The Nigerian capital market and a national conference

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Akintola  Omigbodun

We are in a season in which it would appear that any ideas which would improve our national life should be considered.

The nation should be looking for improvements that can be made in its capital market and vice versa.The capital market had its origins in the Lagos Stock Exchange Act 1961.

The general public did not have much involvement in the capital market until the Indigenisation Act of 1972. Subsequent to the commencement of this law, a number of expatriate-owned companies offered to sell some portion of their shareholding to Nigerian investors.

The stated rationale for this law was to place Nigerian citizens and associations at the commanding heights of the country’s economy.

At that time, on each occasion a company’s shares were offered for sale, the demand for shares usually exceeded the available shares. Allotments of the available shares were such that investors did not obtain all the shares they asked for.

In some instances, shares were allotted to some state governments in order to have a spread of investors across the country. Essentially, Nigerian investors earned dividends and bonus shares declared by these companies during the 1970s and the early 1980s.

Also, in the period following the introduction of the Indigenisation Act, participants in the capital market such as stockbrokers and registrars had a significant growth in their activities.

From the mid 1980s onwards, the introduction of various government policies such as Structural Adjustment Programme, various import licensing regimes and import substitution requirements for manufacturing industry has given rise to a situation in which some of the companies that were introduced to the Stock Exchange after the Indigenisation Act are no longer operational.

In some significant instances, some companies which include the Nigeria Bottling Company, Nampak Nigeria Plc and United Nigerian Textiles Company have delisted their shares from the Nigeria Stock Exchange, NSE, and have paid off their Nigerian shareholders such that the expatriate core investors now hold 100% of the equity in these companies.

One or two of the companies had indicated that it would not have been profitable for them to raise the funds that were required for the company’s capital investment from the Nigerian capital market.

Furthermore, the capital market participants are concerned about the recovery of share prices following on the 2008 crash of share prices. This concern is partly because some market participants obtained loans for investment in the market and these participants have not been able to repay the loans.

If we examine the results of companies listed on the NSE, we would find that a few companies in the breweries, food products, personal/household products and pharmaceutical sectors have regularly paid dividends to shareholders after the 2008 crash and that these companies have share price levels higher than the prize levels at anytime before.

If we examine the shareholding and management structures in these companies, we would find that the expatriate core investors hold more than 50% of the equity of these companies and that these core investors are active in the management of the companies.

The results of the companies listed on the NSE should drive the performance of the market and the question that arises is why is it that a number of the companies listed on the NSE are not performing well.

 

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