By Chinwendu Obienyi
Savings and investments are important ways to grow economies and boost individual self-actualisation goals.
Despite various instruments and policies put in place to boost the investment culture in Africa, such as social security funds, rights issues, public offers or private pension plans, there remains significant room for improvement for Nigeria to keep up with other regions.
A key investment instrument that has yet to be explored on the continent is securities trading for retail. Apart from the Johannesburg Stock Exchange (JSE), institutional investors make up more than 80 per cent of the volume, leaving the retail market with huge potential to become a top asset class for a growing middle class and other income groups.
According to a 2021 World Bank report, most African countries’ savings rates are relatively low, around 17 per cent of gross domestic product (GDP). Kenya, for example, ranks lower than many of its peers, with around 9-11 per cent of GDP over the last five years. In Nigeria, another key market in West Africa, savings accounted for about 17-21 per cent of the nation’s GDP over the same period.
The focus for many economists and policymakers is to find out how one can tap into the growing stock markets to promote a vibrant savings culture in the continent, while also availing funds for many companies to accelerate economic growth.
This is hence the reason for the challenges seen in Nigeria’s capital market as the volume of business on the exchange remains mixed. Trade in the market has been largely done by institutions (mainly foreign), while domestic retail investors have not sufficiently returned to the market since the financial crisis of 2008/2009.
This is because after the crisis, few stockbrokers started working with these foreign institutions who collectively control the major volumes traded in the market. But the most important observation of activities in the market is that these foreign investors are very sensitive and any information that reflects uncertainty in politics and government policies trigger a fast withdrawal from the market, which results in high levels of volatility.
Hence, this is why the market still suffers from confidence issues within the domestic sector and also the reason the market is currently in bearish mode despite the impressive earnings from quoted companies.
Low market participation
To solve this challenge, a magic wand would have been a quick solution but it is important to note that some Nigerians especially the youths are not aware of the benefits of market items and offerings.
A cursory look at the age bracket of people participating in the Nigerian capital market revealed that at least investors under the age range of 40-50 years patronise the market whereas in other climes, youths in the U.K between 21-35 years actively see the stock market as a viable investment option out of many others.
In recent times, a large portion of global stock trading volumes has been driven by retail trade due to the democratisation of access to the markets by fintech applications
For example, Robin Hood, a commission-free stock trading and investment app, recorded $350 billion worth of transactions in 2020 alone. This number was actively driven by youths who were actively trading on stocks globally.
This is not to say the Securities and Exchange Commission (SEC), Nigerian Exchange Limited (NGX) and other market stakeholders have not done anything to broaden the market. But some Nigerians, especially the youths, prefer patronizing Ponzi schemes due to the “quick and double returns on investments” within hours, days or even a week.
NGX initiatives
The NGX had in March 2022, with the MTN Nigeria Communications Plc (MTNN) announced the signing of a Memorandum of Understanding (MoU) to further promote financial literacy and enhance retail participation in the Nigerian capital market.
The MoU is a two-year partnership that will see NGX and MTNN collaborate to develop capital market solutions, leverage technology to support data dissemination and technology-as-a-service, promote capacity development, and eliminate barriers to retail participation in the capital market.
Speaking at the recent retail investor workshop held virtually, the Divisional Head, Trading Business, NGX, Jude Chiemeka, stated that with its plethora of innovative products and services, the exchange continues to build a vibrant capital market, deepen activity, improve liquidity and create long term value for all stakeholders.
He said, “When the exchange facilitated the public offer for sale of 575 million shares held in MTN Nigeria by MTN Group to investors particularly retail investors through the NGX PrimaryOffer app, the offer was priced at N169 per share and over-subscribed by 139.47 per cent.”
‘Collaboration needed’
Market analysts who spoke to Daily Sun via a telephone chat, called on the SEC and the NGX to collaborate with market operators for a better structured public awareness campaign about the capital market.
The Managing Director, Crane Securities Limited, Mike Eze, said that the average Nigerian investor suffered considerably, with many losers being first-time investors, essentially unaware of the workings of the market and relying on rising share prices, hunches and herds syndrome for their share-buying decisions.
“While considerable efforts have been made by NSE and SEC to educate shareholders and address some of their complaints, I believe the public apprehension of the capital market will substantially be allayed with a better structured public awareness campaign to be jointly anchored by NSE, SEC and market operators for the education of shareholders and the protection of their interests, especially the small stock holders,” he said.
Also speaking, Chief Growth Officer, Halo Financial Services, Nnenna Onyewuchi, noted that as it stands, tens of millions of Nigerians are missing out on the opportunity to build wealth through investing.
“In Nigeria today, less than three per cent of the population invests in the formal financial markets. Most Nigerians think it is beyond their reach. They think you must have money to invest, that it is for a big set of people. But of course, investing is a way to make money and you can start with quite small amounts.
There are many reasons Nigerians are not investing in the financial markets. People have valid worries about losing money due to market fluctuations. This is compounded by a limited understanding of how most investment products work and so I think it is right that financial and capital market regulators educate Nigerians on the knowledge of how it works because in the long run, it can boost Nigeria’s economic growth”, Onyewuchi said.