• Monday, December 11, 2023
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BusinessDay

A capital market with just 5 million investors

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 In finance and economics, investment has different meanings. In economics, investment is related to saving and deferring consumption; but in finance, investment is putting money into something with the expectation of gain, usually over a longer term. In making investment decisions, there are many types of investments that stare at the investors for patronage.

Popular among them are those investible instruments at capital market, money market, and real estate plans. Looking at recent market indices, the Nigerian capital market seems to have transited from apprehensive mood that had prevailed among operators to consensus optimism of a better performance this year and beyond.

Amid the positives, the current worry remains why only 3.33 percent of the Nigerian population invests in capital market, as current statistics revealed that only about 5 million Nigerians out of a population of over 160 million people invest in the capital market.

The implication here is that there is a great role ahead for all capital market participants namely: providers of funds (investors or individuals, unit trusts, and other corporate bodies); users of fund (companies and governments); intermediaries (stockbroking firms, issuing houses, and registrars), and regulators (Securities and Exchange Commission and Nigerian Stock Exchange).

Looking at this paltry figure of investors in Nigeria’s capital market vis-à-vis the nation’s population, our regulators – apex and self-regulators, you will agree that efforts should further be directed at attracting more local investors into the Nigerian capital market. It’s therefore imperative to stem the tide of capital outflows from international investors – mostly portfolio investors – whose entry and exit strategy often directs and redirects the market.

There is a positive correlation between a well-developed capital market and economic development. A major engine of economic growth and development of a nation is its capital market, because it impacts positively on the economy by providing financial resources through its inter-mediation process for the financing of long-term projects. The projects may be promoted by government or private sector institutions. By implication, without an efficient capital market, the economy may be starved of the required long-term fund for sustainable growth.

According to Olusola Dada, chairman/CEO, Anchoria Investment and Securities Limited, “given its effects on the flow of capital, a well-developed domestic capital market also can have a positive impact on the capital account of the country’s balance of payment. Until the advent of capital market, many local investors in Nigeria had only two alternatives: placing their money on deposits at commercial banks, or buying government securities. Consequently, to diversify their portfolios, many local investors had to seek access to foreign financial markets.”

Dada said: “The further development of a domestic capital market will not only provide local investors with a variety of investment opportunities, but also will provide them with alternative instruments that can be used as substitutes for foreign instruments. The result is that, a large share of domestic savings will be used to finance domestic investments. A well-developed domestic capital market attracts foreign investors, which will also contribute to the capital account of our balance of payments.”

Trading activities at the nation’s bourse has tilted towards oligopoly market, as out of about 240 stockbroking firms, few of them – about 10 – now control over 50 percent of trading volume and value. This trend emerged due to the withdrawal of retail investors who were major clientele base for “smaller” stockbroking firms, while the “big” one with their clientele base as foreign investors now control the market.

Yvonne Emordi, head of strategy, Nigerian Stock Exchange (NSE), had at a business clinic of the Financial Services Group of the Lagos Chamber of Commerce and Industry (LCCI), noted that in line with the Exchange’s focus at achieving $1 trillion market cap by 2016, “the way forward is to focus more on targeted business development efforts; stronger regulatory environment and utilising the 21st Century technologies.”

She also stressed that other factors needed to forge ahead include the need to provide a growth enabling market structure and also develop a first-rate investor protection programme.

“We have focused very much on the regulatory framework as well as enforcement. We have come out with new products to boost investors’ confidence. Investment portfolio has fallen a little bit since last year, with local investors holding about 60 percent to 65 percent of investment and activities in the market – local investors are coming back into the market,” Emordi added.

“This is a welcome development because it would go a long way in mitigating the risk of external shock. Foreign investments are typically known for moving the market because they are always looking for deals and profits. The combination of all these would bring about positive impact to the economy at large,” she added.

In his view, Garba Kurfi, managing director, APT Securities and Funds Limited, had expressed the need to increase liquidity in the market as well as need for regulators to work harder to sensitise the local investors to increase participation in the equities market. “Foreign investors dominating the nation’s capital market is not good for the growth of the sector,” Kurfi said.

To Emeka Madubuike, chairman, Association of Stockbroking Houses of Nigeria (ASHON), “we are hopeful that the future is very bright as we look forward to a market with 40 million to 70 million investors, a state-of-the art trading platform that promises great customer and operator experience, $1trillion market capitalisation and one that is main driver of economic development.”

Arunma Oteh, director-general, Securities and Exchange Commission (SEC), had noted that “Nigeria has one of the 10 highest real income per capita growth rates in sub-Saharan Africa, an indicator of the increasing purchasing power of its over 150 million people. This is without doubt a veritable incentive for investors in the consumer sector.

“Equally important are the huge investment opportunities in agriculture, infrastructure, oil and gas, natural resources as well as in other sectors of the economy. This is even more so now than ever before given the Nigerian government’s commitment to address the infrastructure deficit, notably power, reverse import dependency and unleash the potential of its people. These apparent gaps in themselves present huge opportunities for the discerning investor.”

The SEC has improved its enforcement regime. “This has resulted in higher levels of compliance and reduced improprieties. We have strengthened market rules and regulation with the introduction of new rules and the amendment of existing ones. One of such is the introduction of margin guidelines designed to curb excessive risk-taking by operators,” she said.

Accordingly, she noted: “We have also addressed gaps in corporate governance with the introduction of the Code of Corporate Governance effective April 1, 2011. The new code of Corporate Governance has been adjudged to be comparable to internationally acceptable codes,” adding that they facilitated a seamless transition to risk based supervision and worked with publicly quoted companies to ensure that they transited to International Financial Reporting Standards (IFRS) in 2012.

“These we believe will ensure adequate and timely disclosure of information, thereby promoting market integrity,” she said further.

Despite that Nigeria’s capital market has made considerable progress and achievements in recent times, there is need to further improve transparency and corporate governance of listed companies; improve the liquidity and depth of the market; enhance institutional infrastructure; reduce cost of capital market business and transaction costs; encourage more stake by pension funds into equities investment, and attract more listings like the telcos, and oil companies. When listed, their profit trends are capable of bringing more investors to the market.