Capital market reforms, Examining effects on investment
prospects
The Nigerian capital market, for some time, has been in the doldrums
due to various reasons. In this report, UDEME EKWERE examines the
steps taken by the regulators to revive the market so far.
Since the beginning of the global economic meltdown, and specifically
since 2008 in Nigeria, the capital market in the country has lost the
confidence it used to command as a promoter of instruments of
fortune, owing mainly to the losses suffered by investors.
Between 2007 and 2008, the market capitalisation of the listed
equities in the Nigerian capital market rose to about N13tn.
By mid 2008, as a result of the global financial crisis, the market
capitalisation of equities dropped to about N8.8tn. But the slide
continued and became worse in 2009, due to the Central Bank of
Nigeria’s clampdown on some banks accused of perpetrating gross
misconduct. The market capitalisation came down to N4.989tn, while
the NSE All-Share Index fell to 20,838.90 points.
However, activities firmed up in 2010, as the index increased by 18.5
per cent to close at 27,770.52 points, while the capitalisation rose to
N7.91tn by the end of 2010. This mainly came about as a result of the
news of the purchase of the toxic assets of banks by the Asset
Management Corporation of Nigeria.
Nevertheless, by 2011, the NSE All-Share Index was down by 16.3 per
cent from 24,770.52 points in January to 20,730.63 points on the last
trading day of 2011, while the market capitalisation of the 186 first
tier listed equities fell by 17.4 per cent, from N7.91tn at the beginning
of the year to N6.53tn on Friday December 30.
Apparently worried by these losses, the Securities and Exchange
Commission and the Nigerian Stock Exchange have been involved in
various reforms and measures aimed at boosting the market. The
measures were also targeted at tightening the processes and
procedures for trading at the Exchange.
Accordingly, SEC, for instance, increased capital requirements for
market operators, among other steps that would, on the long run,
improve investor’ confidence. The NSE took measures to deepen the
market. It expanded the number of instruments available to investors
in the market, for instance.
Under the current leadership of the Director-General of SEC, Ms.
Arunma Oteh, the commission embarked on road shows across the
country to shore up education and awareness for the capital market. It
has also been trying to ensure that the market meets up with worldclass standards.
Oteh disclosed recently that SEC intended to leverage the expertise of
both the commission and the Consumer Protection Council in
delivering the desired result of efficiency, speed and cost effectiveness
in complaints resolution, which she noted, were the roots of confidence
crisis in the market.
According to her, there could be no better time for fair financial
services for consumers than now, when the Commission is working
round the clock to instill confidence in the market.
Also, there have been visible efforts on the part of the apex regulator
towards ensuring that the market complies with global standards, with
SEC embarking on the process of the market’s demutualisation.
This was undertaken to make the NSE imbibe robust corporate
governance; enhanced efficiency and transparency associated with
publicly-quoted companies.
Specifically, last year, SEC inaugurated a Technical Committee on the
Demutualisation of the NSE. The Chairman of the SEC, Senator Udoma
Udo Udoma, who inducted members of the committee in Lagos,
stressed that the committee was expected to advise the commission
on the demutualisation of the Exchange.
The Committee has since presented its report of findings to the Board
of the SEC. Demutualisation is just part of the overall reforms that the
SEC is implementing to help reposition the capital market and
subsequently restore confidence in it.
The NSE, on its part, has been interfacing with the World Federation of
Stock Exchanges on the specific requirements that must be met in its
pursuit of becoming a member of the WFSE.
The Chief Executive Officer, NSE, Mr. Oscar Onyema, stated that
becoming a member of the WFSE was indeed a focus in the right
direction for the Exchange. According to him, the reason is that one of
the variables many investors consider whenever they want to invest in
a market, whether or not the targeted exchange, is the membership of
the WFSE.
Other efforts by SEC to increase participation and interest in the
market included the recent steps to encourage international oil
companies, energy and telecommunications companies to list on the
NSE.
The commission has also variously said that it has been working hard
to ensure that key sectors are represented on the Exchange.
Reacting to this, the past President of the Chartered Institute of
Stockbrokers, Mr. Michael Itegboje, said that if SEC should succeed in
its efforts to bring major multinational companies to list their shares
on the Exchange, it would go a long way in improving market
activities.
According to him, there should be a law enabling the listing of some of
these firms in the market, adding that this would go a long way to
complement the regulators’ effort at boosting activities in the market
as well as restore investor-confidence to the market.
The former President, Association of Stockbroking Houses of Nigeria,
Alhaji Rasheed Yussuff, noted that the capital market regulators were
saddled with the responsibility of ensuring that the market remained
attractive to the investors.
He said, “The onus lies on all the stakeholders to ensure that we stand
up to the challenge of making our market attractive to these investors.
If we can all get our act together, we can record tremendous
patronage in our market and it can grow beyond what we even
expected.
“There are many burning issues that have yet to be addressed in the
market. If the Federal Government and financial regulators come out
with a plan to address the illiquidity issue and others, the foreign
investments may flow in more into the market.”
An investor, Mr. Jacob Iruememe, who also spoke to our
correspondent on the market reactivation measures, commended the
capital market regulators, saying there had been visible improvements
in the market.
He added that with the intervention of SEC and NSE in recent times, it
seemed there was more transparency in the market, which according
to him, is necessary to rev up activities.
He said, “I think we can commend SEC for some of the reforms they
have come up with in recent times, at least we have seen that there
has been some improvement in the activities. We have seen them, in
collaboration with NSE, come up with vital information that has helped
investors to make good decisions in recent times.
“I also think the regulators have helped to improve transparency
among the stockbroking firms themselves, as they now make regular
publication of stockbroking firms that are not doing things right. This
has helped some of us to be able to know the right brokers to deal
with.”
He, however, added that there remained a few things that the
regulators had yet to do in ensuring that investor confidence was
brought back to the market, as some investors had yet to get over the
losses incurred since 2008.
By UDEME EKWERE
PUNCH, March 19, 2012