Nigeria has the potential to achieve its target of a $1 trillion economic size by 2023 if the government emplaces the capital market as the anchor of its developmental plans and redirect funding to critical infrastructures.
The government also needs to explore creative financing options that could attract much-needed private funding and create multiplier effects necessary for expanded job creation, savings and investments.
Experts, who spoke at the weekend on the prospects of the economy and roles of the capital market, agreed that Nigeria has inherent opportunity in its buoyant capital market, calling for enabling environment and clear policy directions that prioritise the capital market in national economic planning.
They spoke at the 2023 conference of the Capital Market Correspondents Association of Nigeria (CAMCAN) at the weekend in Lagos. The theme of the conference was ‘’Leveraging Capital Market in Financing the National Development Plan’’.
Director General, Securities and Exchange Commission (SEC), Mr Lamido Yuguda, said the synergistic relationship between the government and the capital market holds the potential of unleashing capital market prowess and paving the way for a prosperous future.
He said the country needs active collaboration between the government and the capital market to enhance market growth and facilitate economic development.
According to him, achieving the $1 trillion target requires an increased utilisation of market mechanisms and instruments to raise funds and stimulate economic advancement.
“Effectively harnessing the capital market for national. development entails a multi-faceted approach, these include deploying more infrastructure, fostering more public-private partnerships, establishing specialised entities like special purpose vehicles (SPVs), listing state-owned enterprises, issuing green bonds to support sustainable projects, and bolstering small and medium enterprises among others,” Yuguda said.
He said with strategic approaches, government and market participants can create a dynamic capital market that attracts diverse investments, fuels economic growth, and contributes significantly to national development goals.
He assured that the SEC would continue to introduce new ideas and policies that would support the development and regulation of a capital market that is dynamic, fair, transparent, and efficient to contribute to the nation’s economic development, noting that investors protection play a crucial role in the development and integrity of the capital market.
President, Association of Capital Market Academics, Professor Uche Uwaleke, said there was need for the government to unlock the huge potential of long-term financing inherent in the capital market and ensure borrowings are tied to infrastructure bonds.
He said this became necessary for the nation’s economy to grow steadily at 16 per cent per annum over the next six years to attain the projected $1 trillion economy by 2030.
According to him, with the nation’s infrastructure investment need which had continued to widen, and government debt profile which is substantially high, mobilising long-term financing through the capital market and deploying domestic market borrowings into infrastructure bonds had become critical to achieving the target.
Uwaleke, a professor of finance and capital market, noted that despite the creation of development plan designed to tackle the nation’s huge infrastructure gap, Nigeria is still rated one of the lowest stock of infrastructure to GDP among emerging economies.
To narrow the gap, the government through the creation of the National Integrated Infrastructure Master Plan, had proposed that Nigeria needed to invest $3 trillion in infrastructure over the next 30 years and $100 billion annually.
This translates to a yearly investment of over N42 trillion which constitutes more than the size of the total annual budgets of the federal and sub-national governments.
Uwaleke noted that financing this huge infrastructure gap presents a formidable challenge to the government given Nigeria’s low revenue-to-GDP ratio of less than 10 per cent making inevitable the capital market route.
He however called for concerted collective efforts to address challenges militating against the capital market, which have continued to constrain its full development despite giant strides achieved in the last two decades.
According to him, the extent to which the Nigerian capital market could facilitate economic development is a function of its level of development.
Uwaleke listed some of these challenges to include: a weak domestic economy, poor savings mobilisation, the small size relative to the GDP, and market concentration among others.
He noted that economic growth in Nigeria had been weak, especially in recent times, owing in part to the overreliance of the economy on crude oil.
According to him, while the unemployment rate has grown from 27.1 per cent in Q2 2020 to 33.3% in Q4 2020, the situation is made worse by rising inflation which results in negative real rates of return on investments in the capital market.
He added that the pursuit of low inflation and GDP growth had been hindered by a huge infrastructure gap, even as infrastructure stock represents only 35 per cent of the GDP far below that of peer countries.
Data from the National Bureau of Statistics inflation rate surged to 27.33 per cent in October, representing 0.61 per cent from the 26.72 per cent that was recorded in September. Also, on a year-on-year basis, the headline inflation rate was 6.24 percentage points higher compared to 21.09 per cent recorded in October 2022. This showed that the headline inflation rate increased in October 2023 when compared to October 2022.
According to the data, major contributors to the increase in inflation were food and non-alcoholic beverages, housing, water, electricity gas and other fuel, clothing and footwear, and transport among others.
Uwaleke stressed the need to address the issue of rising cost of food prices, noting that this has continued to drive stagflation, a situation of high inflation with weak and tepid economic growth.
He urged the government to focus more on reviving the manufacturing sector and agriculture as key drivers of sustainable economic growth.
Yuguda, who was represented by the Executive Commissioner, Operations, SEC, Mr Dayo Obisan, assured that the commission was poised to create an enabling environment and facilitate oversight and regulatory framework that would continue to deepen the market support development.
According to him, the revised capital market master plan underscored SEC’s commitment to deepening and repositioning the financial market as a key driver of sustainable economic growth.
“The master plan which represents collective aspirations of the capital market community is focused on driving initiatives geared towards growing and deepening the market with the ultimate goal of accelerating the emergence of our dear country in the top 20 economies by the year 2025,” Yuguda said.
He assured that the commission would remain committed to supporting efforts aimed at addressing the financial literacy and empowerment gap in society.
Deputy Director, SEC Lagos Zonal office, Mr John Briggs, urged the government to create infrastructure financing instruments that would facilitate easy servicing of obligations.
“We have encouraged a lot of infrastructure funds like Sukuk, and green bonds and we are even talking about blue bonds to develop the market.
“The capital market has created the conducive environment to ensure a transparent and dynamic market which would continue to attract investment,” Briggs said.
Chairman, Capital Market Correspondents Association of Nigeria (CAMCAN), Mrs Chinyere Joel-Nwokeoma, said the yearly workshop was part of the association’s contributions to the development of the nation’s economy.
According to her, the forum had consistently served as an avenue for regulators, operators, and company executives to brainstorm on issues that affect the market and economy.
She said the theme of this year’s conference was predicated on the compelling need to properly execute the national development plan, with the capital market as the hub of medium- and long-term sources of finance.
“It’s no longer news that Nigeria, according to the World Bank, needs $3 trillion to close its infrastructure deficit with funding requirements estimated at between $100 billion and $150 billion annually in the next 10 years.
“The plan, introduced in 2021, aims to generate 21 million jobs and lift 35 million people out of poverty by 2025, thus setting the stage for achieving the government’s vision of lifting 100 million Nigerians out of poverty in 10 years.
“All these projections can only achieved, and challenges solved, through proper utilisation of the capital market by creating new asset classes and portfolio diversification. All hands must be on deck to address these challenges to achieve economic growth and development,” Joel-Nwokeoma said.
