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By Chinwendu Obienyi
Nigeria as an enterprising country, accounts for more new businesses in Africa.
According to Statistica, the number of start-ups in Nigeria alone was estimated to be around 3,300- the highest in Africa ahead of 660 in South Africa recorded in 2020.
This does not even come close to the 3.1 million registered businesses in Nigeria as at 2019 reported by the Corporate Affairs Commission (CAC). Hence, this means that these businesses (both existing and start-ups) contribute half of the total gross domestic product and are surely the engines that foster economic growth.
However, many businesses suffer a high rate of failure; with some financial experts estimating that around 80 per cent of businesses shut down within the first three to five years while Wee Tracker places the average failure rate for Nigerian start-ups at around 61 per cent.
Businesses typically face major constraints of inadequate access to capital, near absence of an enabling environment, inconsistent government policies, and lack of a proper corporate governance structure, all of which are impediments to business growth, sustainability, and survival.
Although, in the Nigerian economy, there is an availability of skilled labour force, no paucity of business opportunities but there is a prevalent funding gap and this is where the stock market comes in because it is a very important barometer for promoting enterprises and engendering economic growth.
A stock exchange is an organised marketplace, licensed by a relevant regulatory body, where ownership stakes (shares) in companies are listed and traded. Having become a demutualized entity, the Nigerian Exchange Limited (NGX) has become a veritable window through which the global business community sees the Nigerian economy and a platform for investment capital inflows.
Record of activities show that between 1996 and 2001, a total of 172 new issues (securities of public companies amounting to N56.40 billion) were floated in the market. The new issues were valued at N5.85 billion in 1996 but this quickly rose by about 532 per cent to N37.198 billion in 2001 and improved to N61.28 billion in 2002, N180.08 billion in 2003 while the year 2004 and 2005 accounted for N195.42 billion and N552.78 billion respectively.
There have been arguments that the effect of the NGX’s product offerings have only reflected in the domestic economy’s financing needs but an enabling business environment, policies that promote ease of doing business and market forces in line with best practices are key factors companies watch before listing on the exchange – something the Federal government together with the NGX has been diligently doing.
Recently, there has been growing clamour amongst investors for new listed companies after the likes of Airtel Africa, BUA Foods and Geregu Plc listed their shares on the bourse. However, Ardova Plc’s recent decision to delist from the exchange drew eyebrows from its shareholders. But, this delisting was done from a business strategy as Ignite Investments and Commodities Limited approached the oil and gas firm with an intention to acquire the shares held by other shareholders of the company at an offer price of N17.38 per share.
Yes, over 115 companies have delisted from the exchange in the last two decades but the NGX after weathering the global market downturns last year, is said to be eyeing more listings to meet its 2023 strategic goals.
NGX’s efforts
Speaking during the NGX 2022 market recap and 2923 outlook which was held via zoom, the Chief Executive Officer, NGX, Temi Popoola, said the exchange will take a flexible approach to strategy execution this year.
Popoola said, “As you know the NGX technology board listing rules were approved by the Securities and Exchange Commission in 2022, with this we aim to drive technology companies to the exchange and deepen capital formation in the technology sector.
Currently we are in consultations with stakeholders in the sector and we are confident of securing a few big names within the year”.
In a recent interview with Daily Sun, the NGX boss whilst calling on the incoming government to explore the capital market to boost revenue and stimulate the sustainable economic growth required to increase wealth and reduce poverty in Nigeria, revealed that the exchange in partnership with regulators will be taking steps to accommodate more listings from free zones this year.
“The Agric industry is one sector that has been often said to be under-represented on the Exchange. As we move to get such listings, we are also looking for companies and sectors with low representation in order to promote a market with equal representation.”
“Futuristically, we are looking at promoting financial literacy by exploring data dissemination through telco partnerships. We are also keen on aligning our activities to drive the UN SDGs and more importantly to promote the work we are doing in enabling a sustainable capital market ecosystem.”
Whilst advocating for more government incentives to motivate companies to list on NGX as a means of boosting tax revenue to GDP ratio, which currently stands at 6 per cent, the NGX CEO said, “The reality is that because listed firms must adhere to regulatory requirements and corporate governance standards in order to maintain their listing on the Exchange, they are typically more consistent and reliable with their tax compliance. Consequently, the more companies we can get to list the more revenue the government can make”.
This demonstrates the exchange’s commitment to providing a reliable and efficient platform for capital raising and positions it as an attractive destination for capital formation by companies. Hence, what does listing bring for companies who wish to list on the NGX?
Benefits
One of the main benefits is easier financing of operations, research and development. Listing on a regulated market like the NGX, opens new pathways to finance and enables the company to access previously untapped capital markets while strengthening the existing lines of finance.
Secondly it enhances the visibility of the company through public disclosure rules and this greatly builds trust between listed companies and investors. This also opens the company to potential investors.
It also improves liquidity and this has an impact on the share price of the company. This gives shareholders the opportunity to realize the value of their investments and transact in the shares of the company, sharing risks as well as benefiting from any increase in the organizational value.
Operators’ view
Speaking at a forum tagged; Creating the enabling ecosystem for accessing capital from the Nigerian Capital Markets, the Honourable Minister of Finance, Budget and National Planning, Dr Zainab Ahmed said that with the nation faced with the burden of economic recovery as a result of the global pandemic, the capital market is an efficient, reliable solution for businesses to raise capital and investors to grow wealth.
Also speaking at the forum, the Chief Executive Officer, NGX, Temi Popoola, reassured stakeholders that the NGX is committed to improving issuer’s experience by providing a platform that enables companies to raise capital more efficiently whilst protecting investors
“As part of efforts to improve the listing experience of current issuers and attract new listings, NGX has intensified efforts with policymakers to shape reforms and policies that are supportive of listings and the capital market at large. We are strengthening the value proposition for corporates to consider the capital markets as a platform for raising capital and working to ensure we are competitive when compared to options that are available to issuers.
We are, therefore, actively involved in contributing to policy formulation and advocacy to ensure an enabling environment for listings, including, working with several stakeholders to ensure that the time to market and the costs for listing are optimized”, he said.
Earlier in his opening remark, Chairman, NGX, Abubakar Mahmoud, said, “As Nigeria’s premier securities exchange, the NGX remains strategically positioned to support the aspirations of its stakeholders and the Nigerian economy as a whole.
Conclusion
In as much as the clamour for more listings and products in the capital market are loud at the moment, the NGX, undoubtedly remains a destination for companies’ listing and product offering and if the incoming government can explore more with the capital market to boost its economic growth as well as its tax revenue base, then Nigeria’s domestic bourse is well on its way to becoming like its peers in other economic climes.
