Nigerian Exchange Limited (NGX) last Thursday hosted its annual 2021 Market Recap and 2022 Outlook in collaboration with Renaissance Capital (RenCap).
The event offered unique opportunity for stakeholders and the investing public to get insights on the Exchange’s performance in 2021 and expert opinions about opportunities and growth drivers in the Nigerian capital market in 2022.
The virtual event facilitated conversations around The Exchange, the larger Nigerian capital market, and the economy as a whole with presentations from the Chief Executive Officer, NGX, Temi Popoola, and Global Chief Economist/Head of Macro-strategy, RenCap, Charles Robertson.
Delivering his presentation at the event, Popoola stated, “History was made as The Nigerian Stock Exchange (NSE) completed its demutualisation process, following statutory approvals from the Securities and Exchange Commission and Corporate Affairs Commission (CAC).
With demutualisation, NSE transitioned into a non-operating holding company, Nigerian Exchange Group Plc. (NGX Group) with three subsidiaries – Nigerian Exchange Limited (NGX), the operating exchange; NGX Regulation Limited (NGX RegCo), the independent regulatory company; and NGX Real Estate Limited (NGX RelCo), the real estate company. As we walked through 2021, many of the benefits of this transaction were realised making NGX more agile and commercialised in its operations.”
Key outcomes highlighted
2021 was a generally positive year for the NGX’s suite of indices as all but three (3) of the indices ended the year with positive returns. NGX’s flagship index, NGX All Share Index returned 6.1percent driven by recovering corporate earnings and improved investor sentiments.
The equity capitalisation rose by 5.89percent or N1.24trillion during the year. The NGX Oil and Gas Index was the best performing index with a return of 52.52percent driven by recovery in the global oil prices and stronger performances from oil and gas companies. This was closely followed by the NGX Growth Board Index which returned 28percent.
In the fixed income market, capitalization grew by 12.81percent from N17.50trillion in 2020 to 19.74trillion in 2021 driven majorly by FGN Bond issuances. The year 2021 saw the groundbreaking listing of BUA Cement’s N115billion Bond, the largest corporate bond. We also saw the listing of LFZC Funding SPV’s N10billion, the longest dated corporate bond.
We also saw significant uptick in the value of turnover in the fixed income as turnover grew from N1.37billion in 2020 to N3.52billion in 2021. This represented an increase of 158.19percent in the value traded. This improvement could be attributed to investors taking advantage of rising rates in the fixed income market.
NGX also made significant progress in its efforts on the introduction of Exchange Traded Derivatives. We witnessed the official launch of NG Clearing, Nigeria’s premier Central Clearing Counter Party (CCP). The Exchange also registered seven (7) contracts with the Securities and Exchange Commission (SEC) ahead of the launch of Exchange Traded Derivatives.
Read also: Can Africa become tomorrow’s Fintech market?
Ground breaking achievements for 2021 in review
Customer Experience: In line with The Exchange’s drive to develop and improve the digital experience for our stakeholders, NGX launched the maiden edition of the Digital only version of the 2021 NGX annual Factbook (X-Factbook), and released an enhanced version of its X-Mobile App.
Listings: In the equities space, NGX listed Bricklinks Africa, NGX Group and Ronchess Global Resources Plc by introduction on The Exchange; while the fixed income market saw corporate bond issuances by BUA Cement Plc (N115billion); CardinalStone (N5billion); Nova Merchant Bank (N10billion); Coronation Merchant Bank (N25billion); etc.
Securities Lending: NGX grew the total value of securities borrowed/lent in 2021 to N513.10million up from N95.18million in 2020 and N340,000 in 2019. Market Making: Received approval on amendments to the NGX Market Making Rules and relaunched the NGX Market Making Program across the various listed asset classes. In upholding its key pillars of sustainability, NGX recorded the following achievements:
Gender gap assessment report: NGX in collaboration with IFC launched the first-of-its-kind gender gap assessment report which highlights the gender gaps in Nigeria’s private sector through a study of the 30 most capitalized companies on NGX.
Peer-learning platform: NGX in collaboration with IFC launched a 2-year Peer Learning Platform to support listed companies in their quest to improve the gender performance in leadership, employment and entrepreneurship on Friday August 6, 2021.
Participation in SSEI Workgroup on climate reporting: NGX participated in the Sustainable Stock Exchanges Initiative (SSEI) working group led by Mark Carney, UN Special Envoy for Climate Action and Finance to develop a Model Guidance on climate reporting for securities Exchanges. The Model Guidance was launched in July 2021.
International Women’s Day: NGX collaborated with International Finance Corporation (IFC), United Nations Global Compact Network Nigeria (GCNN) and UN Women to commemorate the 2021 International Women’s Day (IWD) and the 7th Ring the Bell for Gender Equality.
Major areas NGX looks to make significant strides in 2022
At the event, Popoola highlighted five major areas NGX will be looking to make significant strides in 2022 as follows: building on digital transformation, listings and delistings, technology, partnerships, and sustainability.
He said, “The Board and Management of The Exchange will first be looking to build on the momentum we have created in our digital journey over the years. When you consider the groundbreaking MTN Offer which we facilitated in 2021, for the first time in the history of the capital market, investors could access a primary issuance in a few minutes simply from an electronic device. Of course this was not without the efforts of key stakeholders including the Securities and Exchange Commission and we are indeed grateful. The next step would be to see how we can deepen and integrate this use of technology vertically across the value chain.”
In this regard, Popoola indicated that the market should expect more digitized offerings or further digitisation of process flows across the intermediaries accessing the market. This is particularly important given the youthful composition of the Nigerian population who increasingly access resources online.
Next, it was highlighted that The Exchange is working assiduously to increased listings in the market. It would be recalled that 2022 began with the notable listing of BUA Foods which added over N1trillion to market capitalisation at NGX.
More listings are reported to be in the pipeline with a particular focus on diversifying the nature of listed companies on The Exchange. On the matter of delistings, Popoola indicated that the market should expect some of such in 2022, but rest assured that NGX is looking keenly to improve the quality of listed companies in its market.
The third focus area for NGX in 2022 focused on the Technology ecosystem. Popoola stated, “If we look across the continent, we will find that there are very few listings in the technology sector even through the news is awash with reports of capital raising. For us at NGX, we are asking how we can be the platform of choice for Technology players to access capital and we are collaborating with other players such as the SEC in this regard. One of the solutions we will be implementing is the launch of a Technology Board which will be better suited to the needs of Technology companies and will have flexible enough rules to allow them to approach our market for capital formation.”
Market players will be keen to see NGX’s planned engagements with the technology ecosystem which will inadvertently drive listings listings, improve investors’ earnings and attract more diversified players to the market on both buy and sell sides. Closely related to this would be NGX’s engagement with companies operating within the free trade zone, to provide them with opportunities to access the market and raise equity financing.
Fourth on the list is partnership. NGX has reiterated its commitment to partner with players across the ecosystem – government, corporates and intermediaries – to align strategic goals for the capital market. It is based on this commitment that NGX partnered with Renaissance Capital to host this year’s recap and outlook event featuring presentations from the Global Chief Economist & Head of Macro-strategy, Renaissance Capital, Charles Robertson; and a fireside chat between Director-General, Budget Office of the Federation, Ben Akabueze and the CEO, Nigeria, Renaissance Capital, Samuel Sule, on the topic, Growth Drivers for 2022 – A Finance and Budgetary Perspective.
Finally, Popoola spoke about sustainability saying, “Sustainability for us is not just the flavor of the month; we have imbibed it as the right thing to do not just internally but also in how we interact with corporates and other stakeholders. Our focus will, therefore, be on Environmental, Social and Governance (ESG) considerations, green finance, and more to see how we can drive growth in this regard”.
Akabueze speaks
According to Akabueze, “We expect domestic economic growth in Nigeria to be driven in 2022 by combination of investments and expenditure. In terms of expenditure, the government has maintained an expansive fiscal stance as much as it can give the resource constraints that we face. Last year, we launched a Nigeria Development Plan 2021-2025, which calls for investments of N349trillion. Of this amount the private sector is expected to invest about N300trillion. Together with the existing fiscal policies, the 2022 budget should spur private sector growth”.
“The area where we need significant private investment is infrastructure, and there are government policies in place such as the road infrastructure tax credit scheme, which seeks to encourage private investments in infrastructure. The government has made it clear that it is open to consider PPP transactions, with four major airports up for concession”, Akabueze noted.
“Nigeria has a deliberate strategy focused on non-oil revenue growth, and we are on a good trajectory in this respect: in 2015, oil revenue was 58percent of FGN’s projected revenue, while this number is estimated at 35percent for 2022. In 2021, most non-oil budget revenues came in above targets, and only the oil sector let the government down, with oil revenue coming 50percent short of the target despite oil prices significantly higher than the budget benchmark. This was largely due to the effects of unbudgeted fuel subsidy and oil production below even our OPEC quota.
“We closed 2021 with NN6.1trilion in revenue for the federal government and N12.9trillion in expenditure, which implies N6.8trillion deficit.
“In 2022, we project revenue at NGN10.74trillion, of which oil revenue is likely to account for N3.5trillion. We see sustained progress in non-oil revenue, although some of that growth is of course inflationary. However, the government seeks to introduce new revenues and more importantly to drive tax collection efficiency through greater use of technology, among other things.
“Cutting back on government expenditure at this point is not a viable option for a number of reasons, in the first place because we are not spending nearly enough on a per-capita basis. Therefore, what we need to do on the expenditure side is to focus on efficiency of spending. Moreover, economic growth is still lagging, and government expenditure is one of the pre-requisite drivers to boost it,” Akabueze noted.
Robertson’s presentation
Robertson in his presentation said, “Although in 2020, Sub-Saharan Africa (SSA) did better than other regions, now the recovery is a bit slower due to the fact that SSA countries were not hit as bad by COVID-19, which as data show is worst for the elderly population. In contrast with the UK, for example, where 12percent of all deaths in 2020-2021 were because of COVID-19, the figure was zero percent in Nigeria, according to official data, which evinces that COVID-19 hits countries that are younger much less (the median age of the Nigerian population is 16 years old).”
“With China being the second-biggest economy in the world, global emerging markets can hardly shrug off the China recession risk. A huge part of the Chinese economy is real estate, and the price of the notorious Evergrande bond has collapsed from circa 85 cents on the dollar to now about 16 cents on the dollar.
“This is pretty shocking because if Chinese real estate goes wrong, then Chinese demand for cement, copper, wiring and housing goes wrong as well. And the hit, in my opinion, will not be the type of real estate problem that we saw in the US in 2007-2008 and that led to a financial crisis. The risk here is that a real estate problem in China leads to a commodity hit. The good news is that it looks like the Chinese authorities have this under sufficient control,” Robertson noted.
He noted further that, “Nigeria has a great amount of oil but not when it is divided by over 200mn people. Gulf countries sell 500 barrels of oil per thousand people every day, while Nigeria sells seven. That is why I maintain that oil is not going to make Nigeria rich. Nonetheless, when the oil price goes up, it forces us to change our forecasts in a more positive way for the country.
“If oil prices are going to average $80/bbl this year and next, we are going to see growth of about 3percent in 2022. And if oil stays at $90/bbl, we think we are getting growth of 4percent. The naira may be N465/$ this year and with oil at $90/bbl possibly N450/$. Interest rates are sliding down and, most important of all, the current account is going into a very healthy surplus, which means dollars will be flying into Nigeria from this current account surplus”.
“With elections just around the corner, some businesses are getting a little concerned about what is going to happen, and they might decide to delay investment plans. But on the other hand, we have higher oil prices and the government doing its part to support investments. Foreigners tend to worry a lot about elections, but they probably should not, according to our data, which show that Nigeria – surprisingly to some people – is a very secure democracy, with a 95percent chance of remaining a democracy in any given year, which is way higher than most in the region. Certainly, markets are looking for market-friendly policies from 2023 and from the new president.
“The long-term structural drivers of growth remain education, electricity and fertility. On literacy, Africa has made huge progress over 70 years, such that most countries and all of southern Nigeria now have the human capital to industrialise. Digital may also provide change beyond what we might be able to predict. We believe Africa will achieve the highest growth it has seen in the 21st century, with the greenest industrial revolution ever achieved, surpassing India’s GDP by the 2050s, equaling China’s current size by 2060 and the US current size by 2070,” Robertson stated.
