“Governance is all encompassing, that is politics and economics go hand in hand but our politicians always think about the politics of governance alone…”
Chinwendu Obienyi
The Nigerian capital market, which started 2018 on a positive note, has seen market capitalisation tumble by N3.89 trillion in nine months due to the political tension in the country as well as poor corporate results. In this Interview the Chief Executive Officer, Crane Securities Limited, leading member of the Nigerian Stock Exchange Mike Ezeh, proffers solutions to the challenges.
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Excerpts:
Challenges
The usual challenges faced by operators in emerging markets includes little or no enabling environment, inability to access funds via financial institutions due to high interest rates and apathy towards stock related businesses, reluctance on the path of investors to commit to investments after the market crash of 2008,tight/over regulation.
Performance
The market has performed marginally well compared to last year though there was a rally around March/April which saw the market capitalization soar to an all time high even higher than the market capitalization of the preceding year. All that was lost shortly after due to profit taking by foreign investors and local institutional investors including high net-worth investors also contributed to this depression which started round mid april 2018 and has continued ever after. A few bellwether stocks will once in a while come up to make a change but bargain hunting will always take its toll on the market but by and large, one will authoritatively say that the market has been relatively on its traditionally known conservative self, that is the usual pendulum of highs and low.
Businesses
Most businesses have been badly hit by the current trend in the market. Though we have exited recession according to the various bodies that assessed our economic parameters particularly the National Bureau of Statistics (NBS),the business environment has not experienced positive changes. Businesses are failing by the day and even those that manage to open shops are still groaning under very harsh operating environment. For us, we have managed to remain afloat because of prudent application of finance, strong corporate governance culture and of course strict adherence to board oversight and regulatory rules.
I will score them at about 5.63 per cent in terms of performance. This is because in any economic system, the performance of any company is dependent on its laid down objectives and of course the determination of the board and management of such companies to excel in their sector amongst other things. This per cent in relative terms is excellent. There is no economic system that can achieve 100 per cent even in the advanced economies of the world.
Remedy
The best way out is to rejig the economy because the operators of the country’s economic system knows what to do in order to restructure our economy which actually needs to be jump started.
They should come up with processes and procedures that will bring us out of this economic quagmire because our economy is near comatose.
CBN intervention
One of the primary roles of a CBN in any country is the propounding and enunciation of monetary and fiscal policy. They are set up and well equipped to carry out this primary responsibility. Yes, they have intervened in the agric, power, aviation, small and medium enterprises (SMEs) and non-oil sector via the anchor borrowing scheme. Issuing of commercial paper is also one of the processes and also the open market operation, issuance of bonds are various intervention initiatives of the CBN in the economy. By and large, i think the move by the CBN is imperative at this time bearing in mind the fact that they are operating in a terrain where they are used to harsh operating environment of the economy.
Dangote’s preference for foreign capital
The volume of funds you can raise from a capital market is not limited by jurisdiction and the capital market is an institution established for the provisioning of large scale capital be it in the long term or in the short term. Raising of such fund is dependent on the issuer and jurisdiction is also dependent on the issuer. In this case, Alhaji Aliko Dangote being an ex president of the Nigerian stock exchange must have his special reason for this offshore preference for this facility.
This does not in any way mean that the Nigerian stock Exchange does not have the capacity to raise such capital and even more inexhaustible capital that you can imagine in which we keep urging government and other capable entrepreneurs to come to the Nigerian capital market via the Nigerian Stock Exchange to raise capital.
Bond
This is an excellent initiative and this will finally put to rest the issue of failed contracts, abandoning/non execution of projects. This means that the government has finally decided to return governance back to the people. This is returning ownership of these projects back to the original owners and not the projects belonging to the government officials and contractors. The bond-holders automatically becomes the owners of the projects they hold their bond because their money is tied to it and this is excellent.
Effects of politics on capital market
I have always said that governance is all encompassing, that is politics and economics go hand in hand but our politicians always think about the politics of governance alone leaving the economics of governance to wallow in self pity. This is responsible for what we are currently witnessing in the Nigerian economy today as this is a comatose economy due to negligence. For me, I expect bellwethers to be more prominent since there will be more sellers than buyers this regards. Political patrons, be they institutional investors, foreign and local, high net-worth investors, will be more inclined to sell offs’ of their portfolios in order to meet the financial requirements/demands of their political gladiators be they political parties or the contestants themselves so by and large, we will notice remarkable activity in the market.
