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Transforming Nigeria’s Capital Market to a World Class
- By Chris Uba
- Published May 17th, 2010
- StockWorld
- Unrated
STAKEHOLDERS of the nation’s capital market have renewed call for an efficient and effective capital market to drive economic development in the country as well as returning the nation’s economy to equilibrium and to the path of sustainable growth.
The stakeholders, who spoke at the policy dialogue organised by the Nigerian Economic Summit Group (NESG), last week, at the Nigerian Institute of International Affairs (NIIA), Lagos, identified a strong capital market as a veritable instrument for economic development, adding that for Nigeria to remain relevant in the global economy and be able to address its hydra-headed socio-economic problems, its capital market must be developed to world standard.
Economic growth in a modern economy is hinged on an efficient and effective financial sector that pools domestic savings and mobilises capital for productive projects. Absence of effective capital market could leave most productive projects which carry developmental agenda unexploited. Because capital market connects the monetary sector with the real sector and therefore facilitates growth in the real sector and economic development, thereby improving the quality of lives of the citizenry.
The stakeholders ,who also advocated stick and carrot measure as a solution to the growing infraction in the nation’s capital market, identified the fundamental channels through which capital market is connected to economic growth and development as follows:
(1) Capital market increases the proportion of long-term savings (pensions, funeral covers, etc) that is channeled to long-term investment. Capital market enables contractual savings industry (pension and provident funds, insurance companies, medical aid schemes, collective investment schemes, etc) to mobilise long-term savings from small individual household and channel them into long-term investments.
(2) Capital market also provides equity capital and infrastructure development capital that has strong socio-economic benefits through development of roads, water and sewer systems, housing, energy, telecommunications, public transport, etc.
(3) Moreover, capital market promotes public-private sector partnerships to encourage participation of private sector in productive investments. The need to shift economic development from public to private sector to enhance economic productivity has become inevitable as resources continue to diminish. It assists the public sector to close resource gap, and complement its effort in financing essential socio-economic development, through raising long-term project based capital.
(4) It also attracts foreign portfolio investors who are critical in supplementing the domestic savings levels.
It facilitates inflows of foreign financial resources into the domestic economy.
Stakeholders noted that for the nation’s capital market to really serve as a vehicle for economic development, it must be built to a world standard. And according to Ms. Arunma Oteh, director-general, Securities Exchange Commission (Sec), this is “where investor confidence, adequate product offerings and processes, market integrity, sound regulatory framework, strong and transparent disclosure and accountability regime, good corporate governance and a fair and efficient market place. This is what will transform the market.”
She said that Nigeria possesses greater potentials of leveraging its capital market to re-invigorate entrepreneurship, the real sector, create jobs and achieve sustainable economic growth than other emerging markets like South Africa, adding that for this to be achieved , the country needs a virile and an efficient as well as a transparent capital market.
Oteh, who spoke in a thought provoking paper titled: “From market crisis to a world class market,” said the pivotal role of the market makes it imperative to create a capital formation agent that is strong, fair, efficient and robust. According to her world-class market is one with strong investor confidence, adequate product offerings and efficient processes, market integrity, sound regulatory framework, strong and transparent disclosure and accountability regime, good corporate governance and a fair and efficient marketplace.
She said for the country to build a world-class capital market, there is need to restore investors’ confidence, deepening and broadening of the capital market; restoration of market integrity; strengthening disclosure and transparency and promotion of good corporate governance. Others are: governance and existence of infrastructure of securities exchanges; demutualisation of the exchange development of alternative trading market and investor-education.
The Sec DG noted the greatest asset of any capital market was its investors who provide the savings needed for productive investment. According to her, the greatest asset of any capital market and indeed financial market is its investors. It is investors, whether retail or institutional who provide the savings which are needed for productive investment. Therefore if investors lose confidence in the capital market, the ability of the market to mobilise and channel long-term funds which are vital for economic development, will be marred. “To build a world-class market therefore, the Sec would focus considerably on investor protection and the restoration and sustenance of investors’ confidence in the market,” she assured.
As part of efforts at deepening the market, SEC under Oteh believes a virile bond market holds one of the keys to the development to the nation’s infrastructure and to that effect, has, through the cooperation of the World Bank, engaged a Bond Resident Adviser in the Commission.
Said Oteh:
“The commission believes that a virile bond market holds one of the keys to the development of the nation’s infrastructure and therefore will commit resources to developing the sector. As part of this effort, the commission through the World Bank, ESMID programme now has a Bond Resident Adviser. With the concerted efforts by stakeholders and the recent tax waivers on bonds, I see an active corporate and sub national bond market, which may ultimately become larger than the equity market as in many markets.”
To build integrity in the market, Oteh said Sec would place strong responsibilities on Self Regulatory Organisations (SROs) in monitoring broker-dealer and enforcing their rules. And to enforce good corporate governance, the Commission is to ensure that public and intermediary firms meet international best practices in this area. She also assured that the governance of the exchanges in the country has to be overhauled and trading infrastructure upgraded.
On the mutualisation of the exchange, the Sec boss said it would provide these agents of wealth creation - access to capital and strengthen governance as inherent shareholders activism, maintained that they could only be an effective means of improving transparency.
Mr. Asue Ighodalo, Partner, Banwo and Ighodalo and Company, lamented the growing indiscipline in the market advocating that punitive measures be taken to stem the problem. He advised the Sec to embark on manpower development toward building more confidence in its workforce. To assist the Commission track infractions, Ighogalo advised it to look out for trends where share prices rise after companies’ Board meetings while also recommending de-emphasis of monetary fines which do not serve as deterrence to market infractions. He also recommended a standing Administrative Proceeding Committee (APC) instead of the current ad hoc committee as well as the reform of the Investment and Securities Act.
Ike Chioke, managing director of Afrinvest West Africa, meanwhile, described the Nigerian capital market as one of the best in the world, especially with the 30 percent recovery in the market.
The stakeholders, who spoke at the policy dialogue organised by the Nigerian Economic Summit Group (NESG), last week, at the Nigerian Institute of International Affairs (NIIA), Lagos, identified a strong capital market as a veritable instrument for economic development, adding that for Nigeria to remain relevant in the global economy and be able to address its hydra-headed socio-economic problems, its capital market must be developed to world standard.
Economic growth in a modern economy is hinged on an efficient and effective financial sector that pools domestic savings and mobilises capital for productive projects. Absence of effective capital market could leave most productive projects which carry developmental agenda unexploited. Because capital market connects the monetary sector with the real sector and therefore facilitates growth in the real sector and economic development, thereby improving the quality of lives of the citizenry.
The stakeholders ,who also advocated stick and carrot measure as a solution to the growing infraction in the nation’s capital market, identified the fundamental channels through which capital market is connected to economic growth and development as follows:
(1) Capital market increases the proportion of long-term savings (pensions, funeral covers, etc) that is channeled to long-term investment. Capital market enables contractual savings industry (pension and provident funds, insurance companies, medical aid schemes, collective investment schemes, etc) to mobilise long-term savings from small individual household and channel them into long-term investments.
(2) Capital market also provides equity capital and infrastructure development capital that has strong socio-economic benefits through development of roads, water and sewer systems, housing, energy, telecommunications, public transport, etc.
(3) Moreover, capital market promotes public-private sector partnerships to encourage participation of private sector in productive investments. The need to shift economic development from public to private sector to enhance economic productivity has become inevitable as resources continue to diminish. It assists the public sector to close resource gap, and complement its effort in financing essential socio-economic development, through raising long-term project based capital.
(4) It also attracts foreign portfolio investors who are critical in supplementing the domestic savings levels.
It facilitates inflows of foreign financial resources into the domestic economy.
Stakeholders noted that for the nation’s capital market to really serve as a vehicle for economic development, it must be built to a world standard. And according to Ms. Arunma Oteh, director-general, Securities Exchange Commission (Sec), this is “where investor confidence, adequate product offerings and processes, market integrity, sound regulatory framework, strong and transparent disclosure and accountability regime, good corporate governance and a fair and efficient market place. This is what will transform the market.”
She said that Nigeria possesses greater potentials of leveraging its capital market to re-invigorate entrepreneurship, the real sector, create jobs and achieve sustainable economic growth than other emerging markets like South Africa, adding that for this to be achieved , the country needs a virile and an efficient as well as a transparent capital market.
Oteh, who spoke in a thought provoking paper titled: “From market crisis to a world class market,” said the pivotal role of the market makes it imperative to create a capital formation agent that is strong, fair, efficient and robust. According to her world-class market is one with strong investor confidence, adequate product offerings and efficient processes, market integrity, sound regulatory framework, strong and transparent disclosure and accountability regime, good corporate governance and a fair and efficient marketplace.
She said for the country to build a world-class capital market, there is need to restore investors’ confidence, deepening and broadening of the capital market; restoration of market integrity; strengthening disclosure and transparency and promotion of good corporate governance. Others are: governance and existence of infrastructure of securities exchanges; demutualisation of the exchange development of alternative trading market and investor-education.
The Sec DG noted the greatest asset of any capital market was its investors who provide the savings needed for productive investment. According to her, the greatest asset of any capital market and indeed financial market is its investors. It is investors, whether retail or institutional who provide the savings which are needed for productive investment. Therefore if investors lose confidence in the capital market, the ability of the market to mobilise and channel long-term funds which are vital for economic development, will be marred. “To build a world-class market therefore, the Sec would focus considerably on investor protection and the restoration and sustenance of investors’ confidence in the market,” she assured.
As part of efforts at deepening the market, SEC under Oteh believes a virile bond market holds one of the keys to the development to the nation’s infrastructure and to that effect, has, through the cooperation of the World Bank, engaged a Bond Resident Adviser in the Commission.
Said Oteh:
“The commission believes that a virile bond market holds one of the keys to the development of the nation’s infrastructure and therefore will commit resources to developing the sector. As part of this effort, the commission through the World Bank, ESMID programme now has a Bond Resident Adviser. With the concerted efforts by stakeholders and the recent tax waivers on bonds, I see an active corporate and sub national bond market, which may ultimately become larger than the equity market as in many markets.”
To build integrity in the market, Oteh said Sec would place strong responsibilities on Self Regulatory Organisations (SROs) in monitoring broker-dealer and enforcing their rules. And to enforce good corporate governance, the Commission is to ensure that public and intermediary firms meet international best practices in this area. She also assured that the governance of the exchanges in the country has to be overhauled and trading infrastructure upgraded.
On the mutualisation of the exchange, the Sec boss said it would provide these agents of wealth creation - access to capital and strengthen governance as inherent shareholders activism, maintained that they could only be an effective means of improving transparency.
Mr. Asue Ighodalo, Partner, Banwo and Ighodalo and Company, lamented the growing indiscipline in the market advocating that punitive measures be taken to stem the problem. He advised the Sec to embark on manpower development toward building more confidence in its workforce. To assist the Commission track infractions, Ighogalo advised it to look out for trends where share prices rise after companies’ Board meetings while also recommending de-emphasis of monetary fines which do not serve as deterrence to market infractions. He also recommended a standing Administrative Proceeding Committee (APC) instead of the current ad hoc committee as well as the reform of the Investment and Securities Act.
Ike Chioke, managing director of Afrinvest West Africa, meanwhile, described the Nigerian capital market as one of the best in the world, especially with the 30 percent recovery in the market.
