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At 60, mixed reactions trail capital market operations

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Nigerian Stock Exchange


At sixty, Nigeria is the poverty capital of the world. The country edged out India recently with a poverty rate of over 70 per cent to assume this position of despondency.

Since independence, Nigeria’s economy has been tottering back and forth. Blessed with abundant human and natural resources, expectation of economic ascendancy was high at independence; unfortunately, the battered economy now lies prostrate and gasping for breath.

Paradoxically, the country, which is ridden with destitution, boasts of some of the richest men in the world, a clear indication of pervasive income inequality, and the economy ravaged by inflation.

In 1970, $1 exchanged for 65 kobo, but is now artificially held at $1 to N380, thus deprecating by 58,362 per cent in 50 years, thereby the Naira one of the least valued currency in the world. Its Purchasing Power Parity (PPP) is 141st globally, implying a highly sordid state.

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For the Nigerian Stock Exchange (NSE), which was also established in 1960, it has been a mixed scorecard for experts.

While some stakeholders argued that stock activities, the story has not been rosy in the past decade, especially with the negative effects of the global financial crisis, and the on-going coronavirus pandemic, others believe there have been some positive impacts. These were attributed to efforts by the management of the Exchange, and the Securities and Exchange Commission (SEC), to attract liquidity, maintain zero tolerance to infractions, and ensure continued stability in the market.

Reviewing the journey so far, the Vice President of Highcap Securities Limited, Imafidon Adonri, argued that considering the robustness of its infrastructure, built-up capacity, and multiplicity of financial instruments, the Nigerian capital market would have been better developed but for the country’s weak macroeconomic conditions.

He noted that the primary market segment, which is the essence of the bourse, had remained inactive except for public debts, despite the fact that the secondary division had since recovered from the 2008 financial crisis.

According to him, the age-long challenge of market shallowness, due to the absence of enterprises that occupy commanding heights of the economy from listing, continues to haunt the capital market.

Adonri noted that macroeconomic policies aid mercantile activities in Nigeria, thus making banks, which provide short-term working capital finance to be the dominant factor in the financial economy.

He recalled that the NSE All-share index was down from 2015 to 2016, and up in 2017, before sliding again from 2018 till date due to the weak economy, insecurity and heightened political risks, as the government’s Economic Recovery and Growth Plan (ERGP) delivered little in terms of the overall expectations.

Adonri said: “Sixty years after independence is enough time for a country to overcome her teething problems. Why has Nigeria’s economy found it difficult to break out of its infancy of development?

“While other countries have transited to the fourth industrial revolution characterised by mastery of infotech, fintech, telecoms tech, artificial intelligence, blockchain technology, and big data analytics, Nigeria is yet to properly commence her first industrial revolution.

“The country remains at the lowest form of human existence, being a subsistent agrarian economy. Nigeria failed to realize since independence that science and technology rules the world.

“Instead of following the time tested order of first setting up a heavy industrial base to commence its first industrial revolution, the country thought it could bypass this stage and leapfrog to light industrial economy.”

He insisted that capital markets cannot thrive when public economic policies do not favour productive and real sectors, adding that the bourse suffered debilitating fluctuating imbalances between its equities and debt segments on one hand, and between public and corporate debts on the other hand.

Adonri added, “Current attempts by the monetary authority to redress these imbalances through downward adjustment of interest rate may be a good medicine that is being wrongly applied.

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“Nigeria’s good performance in the financial sector was derived from the country’s infotech and telecoms revolution, anchored by former President Obasanjo’s government.

“If that revolution had extended to engineering infrastructure and agriculture, Nigeria’s economic condition would be different today. Not even COVID-19 would have inflicted the kind of economic damage the country is witnessing now.”

He argued that the entrenchment of good political practices, unity in diversity, enforcement of stiff penalties against corruption, and maintenance of tight security are conditionality for establishing the enabling environment required for socioeconomic prosperity and stable capital market.

A Professor of Economics at the Babcock University, Segun Ajibola, said the Nigerian capital market was largely undeveloped until the early 1970s, when the government introduced the indigenisation policy, which buoyed the bourse especially in the areas of easy access to capital for companies willing to raise money.

Ajibola said: “Most companies have made use of the market to raise capital, and the government has also issued bonds and other instruments to raise long term funds.

“The market capitalisation level has grown to high points in the last six decades. The market has shown resilience, especially in the last twelve years or so.

“The market is still struggling to remain strong amidst the global financial crisis of 2007 that hit the market so badly, and the recent COVID-19 pandemic that ravaged the global space.

“The economy can get better if it is restructured to align with the dynamics of the global environment. Over-reliance on oil is inimical to the health of the economy.

“Other sectors need to be encouraged through well-articulated policies and packages of incentives that must be faithfully implemented.

“The infrastructural deficits must be fixed to reduce cost of production and improve the ease of doing business. If done, even the capital market will benefit from such initiatives,” he said.

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The Chief Executive Officer, Crane Securities Limited, Mike Ezeh, said the capital market has made remarkable impact on the Nigerian and world economy, especially in the areas of infrastructure and human capital development.

Additionally, he said the impact of the market has also been phenomenal and outstanding in the areas of wealth creation for local and foreign asset managers.

He continued, “The Nigerian market is designated as a one-stop investment destination in Africa. This is the truth and all this happened within the last 60 years. We have seen the market grow over the last 60 years to become a world-class market.

“Among the emerging markets in the world today, it ranks high in transparency and adherence to the minimum world market operating standards. It is a globalised market.

“As a nation, it has not been easy, but because we are a blessed nation, we are still standing. Our economy has evolved from its crude state in 1960 to what it is today because of our resilient capability and industry.

“We have grown to become the biggest economy in Africa over the last 60 years, and we are still growing. We are aiming to be among the best 10 in the world by 2050. It is achievable,” he said.

An independent investor, Amaechi Egbo, admitted that the market has grown over the years, noting that the regulators have done so much to make it competitive in the global market.

He said the SEC has been leading the market transformation by building investors’ confidence through a world class regulation and enforcement, strengthening market institutions, promoting corporate governance, promoting innovative technology and prioritising cooperation both domestically and internationally.

He argued that the reforms have improved market liquidity, introduced alternative trading platforms, and created an enabling environment supportive of new products like securities lending, exchange traded funds, real estate investment trust and Sukuk.

“In 2015, the SEC mapped out a 10 year plan for the development of the Nigerian capital market (the Master Plan). The Master Plan was developed by a committee inaugurated for that purpose by the Director-General of SEC on September 9, 2013.

“The core objective of the Master Plan was to map out strategies for the improvement of the Nigerian capital market in key areas such as investor protection and education, professionalism, product innovation, and for the expansion of the capital market’s role in Nigeria’s economy.

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“The committee devised strategies to drive capital-raising to fund critical sectors of the economy such as infrastructure, agriculture, SMEs, and solid minerals, align the market structure, capabilities and competencies to the requirements of the economy, improve the competitiveness and attractiveness of the capital market; among others.”

Buhari


According to him, despite the harsh operating environment that has bedevilled the economy over the years, the quoted companies still remained resilient while the market is rated one of the best exchanges in Africa where investors have the opportunity to create wealth.

”The market has one of the best opportunities for growth with a population of over 200 million people, plus the possibility of becoming the main stock exchange for West Africa and Africa in the long term.

“Notwithstanding the progress the capital market has achieved so far, we are not where we should be, and to get there, a lot remains to be done.

“I think this informed the decision of the regulators to develop a strategic document which is a 10-year master plan that will guide the development of the capital market and give it a world class standard.”

He noted that the capital market’s problems were mainly macroeconomic challenges, urging the government to prioritise market issues, and position the market at the centre of policy formulation to achieve a more vibrant and competitive market.

According to him, views on the capital market are necessarily taken into account in policy formulation in government circles, because the market is the aggregation of all the big, strong and reliable corporate players and organisations.

Egbo added that despite the nation’s macroeconomic headwinds, the NSE is still one of the few institutions in the country that has risen above the general rot in Nigeria.

He expressed optimism that if the master plan is well-implemented, it would help grow the stock market in a cumulative manner, and contribute to socio-economic development of the country.

Recall that the stock market had long lost some gains recorded during the boom period to the global financial crisis of 2008. The crisis wiped off a staggering $1 trillion from the world economy.

The market enjoyed a decade-long boom and attained its highest growth in March 2008, before the financial crisis, with the NSE All-share Index (ASI) hitting 66,000 points.

In the aftermath of the crisis, equity capital formation started receding as investors found safety in fixed-income securities.

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The unprecedented lull triggered panic in the stock market within the period, such that it induced a spate of suicide among traders.

Therefore, the collapse of the market reverberates through the whole of society. Subsequently, Nigerians have developed an aversion for the stock market, as many of them have not recovered from the losses.

After the inauguration of President Muhammadu Buhari in 2015, investors heaved a sigh of relief in the hope of increased market liquidity, and investors’ confidence was rekindled.

Unfortunately, expectations that the Buhari’s administration would spur activities in the market, and restore the Exchange to a path of sustainable growth were dashed, as the bourse contributed very little to Nigeria’s economic development.

The initial enthusiasm that immediately greeted his victory in 2015 has since faded, because investors were unable to identify any value addition by his government to the capital market.

Instead, there has been an astronomical fall in the share price of listed firms across sectors on the Exchange in the past few years, owing to low investors’ confidence and weak macroeconomic situation of the nation.

Regrettably, the ASI, which attained its highest growth of 66 points in March 2008, before the financial crisis now stood at 26 points on October 2, 2020.

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