Martin Udogie: What is the role of the capital market in the economic transformation effort amid so much focus and fixation on oil, agric, telecoms etc?
Arunma Oteh: Capital markets enable businesses or government to raise medium to long-term funds. There is no way we can realise our potential in the critical sectors of the economy such as agric and even in infrastructure financing without a thriving capital market. It is a vehicle to raise money and a vehicle to invest money. But beyond that, capital markets provide an opportunity for meritocracy, highest levels of corporate governance, accountability and transparency, because the process of raising money involves third parties.
And for a country of hardworking people with entrepreneurial zeal, it is important we provide an opportunity for Nigerians to build businesses through providing medium to long term finance whether through equities or bonds. No economy has been transformed or developed without medium to long term finance.
Martin Udogie: At about 2% of GDP, our corporate bond market is small compared to the equities market, unlike countries such as South Korea (65%), China South Africa (20% each). Why is this and what is SEC doing about it?
Arunma Oteh: Corporate bonds market is an opportunity for any company, whether listed or unlisted to raise long-term funds through bonds. Because there might be some companies that may not be ready to give a piece of their ownership to investors. Such companies can raise medium to long term finance through bonds. So the potential of our bond market is enormous and the SEC is doing series of things to further develop this market such as reduction in time to file applications, reduction in the cost of issuance, the two-year Shelf Programme innovation, Book-building for liquidity and participation, tax waivers for all bond holders, etc.
Martin Udogie: Is the rush to the bond market by state governments a healthy trend?
Arunma Oteh: Absolutely. There’s no way that the Federal Government or the state governments can meet their huge financing needs for infrastructure, strictly from their budgets. So it is important that the capital markets offer them the opportunity to raise funds. It also helps entrench our democracy, since the process of raising money from the capital market is very rigorous. The governments must meet third party stringent requirements and assessments, open up their books etc. And we also monitor the use of proceeds after a transaction has been concluded. So there is greater scrutiny, greater honesty and greater accountability.
Martin Udogie: Some stock markets have rebounded to pre-high levels. Why is the Nigerian stock market still down? What will it take for the market to recover?
Arunma Oteh: On the contrary, Nigerian equities market is one of the top-performing in the world. The All-share index rose 35.45% in 2012. This year, year-to-date, it has risen by almost 20%. So our market is doing very well. And this time, the performance is based on fundamentals, unlike the euphoria of the past, along with market abuses, share price manipulation, etc.
Since 2010, SEC has begun a reform programme anchored on zero-tolerance for market infractions. This is what sends this signal for market integrity. The Nigerian economic fundamentals are enormously attractive, from population size, rising income, fast-growing economy, with sectors such as agric which contributes 42% of our GDP, 70% of employment, etc. Hence international investors once comprised 80% of the daily value of investments, but now that ratio is down to 56% meaning the domestic investors are returning to the market.
Martin Udogie: We hear that the stock market is often described as a wealth-building machinery. But can Nigeria really have a thriving stock market in a country where the vast majority live on less than a dollar a day?
Arunma Oteh: We already have a thriving stock market. What we need to do is to make sure we continue to build the stock market to become world-class, to help us realise our potential as a nation. The capital market provides an opportunity for Nigerians to participate in these business opportunities that are emerging. From the Asian Tigers to the America, no nation has developed without domestic savings that are channeled to investing in that nation. We Nigerians have to be part of developing our country.
And it is not for charity. The principle for raising the standard of living is that you set aside a portion of your income and save it. And then make sure that the savings are invested. But that the savings are managed by legally-registered fund managers. We must learn from the Asians in their savings and investing culture.
Martin Udogie: How can you convince certain strategic sectors, particularly those in telecoms, upstream oil to be listed on the stock market?
Arunma Oteh: It makes great business sense to list. Think about it. If you had a piece of Glo or MTN and a base station is about to be blown, wouldn’t you do what it takes to protect it, because you have a stake in it? And so much more justification. There’s clearly an opportunity to allow Nigerians to participate in their success.