‘Capital market must be deepened to create growth opportunities’
Mr. Sulaiman Adedokun is the Deputy Group Managing Director of Meristem Securities Limited. He started his career with Security Swaps Limited, before joining Nigerian Stockbrokers Limited. He pioneered the establishment of Meristem Wealth Management Limited, a wholly owned subsidiary of Meristem Securities Limited and currently manages the firm. He spoke to capital market journalists on how to attract more issuers to the market and other issues. HELEN OJI was there.
What do you think about the current state of the nation’s capital market?
The market is currently down and we understand this is because of the present political environment of the country. There is a lot of apprehension about foreign portfolio investors right now because they are the largest in number. Everybody wants stability, hence the reason for the sell offs of investments, while watching the market trends before they come back. Regardless of the level of good results achieved from the listed companies, some people keep selling off their investment. Nonetheless, this creates an opportunity for long-term investors; this is the best time to invest as opposed to fleeing from it.
How would you describe the potential of the market?
The Nigerian capital market has huge potentials and such is expected from a developing economy like ours. We have huge untapped areas in the market that needs to be filled. We are still at a base level when compared to that of the developed economies. The capital market needs to be deepened further than this to provide opportunities for growth in the economy; it is a barometer of growth and development in the economy. When the capital market is down, people believe the economy is down and this provides an opportunity for the government to grow the economy.
Capital market is the connection between the monetary sector and real sector. The funding of the real sector can better come from a long-term fund that is from the capital market as the real sector cannot grow without funds, and no economy grows without the real sector. Hence, the need for the Nigerian government to focus on the capital market as listing of government and private firms on the Nigerian Stock Exchange significantly enhances the market.
We are not yet exploring the full potentials of the capital market, as there is still a lot to be done by the government in this regard. The role of the government is to provide an enabling environment for the capital market to shape the economy. The capital market can raise funds for the development and boosting of various infrastructural projects in the country from a state of deficiency to a state of sufficiency.
In the areas of product offering, do you think we have enough products?
There is no doubt that we do not have enough products to meet the demands. A paradigm shift must occur as we still have a long way to go when compared with other emerging economies. It is good that you mentioned derivative. Derivative is an important product that the market should have come up with, however, first and foremost, an awareness of the product needs to be created. Thankfully, we have other products in the market like the (ETF).
ETF provides access to nearly all asset classes that an investor will need. We are currently at a base level with the ETF and this supports the fact that we have huge opportunities for growth in the aspect of product development. Accordingly, a derivative market needs to be strengthened as fast as possible to enable other products follow suit and we need to keep pushing harder as the pace could be slow due to the system.
What about the same situation post elections?
As I mentioned earlier, I have no doubt that we do not have enough products to meet the demands. We have come so far but we still have a lot more to do compared to other developed economies. We need a framework and enough awareness to develop the market. We have products such as the Exchange Traded Funds that provide access to nearly all asset classes, nevertheless, we are not yet where we ought to be.
This greatly supports the fact stated earlier that there is huge room for growth in product development that will ride on derivatives. The derivatives market needs to be developed and groomed as fast as possible to enable other products to be developed to meet other needs.I am aware that there are a lot of activities going on to achieve this; the pace may be slow due to the system, the politics and the likes, but we really need to push significantly to ensure that we get there quickly before it is too late.
How were you able to navigate Nigerian micro economic challenges?
For us at Meristem, when there are micro economic changes, we try to identify what the issues are and what opportunities lies therein and as you know, challenges bring about opportunities. At Meristem, our focus is not about selling shares rather information. For us, shares are just products but what we do sell is information hence, the reason we pioneered active research information in the market.
Meristem Securities Limited is aware that a great deal of investors out there does not have investment information, hence the reason we set up the Meristem research that changed the dynamics of how information is provided to the market. We believe that when investors have the right information, they will make informed decisions. We focused on publishing in some dailies to create awareness and educate the populace about investments in a way that they would understand it, and this assisted in our growth and recognition.
Furthermore, there was lack of transparency in the market at the time. Nonetheless, we ensured information, as well as trading activities, were made transparent to investors. This act enhanced our performances in the market and contributed to our growth as a company as well as recognition and partnerships by investors.
What area should operators and regulators focus on in improving market outlook?
The capital market is an ecosystem where everyone is expected to perform his or her respective duties. There is a need for more collaboration between the regulators and operators in the capital market. Considering this, the market needs a high level of transparency, as no investor wants to put money in the market except there is transparency hence the existence of a strategic role where the regulators and operators need to do more in terms of partnerships. For instance, the stock market crash in 2008/2009 could have been avoided if things were put in place ahead of that time. There have been a lot of awareness and activities on the part of the Securities and Exchange Commission (SEC) and other regulatory bodies. There is need for more proactive regulation to ensure that the economy is moved to the next level. Regulators should involve operators by making them participate actively in the formation of regulations in the industry and should be sustained to tap into the opportunities in the market.
Why is mutual fund are not growing here like in other countries?
Mutual funds are in different forms. We have equity mutual funds and money market mutual funds. I think the first thing is awareness, if people become aware and are financial literate enough to know about investment activities, it would provide a veritable platform for people to invest. With ten, twenty and thirty thousand naira, you can go in any time and go out any time capturing the best platform for pulling fund together from different arrays of investors, but when people are financially excluded, it limits participation in some of these investment instrument opportunities. If an individual neither knows anything about investment, or an idea of what it is, nor had a bank account, they cannot invest.
Mutual fund literacy education is one of the roles of the operators and that is one of our social responsibilities too. In other economies as you rightly mentioned, their level of both financial literacy and awareness of investment market are higher than that of Nigeria.
There lies our challenge, with the current situation of this country; people lack purchasing power to also run investment. Investments are discretionary hence when your discretionary income is so low, and is not even sufficient for you to eat; you do not want to think about investment. That then is the link between economy development and capital market development.
Government needs to really focus on capital market to ensure that it is a catalyst for other aspect of the economy so that the real sector can grow properly. So, an ideal situation would be to address the activities that can make the capital market grow effectively so that we are all better for it.The capital market needs to be deepened more than what we have learned, incentive should be provided for companies that are just coming up in the market.
When the market is growing, people want to participate just like in 2006/2007 when the market was booming, quite a lot of people came to the capital market, people became aware of the market during that time because it provided opportunity for growth.
What can be done to encourage more companies to list on the stock exchange?
The government needs to create incentives and an enabling environment to encourage more companies to list.
With Fintech taking over the trends, how is Meristem prepared to on course?
Technology has always been at the front burner for us because it is a lever. In today’s world, it is difficult for a financial institution to exist without technology. One of the factors that drive growth is technology. Imagine having to meet a client’s need at Abuja while you are in Lagos. Branch network may not be the best option; only technology can fill that gap.
Meristem Stockbroker, a subsidiary of Meristem Securities started the first online trading platform in Nigeria and just recently won the NSE Bull Awards for the digital broker of the year, and that tells you that we have always been at the forefront of the technological advancement. The intention is to make sure that we reach out to as many people and create the benefit and comfort provided by technology while growing wealth for our clients.
We know that Fintech has come to stay, so the next thing we are thinking is how to leverage the technology to provide the best quality service to customers. We have had a lot of collaboration with Fintech companies because we believe that is what will take us to the next level. We are not where we want to be yet, so we will keep pushing.
What plans does Meristem Securities have for the capital market in terms of expansion?
We want to redefine the industry. We want to please our clients by observing them, bonding with them, determining what they need and developing ways and products to meet their needs in a way that they have satisfaction. We want to provide leadership and be a reference when it comes to investment management and wealth management in the country.