By Chinenye Anuforo
Mr. Onyenwechukwu Patrick Ezeagu is the Chairman, Association of Stockbroking Houses of Nigeria (ASHON) and also the Managing Director and Chief Executive Officer of Solid Rock Securities and Investment Plc. In this interview with Daily Sun, he speaks about how high exchange rate, inflation and other issues are affecting the nation’s capital market and general economy.
Effects of high exchange rate and inflation on stock market
High exchange rate and inflation are the twin evils killing the Nigerian capital market and indeed, every economic endeavour. For a start, these two variables introduce a high level of uncertainty to the price structures of the market. Secondly, they stifle savings which is the fulcrum of investment. Any phenomenon that negatively impacts on savings reduces the quantum of available investible fund for capital market investment. Thirdly, it hits the Foreign Portfolio Investors (FPI) as they face exchange rate risk with their investment, especially, with respect to repatriation of dividend or capital or both.
As a result, one of the main reasons our capital market has been witnessing low patronage is to the impact of both inflation and the uncomfortable high exchange rate regime. However, I am glad that the Central Bank of Nigeria (CBN) is coming to terms with the need to free the strangulating hold it has on the rate to enable the naira find its market determined exchange rate with other currencies. In this way, both investors in the capital market and other users of forex can be relatively assured of a band within which they can benchmark their transactions. The flip side is that inflation can also be contained in the process as the economy, and particularly the capital market, inches towards a full free market determined price structures.
The 2017 Budget of Recovery can positively impact the capital market if the Federal Government remains committed to the financing of infrastructural deficit through the capital market. One of the major challenges businesses are facing in Nigeria is poor infrastructure, which consumes a large chunk of their revenues. The Federal Government should ensure that the capital expenditure of the 2017 budget is dedicated to improving infrastructure to enhance the ease of doing business in the country for businesses to become productive and move towards economic recovery.
In addition, the time has come for the Federal Government to involve capital market regulators and operators in the build-up to budgetary processes and procedures in view of the pivotal role of the market to the growth and development of the economy. The market is a reservoir of cheap and long term funds required for long term development of any nation. The capital market serves as a buffer zone for the government to finance budget deficit and there is a correlation between the development of the economy and its capital market.
Financing economy through capital market
Governments at all levels utilises the capital market to finance the economy because it provides an alternative source of funding that can complement Internally Generated Revenue (IGR). Capital market fund is relatively cheaper than any other means of funding and has a longer maturity period. There are various investments/windows available to both federal and states governments in accessing funding from the market, which include asset sale, bond issuances such as sovereign, sub-national, green bonds, among others. These debt instruments are available and governments at various tiers are at liberty to fund infrastructural development using either or a combination of these types of instruments. Through this platform, the capital market contributes meaningfully to the development of the economy.
Creating enabling environment for listing
ASHON, in collaboration with Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE), is constantly in dialogue with the Federal Government’s Ministries, Departments and Agencies (MDAs) and the National Assembly in a continuous engagement to fashion out ways and means of ensuring that companies list on the Exchange by moral suasion, incentives and legislation or a combination of them.
Attracting foreign investors
The Nigerian capital market can attract foreign investors through ensuring that there are proper incentives for foreign investors such as good and operational corporate governance practices; favourable policy on capital importation and repatriation; good, effective and favourable social economic environment in the country; appropriate and fair tax system in place, and favourable, stable monetary and fiscal policies, among others.
It is a truism that the bear has run consistently to overshadow the bull in recent months. The Chief Executive Officer of the NSE, Mr. Oscar Onyema, in his market outlook for 2017, posited that investors should expect a positive performance this year based on market analysis and the World Bank projection that the Nigerian economy will recover from its recession in 2017 with a modest growth of 0.6 per cent. This positive forecast is also based on the various initiatives being put in place by the NSE. In addition, the capital market does not exist in isolation of the economy. Therefore, as the initiatives being put in place by government start to impact positively on the economy, the bull will gradually return. No condition is permanent and in all my years in this profession, no market that went down ever remained down. It always bounces back; so shall it be for the Nigerian capital market.
Patience is all we need before investors shall begin to smile back to their banks on the back of dividends and capital appreciation. I see a positive future for the Nigerian capital market. We should not also lose sight of the fact that our market fundamentals are strong as most stocks are currently trading below their intrinsic value. Investors that have strong appetite for value stocks are making kills on daily basis.
The Association of Stockbroking Houses of Nigeria (ASHON) was formed as the umbrella body of all dealing member firms of the NSE and a trade group recognised by SEC to promote and protect the interest of its members. The main objective of the association is to advance the transparent practise of stockbroking business in Nigeria, and to protect the integrity of our segment of the capital market, which is an important sub-sector of the Nigerian economy. Part of the objective is to serve as an advocacy body to promote, advance and protect the interest of its members within the Nigerian economy, working in collaboration and co-operation with other similar bodies and or agencies.
One of the major challenges is how to restore investors’ confidence in the market since the market meltdown of the last 10 years. Also, the government, in its monetary and fiscal policies, has tended to completely neglect or ignore the capital market as the wheel of economic development. The way forward is for government to use the capital market to source long term funds necessary to finance infrastructure in the economy. Government’s monetary and fiscal policies should also be geared towards encouraging savings and investments.
ASHON’s contributions to capital market growth
Some of the major contributions of ASHON towards the growth and development of the capital market include encouraging the introduction of new products that excite investors, engendering investors’ confidence as well as making the market the first destination of choice to both local and international investors. Others include ensuring that there is transparency and integrity in the market and engaging various stakeholders in the capital market, notably our members, other trade groups, regulators, relevant government agencies, including members of the National Assembly, to promote capital market development structures like complaints management framework to resolve issues between stakeholders in the capital market.
Advise to ASHON members in era of investor apathy
My advice to our members is to avoid sharp practices and operate with the highest level of professionalism, accountability, transparency and integrity. This would engender greater confidence and attract more investors to patronise the market.
As for investors, I strongly advise them to embrace the direct cash settlement, which will enable sales proceed to settle into their bank accounts directly. They should not patronise quacks and always follow up on their mandates to their brokers to ensure quick and timely delivery on transactions.
Advise to Federal Government
The government should review of the Monetary Policy Rate (MPR) to stimulate investment, policy stability, clear and stable foreign exchange policy and implement appropriate legislations that will compel the Federal Government to fund its infrastructural development through the capital market. Others include strengthening the SEC with a view to positioning it to perform its market surveillance, market development and other regulatory functions more effectively, compelling the Bureau of Public Enterprises (BPE) to sell at least 40 per cent of privatised national assets through the instrumentality of the capital market to engender fair valuation, transparency, accountability, integrity and greater participation of the average Nigerian investor, utilising the capital market to raise funds for infrastructural development projects, ensuring security of lives and property as a panacea for peace and development and pursuing diversification of the economy away from oil as a major foreign exchange earner.