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At 61, capital market under siege of policy choices, trust deficit

By Helen Oji
11 October 2021   |   4:28 am
Sixty-one years after independence, Nigeria has degenerated to being the poverty capital of the world. Nigeria as a nation has failed to meet the yearnings and aspirations of the people in all areas....

Capital market. Photo: SHUTTERSTOCK

Sixty-one years after independence, Nigeria has degenerated to being the poverty capital of the world. Nigeria as a nation has failed to meet the yearnings and aspirations of the people in all areas of socio political and economic developments.
 
Since independence, the country’s quest to overcome growth and development challenges has remained a mirage as the government continues to prioritise huge consumption above capital investments.
  
In addition, Nigeria’s lopsided expenditure pattern in favour of recurrent, debt service and statutory transfers has failed to bring development. Also, the country remains burdened by an army of unemployed and dependant population.
  
The population explosion has already translated into social upheavals in the form of unwarranted armed conflicts, banditry, corruption, drug abuse and several escalating socioeconomic delinquencies.

  
Furthermore, maladministration, unsustainable debt accumulation, brazen nepotism and inequality have assumed unprecedented dimensions like never before in the country’s 61-year history.
 
Specifically, prevailing insecurity has materially damaged the rural economy that feeds the country with basic food and raw materials.
 
Under these hostile conditions, no economic unit can perform optimally, as is the case with the Nigerian equities market.
Indeed, government’s policy choices have continued to impact negatively on the Nigerian Exchange Limited (NGX), which was also established in 1960, leaving it at the level of infancy.
 
This is because many enterprises, which occupy the commanding heights of the economy, still operate outside the market.
Consequently, the market represents less than 25 per cent of GDP hence; it cannot yet serve as a barometer for the economy unlike in Kenya where market capitalisation is over 70 per cent and South Africa, which is over 100 per cent.
 
Although experts admitted that the market has contributed significantly to the growth and development of the economy, they argued that the negative effects of the global financial crisis, coupled with government’s abysmal neglect of the market and the on-going coronavirus pandemic have impacted negatively on market activities.
 
They expressed optimism that if the government creates an enabling macroeconomic and sociopolitical environment for businesses to thrive, it would enhance optimal functioning of the market and make it more competitive.
 
This is because the exchange has all it takes to revolutionise the Nigerian economy, considering its internationalisation, processes and infrastructure put in place by the NGX to make the stock market more competitive.
 
Reviewing the journey so far, Vice President of Highcap Securities, David Adonri, said it has not been a smooth ride for the Nigerian capital market since inception.
 
“The capital market requires an enabling macroeconomic and sociopolitical environment to thrive. The current state of affairs in the country has stifled the market, precipitating undesirable manifestations like persistently depreciating value of the Naira and reduction in investments.”
 
However, he stated that the market has grown in leaps and bounds despite the harsh operating environment, which has continued to depress the realisation of the stock market’s potential.
 
“There have been moments of hiccups, the worst of which occurred in 2008 when the market nearly collapsed from the devastating impact of the global meltdown and the internal trust deficit in the market.
 
“Since then, the transformation of the market has progressed with undiminished intensity. Not even the recent pandemic could truncate the steady progress.
 
“The market has grown exponentially and has since assumed world class status in terms of its sophisticated technology, processes, products offering, regulatory framework and internationalisation, “he said.
 
According to him, from 19 securities (16 debt and three equities) that the Lagos Stock Exchange (LSE) started with in 1961, the market can now boast of almost 1,000 listed and OTC securities traded across multiple securities and commodities platforms nationwide.
  
He pointed out that the pioneer platform, together with the recent ones, has formed trillions in Naira of capital for the public and the real sectors in Nigeria since 1961 to date, serving well as investment outlets, offering multiple financial products.
   
He said through its provision of long-term funds, the market has financed several economic activities that have impacted the economy, generating productive employment and creating enormous wealth for Nigeria.
 
“Without the market, Dangote would not have been the richest man in Africa today. Also, Nigerian banks would not have developed the financial muscle that has made them competitive on the African continent.
 
“The market has made it possible for Nigerians to share in the wealth which various enterprises that occupy the commanding heights of the economy are creating. This has enhanced income distribution in the Nigerian economy. The Nigerian capital market has been a source of massive foreign currency flow into the Nigerian economy through foreign portfolio investments.“
 
Adonri pointed out that the Nigerian capital market has played major catalytic roles in the implementation of strategic public policies in Nigeria.
 
He added that the indigenisation policy of the Federal government in 1972 and 1978, which empowered Nigerians to participate more in ownership of economic enterprises was implemented through the stock exchange.
    
Corroborating, Professor of Economics, Babcock University, Segun Ajibola said the Nigerian capital market has grown tremendously over the years.
  
According to him, from 1960 when the LSE was established as a privately owned entity till date, a lot of transformation has taken place.
 
He listed key transformation areas to include listing rules, market categorisation and the second tier window, trading rules, introduction of demutualisation scheme.
 
Others are dividend policies, qualifications for stock broking, corporate governance rules for practitioners, filing and rendition of returns by listed companies.
  
He also noted that the extant laws such as SEC Act, NSE Act and CAMA have been amended severally to align with the dynamics of the global capital market and best practices.
  
“However, there is still a legion of challenges. Abuse of corporate governance rules such as insider-trading, failure to adhere to listing rules, global and domestic economic crises, unstable policies, among others have all limited the growth of the market in this clime.
 
“In particular, the collapse of the capital market locally and globally in 2007/2008 remains a sore point till today, necessitating the introduction of many reforms by operators and regulators in the market,” he said.
 
The President, Chartered Institute of Stockbrokers (CIS), Olatunde Amolegbe, said despite the tough operating environment, the Nigerian stock market was adjudged the best in Africa and ranked third in the world in terms of return to investors in 2017. Also, in 2020, the market was judged the best globally.
  
However, he stated that the market, relative to the economy, was abysmally low.
 
“It’s not heartwarming to say that the Nigerian capital market, relative to the size of the country’s economy, is still abysmally low, as the market capitalisation to GDP ratio stands far below 20 per cent, in contrast to the South Africa’s 348.3 per cent and Brazil’s 68.4 per cent.
  
‘The ratios in the key developed economies are in excess of 100 per cent. The participation of Nigerians in the capital market is very low. Less than five per cent of the country’s population are involved in the market as investors, while less than one per cent of registered companies are listed.”
  
Consequently, the Institute advocates a review of the enabling legal frameworks to encourage the local pension funds to significantly increase their investment in the Nigerian equity market.
 
According to him, an institution like the CIS which is primarily responsible for training and certification of individual practitioners and propagation of capital market literacy across the country requires financial support such as grant from both government and market regulators to support the drive.
  
“The National Assembly should give expedited hearing and passage to the proposed Chartered Institute of Securities and Investment Market (CISIM) Bill which will properly update existing legislation to be at par with the realities of the global capital market,” he said.
 
ASHON’s Chairman, Patrick Onyewenchukwu Ezeagu said the market challenges emanated from the buy and hold attitude of many investors and the lack of synergy between the regulators and operators.
 
Ezeagu noted that the buy and hold attitude of many investors was as old as the market, attributing this to ignorance of dynamics and benefits of investment in shares.

“The challenges of the market run in tandem with the challenges of the country giving credence to the belief that the capital market is a barometer of the economy of a nation.
 
However, the market has stood the test of time despite the huge challenges of an underdeveloped country and some peculiar problems.
 
“The challenges emanate from the ‘Buy and Hold’ attitude of Nigerians who are ignorant of the nature and benefits of the capital market. There were few investment outlets in the market at inception.

 
There is a problem of poor Internet data, lack of synergy between the regulator and regulated and Government policy summersault”, said Ezeagu.  He also stressed the need to expand the frontier of awareness creation to strengthen investor education.

“We have overcome most of the historical challenges but a lot needs to be done in the creation of awareness of the benefits of the market to the large population of the country. There is the need for concerted efforts to reverse investor apathy due to the market downturn of 2008.
  
“We must improve on our identity management essentials to ensure that existing investors receive dividends promptly. This will reduce fraud and enhance confidence.

“The government should patronise the capital market and prevail on regulatory agencies to cooperate more with capital market operators by guiding them to success rather than waiting on them to fall into infractions thereby attracting huge sanctions. The capital market operators are still impoverished as a result of the market downturn of 2008; hence there is a need to bail them out through appropriate policy measures.
  
“The structure of the Nigerian financial system is overdue for review. We operators have articulated a paper on this, which we submitted to the regulators. There is the need for a review of the system to ensure a balance between the capital market and the money market as well as expand the scope of operations of capital market operator”, he said.