Sustainable growth of the Nigerian Capital Market has been inhibited by a mix of factors ranging from underutilization to regulatory issues, 60 years after the nation’s independence.
In his critique of the market performance in the review period, a Professor of Capital Market and President, Association of Capital Market Academics of Nigeria (ACMAN), Professor Uche Uwaleke Identified shallowness of the market relative to the Gross Domestic Product (GDP), High transaction cost, low participation of retail investors, ineffective enabling government policies and weak information sharing among the different layers of market regulators.
“ Improved regulation and confidence building measures introduced by the SEC and the NSE over the years, including a zero-tolerance for infractions and the setting up of the Investment and Securities Tribunal by the government pursuant to the Investment and Securities Act, have helped in no small measure to lift the market.
“Market is still shallow and yet to be properly positioned to support Nigeria’s economic priorities. At less than 20 per cent of the country’s GDP, the size of the capital market constrains its role in economic development. Compared to South Africa with over $1trillion in market capitalization representing over 200 per cent of the country’s GDP, the total market capitalization in Nigeria pales into insignificance. A few years ago, the NSE had set a target of $1trillion market capitalization by 2016 but it never materialized. Non-diversified nature of the issuer base with listing concentrated in a few sectors as well as the small number of listed companies (less than 200) in a country touted as the biggest economy in Africa. As a corollary, market liquidity, measured by turnover, remains a challenge despite the appointment of market makers in 2012 expected to provide liquidity to securities through the provision of bid and offer.
” The Nigerian capital market is still plagued by high transaction costs when compared to other Jurisdictions. Regrettably, the introduction of e-dividend has not helped to reduce the huge unclaimed dividends as expected while the Alternative Securities Market (ASeM) platform introduced by the NSE in 2011 is inactive not least because public awareness about the platform remains low. Also, relative to peers, the market lags with respect to variety of asset classes. Financial derivatives such as stock options and futures have yet to be traded while Asset Backed Securities yearn for attention. It is instructive to note that the first Real Estate Investment Trust (REIT) was registered in Nigeria in 2007.
“The private bond market is very small compared to that of the government and consequently the private fixed income market is not a significant long-term financing source for companies. Until 2020 –partly, due to the pandemic, foreign investors were significant players in the equities market often dictating the pace of market activity which leaves the market vulnerable to external shocks.” ,said Uwaleke.
The former Imo State Commissioner for Finance underscored the need to align the Capital Market Master Plan (CMMP) of the Securities and Exchange Commission (SEC) with the Federal Government Economic Growth blueprint for effective and efficient implementation.
“ A key priority in forging ahead should be to include the CMMP as an integral part of the next government’s Economic Growth blueprint especially, given the fact that the capital market received no mention in the current ERGP expected to lapse by the end of this year. The need to have proper co-ordination and enhanced information sharing among the various financial market’s regulators (CBN, NDIC, SEC, PenCom, NAICOM) cannot be overstressed. The Financial Services Regulation Committee (FSRCC) is largely perceived as inactive which is why the CBN should champion the resuscitation of this body by making it more relevant to both the money and capital markets. In particular, the handshake between the CBN and the SEC needs to be strengthened.
“Empirical studies have shown that enabling government policies significantly influence issuer demand for capital markets funding. China is one good example of this trend. In emerging markets, listing of state-owned enterprises has proven to be one of the strongest levers for influencing issuer demand.” he said.