Stakeholders bemoan Nigeria’s low capital market-to-GDP ratio

Apparently irked by the current low ratio of Nigeria’s capital market-to-Gross Domestic Product (GDP) size, stakeholders, at the weekend, underscored the need for government to ensure that all interventions and assisted funding must be issued in bonds, note form and subsequently, listed on the Nigerian Stock Exchange (NSE).

Besides, the stakeholders observed that the growing proclivity of Nigerian companies towards the foreign capital market for the purpose of fundraising is not healthy for the growth of the NSE.

At less than 20 per cent to country’s GDP, the stakeholders argued that the current size of the market constrained its role in national economic development, insisting the time is now ripe for proper structures to be put in place for the development of a deep and expansive capital market in the country.

Therefore, they suggested that the government must urgently adopt fiscal and monetary policies that would stimulate private sector investment and increase patronage for issuance and fundraising in the nation’s bourse.

Furthermore, a deliberate policy on incentive is needed to attract more multinational companies in the telecommunications and oil and gas sectors to float offerings and ultimately, resuscitate the primary market segment and improve on the current illiquid position of the market.

They insisted that the government must create appropriate policies to encourage multinationals, which may not have a compelling need to raise capital within the local environment to list on the bourse.

The apex regulator must, therefore, interface with the government to explore various options that would facilitate the listing of all major enterprises that occupied the commanding heights of the Nigerian economy; especially the telco and oil and gas firms.

They observed that while oil and gas companies with significant operations in Nigeria are heading for the foreign stock markets for funding, the NSE remains under-patronised thereby causing the country’s capital market to trail behind that of peer countries

The Managing Director of Crane Securities Limited, Mike Ezeh, linked the market’s low contribution to GDP to the government’s inability to explore the market as a vital source of accessing long term funding for infrastructure and budget deficit.

“Government is ignorant of the huge availability of funds prevalent in the market. With the existence of the capital market, government at all levels- federal, state, and councils have no business borrowing money at exorbitant rates to fund budgets.

“Again, due to lack of patriotism and corruption, many companies are shying away from patronising the market because the market is a transparent one and any company that lacks good corporate governance can not play the market.

“GDP from the market is low compared to other climes. This is because of the same low patronage. Imagine Nollywood’s contribution soaring a lot higher than the market.”

The Managing Director of Highcap Securities, Imafidon Adonri, said Nigerian investors and issuers’ confidence is low, noting that the market is not even deep enough to absorb the excess inflow of funds without bubble formation.

“The seriously inverted yield curve and the high yield on debt in comparison with equities are sources of imbalance, thus putting equities at competitive disadvantage. Several public policies and monetary policies are not capital market-friendly.

“Nigerian market capitalisation is less than 15 per cent of GDP, whereas, in some countries, it is over 70 per cent, clearly demonstrating underdevelopment of the Nigerian market.

“The remedies to increase participation should center around macroeconomic policies and incentives that will boost investors/issuers confidence in the economy and Market.”

He added that various actions and activities by the authorities that will enhance the profitability, liquidity and safety of the market would attract more participants.

The President of Independent Shareholders Association of Nigeria, Adeniyi Adebisi, said all indices of the nation’s economy have been on a downward trend, noting that this is the reason behind low patronage of the market.

“Capital Market globally has always been described as the barometer of a nation’s economy. Capital Market does not have a soul of its own; it only reflects the state of the economy. Investment basically represents savings.

“You cannot save when you are struggling to survive economically. Nigeria as a nation and Nigerians as individuals for a while has been struggling economically. Nigerian patronage of the capital market, therefore, is bound to below.

“The market contribution to the GDP right now is as low as 12 per cent. The fact, however, remains that small shareholders in Nigeria contribute less than three per cent of the total shareholding and this percentage is dwindling.

“In a place like United kingdom, small shareholders represent above 35 per cent. This will rightly influence contributed to the GDP in that country.

“The future of the capital market is bleak. This will be so because there is nothing to cheer about in the nation’s capital market now and in the foreseeable future. Steps being taken now are blind and perhaps purposeless,” he said.