Nigeria@61: Capital market’s contribution to GDP still low – Operators

Ahead of the country’s 61st independence anniversary Oct.1, experts insist that the contribution of the capital market to the Gross Domestic Product (GDP) must improve.

They spoke in separate interviews with our reporter on Wednesday in Lagos, while reviewing the performance of the Nigerian capital market over the years.

Mr Olatunde Amolegbe, president, Chartered Institute of Stockbrokers (CIS), said the Nigerian capital market, relative to the size of the country’s economy, was still abysmally low.

Amolegbe noted that the ratio of the capitalisation of the equity market to the Gross Domestic Product (GDP) was far below 20 per cent, in contrast to the South Africa’s 348.3 per cent and Brazil’s 68.4 per cent.

“The ratios in the key developed economies are also in excess of 100 per cent. The participation of Nigerians in the capital market is very low.

“Less than five per cent of the country’s population are involved in the market as investors, while less than one per cent of registered companies are listed.

“There is a fundamental dis-equilibrium in the development and utilisation of the two major segments of the financial system – the money market and the capital market in Nigeria.

“The markets are supposed to be complementary but the current structure tilts heavily in favour of the short-term financial market, undermining the effective integration of the two segments and weakening the capital market’s ability to optimally mobilise and channel national savings toward the development of the real sector,” he said.

On the way forward, Amolegbe called for effective and optimal savings mobilisation in the country.

According to him, the development and utilisation of the two segments of the financial system – money and capital markets – should be balanced.

He added that government at all levels should give capital market developemnt and utilisation priority as done in the developed countries.

The president said the CIS (chartered professionals) should be involved in policy making processes, including budgeting.

“There should be a review of the enabling legal frameworks to encourage the local pension funds to significantly increase their investment in the Nigerian equity market.

“This will enhance capital formation through private sector-led funding of the national economy as done in the developed economies where over 60 per cent of pension assets are invested in long-term instruments in the capital market.

“These steps will bring stability to the equity market and arouse investor confidence,” he said.

Amolegbe said major companies operating in the economy should be encouraged to list on the capital market, as that would greatly enhance the benefits derived by Nigerians.

“However, despite the humongous challenges facing it, the Nigerian capital market has played a major role in the country’s economic development in many facets, putting the country on the global map.

“Apart from the NGX, other trading platforms have come on board, including the FMDQ, the NASD OTC, and several commodity exchanges including the Lagos Commodities and Futures Exchange and Afex amongst others.

“In spite of the tough operating environment, the Nigerian stock market was adjudged the best in Africa and number three in the world in terms of return to investors in 2017.

“Three years later, in 2020, the market was adjudged the best in the entire world,” Amolegbe said.

To Chairman, Association of Securities Dealing Houses of Nigeria (ASHON), Chief Onyewenchukwu Ezeagu, said the challenges of the Nigerian capital market were in tandem with the challenges of the country.

He said this gave credence to the belief that the capital market was a barometer of the nation’s economy.

Ezeagu said the market had stood the test of time despite the huge challenges of an underdeveloped country and some peculiar problems.

He listed some of the challenges as regulatory issues – from weak to over regulation and lack of synergy between the regulator and regulated, government policy summersault and buy and hold attitude of Nigerians, among others.

“We have overcome most of the historical challenges listed above but a lot needs to be done in the creation of awareness of the benefits of the market to the large population of the country.

“There is the need for concerted efforts to reverse investor apathy due to the downturn of the market downturn in 2008.

“We must improve on our identity management essentials, ensure that existing investors are served with ease and receive their dividends promptly, this will reduce fraud and enhance confidence.

“The government should patronise the capital market and prevail on regulatory agencies to cooperate more with capital market operators by guiding them to success rather than waiting on them to fall into infractions attracting huge sanctions,” he said.

Ezeagu observed that capital market operators were still impoverished as a result of the downturn of 2008.

“We need to continue to emphasise this, and they need to be bailed out.

“The structure of the Nigerian Financial System is overdue for review, we the operators (ASHON/CIS) have articulated a paper on this, which we submitted to the regulators.

“There is the need for a review of the system to ensure a balance between the capital market and the money market as well as expand the scope of operations of the capital market operator,” Ezeagu said