Chike-Obi Suggests Special Fund to Boost Capital Market Liquidity

• Calls for massive savings through infrastructure

Goddy Egene

The Executive Vice Chairman, Alpha Africa Advisory Limited, Mr. Mustapha Chike-Obi, has suggested the establishment of a special fund that will create liquidity and boost activities in the Nigerian capital market.

Chike-Obi, who is the former Managing Director of Asset Management Corporation of Nigeria (AMCON), made this suggestion while speaking recently at the investiture of the 9th President of the Chartered Institute of Stockbrokers (CIS), Mr. Oluwaseyi Abe in Lagos.

He said liquidity and foreign exchange risks are major problems in the market, noting that now that the fx was being addressed, creation of liquidity for the market must also be taken care of.
He said: “It is either a liquidity problem or a valuation problem. I think it is a liquidity problem. We have no liquidity, the foreigners are pulling out and domestically we do not have the capacity now. Nobody is going to invest money when they cannot eat, when they cannot pay their children school fees. So even if you think that particular shares are cheap and you cannot pay your children school fees, you will sell the shares and pay your children school fees. So we must create liquidity in some form or the other. And my suggestion remains that the government must create a fund, that based on certain parameters, can invest in the stock market. So that when there is lack of liquidity the government supplies the liquidity, when there is excess liquidity, the government takes it money out. I think that will help and create high volumes and I think that will make valuations more accurate because like I said, I know people who are selling their shares now to pay school fees. Even when they believe the shares are cheap.”

He explained that the stock market trades about $10 million worth of securities daily but has the capacity to do more the issue of liquidity is addressed. He therefore call for the establishment of the special fund without further delay.

Chike-Obi, who spoke on: “Growth, the only Nigeria’s Imperative,” canvassed for massive investment in infrastructure either through savings or borrowing at a very low rate.

According to him, it is imperative for Nigeria to emulate the likes of Indonesia and India to achieve the required fixed capital formation levels in order to attain a significant reduction in poverty levels. He said at least an investment of 30 per cent of the Gross Domestic Product (GDP) in infrastructure annually would create a sustainable economic growth as it is done in Indonesia and India.

“Government should focus on galvanising public and private sector investments to the tune of N30 trillion per annum over the next five years in order to increase productivity and employment. The N30 trillion annual investments over five years can be achieved through targeted policy adjustments,” he said.

Explaining further, Chike-Obi said the government can contribute 25 per cent (N4.5 trillion through fiscal deficit revision and N2.8 trillion from expansionary monetary policy). He added that on the other hand, private sector will contribute 75 per cent( up to N1 trillion as a result of private sector enablement and N21.8 trillion foreign direct investment in infrastructure delivery).