Orekoya: Nigeria Needs Home-grown Solutions to Tackle Inflation

The President of Pearl Awards and Managing Consultant at CITC Global Consulting Limited, Mr Tayo Orekoya in this interview with Kayode Tokede urged the federal government and stakeholders to champion homegrown solutions in order to tackle the rising inflation rate in Nigeria. Excerpts

How can stakeholders tackle the rising inflation rate amid global trends?

It is quite clear that the world is undergoing economic stress. Globally, the inflation rate is high. The United States has witnessed the highest level of inflation over the past 40 years and the UK is also facing the same thing.

Across the globe, it is the same trend in hiking the inflation rate.  Of course, we all know that this is traceable to the Russian invasion of Ukraine and we do not know when it will end.  When there is a hike in inflation, the government has a responsibility to apply the right monetary policies to bring it down.

For economies all over the world, the right thing to do when there’s a hike in inflation is to hike interest rates and that is what is happening now.

What the federal government and stakeholders can do is to provide an enabling environment to encourage local production which is expected to enhance productivity, generate employment, and of course, improve on its infrastructural development which is expected to make the cost of production drop.

So, what government has to do is look at homegrown solutions which are expected to enhance productivity, discourage imports and encourage exportation the more.

Food inflation is the basis of an inflation rate hike and it must be tackled because when there is food scarcity, the level of poverty definitely will increase. I think the government needs to look at these areas and grow the economy.

With the numerous challenges in 2022, do you think it is possible for FG to achieve its 2022 GDP growth?

Well it’s a tall order. Government has a duty to enhance the diversification of the economy and grow agriculture. Government has to deal with the issue of insecurity if we want to grow the GDP. The targeted GDP growth can be achieved when insecurity is tackled. So, the issue of security is all-encompassing and the government needed to focus on ways to tackle it as soon as possible.

What are the areas the government is getting it wrong with economic diversification?

We have made some giant strides in terms of economic diversity. For example, over $40billion have been saved in one year in terms of rice imports and the such fund is available to be diverted to other sectors of the economy.

Now, what has affected all that we have gotten right is the issue of insecurity. Assuming we were able to address insecurity, we could have gone a very long way in economic diversification.

How well effective are we in dealing with our solid minerals?  We must ensure also that there is massive security that investors think of Nigeria as the first place of choice and direct foreign investment can be enhanced, and of course, local production can be boosted.

How is the double-digit inflation rate impacting on the capital market? 

The inflation rate at 21.09 per cent as of October 2022 has a huge impact on the capital market because, in the first place, the average investor looks for where it can optimize their wealth. When you have huge interest rates, what you will find out is that investors will move from equities to fixed-income, income investments, because this has less risks.

The value of returns on investment to investors is eroded, given the high inflation rate. If you are investing and you have returns probably at 15per cent and inflation is 21 per cent, which is minus six per cent that is expected to discourage investment in the equities market.

We a in a situation a good number of investors are now putting their funds in dollar-denominated instruments; that is buying dollars and storing dollars and that is why the value of the naira keeps depreciating.

What can stakeholders encourage more listing in the capital market?

Well, I think it’s a question of the various stakeholders looking at initiatives, and innovations, to enhance the deepening of the market. For example, how much of the FinTechs are quoted on the stock exchange today? What incentives can be put in place by Nigerian Exchange Limited and then how can SEC also bring in incentives to encourage listings of FinTech companies on our Exchanges? Can we reduce some of the rates for Initial Public Offers (IPOs), and fresh listings?

Again, it is the issue of the alignment of monetary and fiscal policies. I mean, we cannot be working at cross purposes and expect that the securities market will be deepened because that is the engine room of the economy.

Whatever happens in the capital market, will affect the economy. So, our fiscal policies and monetary policies must be enhanced. We need to align these policies and also look at innovations and incentives to encourage new listings in the capital market.

How do you arrive at 2022 Pearl Awards with the theme, “Sustaining Excellence Through Tenacity?”

Well, arriving as the theme has a dual connotation. The first is that for Pearl awards, we have been rewarding excellence in the capital market over the past 27 years. You will recall that in 2020 and 2021, Pearl awards did not hold due to the impact of the COVID-19 pandemic.

But we are back and that is tenacity, and of course, you will agree that Pearl Awards is one of the longest awards in the history of Nigeria.

On the part of the nominated and winning companies, it is tenacity that has made them excel in spite of the global challenges.

We have seen challenges in the local and global economies. Challenges of COVID-19 pandemic challenges and of course, the Russia and Ukraine war. These companies have shown resilience and still standing.

What are the major landmark achievements over the past 27 years?

The achievements of Pearl Awards draw from the objectives for which the Awards was set up. We’ve been able to achieve competitiveness amongst quoted companies because by the nature of the awards has been based on empirical data, actual performance and we have seen these companies coming out to actually compete against one another in the sectoral leadership awards category, and also competing within the entire market in the market excellence category.

We have been able to generate enough awareness. Hitherto, before Pearl Awards in 1995, the stock market was seen as an elitist market as nobody talks about it. But with the Pearl awards, we have been able to change the narrative such that people now know that this market is a market for everybody.

Beyond that, we have been used as the reference point for shareholders and stakeholders in the capital market. When a company emerges as a nominee or winner of the Pearl awards, we have seen the share price of such a company appreciates.

Beyond that, we introduced what is called the annual public lecture on capital market development. This is a public lecture where contemporary and general issues on the capital market are discussed and analyzed with recommendations to the people in authority.

Again, the issue of integrity is a key achievement to the committee. There has been no controversy about these awards since 1995. No wonder the winning companies proudly display their performance of the Pearl Awards. The winning companies always brandish their achievements with the Pearl awards.

How does the Committee arrive at some 2022 Pearl Awards nominees?

The Pearl awards are actually in three broad areas. We have the main competitive category, which has three sub-categories; sectoral leadership award category, market excellence award category, and overall highest award category. Now, there are nine indices that are used to evaluate and rank companies for the purpose of these awards.

These nine indices include: turnover growth, earnings yield, return on equity, net assets rate, profit margin ratio, dividend cover, dividend yield, dividend growth, and share price appreciation.

 For each of the sectors under sectoral leadership awards, the performance of each company is assessed and they are ranked in terms of their performance utilizing these nine indices.

Now, the company that scored the highest aggregate points, emerges as the winner, while the two other companies are the nominees for the particular sectoral leadership award category. For the market Excellence Awards category, we have each of these indices being the basis for the assessment and ranking of all the companies in the market.

Then for each of the nine indices, we assess all the companies and then the companies that score the highest aggregate after adding points gathered across the nine indices, are the three nominees for the overall highest award. However, before a company is nominated for the overall award, it must have won the sectoral leadership awards category.

As regards transparency, how is the Pearl Awards Committee collaborating with SEC and NGX?

I most appreciate the support of the NGX and SEC. They have supported the Pearl awards since its inception in 1995.

We source our data from them and apart from the financial results published by each of the companies that have been approved by the Stock Exchange, we also have daily official lists and weekly reports that we obtain from the NGX.

For the SEC, we also source information on the performance of issuing houses and we have created a special recognition award category. We have also created awards for the stock broking firm of the year as well as the corporate governance award of the year.

Talking about transparency, I also want to add very importantly, that the Pearl awards as a publication called the Nigerian stock market manual released at the awards night since 1995. It has the details of all the facts and figures with graphs of how each of the winning companies emerged and the nominees.

How can our Exchanges attract the younger generation to invest in the capital market?

I think it is very important we start by introducing into our institution’s curriculum on how to invest in the capital market. It is very crucial at this time. It must be expanded into wealth creation, and entrepreneurship, among other areas.

I think it is important that our youth are made to realize that, getting an education goes beyond being able to graduate and probably look for a job.