Capital market, organised private sector players reflect on Nigeria@60

Ahead of Nigeria’s diamond jubilee independence anniversary on Oct. 1, capital market experts and organised private sector players have been reflecting on the gains and pains in the nation’s economy.

Market experts in particular have identified some achievements and challenges of the market and pointed the way forward.

In the same way, the Lagos Chamber of Commerce and Industry (LCCI) says Nigeria’s move from an agrarian economy to one heavily reliant on oil and gas reflected the nation’s mounting economic imbalance since independence.

Experts, therefore, reviewed the nation’s capital market performance over the years in separate interviews with our reporter in Lagos on Tuesday, saying that the market has evolved as a major factor in the Nigerian economy.

Uche Uwaleke, a professor of Capital Market, told NAN that the market evolved from a very tepid beginning to become a major factor in the economy.

He said “there is no denying the fact that the capital market has evolved from a very tepid beginning to one that is a major factor in the Nigerian economy, compared to other sectors of the economy.

“Fortuitously, the Nigerian capital market as we know it today actually got the breath of life in 1960, the same year as the country’s independence,
following the incorporation of the Lagos Stock Exchange in 1960.

“This is without prejudice to some capital market activities carried out by the colonial government prior to independence.

“With just 19 securities listed for trading in 1961, the flagship Exchange in Nigeria now boasts of over 200 securities.”

Uwaleke added that the nation’s capital market had expanded product offerings beyond equities and bonds, noting that market infrastructure had been modernised with five other exchanges, including those trading commodities.

According to him, market regulation has improved significantly following the establishment of the Securities and Exchange Commission in 1980 and the enactment of the Investment and Securities Act as amended in 2007.

“Both the regulators and the exchange are implementing a number of confidence-building measures such as the direct cash settlement system, electronic transactions, corporate governance scorecard for listed companies and whistleblowing system, among others introduced in the capital market.

The expert, however, noted that in spite of these accomplishments, the capital market was still being faced with a number of challenges.

He said that the introduction of e-dividend had yet to reduce the huge unclaimed dividends as expected in the market.

Uwaleke, also the President of Capital Market Academics of Nigeria, said that relative to the size of the economy, the total market capitalisation was still small and affecting the contributions of the market to the Nigerian economy.

He said that a relatively small number of companies were listed on all the exchanges with listing concentrated in a few sectors.

He noted that “corporate firms do not have significant presence in the bonds market dominated by the Federal Government and the number of individuals or retail investors is quite low.

“It goes without saying that a major challenge faced by the capital market over the years has been the dearth of infrastructure and poor ease of doing business in the country generally.

“Government can complement these efforts by providing fiscal incentives to issuers and other market participants.

“Scaling up financial literacy efforts will go a long way in increasing the rate of retail investors participation and the size of the mutual funds’ industry.”

Mr David Adonri, the Executive Vice Chairman of Highcap Securities Ltd., said that investors’ confidence was an important factor that propelled capital market investment.

Adonri told our reporter that Nigeria’s capital market was still shallow with market capitalisation of 35 billion dollars, seven per cent of Gross Domestic Product (GDP), while it was over 50 per cent in many other countries.

He said “Nigeria’s capital market is still shallow. Her market capitalisation of 35 billion dollars is just seven per cent of GDP, whereas it is over 50 per cent in many other countries.

“This is because several companies that occupy the commanding heights of Nigeria’s economy are yet to list their stocks in the capital market.”

He explained that macroeconomic instability and the economy were major disincentives to investment.

Adonri said that non-inflationary macroeconomic growth and foreign exchange rate stability were panaceas for capital market development.

According to him, government privatisation exercises have largely not been done through the capital market.

He added that “for the market to thrive and meet expectations, the Nigerian economy must be restructured to make production its centre-piece.

“Producers are the ones who require long term capital funds.

“Capital market is the main avenue for seeking allocative efficiency of economic resources, while full deregulation of the economy will give it more impetus to excel.

“Henceforth, all privatisations need to be through the capital market; it is unwise to borrow externally to finance infrastructure.

“Local borrowing, through the capital market, is the ideal option,” Adonri said.

To Malam Garba Kurfi, the Managing Director of APT Securities and Funds Ltd., government policies brought most of the development
and progress recorded in the capital market.

Kurfi said that many companies listed in the market because of past government policies and decrees.

He, however, lamented that impediments to ease of doing business such as multiple taxes by federal and state governments, the lack of infrastructure and insecurity were affecting market growth and development.

He, therefore, called for harmonisation of taxes by both federal and state government to enhance ease of doing business in the country.

Dr Muda Yusuf, the Director-General, LCCI, told our reporter that the transformation in the nation’s economy underscored the weak productivity
level of the non-oil sector in the past six decades.

Noting that the 91 per cent contribution of the non-oil sector to aggregate economic output, Yusuf expressed concerns that the oil sector, with its nine per cent contribution, accounted for over 60 per cent of the nation’s fiscal revenues.

Yusuf said “it is unfortunate that 60 years after political independence, the country’s economic fate is still significantly shaped by trends in international oil prices.

“This has continued to see the economy becoming unstable at the slightest emergence of shocks in the global energy market.”

Commenting on the nation’s current democratic environment, the LCCI boss said the two decades of uninterrupted democracy in Nigeria had earned the country enormous goodwill as one of the few stable democracies in Africa.

He, however, noted that the core values and ideals of democracy could still be better in areas of transparency, accountability in public and financial management, rule of law, as well as the practice of true federalism.

“The LCCI recognises that Nigeria’s democracy is still work in progress.

“However, as in many advanced democracies, it is crucial to recognise the importance of these democratic ideals in order to sustain our democracy and ensure the advancement of the common good for all citizens.’’

The director-general said that the nation’s economic performance measured by the growth of the GDP was unimpressive in the last six decades.

“According to World Bank data, we note that the Nigerian economy reported annual contraction 13 times (1966, 1967, 1968, 1975, 1978, 1981, 1982, 1983, 1984, 1993, 1994, 1995 and 2016) between 1960 and 2019.

“It remains a major worry for us that the economy is still structurally defective, given its excessive dependence on the oil and gas sector,
and this creates serious vulnerability risks.

“It is rather unfortunate that successive governments failed to utilise proceeds from oil exports during periods of high oil prices to develop and strengthen the capacity of the non-oil sector.

“Even before the emergence of the novel coronavirus disease, the economy was confronted with myriad of challenges, including spiralling inflation, portfolio investment outflows with attendant impacts on external reserves and exchange rate among others,’’ he said.

Yusuf pointed out that the impact of the COVID-19 pandemic on the economy, which was very profound, had propelled the fiscal authorities to take bold steps on age-long policy reforms for medium to long-term macroeconomic stability.

“Notable in this regard includes the economic liberalisation in the downstream segment of the Nigerian oil and gas industry, as well as the power sector.

“While these reforms might have led to some form of hardship in the short-run in terms of the rising prices of goods and services, we believe these
developments are for the good of every Nigerian.

“The reforms will help to free resources for investment in critical sectors of the economy.

“The transformation in the telecommunications sector stands out as the most successful reform story in the history of the Nigerian economy.’’

Yusuf pointed out that the financial services sector had been significantly transformed since independence through the maximisation of new technologies to improve the quality of service delivery.

“The sophistication of the industry compares with our counterparts in developed African economies like South Africa and Egypt.

“However, the financial intermediation role of the Nigerian banking system is still unsatisfactory.

“Due to the risks in the macroeconomic and business environment, banks prefer investing their resources in risk-free government securities
instead of extending credit to critical sectors of the economy.

“This has constrained the impact of the sector on the economy from a systemic perspective,’’ Yusuf added.