TEMI POPOOLA is the chief executive officer of the Nigerian Exchange Limited. In this interview with Dipo Oladehinde, he talks about the state of the global market in 2022, NGX’s achievement and the core initiatives of NGX for 2023.
How would you evaluate NGX’s performance considering the economic upheaval that rocked 2022?
Despite global and localised headwinds, Nigerian Exchange Limited (NGX) recorded strong growth across all our asset classes in 2022. For example, the landmark listings of BUA foods and Geregu Power contributed to the impressive growth we witnessed in the total market capitalization of our equity market. They also helped diversify the investment options available to investors.
On the fixed income side, the N25 billion listing of Lagos Free Zone’s (LFZ) bond was the longest-dated corporate bond issuance in Nigeria. I was also pleased with the level of local investor participation in our markets for 2022 following the exits of many of our international portfolio investors. We successfully launched West Africa’s first Exchange Traded Derivatives (ETD) market with the listing of 10 NGX Index Futures contracts (NGX30 and NGX pension) and we took big steps to begin trading digital assets following the release of Digital asset trading rules by the Securities & Exchange Commission.
Other notable achievements include the approval of NGX’s Technology board rules by the Securities and Exchange Commission, as well as the successful coordination of the African Exchange Linkage Project (AELP) launch. Speaking of Africa, NGX got elected to the executive committee of the African Securities Exchanges association.
NGX relaunched its Market Making Program to tackle liquidity constraints and ensure a sustained flow of funds in the capital market. It executed several physical and online capacity-building programs to enhance the knowledge of key stakeholders and increase investor participation. Lastly, NGX was at the forefront of promoting the benefits that securities lending brings to the domestic capital markets, improving liquidity and generating income for lenders.
What were the key drivers for NGX’s performance in 2022?
The satisfactory performance in 2022 can be attributed to a variety of factors including an improved capital allocation to our markets by local institutional investors, and an increased appetite for capital markets by sponsors and promoters of corporates evidenced by some of the listings we attracted. Some of the recent listings, notably MTN’s, also helped to drive increased trading activity on the bourse.
Our exchange offered some of the best returns as well, leading to increased appetite by investors. Many stocks offered high double-digit returns and many of our corporates had very strong operating performances for the year. Our ability as an exchange to facilitate a wide range of transactions and listings has attracted a diverse range of businesses, highlighting our position as a leader in financial market innovation and progress on the African continent. The successful demutualization of the exchange, wherein the regulatory activities are performed to a world-class standard, provided more comfort and confidence to our issuers and investors.
What was Nigeria Exchange Limited’s (NGX) turnover in 2022 compared to 2021?
In 2022, NGX achieved an exceptional performance as it recorded landmark transactions. The total turnover of trades improved by 27 percent year-on-year from 2021, moving from N916 billion to N1.16 trillion.
The fixed-income market also recorded a 10.2 percent uptick in turnover in 2022 at N3.89 billion compared to the N3.53 billion recorded in 2021. Lastly, the equities market gained a 19.98 percent increase in the NGX All-Share Index, rising to 51,251.06 points from 40,270.72 points, just as market capitalisation closed at a high of N27.92 trillion.
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Despite the increase in the equities market turnover in 2022, why was there a decline in foreign participation?
Foreign portfolio investors’ equities appetites waned in 2022 due to factors such as prolonged forex illiquidity and macroeconomic challenges facing many frontier markets.
For example, we witnessed material outflows from emerging and frontier funds to the tune of billions of dollars, and Nigeria was not spared.
These barriers resulted in a decline in foreign investment in 2022, closing at N349.59 billion which is significantly lower than the N1.73 trillion transactions recorded by domestic investment within the same period. We are confident that foreign capital should return to Nigeria following improving investor sentiment towards frontier markets. For example, in the last two months, we have seen inflows of $240 million into frontier funds. We expect the elections in Nigeria to be a positive catalyst as well.
The growth of the fixed-income market capitalization was also positive with an increase of 17.58 percent from 2021 to 2022. What factors contributed to this increase?
Last year, Nigeria saw several fixed strategic incomes including corporate board listings by Dangote Industries, FGN, and the LFZ which contributed significantly to NGX’s performance. A total of N364.78 billion was raised through listed instruments such as Dangote Industries Plc’s N177.12 billion senior unsecured bonds, LFZC Funding SPV Plc’s N25 billion fixed rate infrastructure bonds, and Ardova Plc’s N11.44 billion and N13.86 billion fixed rate senior unsecured bonds. In 2022, NGX also listed FGN Multi-Tranche’s $4 billion Eurobonds, demonstrating its diversity of offerings and ability to attract a wide range of businesses looking to raise capital.
Whilst equity and fixed-income market capitalisation look good, there was a significant decline in Exchange-Traded Fund (ETF) market capitalisation in 2020 but a slight increase in 2022. What played a role in the improvement?
The most active ETF on our exchange is the New Gold ETF which gives investors access to global gold prices. Following FX liquidity constraints, the ability of the fund manager to effectively make markets for this ETF was challenged. We saw growth in trading activity in the other ETFs listed on our exchange.
How did the listing of Access Corporation, BUA Foods, and Geregu Power Plc impact the market?
The upturn in the equities market capitalization was impacted by the gains recorded in medium and large-capitalized stocks through the listings of Access Corporation, BUA Foods, and Geregu Power.
Geregu Power recorded the highest price gain of 10 percent closing at N147.40. As the first power sector player to list on NGX, it has showcased a level of trust in Nigeria’s Power sector and demonstrates NGX’s dedication to developing a strong and inclusive market by establishing channels for sustainable investment. The value of these listings displays NGX’s commitment to being a premier location for capital funding and its ongoing development efforts in the Nigerian capital market post its demutualisation.
With the upcoming general elections, what key areas should the incoming government focus on?
I think emphasis must go into ways of shoring up government finances, creating jobs, and providing infrastructure. Ironically many of these challenges can be solved, at least partly, through the capital markets. For example, research has shown that listed corporates are the most compliant companies when it comes to paying taxes. If you get more companies listed, there is a strong correlation between the number of listed corporates and government revenues from taxes. When you consider the FX challenges as another example, capital markets remain an efficient mechanism to boost foreign inflows from both portfolio and strategic investors.
How do you think NGX Limited can assist the government in improving liquidity?
The Nigerian Stock Exchange plays a crucial role in supporting the government in improving its liquidity and achieving economic and development goals. As the leading listing and trading platform in Africa, our commitment is to promote economic growth by providing companies with access to capital needed for investment and expansion. This will lead to job creation, increased productivity, and higher economic growth. We are also working to diversify the Nigerian economy by providing investment opportunities in different sectors to reduce dependence on a single industry or commodity.
What are the key initiatives for NGX Limited in 2023?
In 2023, NGX will work to support the government and other stakeholders in solving some of the nation’s key challenges. NGX intends to focus on attracting new listings, utilizing them as a vehicle for achieving the strategic aspirations of the new government. We will also strive to enhance liquidity through margin lending, investor education, and the development of new products such as Non-depository receipts and digital assets. We will be taking a renewed focus on sustainability. Another key initiative we hope to achieve in 2023 is to facilitate more capital formation on the exchange by technology companies. NGX is currently working with the SEC, CIS, ASHON, and several stakeholders to drive these initiatives.
What are the key organizations you plan to collaborate with in 2023?
We already announced key strategic partnerships with organizations like MTN and the Bank of Industry. This year, we will be looking to deepen those collaborations to improve listings, access to the markets, financial inclusion, and wealth formation. One of the products we will be looking to launch this year, for example, is a USSD platform where investors can obtain easier access to financial information. We are in active talks with several DFIs and international banks and more will be announced on these at the right time.
What are your plans to create sustainability-focused products for NGX?
NGX is committed to fostering the growth of sustainable financial products, integrating risks and opportunities associated with climate change and other environmental challenges. Many exchanges are increasingly talking about the trading of carbon credits but we are convinced that African exchanges have some way to go before credits can be traded. For example, we think that rather than a Net Zero conversation for Africa, the focus should be on carbon reduction. We have a few initiatives that will be announced publicly soon.
What initiatives do you have to drive youth participation at the Nigerian Exchange?
The Exchange has set its sight on the development of new products aimed at attracting the youth demographic in Nigeria. In 2023, we plan to increase youth participation with the creation of Blockchain-powered digital asset products, non-depository receipts, and an overall increase in market liquidity. We are also leading a transformation drive that will focus on digitizing our processes and operations across the value chain to attract young investors to Nigeria’s capital market.
