Abe: Govt Urgently Needs to Focus More on the Capital Market

The President of the Chartered Institute of Stockbrokers, Mr. Oluwaseyi Abe spoke to journalists in Lagos on the state of the economy and the capital market. Goddy Egene presents the excerpts:

What is your assessment of the Nigerian economy since the beginning of President Muhammadu Buhari’s administration?

In an attempt to assess the current administration of President Muhammadu Buhari, we must not lose sight of the fact that the current government came into office on the 29th of May last year on the mantra of “change”, there were challenges and obstacles from inception.

Consequently, the first year of the government was largely spent settling down to understand the true state of affairs. I think the government has done well in some areas. However, a lot is expected of the government in other areas. For instance, economic indicators have worsened, and it appears the government is taking too long to have a clear direction on several policy issues.

What is your view on the Nigeria’s investment environment?
Nigeria’s natural endowments still makes her a very attractive investment destination. However, this must be strategically supported by well thought-out policies. The truth of the matter is that many foreign investors still regard Nigeria as a good investment destination because of our current political stability.

However, they will be further encouraged if we also have some consistency with our foreign exchange policies in line with the global best practices. At the heart of the capital market is the issue of participation of local investors. Expectedly, it is the local investors who ultimately will bring stability to the equity market. The critical issue now is that the Federal Government and other stakeholders must be prepared to address the need to encourage our local investors to return to the market.

How are the stockbrokers coping in this challenging phase of our economy ?
It is not an exaggeration to say that the biggest challenge facing stockbrokers today is low participation and low liquidity in the market. While the regulators and stockbrokers have been working hard to create new products such as the Exchange Traded Funds (ETF), the buy side of the market remains weak, especially from the local end.

Meanwhile , stockbroking firms have also had to grapple with spiralling costs arising from the recently introduced Minimum Operating Standards. Investors’ confidence is still low as a result of massive losses arising from the 2008 global recession, although this is being addressed. Quoted companies are also going through challenging times with regard to rising costs. This is affecting their dividend paying ability. It is indeed a trying time for the stockbrokers. But the period also called for creativity and resilience for all stakeholders.

Any prospect for the stockbroking profession in an emerging economy like ours ?
There is a very big prospect . One unique thing about stockbroking is that you must be a professional in a particular field before you can write our final professional examination . We introduced Diploma in securities and investment to attract young ones who are bright enough to aspire to become investment experts. The programme is also introduced to enable university degree holders in non-finance fields to have a strong foundation in finance.

History has shown that the capital market provides the surest route for developing countries to accelerate the pace of their economic development. So the prospect of stockbroking in a country like Nigeria is bright and the crucial importance of the profession cannot be overemphasized.

The question we should be asking is: “are we making maximum utilisation of our capital market in formulating and implementing development policies?” Government urgently needs to focus more on the capital market and craft policies that will make the market thrive for local and foreign investors. I must be quick to add that as long as the financial system exists, funds must be mobilised from the surplus economic unit to the deficit one.

Therefore, stockbrokers shall continue to be relevant in the global financial market. I am happy to place on the record that we have always had our members in the commanding heights of the various sectors of the economy including politics. The future is bright.

Stockbroking goes beyond buying and selling of securities. That is why we have expanded our syllabus at the Institute to ensure that those who pass the final professional examinations are globally competitive as investment experts. The world of securities and investment is expanding everyday and only professionals that keep pace with the changing dynamics can fit into the system. Our Compulsory Professional Development (CPD) is designed to provide on-the-job training for practising professionals.

Operators and the regulators are continually worried about the level of volatility in the market. What is the way forward ?

Yes, stakeholders in the market are bound to worry when the market is in a downward swing. But this is one of the attributes of a stock market globally . It is only normal for the market to swing upward and downward because that is what makes it a market. It is absolutely normal for the market to have swung on a downward direction.

But the fact of the matter is that the direction of the capital market at any given time is a reflection of the economy and it’s been known that the economy has not been doing too well lately. In this regard, it is even the best time to invest in the capital market because once the economy gets better, the capital market will recover as well.

What factors do you think attract investors into the market or send them scampering away from the market?
Some of the factors that draw investors into the capital market include, positive expectation about the economy, adequate and positive information about the market, security of investment, good returns in the form of dividends and / or capital gains, and favourable government’s policies. ‘Loss of confidence’ discourages investment. Several factors could cause this, including lack of transparency, weak corporate governance structure, and economic downturn.

Do you subscribe to the school of thought that the recent introduction of direct cash settlement will protect investors and eliminate fraudulent activities in the Nigerian capital market?

Absolutely, yes. It will surely bring more confidence into the market. Direct cash settlement is a situation where the accounts of investors are credited directly with the proceeds of sales of investments. This will make it more difficult to divert or convert investors’ funds fraudulently.

However, I do not think the direct cash settlement policy will eliminate fraudulent activities in the Nigerian capital market completely, but it will curtail it. In effect, direct cash settlement is only one of several structures that need to be put in place to safeguard investor’s position in the capital market.

Do you foresee any state government coming to raise capital in the market this year going by the development in the economy?

It is not likely. We are already half way into this year, and from the look of things, it may not be that feasible. The downturn in the market has continued in this year. Accordingly, we anticipate that the investment climate may not be attractive enough. The federal government’s budget deficit for 2016 and the implementation of Medium Term Expenditure Framework (MTEF) may make it more difficult for state governments to raise capital from the capital market. Although with greater clarity on government policy direction, there is modest expectation that investors would show more interest in the market as the economy improves. On this note, we cannot totally rule out that a state government cannot come to the market.

Do you think the offshore listing being embarked upon by some companies have a direct impact on the Nigerian economy?

Yes, though minimal. For instance, dual listing could have some direct benefits to the economy, especially, in times of currency crisis or other external factors. In 2013, for example, it was reported that despite the huge crisis among the BRIC nations (i.e. Brazil, Russia, India and China) in terms of currency devaluation against the United States (U.S) dollar due to the announcement of Federal Reserve Chairman to discontinue the free money policy, South Africa’s Rand confounded critics with dual listed companies attracting strong equity flows into South Africa. That is, despite strong U.S. data and mounting pressures on the emerging markets the Rand continued to hold up remarkably well. Thus, the concept of dual listing can help the economy of a country stabilise, and serve as a strategy to counter currency devaluation.

Do you think the adoption of a more flexible rate policy by the Monetary Policy Committee (MPC) will boost the stock market?
Yes, I think so. This is because the capital market is the barometer of the economy. Its performance mirrors the performance of the economy. When the economy is doing well, the capital market is boosted. Research has shown that developing countries are relatively better off under flexible exchange rate regimes and that faster economic growth is associated with real exchange rate depreciation. This means that recent introduction of flexible exchange rate policy is expected to drive economic growth which will boost the capital market.

You were recently elected President of CIS. What is your agenda to lift the Institute to higher levels?

I have always been part of the CIS, having served in various capacities before my election as the President. My plan is to make the Institute more visible by enhancing its brand capital. We are working to fully automate the examination process and make it seamless. We will pursue vigorously the passage of the CISI bill, which is currently with the National Assembly.

As the institute is a membership -based organisation, we will do our best to advance the welfare of our members and ensure that the profession takes a pride of place among other professions in Nigeria. We are also pursuing a strategy of aggressively enhancing our membership base.

How has the recent recapitalisation of stock broking firms helped reposition your institute?

The recent recapitalisation of capital market operators is impacting positively on the development of the market as it has enhanced research and product development capability of the market as well as the development of a more efficient information and communication technology base. The new capital injections would enable stockbroking firms acquire requisite information technology infrastructure, maintain quality human resources, fund research and training and explore creative initiatives in product development and services. Overall, with the recapitalisation, we will likely see better-managed institutions and better prospects for those who are in the industry.

A firm that is well-managed and capitalised with good corporate governance in place will provide quality services to the investing public. It will also offer an exciting career for employees; and like I said earlier, the institute is committed to enhancing the welfare of our members. This makes sense because we are here for our members, and it rubs off positively on the institute if our members are happy and well taken care of.

How would you advise investors in Nigeria ?

I am glad to inform you that our indigenous investors are becoming better informed through our intensive enlightenment programme. We have been enlightening them on the necessity of going through the stockbrokers as they are the licensed investment advisers who can guide them accordingly. The list of valid stockbrokers is always available at our institute. We have sustained our zero tolerance policy on unethical practices. All these are to ensure investor protection, a fundamental attribute of an efficient and effective stock market. Our efforts are further reinforced by our regulators –the Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE). It is now total war against unethical practices as the stock market is a game of investor confidence in the final analysis.

In the light of this, investors should take advantage of the fact that most of the listed stocks on the NSE are trading below their intrinsic value. In a lay man’s language, they are very cheap at the moment. Once the economy picks up, the market will react accordingly and the stocks would head for their true values. Those who take the calculated risk of buying low would ultimately made bountiful profits.

A team of top officials of the CIS recently to the former President of the Nigeria, Chief Olusegun Obasanjo in Abeokuta, Ogun State recently. What was your mission?

We at the CIS have continually engaged all our stakeholders on the benefits of the capital market to the growth and development of Nigeria’s economy, especially in the medium to long time. As a former president, who has always believed in the ability of our market to serve as an engine of economic acceleration, we thought it expedient at this point to visit him to give an insight to what we are doing at the moment , our challenges and the way forward. In a nutshell our mission was more of extended advocacy to an opinion leader whose vast experience and contacts globally can undoubtedly strengthen our efforts.

How was the outcome of the visit?

It was successful. Obasanjo displayed clinical understanding of the dynamics of the capital market and exhibited a high level of optimism that our capital market has all it takes to finance the economy. Obasanjo pointed out that when Ethiopia’s economy was in doldrum, one of its Prime Ministers deployed the Commodity Exchange to put the economy on the strong footing. According to him, there is no reason why Nigeria’s economy cannot be revived by adopting the Ethiopian model.

In specific term, what is the take away from the historic visit?

Obasanjo’s endorsement of our efforts in capital market development advocacy is a boost to our market. We shall continue to engage with more opinion leaders, institutions and work more closely with the Federal Government and the National Assembly for collective efforts and indeed sound policies that would enable our capital market play its pivotal role in moving our economy to the next level.

Investor education is a continuous exercise and should be continually reviewed to reflect the current realities where investors must not only be exposed to the benefits of the capital market but also the risk aversion measures.

How would you describe the relationship between the federal government and the capital market regulators and operators ?

We in the capital market have always had cordial relationship with the federal government. We owe the federal government constant engagement in order to articulate policy issues that would move the market forward. The regulators and we the operators are the technical people. But we need the endorsement of the government and its patronage at every stage for the market to move forward . Several meetings, including public hearings had been held to x-ray the capital market and re-position it for global competitiveness .

Many committees had been constituted as ad hoc or standing one. These committees usually have government representatives . Engagement with the government is a continuous exercise.I must put on record that many government functionaries, including governors, ministers and heads of Agencies and parastatals do visit the NSE.

Recently, the exchange hosted the Speaker of House of Representatives, Honourable Yakubu Dogara who addressed the stockbrokers and closed the market by sounding the closing gong like other important visitors. Also, recall that the Vice President of Nigeria, Professor Yemi Osinbajo had also appeared on the trading floor. In the past, the NSE had played host to heads of state at various fora. Such visits symbolise cordial relationship and go a long way in boosting investor confidence in the market. In a nutshell, our relationship with the government is symbiotic.