In 2012, the Nigerian capital market recorded a 37 percent growth in stock market capitalisation, and 44 percent increase in total market capitalisation, setting the record for the biggest recorded growth since the 2008/2009 market downturn.
In the 52-week period between March 2012 and end of February 2013, the Nigerian stock market recorded a huge 65 percent growth. This trend points to the fact that Nigerian capital market is back on track as one of the choice investment destinations globally.
This phenomenal growth rate is driven not by improper conduct from market players, but on the back of strong regulation and improved results of listed equities.
Suffice to say that the task before Suleyman Ndanusa chaired board of directors of Securities and Exchange Commission (SEC) remains sustaining this growth, as a route to build a world-class capital market.
Recently, while briefing the media in Lagos, the board of the SEC stated that the thrust of the apex market regulatory and market development activities this year shall be based on innovation, financial inclusion and effectiveness.
Some salient issues that arouse from the meeting include that in 2013, re-capitalisation of stockbroking houses will be on the front burner and the SEC will come out with regulations that balance the interests of safety and inclusiveness.
On new and revamped trading platforms, the Commission has recently approved the registration of two new trading platforms, FMDQ OTC plc and NASD to provide OTC trading services. The Nigerian Stock Exchange has embarked on an upgrade of its trading platform and now supports bond trading. The Abuja Securities and Exchange Commission (ASCE) is about to be totally revamped, as SEC has received strong expressions of interest to make the platform fully operational.
On dematerialisation, the Commission gave a deadline of December 31, 2012, for all share certificates to be dematerialised, failing which investors would be charged a fee from 2013 for the process. “This would help the capital market to be more liquid, attract more foreign investors and enhance a risk-free trading environment. Although the process faced some challenges in 2012, it is expected to fully kick off in 2013. We will channel resources to support the necessary technological upgrade that will make dematerialisation a reality, this year,” Arunma Oteh, director-general, SEC noted.
Also, she said: “In line with our drive to create more effective structures, we will also ensure that e-filing takes off in 2013. This will include online filing of returns, e-offers, e-allotment, e-dividends and e-applications. When fully operational, technology will greatly contribute to the resolution of the issue of unclaimed dividend.”
According to Oteh, “the capital market remains the best source of cheap medium to long-term finance for enterprises as well as for government. The capital market mobilises savings to meet these long-term financing needs in a manner that benefits the savers, the investors and the economy as a whole. In the past year, we have seen significant gains in the form of appreciation in asset prices and increasing interest among investors. The question that remains is how can we catch on the momentum to position the market to better play its role as a critical component of the national economy? The answer, to my mind, lies in evolving a market that is more innovative, inclusive and built on effective processes and structures.”
The 2011 – 2012 Global Competitiveness Index (GCI) reports that 22.2 percent of respondents ranked “access to finance” as the most problematic factor for doing business in Nigeria, ahead of inadequate infrastructure (19.9%), corruption (17.7%) and policy instability (8.3%).
“This should not be so for a country that ranks an impressive “49 out of 142 countries” for financing through local equities market. The point that must be made is that on the supply side, we do have abundant need for financing new ventures as well as expansion for existing ones. The government needs finance to provide critical infrastructure, quality healthcare, education, security, etc,” Oteh said.
It is estimated that Nigeria’s housing deficit exceeds 16 million units, yet we have only about 50,000 mortgages or 0.7 percent of our GDP in mortgage assets. This country also has 80 million hectares of arable land, and it is estimated that only 40 percent of it is under cultivation, mostly in the form of non-mechanised farming. Yet Nigeria has to feed a growing population, currently at 160 million, and is already the largest importer of rice worldwide. According to the International Food Policy Research Institute, the value of agriculture in Nigeria at constant 2010 dollars was $99 billion, projected to grow to 256 billion dollars by 2030. “For this growth, we need to invest in yield expansion, area expansion, and diversification into high value crops. Talk about the need in power, ICT, etc; the scale is simply incredible,” the SEC DG said.
“On the demand side, there are savings waiting to be deployed in Nigeria. Pension assets are already in excess of N3 trillion, and PENCOM has been very progressive in revising its rules so these assets under management can be deployed to invest profitably in the capital market. The insurance sub-sector is another potent source of institutional investment; the potential remains largely untapped. There is also the $1 billion Sovereign Wealth Fund (SWF) which will take-off before the end of First-Half (H1) 2013. Add to that the demand that can be generated by collective investment schemes, if many Nigerians begin to patronise these vehicles. Local investors, whether high net-worth individuals or retail investors collectively, if incentivised can mobilise enough savings to create a more robust capital market. There is also the Diaspora investor community, in addition to foreign investors who have continued to find Nigeria increasingly attractive,” she added.
“In 2013, we are poised to support innovative (but safe) structures that can match financing needs with sources of finance. In light of this, we have continued to build capacity in the areas of housing finance, securitisation, covered bonds, REITs, agriculture finance, etc. We have also authorised new trading platforms and approved new listing rules which we hope will add depth and breadth to the range of financing options in our markets,” the SEC said.
“In 2013, we are keen to key into various reform programmes in the wider economy, to attract listings in both the equity and fixed income segments of the capital markets. Among these are the expected commercialisation of the NNPC (particularly, the National Oil Company to be carved out of the group) under the PIB; the ongoing privatisation of power assets; reforms in agriculture with the expected bond issuance by the Fund for Agriculture Finance in Nigeria (FAFIN), a proposed debt fund that will leverage the capital market to lend to farmer co-operatives; the Mortgage Refinancing Company being championed by the World Bank/IFC, FMF/FMLHUD, CBN, SEC and the private sector. Last year we approved the amended listing rules of the NSE to make concessions for oil and gas companies, and to also attract SMEs. We are supportive of the NSE’s vision of growing market cap to $1 trillion by 2015. We think this is possible. The recent introduction of a platform for bond trading on the Exchange is a good step in that direction. With additional listings and the introduction of new products, we can make a lot of progress,” the Commission stated.
Cognizant of the need to support measures that would further boost liquidity on the Exchange, we approved NSE rules on market making. On September 18, 2012 market making finally took off at the Exchange with 16 blue-chip shares and 10 market makers who provide two way quotes for buy and sell orders for the affected stocks, within the price band stipulated for each stock. To complement this initiative, we equally approved securities lending and short selling rules of the Exchange.
Market making, securities lending and short selling will boost market activity and add liquidity, in 2013, and we have continued to closely monitor the progress of these initiatives in line with our mandate to ensure a fair and orderly market.