Stockbrokers push for financial market overhaul
…say demutualisation, insurance sector recapitalisation will boost market
Apparently bothered by the lackluster state of Nigeria’s financial market, stockbrokers under the aegis of the Chartered Institute of Stockbrokers (CIS) have reviewed Nigeria’s economic outlook and re-affirmed the need to overhaul the financial market to attract more investors into the capital market. It said demutualisation and insurance sector recapitalisation will provide additional boosters for market revitalisation. Besides, the gentlemen of the city have urged the federal government to set up a council, comprising different professional bodies to drive savings as a strategy to encourage investors towards medium and long term investment in Nigeria.
In a statement titled “The Nigeria Economic Review: Outlook and Recommendations for 2020”, the Institute urged the federal government to review entire financial system for enhanced growth and development.
“The Federal Government should Review the structure of the entire Nigerian Financial System significantly to raise the utilization and development of the capital market, especially, fixed income and equity segments to create a balanced and faster growth inclined system. There is a need to set up an independent Council comprising Banks, Stockbrokers, Mortgage Institutions, Insurance Companies, and Pension Fund Administrators, etc. to more effectively coordinate the mobilization of savings in the country”, CIS said.
“Federal Government should institutionalize the funding framework for Capital Market Literacy (CML) in Nigeria by financially empowering CML oriented bodies, as is done in France through the IEFP. The Tertiary Education Trust Fund (Tetfund) should allocate a portion of its fund to the Capital Market Literacy (CML) drive, and to the CIS in particular. As banks control almost the entire liquidity in the Nigerian financial system, they should support capital market investments, including re-introduction of margin lending with improved regulations. CBN, being the dominant institution that currently provides liquidity support for critical economic sectors, should extend its liquidity support to the capital market, including the equity segment.
“The Federal Government should direct Pension Funds in Nigeria to look beyond fixed income investments and also invest substantially in the equities market for liquidity and stability purposes. Greater tax incentives should be granted to companies and individuals in accordance with their levels of savings and investments in formal and recognized outlets such as stock markets”, the statement said.
The Institute noted that In Nigeria, economic policy was largely discharged by way of continual interventions by the CBN while the Federal Government’s decision to close the country’s land borders also had significant impact on performance indicators. Figures from the National Bureau of Statistics (NBS) and the CBN showed that, although there were improvements as the year went by, the key parameters of economic performance were significantly below the targets set by the Federal Government’s Economic Recovery and Growth Plan (ERGP).
CIS noted that further that “Nigeria recorded a GDP growth of 2.28percent in Q3, 2019, up from 2.12percent recorded in Q2, but still far below the ERGP’s target of 4.5percent. “The CBN’s website indicates that the price of Nigeria’s Bonny Light crude had hit $71.31 as at 27 December 2019. Nigeria’s inflation rate stood at 11.85percent YoY as at November 2019, but as at the time of writing this report, the National Bureau of Statistics had yet to release its Report on Job Creation and Unemployment”.
“The last NBS’ data for Unemployment was in Q3’2018 and showed that 23.1percent of the labour force was unemployed. The Federal Government, significantly, finally reached an agreement with labour on a new minimum wage structure for the country, and for the first time in her recent history, Nigeria’s Federal Government Budget was signed into law ahead of the New Year. The Budget provides for aggregate expenditure of N10.594 trillion and represents a fiscal deficit of N2.3trillion. The Finance Bill which accompanied the Budget may place more burdens on taxpayers,” according to the statement.
In the review, the Institute noted that the Money Market continued to dominate the Nigerian financial market space with the CBN’s interventions in various sectors of the economy. It states that significant among these measures were the directive that deposit money banks should increase their Loan to Deposit Ratio (LDR) to 60percent, and restriction of patronage by local corporate and individual investors in Open Market Operations (OMO) auctions. “ These contributed to the achievement of a stable foreign exchange rate and an increase in bank credit to the real sector, although Gross External Reserves dropped to $39.8 billion in November”, the statement said.
In its review of the secondary market, it stated that “The Nigerian Stock Exchange recorded crucial milestones with the $5.07billion Listing by Introduction of MTN Nigeria and the $3.8 billion Ordinary Shares Initial Public Offering of Airtel Africa Plc in the review period. However, Low liquidity continued to plague the stock market as The NSE’s All Share Index fell 14.6percent to close the year at 26,842.07. Market Capitalisation, however, closed on a slightly improved figure of N12.958trillion. Analysis of The NSE’s historical data showed that between 2007 and 2018, domestic transactions on The NSE dropped by 66.68percent while foreign transactions increased by 97.88percent. The process of demutualizing The Nigerian Stock Exchange is at its final stage.
“The S&P FMDQ Nigeria Sovereign Bond Index closed the year 2019 at 481.36, recording a Year to Date appreciation of 34.79percent while the NASD OTC closed the year with a market capitalization of N501.14billion and the Unlisted Securities Index figure of 697.54. In the review period, the Lagos Securities and Commodities Exchange (LCFE) was licensed while the Securities and Exchange Commission (SEC) launched the Fintech Roadmap for the Nigerian Capital Market, and took significant steps (together with CIS) towards adding Capital Market Studies to the curriculum of secondary schools in the country. The CIS has stepped up the implementation of its Specialized/Stand-Alone Qualification Scheme that now attracts a wider genre of professionals into the industry.
“Global economy will be stable at best, with improved Brexit and US-China relations countered by new US – Iran face off. Two international credit ratings bodies, Moody’s and Fitch, had in December, changed their outlooks on Nigeria from stable to negative. Implementation of the African Continental Free Trade Agreement (AfCFTA) and the Eco currency from July further portends a shaky trade environment. Nigerian Stock Market prices currently at massive discount levels provide investors significant opportunities for capital gain”, it stated.