Founder and Managing Director, The Capital Markets Academy, Mr Delme Thompson, is a financial expert. A former head of training at the London Stock Exchange (LSE), he has worked with top executives of various stock exchanges, regulators, government bodies and several FTSE 100 and global corporations across the world in designing and implementing major changes in the financial market and the economy. In this interview with Taofik Salako, Thompson speaks on the role of market makers, the place of efficient regulators and the need to lay a very solid foundation for the Nigerian financial market and the economy.
What’s your first impression about Nigeria?
Interesting! There are challenges and it’s not like any other country. But there are a lot of people here interested in learning and training, so we have like-minded people. But careful, gradual steps now will yield results in the months and years to come. It’s important we don’t rush in with a big initiative; it’s important we understand what the market wants and get all these together to build a solid foundation to be able to go forward.
I have interacted with people from different backgrounds. The interest is high and that’s really great. It’s been really great; we have been talking about the Nigerian market and how things work around the world, not just the London or New York market. We have been looking generally at the principles – these are how things work. Why don’t you look at it from these perspectives? It’s been an interesting experience.
Given your experience with other emerging markets, what do you think Nigeria needs to unlock the potential of its market?
From what I have seen over the past few days, about the people, the processes and things going on, Nigeria is Nigeria. It’s not like any other country and it shouldn’t be treated like any other country. But there are similarities in terms of when you look at the sectors, the population of the whole business community; the ones who benefit most have always been the ones most willing to engage the process and they are willing to engage in conversation with people who are driving the change whether it’s the securities regulator, the central bank, the advisory community, the stockbrokers and others. The ones who benefit are the ones who make themselves available. You cannot sit on the sideline and expect growth; it comes with the responsibility to participate.
From my experience, getting the right skills is very important to the growth cycle. Training goes first. You have to start educating and growing skills of the people. That comes down to the responsibility of the management to know what skills are required and what you need to acquire these skills, whether internally or externally. It’s the responsibility of the owners of the companies to ensure their staff are equipped just as it is the responsibility of the parents to guide their children. So, knowledge and skills come first, there is no good in having good roads when people don’t know how to drive.
If you look at initiative such as market making, it provides liquidity for the market. The market making initiative in the Nigerian market has started well, the volume is still small but it’s going to grow. But initiatives like market making will work if people understand what market making is and have the confidence in the process. It all comes down to confidence. To increase volume you need confidence- confidence in the market making itself, confidence in the companies, confidence in the market operators; that’s one key element.
How do you see the introduction of derivatives and other hybrid instruments?
I think the key is about understanding the market itself. Sometimes you can be ahead of the game. You really have to be sure about the timing and understanding that there will be demand for these products in the marketplace. If we provide this initiative, how are people going to use it? What will stop people from using it? But what will facilitate acceptance is understanding. Whatever you are doing, it’s important to get the audience to understand it very well using all available means of communication. Then, there has to be proper regulations in place.
For an emerging market such as Nigeria’s, which one is preferable, government-owned or private-owned stock exchanges?
My experience generally is that if a stock exchange is privately owned, you see more of commercial mindset; where things are done based on business needs, business requirements. Quite often, things are quicker and clearer. You know what they stand for, there are clear strategies led by goal-driven people and they achieve what they are going for. I see some of these in Nigeria. I see clear strategies; a lot of efforts going on. I think if the Nigerian economy has a bright future, the stock exchange will be a central part of it.
Looking at the economy, what do you think are needed to firmly place it as a leading emerging economy?
I think you are on the way there. There are tremendous foreign interests in Nigeria. But I think the key is to create the middle class in Nigeria. Foreign investments help in growing the economy but there are also things that must backflow into local investments by creating opportunities for Nigerian businesses to engage with international businesses and create real jobs in Nigeria. By this, you are sowing seeds, you are using this year’s harvest to plant next year’s, we need to find balance between international money coming in to generate profits in Nigeria and what will create jobs and investments in Nigeria. We need to find that balance between international and local trades and have money plough back into the Nigerian economy. You will notice that you will have more people engage in such process, it won’t be a drive for profit repatriation, you are certainly engaging a lot of local people in the growth.
It’s all about getting a model that ensures Nigeria’s wealth is ploughed back from years to years, for generations to come. Then, there is the need to develop the ability to produce in Nigeria; take your own raw materials and produce your own goods. Not just exporting cotton to import textiles but turning cotton into textiles. If we have the production base in Nigeria, that will help transform the economy.
Talking about your own firm, what are your short, medium to long-term objectives in Nigeria?
It’s always educating going to a country for first time. That enables you to fine-tune your plan. We are very proud of what we are offering as a firm, but we haven’t proved ourselves to Nigeria yet. So, the early engagement is about getting to answer a lot of questions that may be in the minds of the people- can we trust you? Are you here for the long term? Our plan is to work very discreetly, very carefully with the financial and business communities to identify things that the financial and business communities will like to see in Nigeria; to work with them to identify training needs and then build around these. Our plan is to produce training catalogue that will be made available to the Nigerian business communities so that people can choose which offerings they want and how they want these delivered to them.
Ultimately, I will want to see a training academy, a world-class centre of excellence, established in Lagos. But the first thing is; we have to make sure our understanding of the Nigerian market is correct. We have to get credible feedback from the Nigerian community that what we have is actually what they are interested in. That will assure us that we have the right product. I will need to make sure little by little we build trust. I have lived all my life in London, taking the decision to come and invest in Nigeria is not what we made lightly; it’s not been an easy decision. There are sure to be bumps on the way, but we believe this is within the vision of our company, which was set up to help people change things for better. It’s not going to be easy, we know that from the onset, so we have to make sure we get things right.
Several people are worried about the dominance of foreign portfolios, which account for nearly three-quarters of trades in the Nigerian market. How do we balance this to achieve stable and steady market growth?
As I mentioned earlier, if you generate more internal wealth, there will emerge a viable middle class. Then, you can encourage the people to invest in their own market. But people are not going to invest unless they trust the market structures-the regulators, the companies, the brokers. If all the basic things are in place, they will invest. They also have to see the benefits. So, it’s all about creating the disposable incomes and also about educating people on how things work. Why should I invest my money in the capital market? You must show people why they need to invest in the market. Companies need to go out there and reaffirm their credentials, how their businesses work, their books and their strategies.
What advice do you have for the securities regulators?
The stock exchange is a market; it’s a market where people come to buy and sell shares of companies. It’s pretty much like the high-street market where people come to buy and sell a number of things. In building a great stock exchange, it’s really key to keep that simplistic summary in mind. So, if it’s a place where people come to trade, what will make them to come and do trades? Having the right control, keeping a safe environment, being transparent and efficient and getting all the right things in place. Given all these, people will come. Efficient regulation is key. Nobody is going to talk about regulator when things are going well, when everybody is happy. But when things go wrong, the first reaction is usually about where the regulator was when things were going this way. Regulations help to protect orderly market to ensure that individuals and companies behave themselves. Often times, when things go wrong, the first reaction may be bring in more rules. Yes, you may need more rules but it may also be that the rules are fine but you need more enforcement or you need better understanding of them by the regulator or within the community or both. I think it’s important people understands their roles and also that the community understand what they are doing.
In Nigeria, we have more retail investors investing directly in the market rather than through collective investment schemes like mutual funds. But in most advanced and emerging markets, you see mutual funds playing bigger roles. How do you see this?
For me, I am not for or against that. I think both form key parts. They are all key market participants. Again, it comes down to understanding and education. If you want people to invest through mutual funds, you have to show them the benefits in them; people have got to show their credentials and returns. Just the same if you want more retail investors to participate in the market. You need both to build a strong market.
