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By Chinwendu Obienyi
The capital market, globally, is one of the most important platforms for financial deals, particularly in raising capital for economic activities in developed and developing nations.
For the United States of America, the market is seen as the live blood of capitalism where companies go to raise capital to finance building of factories, airplanes, trains, ships, communications gadgets, among other essential corporate activities and to conduct research and development.
So far over a trillion dollars are invested and exchanged daily in international capital markets across the world and it is on record that many great innovations saw the light of the day through the instrumentality of the capital market. But for emerging economies, capital markets are yet to attain that kind of status compared to their counterparts.
Although Nigeria’s capital market (amongst other African capital markets), has recorded positive performances, it is still regrettably weighed down by neglect, crisis of confidence, illiquidity, low patronage, unfavorable operating environment, lack of incentives, fewer product offerings and inconsistent government policies and this is due to bust which occurred in 2008 in which investors lost their life-savings.
Already, the market remains fraught with mixed sentiments from investors. After gaining N8.42 trillion in nine months, voluntary exits from multinationals, lack of listings have been persistent with the market. The Nigerian Exchange Limited (NGX) cannot be faulted as the prevalent FX scarcity, inflation, have continued to take its toll on the market.
This current development can be traced back to the inability of past administrations to churn out effective policies that will steer the market in the right path to economic growth. It can be said that over the past eight years, Nigeria’s capital market suffered neglect from the government even as macroeconomic conditions in the country worsened.
This was due to the policy pronouncements which hurt the growth of the capital market. It is a well-known fact that the capital market is usually touted as the barometer to measure economic performance, however, what is usually forgotten is that macroeconomic policy driven by the government also has strong effects on the performance of the market.
For instance, in 2016, oil prices collapsed and drove the Federal Government into embracing protectionist policies that proved inimical to the performance of the capital market. Foreign investments have been falling off a cliff since then to an all-time low in 2022. Inflation and currency depreciation also made conditions worse for operating companies, especially in sectors where critical production inputs need to be imported for local manufacturing. This had profound effects as many of these companies that were listed on the then Nigerian Stock Exchange saw their share prices dropping, reducing their attractiveness to investors.
Due to the strong correlation between the capital market and oil prices, the market struggled to present a worthy value proposition to many of these multinationals who had foreign parent companies. The broader economy itself performed poorly as Nigerians saw their purchasing power drop consistently. It was therefore not unexpected that delistings would follow.
NGX’s efforts
In a bid to stem the trend, NGX have embarked on strategic initiatives aimed at driving sustainable growth for the Nigerian capital market. It kicked off with demutualisation to spur competitiveness and innovation and since the stock market’s demutualisation in 2021, the Nigerian capital market had its first digital offering from MTN Nigeria Communications Plc which sold 575 million shares to retail investors in a transaction that saw more than 150,000 new retail investors crowded into the market, many of them millennials, generation Z and majority females.
In 2022, NGX recorded a landmark power sector listing in Geregu Power Plc, which as at entry by introduction, added N750 billion to the market capitalisation of the Exchange. The Exchange also secured a significant FMCG listing during the year, BUA Foods Plc which contributed to trading activity and boosted NGX’s market cap by N1 trillion.
Seeing the meteoric growth in the country’s technology sector, the NGX created its technology board, after broad stakeholder engagement and approval from the Securities and Exchange Commission (SEC). The specialised board which comes with lighter capital requirements and less stricter governance requirements, is aimed at encouraging tech startups and other technologically inclined companies to list on NGX. It is expected to provide visibility to the companies and encourage investments from domestic investors and deepen the capital market.
Partnerships
NGX has also secured a partnership with Dubai Financial Markets to promote dual-listings. This will have profound effects as companies can access capital across both markets through a wider investor base. Since the inauguration of the new administration led by President Bola Tinubu, the Exchange has been neck deep in advocacy with the new government. This year, the NGX secured major listings from notable investment firm, VFD Group and the Chapel Hill Denham managed Nigeria Infrastructure Debt Fund on its main board.
Just recently in September, the Exchange embarked on a non-deal roadshow to promote listings, tell the Nigerian story and improve deal flow into the capital market by showcasing it as a prime destination for foreign capital. During the Invest in Africa, part of the lineup of events in the roadshow, the Minister of Communications, Innovation, and Digital Economy, Dr. Bosun Tijani noted that FG will closely collaborate with NGX to stimulate startup listings through the technology board.
The Chief Executive Officer, NGX, Temi Popoola also announced that the Exchange will lend its full support to FG as it aims to mobilise capital to finance its developmental agenda. NGX continues to reinvent itself as the Nigerian economic demography shifts. The younger generation of millennials and gen Zs have affinity for digital assets and the exchange has noted that it is working closely with its regulator on key initiatives in that regard.
The launch of a private market is also in the works to further encourage smaller non-listed companies to do business with NGX. Free-zone companies are also on the exchange’s list of prospects and NGX has hinted that it is working with regulators and the government to push legislation that will encourage these companies to list.
According to NGX, listings remain the key avenue to drive sustainable growth for the Nigerian capital market.
The moves by NGX recently show that they are not resting on their oars. It is also necessary that the Federal Government sees the advantages as more market listings will drive its tax revenue growth and hence, collaboration is one of the tools needed to attract listings to the market.
