Missed Expectations from Capital Market

Capital Market

As the current administration begins a gradual winding down in preparation for the 2023 general election, THISDAY begins a sectoral analysis of the economy in a way to call the attention of political office seekers to the missed opportunities and the existing low-hanging fruits. Kayode Tokede, in this piece, captures the burning issues in the Nigerian capital market

The capital market, most especially the Nigerian Exchange Limited (NGX) All-Share Index appreciated to 43,839.08 basis points as of October 31, 2022, against the threshold of 34,044.65 basis points on May 29, 2015, when President Buhari resumed as the 15th President of Nigeria. 

An analysis of the market showed that during this period, the capital market has witnessed a hike in the inflation rate, scarcity of foreign exchange, insecurity in the country, COVID-19 pandemic, among other global and domestic challenges. 

It has also witnessed new listings and delisting since 2015 with analysts saying its performance is a reflection of the general economic performance amid the two-time recession. 

The domestic economy went into a recession in 2016 following a lull in economic activities as a result of the delay in the appointment of ministers and other key appointees upon the takeover of the reins of government in 2015.

And then, the stock market of the Nigerian Stock Exchange (NSE), now called Nigerian Exchange Limited (NGX) ended 2015 with a N1.63trillion loss, while the market index opened t  2015 with 34,657.15 basis points to close at 28,642.25 basis points.

The stock market dropped from 28,642.25 basis points it closed in 2015 to 26,874.62 basis points in 2016, following the trend in the domestic economy. For the full year 2016, therefore, GDP contracted by -1.51per cent, indicating real GDP of N67.98trillion. 

According to the National Bureau of Statistics (NBS),  the contraction reflects a difficult year for Nigeria, which included weaker inflation-induced consumption demand, an increase in pipeline vandalism, significantly reduced foreign reserves and a concomitantly weaker currency, and problems in the energy sector such as fuel shortages and lower electricity generation.

As it is known, the capital market is a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments.  Over the last seven and half years under this present administration, the capital market has metamorphosed and currently, eight Exchanges are operating in the country.

The eight main Exchanges in Nigeria are Nigerian Exchange Limited (NGX), FMDQ Securities Exchange, National Association of Securities Dealers (NASD), AFEX Commodity Exchange, Gezawa Commodity Market & Exchange, Lagos Commodities & Futures Exchange, Nigeria Commodity Exchange (NCX), and Prime Commodity Exchange.

The market has performed its role with the government accessing capital through the debt market to finance key infrastructure projects across the country. Through government-sustained pressure, the likes of MTN Nigeria Communication listed 20 billion ordinary shares at N90 per unit on the Premium Board of the NSE, and also, eventually another telecommunication giant,  Airtel Africa in 2019 was also listed.

Other key listings are BUA  Cement  Plc, BUA  Foods, and recently, Geregu Power listing on the NGX main Board.

Operators’ Perceptions

The CEO, of Wyoming Capital and Partners, Mr. Tajudeen Olayinka said Buhari’s major contribution to the Nigerian Capital Market can be assessed with Nigeria’s economic performance since he became president in 2015, maintaining that the capital market is known to be the barometer of the economy.

He explained the extent to which this administration has used the market to the advantage of the economy or otherwise.

According to him, “Considering the relationship between capital market and the economy, his contribution to the market is negative, given that economy has not done well in the area of managing price stability (inflation);  driving economic growth (Nigeria needs double-digit growth rate to be able to attain full employment level in good time); the unemployment rate is worrisome, and performance of the external sector is nothing to celebrate.

“Accordingly, the performance of the market has been on the negative side, so also the economy.”

The present administration effectively accessed the capital market to raise capital through Sukuk and FGN Bonds.

Findings by THISDAY revealed that between 2017 and 2021, the Debt Management Office (DMO) through the Federal Government offered to raise the sum of N600 billion from the Nigerian capital market through the issuance of Sukuk Bonds.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed had reiterated recently that the Federal Government raised the sum of N669 billion from the capital market through the issuance of Sukuk Bonds.

According to DMO, one of the three broad strategic objectives of the Economic Recovery and Growth Plan (2017 – 2020) was to build a globally competitive economy and one of the plans for achieving this is by investing in infrastructure; thus, every avenue towards developing Nigeria’s infrastructure must be explored.

The use of Sukuk to raise funds to finance infrastructure contributes directly to achieving this objective.

The NGX and FMDQ Exchange had said the FG listed $4 billion Eurobonds on its platform was its part of fund-raising for the implementation of the 2021 budget.

The doyen of the stockbrokers, Alhaji Rasheed Yusuf acknowledged that under Buhari, investors now have varieties of Exchanges to trade with, stressing that expansion has given room for the flow of liquidity in the system and deepened the capital market.

He said, “As to whether or not the economy is better off as it was in 2015, is a different case.   We can take it away from this present administration’s utilisation of the capital market to raise funds for major infrastructure development across the country. The Minister of works used Sukuk to finance some of this infrastructure and that is capital market impact.  All the Sukuk by the FG was through the capital market.”

Echoing Yusuf’s standpoint, Olayinka said that the administration of Buhari has used the market more to raise short-term and long-term capital in support of his administration’s public sector domineering focus, in an economy that has private sector dominance.

He noted that “This is an anomaly, and it is the reason for the persistent debt sustainability problem. Using more than 100per cent of revenue to service debt is an indication of a country experiencing a fiscal crisis.

“Given that the capital market has consistently supported the administration of Buhari in its fiscal drive, without corresponding support for the market and our economy, then the administration has not contributed positively to the development of the market.

“Prolonged repricing of securities across markets and instruments, including loans and advances by banks, is an indication of failure of interest rate regime. How does one explain extreme volatility in the market? A market in chaos.”

The vice president, of Highcap Securities Limited, Mr. David Adnori explained that the capital market under Buhari so far has witnessed advancement in the secondary market as the result of the mega listing of giant telecom companies. There were also mega listings such as BUA Cement and Foods.

He expressed that “the primary market in the over seven-year performed worst. The government over the years has failed to use its political will to attract oil and gas companies on the Exchange.”

The demutualisation of the NGX in 2021 was a milestone in the development of the Nigerian capital market under the present administration.

The benefits of the process have been highlighted, including the opportunity for investors to participate as shareholders of the Exchange. Also, the structure of the NGX should improve corporate governance and attract more capital to the market.

The discussions on the demutualisation of the NSE had been ongoing since 2001 although there were no deliberate efforts made in advancing the process until 2011.  

In 2014 the commission issued draft Rules on the Demutualisation of Exchanges in Nigeria and the final rules on demutualisation were released on April 27, 2015. The Rules provided the regulatory framework under which the demutualisation process would be implemented.

With the demutualisation, technological innovation has expanded as the Exchange attempted to diversify its business mix.

Under Buhari, a new Director General of the Securities and Exchange Commission, Mr. Lamido Yuguda was announced in  2020 and he has made important strides in monitoring market activities, management of return monies, and confirmation of the quantum of unclaimed dividends during the period.

The commission was able to ascertain the quantum of unclaimed dividends of publicly traded companies that fall within the categories eligible to be borrowed by the Federal Government.

This process was carried out following the provisions of the 2021 Finance Act, which mandates that all unclaimed dividends between the ages of 6 and 12 years be transferred to the Trust Fund established for borrowing by the federal government to support the 2021 appropriation.

 As the political campaign gains momentum, it is imperative for each of the front runners in the 2023 presidential election to make public their plans on how to move the capital market forward in a manner that will deepen the nation’s economy.