The Chief Executive Officer, Partnership Investment Company Plc,Victor Ogiemwonyi, in this interview with Tonia Osundolire speaks on the prospects of the economy, the capital market and several emerging issues
What is your assessment of the Nigerian Stock Exchange (NSE)?
The activities at the Nigerian Stock Exchange (NSE) are better. The management has shown competence. We can see that many things are happening and there is gradual recovery too. NSE has come up with some good initiatives, which has been well executed. This calls for praise for the management. We have to give credit to the interim administration of the NSE for the painstaking way they went about recruiting the new management. There are few areas where some things would have been done differently, but we have to give them a pass mark so far.
Where are the areas you think things could have been done differently?
The rapid disengagement of some of the old experienced members of staff could have been handled differently. But that is history. The important thing is that things are working well.
How can the capital market be further deepened?
The market needs deepening. This means having more securities listed on the Exchange. We also need different types of securities and of course more liquidity. Current initiatives, such as the newly launched Alternative Securities Market (ASEM), the retail bonds trading initiatives as well as the new listing requirements are some of the things being done to deepen the market. Of course, the market making and short selling programmes are all part of that too, because they help to create liquidity. But we also have to be gradual about it, so we don’t create unintended consequences. There are a whole lot of other things we need to do to further deepen the market.
You said there are a lot of other things needed to deepen the market. What are you referring to?
For instance, deepening and broadening the market will translate to more activities in an expanding prosperity loop. Any growth on the funding side of the equation, whether as a result of increased internal allocation or because of external inflows, which is not matched by a comparable increment in absorption capacity on the asset side will, ultimately, result in price inflation like a price bubble. A classic case of “too much money chasing too few goods” as we saw in 2007/2008. This would drive many investors to invest in shaky ‘private placement issues‘.
We could also introduce some derivatives like “options” since these will enhance risk management for investors. But we will have to be careful not to do things that will bring unintended consequences. We cannot be introducing complex derivatives into a market with anemic underlying assets. Our focus now should be on creating or expanding the number of tradable instruments available under the basic asset types such as equities and bonds. Our goal should be to have a market with a thousand stock market listings. This is why the recently launched Alternative Securities Market (ASEM) is a step in the right direction. Our SMEs are ready and waiting to be taken to the next level.
We must also realise that markets exist to allocate and manage risks, and there is no better weapon in the risk management arsenal than diversification. To broaden our markets is to expand the range of diversification opportunities available to investors. Success in doing this will manifest in an increased market size.
Looking at the performance of the market, what do you think is responsible for the dearth of Initial Public Offerings (IPOs) in the market?
The IPO market will come back when confidence fully returns. The issuers of IPOs don’t want failed issues and are waiting to see the market fully return. Investors are worried that they will lose money again. We have to be more patient; the IPOs will come back once it is clear that the recent gains will stay. We have a lot of volatility in the secondary market now, because of the tentativeness of investors. They go in and quickly come out with whatever profits they can get.
Your response can be interpreted to mean that confidence is yet to return to the market. So, what can we attribute the recent growth recorded in the market to?
Confidence is not a light bulb you switch on and off; it takes time. We are doing all the right things now to restore investor confidence. There are a few more things to do. The planned campaign the market operators and regulators agreed on is still pending.
Look at the New York and the India Stock Exchanges. They are not only back, they are at record levels. But it took a long time in coming. The recent growth, as I explained before, is realistic because it is starting from a low base after the last market crash.
What is your take on the position of SEC on unclaimed dividend and what solution do you recommend?
Unclaimed dividend has become a recurring issue. The truth is that we will not overcome it unless we completely go e-dividend. The proposition to turn the outstanding balances to an agency does not have my support. I believe the company paying the dividend should have it back to be invested in the company for the benefit of owners of the business. We should let the company use it for its business as long as nobody shows up to make a claim.The company should be made to make a disclosure of the amount outstanding on their unclaimed dividend account and report this at every Annual General Meeting (AGM). The liability to pay it back to anyone who makes a legitimate claim should be made indefinite. That is, let the company that made the profit keep it until the rightful owner shows up.
What do you think the registrars can do to reduce the value of unclaimed dividend?
The registrars will have to be more efficient. For instance, they can make efforts to find the rightful owners for dividends by occasionally publishing them in newspapers. Yes, I know they publish them now in the annual reports, but many don’t even get the annual reports. Publishing it in local newspapers will give the names more prominence. Even those who miss it will be alerted by their friends and relatives.
Do you still consider the demutualisation of the NSE necessary and what change will it add to the capital market?
Demutualisation is not optional; this is the way of the future. Every Exchange will one day be demutualised. That is the best practice going forward. It will ensure that everyone has a chance to have a piece of it and the governance will be better since it will have to meet the same standards that all quoted companies are subjected to. The accountability to shareholders will ensure it will always aim to make money and still run on best practices.
Some said the performance recorded in the market is cosmetic. Do you agree?
I don’t know how the stock market performance can be categorised as cosmetic; stock market goes up and down all the time. The performance is not great yet and can be seen as too rapid for now, but we are also coming from a very low base after the crash. We have to understand that the index went all the way to 66,000 points in March 2008; we are just little over 35,000. Look at the Stock Exchanges around the world, most have fully recovered and, in some cases, are setting new records. The New York Stock Exchange has just done that. The stock market sometimes does not always reflect the economy accurately, but you can discount the fact that it reflects the optimism of those who invest in it. Just ask yourself, if the market is doing as well as it is doing now, what will happen if our infrastructural problems gets better? Unless you are totally pessimistic about the future of Nigeria, in that case, I don’t share your view. I may be wrong but the future of Nigeria looks bright to me despite all the problems. The foreign investors investing in our market are not stupid.
There has been clamour for the government’s intervention to ensure listing of some firms in key sectors of the economy, such as the telecoms and oil and gas, among others. What is your view on this?
I must confess I was a proponent of this at some point, but I have since changed my mind because these things cannot be forced. I believe a good incentive package, such as lower taxes for listed companies and a rapid privatisation programme will do the trick. Just two weeks ago, I wrote that the divestment of the oil majors from their onshore wells should be seen as an opportunity to indigenise our oil industry by bunching all the assets to be divested together to be acquired by Nigeria Petroleum Development Company (NPDC) and floated on the stock market as an independent company from Nigeria National Petroleum Corporation (NNPC). The comparative advantage in this model cannot be the same, even if all the pieces now being acquired eventually come to list on the Exchange. Bringing it to the stock market will make it to have broad ownership and will find all the money it needs from investors on the stock market who will buy the shares. It will be accountable to its shareholders and, because it already has producing wells, it will be attractive to investors. It will also be a way to solve the community problems by writing into its articles that 10 per cent of its profits will be used to fund its community programmes. That also means there will be no more government funding. The NPDC will be established as a proper development agency funded from this company and will be run as a subsidiary development company, such as Mubadala the United Arab Emirate (UAE) firm that runs the Emirates institutions.
Why are the oil majors not listed in the market despite the fact that they are major drivers of the economy?
I think my short answer to that is: Why don’t we start with the NNPC?
What do you think can be done to woo companies to list on the NSE?
Companies will come when they feel the market is more stable. If the government is giving incentives for listed companies it will also help. More than anything else, the government needs to crank up the privatisation programme. A major privatisation listing will bring the market back quickly.
In the medium to long term, what is your preview of market outlook?
I am always bullish about the stock market because I know that the problems we talk about in Nigeria are also opportunities. The moment the economy gets the right boost with better infrastructure, the market will take off. Imagine what will happen when we get our energy problems solved and we find a way to put all the young people to work, the sky will be the limit.
