Last week, stakeholders in the Nigerian capital market gathered at the 2013 edition of BusinessDay annual capital market conference with the theme, ‘Increasing liquidity for a $1 trillion capital market by 2016.’
Participants at the conference, held in conjunction with Association of Issuing Houses of Nigeria (AIHN), Chartered Institute of Stockbrokers (CIS), Association of Stockbroking Houses of Nigeria (ASHON), Securities and Exchange Commission (SEC), FBN Capital, CBO Capital, NASD plc, and the Nigerian Stock Exchange (NSE) as sponsors, examine the possibilities of attaining this heroic task the NSE has set for itself.
All indicators and forecasts say Nigeria is the place to be in terms of investment. By implication, if you are not yet playing in this market you will regret your decision or indecision, because Nigeria is one of the most lucrative new frontier markets and its capital market holds potential to grow in excess of $1trillion in size by the year 2016.
The NSE currently has 14 electronic trading floors across , and there are 312 broker-dealer firms and 28 issuing houses operating in the market. Still, the Nigerian capital market is not a through reflection of the economy, giving the percentage of market cap to GDP. Currently, 22 Exchanges across the world have achieved $1 trillion market cap, and in Africa, Johannesburg Stock Exchange (JSE) has achieved same.
As international and local investors continue to bet on the NSE as an exciting frontier market, there is yet the need to do more to ensure the market grows faster and bigger. Interestingly, at the confab participants learnt that retail sentiment at the Nigerian bourse has turned from bearish to bullish as the Exchange says its goal of getting to a $1 trillion market cap by 2016 is still on course. This development comes on the heels of disclosure that the share of trading activity by domestic retail investors in the NSE has moved up to significantly.
Domestic investors – categorised into either institutional or retail investors – have increased their stake in the equity trading at the NSE to 61 percent, while Foreign Portfolio Investors (FPI) have only 39.3 percent, recent statistics at the bourse from 2007 to February 2013, show.
While presenting a global perspective on the capital market at the conference, Luca del Conte, director, capital markets, Exotix, UK, said: “We have been very close to local institutions in London and we have been able to access the level of deal flows in the capital market.
“Nigeria is among countries in main frontier equity and bond indices. Frontiers’ share of the world GDP has almost doubled in the last 10 years. Though there are some key characteristics of a frontier market. Among them are illiquidity in securities trading and lack of debt. Frontiers are the emerging markets of tomorrow. The frontier markets are growing… often beating other emerging markets. “Markets are products of capitalistic forces, however; experience across frontier markets is that government/central banks need to create environment for change… through incentives. GDP, currency, reserves, oil price, are key factors. Inflation is barrier to market stability.” Luca del Conte is also former executive director, Treasury & Capital Markets, Medi Capital Bank plc, London.
Also at the conference, Chris Emeka Azubogu, deputy chairman, House of Representatives Committee on Capital Markets, said: “We want other aspects of the economy that will drive liquidity to come to the market. It is not that we are going to force companies to come to the market, but there needs to be a sort of measure that would make them come to the market to increase liquidity.”
Oscar Onyema, CEO, NSE, said the average value of shares traded daily had also jumped by 64.7 percent, to $28 million today, from $17 million last year. He told participants at the conference that the NSE All Share Index grew 18 percent year-to-date (ytd), while the market cap of all listed securities on the exchange stood at about $101.64 billion, with equities making up $56.77 billion and fixed income securities making up $34.8 billion.
“The institutional side of the local retail participation is back,” said Onyema, “as things turn around on the Exchange the 5 million retail customers will grow.”
The NSE can get to a $1 trillion market cap by introducing new products, which has already begun to happen with Exchange Traded Funds (ETFs), encouraging retail bond trading, and through favourable government policies, such as the passage of the PIB, which would unbundle the NNPC, and oil majors and get them listed on the exchange, according to Onyema.
The NSE market cap at the end 2012 was equivalent to 21 percent of Nigeria’s GDP, meaning that key sectors of the economy such as agriculture, telecoms, oil and gas, and utilities, are not represented on the bourse, said Onyema.
The NSE forecasts that the agriculture sector can garner a market cap of $140 billion, telecoms $45 billion, oil and gas $265 billion, and utilities $16 billion, if the companies in the sector are to list on the exchange by 2016, helping to meet the $1 trillion market cap goal. The Nigerian bourse, which currently has 195 listed companies, is identified as the third largest Exchange in Africa by market cap.
Supporting Onyema’s view, other market stakeholders at the conference were unanimous in their submission that we can get to $1 trillion market cap if we are able to get more investors to participate in the market as well as making Pension Funds Administrators (PFAs) to invest in the capital market, as a reasonable percentage of Pension Fund assets worth approximately N3 trillion.
To make this vision of $1 trillion a reality, Onyema said the Exchange needed to attract more quality companies to list, adding that: “You are not going to have market cap of $1 trillion without liquidity in the market.”
Currently, there are about 1000 companies that the NSE is prospecting to list on the Exchange.
On how to make this vision a reality, the NSE boss believes that the capital market needs favourable government policies that would boost investment in the market; target business development efforts; comprehensive and robust legal/regulatory framework; efficient technology system; market structure that would drive liquidity and depth, and investor/issuer protection.
According to him, the government can drive this vision through Petroleum Industry Bill (PIB), Local Content Act, privatisation, etc. “Government can drive this vision by creation of enabling economic environment to engender listing on the Exchange (like appropriate tax regime). Dragging companies to list will result to not keeping to listing rules. Though there should be push for listing on the Exchange by major telcos, push for listing of utility companies, and favourable policies resulting in listing of agric and agro-allied industries on the Exchange.”
Albert Okumagba, CEO, BGL plc, said: “The regulator backed by the full weight of Federal Government should embark on efforts that would make retail investors see need to embrace Collective Investment Scheme (CIS). As a country, we can use strategies around CIS to capture pension funds.”
Louisa Eni-Umukoro, director and head, CIS department, SEC, who represented the director-general, Arunma Oteh, noted that the conference highlighted the shares vision of the SEC in driving Nigeria’s development through capital market, saying “as capital market regulator, SEC is committed to building a world-class market that is transparent. As a commission, our market development strategy for 2013 is built around financial inclusion, innovation, and effectiveness.”
Haruna Jalo-Waziri, executive director (business development), NSE, said: “We think that our market should trade above $100 million per day in value. Liquidity in the market is a function of the structures that drive investor’s interest to participate in the market, which has also to do with investor protection.”
On the effectiveness of Market Making programme, he added that it could only be more effective if there was Securities Lending. “The SEC has issued licences to five Securities Lenders, but they have not started securities lending. Without securities lending, market making cannot be effective,” Jalo-Waziri added.
Val Uche, managing partner, Alliance Law Firm, said: “We have always noted that there should be certainty in the capital market rules and laws. Foreign investors normally seek to know the existing capital market dispute resolution mechanism. We also think that effective legislation should be used to deepen the market. This will make the exploration and production companies come to the market.”