Stakeholders prescribe options for capital market recovery

• Urge listed firms to backward integrate

For the nation’s capital market to make some reasonable level of recovery in 2017, stakeholders have charged directors of listed firms to streamline their business operations through backward integration strategies.

Quoted firms were encouraged to seek viable local content opportunities and indigenous production of commodities to solve problems emanating from inflationary pressures for guaranteed return on investment.

It is believed that if listed companies looked inward and source their materials locally, they would also develop smallholder farmers along the business chain and other rural traders in the long term.

Again, it would reduce, to the barest minimum, the exchange rate volatility and depreciation, which hurt economic performance by contracting output growth and inflation.
Stakeholders, who spoke in an interview with The Guardian, linked part of the lull in the nation’s capital market to the failure on the part of companies’ board to initiating good policies that would help the management to drive the business.

Indeed, they suggested that listed firms must adopt 100 per cent local sourcing of raw materials, noting that over dependence on foreign raw materials and exposure to foreign exchange has unfortunately, subjected firms to the vicissitudes of the Nigerian economy.Furthermore, they believed that local production would improve the performance of the listed companies and reflect on their share prices on the Nigerian Stock Exchange (NSE).

According to them, some board of directors have continued to invest on failing businesses that would never yield any dividend.For instance, the Managing Director of Trust Yield Securities, Rachidi Yusuf, explained that operators have adopted new measure to encouraging local production, firms by identifying local companies they can give necessary financial advice.

“We are encouraging local production, we are identifying local companies that we can give the necessary financial advice, financial back up and grow them to a level that you can encourage them to come and get listed on the stock Exchange.

“Most of these companies are having problems because of over dependence on foreign exchange either for their raw materials or technology and because there is shortage of foreign exchange, that is affecting them negatively.

“Since we are not sure when the resolution of that shortage will be, we are saying let them start looking inwards and a number of companies have started looking inwards they are now beginning to source their material locally and produce locally.

“Those kinds of companies we would start identifying them and encourage them to come to the exchange to get more companies producing what is needed by Nigeria.”The President, Independent Shareholders Association of Nigeria, Adeniyi Adebisi, submitted that if companies remain low performing or moribund for a number of years on end, the question needs to be asked what the directors and management of such companies are doing to turn the fortunes of their companies around.

“What has been observed is that many of those in authority of these companies seem complacent, and satisfied with enjoying the benefits of their offices not minding the fact that shareholders who are not within their circle are not receiving anything.

“Personnel in this category should realise that the main purpose of their enterprises is to manage the resources put under their care to make profit and declare dividends to their shareholders.

“Any board of directors and its management that cannot achieve this over a period of time should be removed. Where it is discovered that major shareholders are colluding with others to hold down their company with complacency and inefficiency, other shareholders, especially the small shareholders should make things uncomfortable for such board by insisting on effecting a change.

“There are provisions in the Companies and Allied Matters Act that protect the interests of minority shareholders in this aspect.“Companies that ‘chant’ ‘harsh economic environment’ year in year out as excuse for their inability to make profits and declare dividend to their shareholders should be viewed as suspects,” he added.

The National Coordinator, Progressive Shareholders Association of Nigeria, Boniface Okezie, lamented that some stocks have remained at par value since the last few years, adding that these stocks have not in any way benefited the shareholders in terms of profitability which will manifest in dividends payment.

He pointed out that most of the stocks at par value have failed to reward investors for several years. Therefore, there is no incentive to demand for them amidst competition from other good performing stocks

He noted that most insurance stocks fall under the category of non-performers, even as their condition worsened due to over exposure to the capital market during the meltdown.Okezie added that the time is ripe for listed companies that were yet to return to profitability to seek other investment options that would enhance growth.