At 59, Despite Challenges, Capital Market Shows Resilience

The Nigerian capital market has shown resilience over the years and has been playing its role of capital formation and distribution to an acceptable level.

Although there is still room for improvement, it must be realised that the level of the development and growth of the Nigerian capital market (NCM) over the years, has been affected by the performance of the economy in general.

Specifically, the NCM became active with the establishment of the Nigerian Stock Exchange (NSE) in 1960, the same year Nigeria got its independence. But the market has evolved over the years and has taken a new shape which has given hopes that with more efforts by regulators, favourable economic policies push and good policies, the market will get to the desired level.

Looking at the performance of the market over the years, it has done fairly well considering the many challenges in the operating environment. The market has have challenges such lack of capital market-friendly economic policies, ignorance on the part of many people, policy summersaults and political instability.

But despite these challenges, the NCM has witnessed improved performance. For instance, total of new issues before 1989 was below N1 billion but increased to N10 billion and crossed the N10 billion mark in 1997.

Between 1996 and 2001, a total of 172 new issues (securities of public companies amounting to N56.40 billion) were floated in the capital market. The total of new issues was valued at N5.85 billion in 1996 but it rose by about 532 per cent to N37.198 billion in 2001. This improved to N61.284 billion in 2002, N180.079 billion in 2003 ,while 2004 and 2005 accounted for N195.418 billion and N552.782 billion respectively before it crossed the trillion naira mark to hit N1.935 trillion in 2007 when the market was at its peak.

In terms of number of securities on the NSE, it grew from eight in 1961 to 60 in 1971,194 in 1981, 239 in 1990. The number of securities improved to 264 in 2010, but reduced to 166 as at Monday due to delisting of some companies.

In terms of market capitalisation, which is the most widely used indicator in assessing the size of a capital market to an economy, it was between N10 billion and N57 billion 1988 and 1994. It improved to N1. 3593 trillion in 2003, N2.1125 trillion in 2004 and N5.12 trillion in 2006. The market capitalisation recorded the highest value of N13.2294 trillion in 2007 before falling to N9.562 trillion in 2008 due to the global financial meltdown. It closed at N13.450 trillion at the end of September 2019. The NSE All-Share Index, which was introduced with a base of 100, has also followed the same pattern of fluctuation over the years and closed at but closed at 27,675.04 at the end of September, 2019.

However, with the introduction of two other platforms, the FMDQ Securities Exchange Plc and NASD OTC Securities Exchange, the NCM has started to witness some positive changes and developments. While the FMDQ, which was launched as the platform for the trading of debt and fixed income securities and currencies, has transformed into a complete securities exchange. On the other hand, the NASD OTC is for the trading of equities not listed on the NSE and it has recorded some significant achievements.

Some reforms
Over the years, the apex regulatory body for the market, the Securities and Exchange Commission (SEC) has strived to make the market attractive. For instance, the coming on board of FMDQ and NASD further widened participation. The commission equally made sure that the market integrity was restored by considerably enforcing rules. SEC also strengthened disclosure requirements and led the implementation of international financial reporting values for listed companies. However, the game changer was the 10-year Capital Market Master-plan, which is currently being implemented to transform the market.

Operators said the policies and initiatives so far introduced by SEC in line with the master plan, are capable of making the market investors’ haven once the external challenges subside.

For instance, the strengthening of capital market operators (CMOs) with the successful completion of the recapitalisation last year is a good development that has helped to reposition them for better competition.

Also, SEC’s collaboration with Central Bank of Nigeria (CBN) and Nigerian Inter-Bank Settlement System (NIBSS) for the introduction of the electronic dividend (e-Dividend) payment platform that will address the challenge of unclaimed dividends in the market is another positive move.
Another laudable development is the introduction of direct cash settlement (DCS), which allows investors to have direct access to the proceeds of their shares sold by brokers.

Speaking on the benefits of some of the initiatives introduced, the acting Director General, SEC, Ms. Mary Uduk, said: “For instance, with the dematerialisation process completed, investors no longer need to not worry about the loss or damage to their physical share certificates as they are now electronically stored. Further, the current e-Dividend system enables shareholders’ dividend to be paid directly into their bank account without the stress of dealing with physical dividend warrants.

Also, the Direct Cash Settlement protects investors from funds mismanagement by ensuring that the proceeds of their shares sales are credited directly into their own account as against that of the stockbroker.
“We are equally working on ensuring that companies’ annual reports are distributed electronically thereby ensuring timeliness of information to shareholders and cost reduction to public companies.”

Stakeholders’ assessment
The Managing Director/Chief Officer of APT Securities and Funds Limited, Kasimu Kurfi said the performance of capital markets in the last 59 years had been very interesting as, “the number of listed securities moved from 13 in 1961 to over 250 while our market capitalisation rose from million to billion by 1990 into trillion by 2005 to ever highest of over N16 trillion by 2008 before it fell to the N13 trillion level.”

He added: “Today the equity market capitalisation is N13.45 trillion with ASI of 27,630.56. The market trading system changed from call over system to automated trading system into more advanced system call Order Management System (OMS) that on line trading using your hand set to trade in the market. “Foreign investors are trading in our market most of the time is 50 per cent, 50 per cent between local and foreign investors. It also serves as a window of foreign exchange (FX) inflow into the market by increasing our foreign reserves.

“It also serves as a provider of capital to most of our banks, insurance companies and many other companies that are listed in the market. Today we have about 200 stockbroking firms compared with about eight as at 1979. Investment bankers, registrars, and many other operators that make a living in the system.

“The federal government is making money through VAT, Stamp duties. The market growth from single exchange and has been joined by FMDQ, which traded more than N180trillion last year and NASD Plc.”
Another stockbroker and Chief Executive Officer, Sofunix Investment and Communications Limited, Mr. Sola Oni said unstable macroeconomic environment, nurtured by uncertainty in the political and economic space remained a major drag to market rebound in Nigeria.

He explained: “The market has faithfully continued to serve as a barometer that gauges the economy. Nigeria’s economy is characterised by sluggish growth while insecurity and weak economic fundamentals, among others have further worsened the precarious nature of the market.

“This is not peculiar to Nigeria. Trade tension between the United States of America and China is taking tolls on the world economy. This has dire effects on the operations of emerging markets.”

Oni, explained that the emerging markets in which Nigeria is a member is characterised by high volatility and high returns while they provide diversification opportunities for investors in developed markets.
He noted that the federal government’s lethargic approach towards utilising the market remains a major challenge.

According to him, the market was grossly undervalued across the board as investor apathy continued to deepen by the day.
“Investors are still apprehensive of macroeconomic instability and inclement operating environment. This partly explained the prolonged downward trend on The Exchange. Aside from mega listing of MTN and a few others, there is abysmal dearth of new listing. Government is crowding out equity investors as monetary policy favours investment in fixed income,” he stated.

Oni , urged the new Economic Advisory Council (EAC), headed by Prof. Doyin Salami, to conduct a clinical review of all policies that would impact on market growth and development for effective implementation.

He explained that EAC’s engagement should focus on how to fix the economy with multiplier effects on global competitiveness of our market, noting that the Nigerian capital market remained a major hub through which the country can serve as an investment destination.

However, he said that in spite of the challenges there was hope on the horizon considering initiatives put in place by market regulators to scale up activities.
“There is a more effective and efficient regulatory approach with the deployment of information and communications technology (ICT) by SEC and NSE to operationalise their services.
“Market monitoring, enforcement of rules and ease of exchange of information between the regulators and other stakeholders in the ecosystem have been up scaled,”he said.

Oni, added that the arrival of Lagos Commodity and Futures Exchange (LCFE), NASD and FMDQ Securities Exchange had further diversified the market.
“They have created multiple sources of transaction for the stakeholders in the capital market ecosystem. The future is bright,” he stated.

On his part, Chairman, Ibadan Zone Shareholders Association, Mr. Eric Akinduro, said the market had over the years achieved tremendous growth.
“Through the capital market we are able to have access to the wealth of some companies including the foreign owned businesses. Capital market as a reflection and true picture of the economy, we cannot isolated from our economy.

“The economy has not been favourable to the operations of the capital market but with time it will be better. Many companies are operating under very harsh conditions yet which led to low or no return on our investments.

“Stock market was the best investment opportunities until after the crash in 2008/09 with every one that investment during the period mentioned got their fingers burnt and are yet to recover till today. Going forward, the government should be more consistent in policy that will affect the market positively. Government should see the market as a catalyst to economic development in view of this security and protection are very key. No investor will invest in an economy that is not safe,” Akinduro said.

Similarly, Mr. Moses Igbrude of Independent Shareholders Association of Nigeria (ISAN), said the capital market could not be isolated from the general economy.
Igbrude, said the nation’s economy had been facing challenges occasioned by insecurity, power, lack of infrastructure, multiple taxation and policies inconsistencies, among others.

The ISAN Publicity Secretary said that many companies had folded up due to high cost of production which made them uncompetitive.
He said government, as a matter of urgency, should address the issue of power to make our country competitive in ease of doing business.
Igbrude, called on SEC and NSE to partner the federal government to address multiple taxation and illegal collection of taxes by touts going on in the country.

He also stressed the need for tax incentives to encourage more listing on the nation’s bourse.
“SEC and NSE should also put a very good advocacy programme in place to encourage and awaken Nigerians’ interest in the capital market to reduce dominance of foreign investors,” Igbrude said.

According to him, this would boost local participation in the market and as well enable local investors to absorb shares offloaded by foreign investors any time there was perceived economic instability.

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