markets to create an environment that will be attractive to such investors. Kenya, Saudi Arabia and Rwanda. Even the countries in Europe that are way beyond our dreams in terms of economic development are planning to expand their capital markets by the establishment of a Capital Union that consolidates their respective attributes.

    To compete effectively against such strong competition we need a strategy that leverages the attraction of Nigeria as an investment destination and addresses the concerns investors may have about Nigeria.

    Attractiveness of Nigeria to investors.- The headline reason that investors find Nigeria attractive is our population dynamics. It is projected that Nigeria’s population will reach 413 million by 2050, overtaking America as the world’s third most-populous country. This creates an awesome picture of Nigeria of the future. Two remarkable issues stand out in this picture:

    • the first is that Nigeria is growing and will become a colossal market – a giant of a market where businesses will find a ready outlet for their goods and services and, as a result, the potential to flourish; a market that creates jobs for Nigerians and a market where wealth is generated for investors and Nigerians alike;
    • the second is the realisation that as our population grows so will our workforce; if we have workers contributing to pensions, – our pension funds could become titans among pension funds and be sought after worldwide.

    This picture is a glimpse of the Nigeria we could have in the future. But before we get lost in the dream let’s have a reality check and consider what will keep investors away.

    Concerns of investors – The three headline concerns are:

    • first, the perception, justified or not, that Nigeria is corrupt and has poor corporate governance, transparency and accountability standards. Investors losing their capital. As a result they either stay away or charge us a premium for investing here. The perception of corruption is hurting Nigeria financially;
    • second, investors are concerned about the lack of respect for the rule of law. It is important to them that they invest in an environment where there is trust and confidence that their business agreements will be honoured; and,
    • thirdly, there is concern is about security. Stories about kidnapping, blowing up oil pipelines, armed robbery and terrorism give investors reason to fear for their personal safety.

    What if we get our strategy right and attract the capital that will develop our economy? We will get a country that is prosperous, with a young and dynamic workforce that is engaged in building the economy and nationals that are respected and dignified.When I think of the type of life my fellow Nigerians could live could live – my heart beats faster with excitement.

    But what if we do not get it right and the investors stay away from Nigeria? The picture I see is scary. Over 400 million people living in chaos, everyday life a struggle, hundreds of millions of young people – ill-educated and unemployed, the few that are well to do living in fear of angry and volatile youths and poverty is the reality for a vast section of the population. This will be nightmare scenario.

    The second option must be avoided at all costs. It is critical that we do what is necessary to address the concerns of investors and encourage them to invest in Nigeria. If others can fix their societies surely, we can as well.

    How do we proceed?To compete effectively we must adopt a two-pronged strategy – (i) we must address the fundamental issues that are keeping our target investors away and will keep them away however great Nigeria’s potential as an investment prospect may be. The key issue here being integrity, and (ii) in anticipation that we succeed in fixing the fundamental issues, we must as well build a framework of incentives and processes that will incentivise and support the execution of capital markets transactions. Tax and regulatory incentives are typical.

    Progress made so far – A lot has been done towards creating a better environment for capital markets transactions. Various industry bodies such as SEC and NSE have adopted robust corporate governance codes that ought to become more widespread. The implementation of the 10 year Capital Markets Master Plan must be prioritised.

    Further step to take. As we make progress, it is important that we go on a public relations offensive and announce to the international community that a new Nigeria is evolving.

    The capital market investments we seek is within our reach. Integrity transparency and accountability is the key that opens the door. There are investors and experts willing to join us in the building process as part of a strategic alliance and we should use their support as a business arrangement.

    We all have been responsible for the current state of Nigeria – either as a result of our action or inaction. We must now take responsibility for creating the new Nigeria.

     

    • Uwaifo, a solicitor, presented the above at a recent two-day stakeholders forum, with the theme, “Realizing the Full Potentials of the Nigerian Economy through Proactive Capital Market Legislation”, organised by the National Assembly Joint Committee on Capital Market, in Abuja.
  • Dogara insists on NSE listing of companies operating in Nigeria

    Dogara insists on NSE listing of companies operating in Nigeria

    In order to deepen and make the Capital Market progress, key players in the Nigerian economy must list their businesses on the Nigerian Stock Exchange, the Speaker of the House of Representatives, Hon. Yakubu Dogara, has said.

    Dogara made the remark while receiving members of the Capital Market Master Plan Inplementation Council in his office.

    The House of Representatives, he said, is willing to provide all necessary support, through legislations, incentives and any other instruments to compel all major companies in the country get listed on NSE.

    His words: “One of the deepest issues that we have to address is that of value that is being created and completely taken away by corporations. In other words, in some jurisdictions, they refer to it as corporate greed; where many companies are generating value investing in Nigeria, reaping profits but you find out that nine people will sit and just share billions of profit. I’m not exaggerating, it is happening right now in Nigeria and I am glad you listed one of them.

    “But by listing in the Nigerian Stock Exchange, it even helps in the income improvement of the ordinary citizen because they can invest in that company and whatever profits the company makes goes round and that reflects on the economy. But that is not what is happening.”

    The Speaker, however applauded the council for being focused and having a vision and plan for moving the Nigerian Stock Market ahead, adding that if democracy cannot deliver on the goods to Nigerians, then democracy is on trial.

    He further urged the council to look into tightening the regulatory power of Securities and Exchange Commission to ensure that manipulators of the NSE are properly sanctioned as a deterrent to future misdeeds, and to restore investors’ confidence in the market.

    Dogara said there is a need to define timelines for achieving set objectives in revamping the sector, while explaining that that is the only way to ensure that the whole process does not become another talk shop.

    Mr Olutola Mobolurin, head of the council, in an earlier remark urged the Speaker and the House to partner with the council to rebuild the NSE in order to grow the economy and diversify it.

    Mobolurin said the roles of the Investment and Securities Tribunal, should be defined by law, and sought an amendment to the law with regards to mutualisation of NSE, and clear legislation on unclaimed dividends, crowd funding, price stability in Commodities Market,  Trustees Act and the Housing sector through mortgage bank securities.

  • Energising Nigerian capital market for sustainable development

    The Nigerian Stock Exchange (NSE) and its trading technology is one of the most sophisticated trading systems in Africa today. The technology and the level of competence in the Exchange today have ensured very high standards. Both its trading and settlement systems can be measured against any Exchange in the world. The NASDAQ-enabled systems make the Nigerian market world class. The Exchange management has also embarked on very elaborate reforms that include reviewing its market systems and trading rules. Listed companies have better supervision and scrutiny today than at any time previously. They have also embarked on establishing a Minimum Operating Standards (MOS) for its members and for all brokers and have also revised and now stringently enforcing its listing requirements and trading rules. A number of steps have also been taken to ensure investors’ protection. Even though there is a lot of work yet to be done, the market and its institutions are now in a better place and the operators are also much stronger, at least, before the recent market down turn that has also significantly reduced market capacity.

    In my opinion, the biggest problem confronting the market today is the issue of running a capital market that has no capital. This has been further magnified by the recent market crash and the difficulty of the economy. The market lacks liquidity because it does not have a natural source for funding its business. This is the fundamental flaw, and the reason why the market is not performing its role. The market is too small to be able to make any impact.

    The capital market is a market for long term capital and the Nigerian market has a history of not having long term funds. Over 70 per cent of the Nigerian industry deposits for instance, have tenors of 180 days or less. It will surprise you to know that accounts with N1 million deposits in Nigeria banks in total, is less than two million depositors. In order words, there are not more than two million cash millionaires in the whole of Nigeria as revealed by the NDIC report on banks. The economic growth of the last 10 years has done very little for the market. The recent crash of the Nigerian stock market, which saw the market capitalisation collapsing from N13.2 trillion ($82 billion) to a little over N7 trillion ($23 billion), means that the market, which was considered small has now even gotten smaller.

    Where we are in the Nigeria capital market industry was exactly where the Nigerian banking industry was in 2004, when Professor Soludo the then Central Bank of Nigeria (CBN) Governor decided to do something about it. He imposed a minimum capital for banks to be N25 billion. This capitalisation requirement meant that consolidation will have to take place and it did. The banks suddenly discovering the need for capital,  went to the stock market to raise money. The capital raised was in several billions and its positive impact brought liquidity into the stock market.  It also exposed it for the shallowness. The 89 bank operators became 25 and because the banking industry has a natural funding base of deposits from the public, it quickly attracted deposits from investors, who have become confident to put their money in well capitalised banks.  The small banks of yesterday have in 10 years become major banks competing throughout Africa.  The new capital ensured modernisation of the industry. Its strong capital base also allowed it to quickly embrace technology. Today, Nigerian banks are in league with some of the most advanced banking systems in the world.  The second wave of reforms was embarked upon by Sanusi Lamido Sanusi, the current Emir of Kano, who completed the modernisation of the Nigerian banking system.

    The Nigeria capital market will not thrive unless there is sufficient capital to drive its business. The CBN must act and extend its role of the Bank of last resort to the investment banking (universal brokers) category of the capital market, if it was to get the necessary support to make it fulfill its role of helping to develop the market system that will efficiently allocate capital and trade risk. The small size of the market inhibits its growth. If it does not have the liquidity it needs, all of its other functions are also inhibited. The best way to make the market get funding will be to license larger intermediaries in the market-investment banks and universal brokers, to have access to the CBN discount widow and the Repo market.  These investment banking institutions must be given access to the Discount Widow to discount their securities and Repo when they need capital to trade. The infusion of this size of capital will enable the market work more efficiently and will provide the much needed liquidity to trade securities in the market. The frame work has now been put in place by FMDQ Securities Exchange. They have demonstrated in the past, its competence in creating good systems that has allowed traders to trade market instruments. The 10-year master plan also recommended that a universal broker category be created and funded by the CBN widow.

    This was the category of market intermediaries that was created in Malaysia that has enabled that market to rapidly grow and now ranks as one of the major markets in the world. The Association of Issuing Houses (AIHN) has championed this and has held meetings with the CBN and has also made proposals to it for consideration. AIHN has also requested that the CBN open the Treasury Bill market to these investment banking and universal broker category of the market to compete with other banks.

    Investment banks and universal brokers will trade as the wholesale traders in both the equities market and the money markets, taking large positions as whole sellers and making markets, thereby providing the much needed two-way quotes to keep the market active and liquid. When it has excess securities it needs to fund its trade, it will go to the discount market of the CBN to do a Repo and bring the cash into the market, while the CBN holds the securities.

    The CBN has nothing to lose in holding the securities. It can also sell to other brokers if there is any default. The time to act is now. The market has considerable value and the average price earnings ratio of 9 is attractive. It is an ideal market position for the CBN to quickly open this widow and allow the market to get the funding it needs to function. A booming stock market, funded by the discount widow, will lift the entire financial market and the under lying securities. The assets Repo will always be there to support the loans from the discount widow secured against it.  A booming stock market creates wealth all around. Retail investors can be encouraged to trade through mutual funds and collective investment schemes where they will have fund managers, who can better protect retail investors as they spread the risk over a larger number of investors and thereby the entire economy benefits.

  • N6.5b lifeline for capital market

    The Federal Government is to inject  N6.5 billion into the capital market, Chairman, Senate Committee on Capital Market, Senator Isiaka Adeleke, has said.

    The news is coming even as senators and members of the House of Representatives yesterday began the process of shoring up the dwindling fortunes of the capital market.

    At a joint press briefing of the Senate and House of Representatives Committees on Capital Market, the lawmakers said they had resolved to rejuvenate the capital market to enable it play active role in revamping the economy of the country.

    Adeleke, who spoke on  Realising the full potentials of the Nigerian economy through proactive capital market legislation, said the government planned to inject N6.5 billion to shore up the fortunes of the capital market and protect investors’ funds.

    He noted that the era of change called for a major shift in approaches to seeking solutions to political,  social,  and economic challenges facing the country.

    Adeleke said the National Assembly was aware of the dwindling fortunes of the capital market and, by extension, the economy.

  • FG to inject N6.5b in Capital Market

    FG to inject N6.5b in Capital Market

    The Federal Government is to inject the sum of N6.5 billion into the Capital Market, Chairman, Senate Committee on Capital Market, Senator Isiaka Adeleke has said.

    The information is coming even as Senators and members of the House of Representatives Wednesday commenced the process of shoring up the dwindling fortunes of the country’s Capital Market.

    At a joint press briefing of the Senate and House of Representatives Committees on Capital Market, the lawmakers said that they have resolved to rejuvenate the Capital Market to enable it play active role in revamping the economy of the country.

    Senator Adeleke who spoke on stakeholders’ forum on “realizing the full potentials of the Nigerian economy through proactive capital market legislation,” said that the government planned to inject N6.5 billion to shore up the fortunes of the Capital Market as well as to protect investors’ funds.

    He noted that the era of change in the country called for major shift in approaches to seeking solutions to political, social, and economic challenges facing the country.

    Senator Adeleke said that the National Assembly is aware of the dwindling fortunes of the Capital Market and by extension the economy.

    He said, “As a mono-product economy, with oil and gas constituting the life-blood, the global downturn has continued to negatively affect meaningful growth and development.

    “As a parliament we strongly believe that the downward slide of Nigeria’s economy provides the best opportunity for major stakeholders to begin to return the economy to vibrancy. We are confident that the Capital Market can and should perform this role.”

    Senator Adeleke also said that the National Assembly planned to enact legislation that would compel idle funds in bodies like Pension Funds to be used to stimulate the Capital Market to play expected role in the growth of the economy.

    The two chambers of the National Assembly, he said, “came to the jolting realization that the Nigerian economy cannot fully develop without making the capital market the hub or pivot of its developmental strides.”

    He said, “This market has long been neglected and denied its rightful and strategic role in our march towards economic recovery. The Capital Market is a veritable institution for the mobilization, allocation and utilization of long term funds, not just by the federal but also for states and local governments.”

    He added that the forum which intends to create an enabling legal environment for the achievement of the recommendations of the Capital Market Master Plan (2015 2025) is primed towards the rejuvenation of the economy.

    According to him, “the desire of the Joint Committee on the Capital Market and Institutions in this direction is to focus its legislative work in making the recommendations of the Master Plan the catalyst for achieving the infrastructural and development needs of a diversified national economy.”

    He said that the Joint Committee on the Capital Market will be interested in legislations that will encourage Nigerian entrepreneurs to have access to long term funds for productive activities as well as enhance their capacity to create employment opportunities.

    He also said that the committee would work to create liquidity and investment opportunities for both foreign and local investors as well as facilitate the translation of pension funds into investments for national economic development.

    “Laudable as these objectives are, we reason that they can only be achieved when stakeholders in the capital market are able to discuss issues and challenges that will bring about an optimal use of the capital market and mainstream the Nigerian capital market as a critical component in national economic policy.

    As legislators, we are ready to retool the laws guiding capital market operations or make new ones that would accelerate the relevance of the capital market in national economic development. Therefore, we seek to grow the Nigerian capital market to be in a position to contribute meaningfully to economic growth and development.

    “This will make the capital market spearhead development in key sectors of the national economy such as oil and gas, agriculture, tourism and hospitality,” Adeleke said.