SEC: Towards revitalising Nigeria’s capital market

Stimulating economic growth remains the uppermost wish, prayers, goal and commitment of the Buhari regime rolled into one. And the wise men he places in charge of the economic growth machinery of the Africa’s largest economy understand that and, like alchemists, are busy making all concoctions to cure the maladies presented.

Mounir Gwarzo is one of these wise men. As the Director General of the Securities and Exchange Commission (SEC), he is saddled with regulating the nation’s capital market. He is ardently working to stimulate Nigeria’s economic growth through innovative interventions in the capital market.

However, unlike the days of the Pharaohs when idealism and magic held sway, in today’s world every-day challenges are addressed using scientific approach—social or physical science that is. And these material solutions are always guided by tested and proven theories. Based on this modern realism, the role of capital market in the stimulation of the nations’ economy is not a hard fact to discern. For example, financial liberalisation, which has become the trend in both developed and developing world, was based on well established frameworks and so far it is working and yielding the expected impact on economic progress.

The role of capital market in stimulating a nation’s economy is based on the premise that the market provides avenues, first and foremost, for boosting domestic savings, increasing the quantity and quality of investment and eventually providing individuals with additional financial instruments that meet their risk preferences and liquidity needs.

In effect, without boosting domestic savings the capital market will not grow at a phase that will impact on the nation’s economy. Historically, capital markets were founded to provide financial intermediation that will mobilize and utilise long-term funds for development than ordinarily commercial banks are willing to commit. This particular characteristic of the capital market earned it the nick name of the “long term financial end of the financial system”.

Gwarzo understands this and has his eyes and mind focused on rejuvenating the retail end of the capital market, which suffered heavy losses following the capital market crash of 2008. As at 31st December 2014, Nigeria’s market capitalization stood at N16 trillion. If fully mobilised, the market capitalisation of the largest economy in sub-Saharan Africa ought to be far greater than that.

One of the innovative ways of encouraging growth of the retail end of the capital market is fast-tracking the distribution of dividends, which Gwarzo now promotes vigorously through electronic transfer under the e-dividend platform. The SEC initiated and sold the idea of allowing investors to register for their e-dividends at their banks or with their registrars free of charge first for 90 days from tail end of last year. Today, the SEC is underwriting the costs of the registration after the expiration of the first 90 day-grace with an extension of the free registration period for another 150 days from April to September this year.

Surely, this is an incentive to encourage retail investors come back to the capital market en masse.  It is also part of the efforts by SEC to achieve the long yearned 100 percent dematerialization. The effort also addresses squarely the issue of unclaimed dividends by issuing a directive mandating registrars to transfer such monies in their possession that are 15 months or older back to the companies. This has now stopped the growth in quantum of unclaimed dividends, which is more than eighty million Naira.

Another pioneering way of attracting investors—both domestic and foreigners—is putting in place frameworks for shareholders’ protection. Shareholders’ protection is one of the four pillars that account for the efficient growth of the capital market worldwide. The other three are macroeconomic stability, a well-developed banking sector and institutional quality. The assumption is that capital market development is more likely in countries with strong shareholders’ protection because that will assure investors of any fear of expropriation. And if we are to attract foreign shareholders-cum-investors, we need to have a strong shareholder protection mechanism in place.

This Mounir Gwarzo’s led SEC is pursuing with demonstrable zest, mainly through the establishment of the National Investor Protection Fund (NIPF). Investor protection framework usually encourages more investors and engenders dispersed and diverse ownership rather than concentrated ownership found in markets with less shareholder protection framework.

The SEC under Gwarzo is striving also to position Nigeria to play a big role in the emerging global market for Islamic or non- interest finance valued at over $2 trillion. So far, the SEC has implemented a number of reforms aimed at deepening the non-interest capital market.

Nigerians are increasingly taking the opportunities provided by the SEC’s apparent maximum exploration of the non-interest capital market. For example, Lotus Halal ETF, a non-interest capital market product which tracks the NSE Lotus Islamic Index (NSE-LII), was launched in August 2014. The NSE-LII index tracks the performance of 15 Sharia-screened equities listed on the stock exchange. Some of companies covered by the index include Cadbury Nigeria, Dangote Cement and Unilever.

All these innovative tools churned out by the SEC are part of the 10-year Master Plan carefully developed, taking into consideration global best standards and with the cooperation of industry-wide stakeholders which, much to the delight of the investors, Mounir is implementing with uncommon zeal.

The channels for economic progress through the capital market are many and Nigerian investors are already enjoying them. They include opportunities for companies to borrow funds needed for long-term investment purposes; and for the marketing of shares and other securities in order to raise fresh or additional funds for expansion leading to increase in output/production. In short, they serve as a means of allocating the nation’s real and financial resources between various industries and companies.

Nigeria’s capital market is gravitating towards a developed market that will soon give Nigeria’s economy the boost it needs to blossom further and take its rightful position as not only the largest economy but also largest capital market in Africa.

The SEC under Mounir Gwarzo is doing its part with introducing of innovative rules and adopting global best practices. The three pillars briefly mentioned earlier as being pre-condition for efficient capital market—developed banking sector, institutional quality and macro-economic stability—are being addressed by other regulatory bodies. Once the results are harnessed, the much needed stimulation of the economic growth of Nigeria will become a reality, helping the country reach the much desired economic destination based on sturdy market fundamentals rather than the shaky magical premise of the Pharaonic days.

Bashir Ibrahim Hassan