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Nigeria’a stock market crisis: The worst is over, Stockbroking Houses Association boss

Alhaji Rasheed Ola Yussuff, the chairman of the Association of Stockbroking Houses of Nigeria (ASHON) and chief executive officer of Trust Yields Securities Limited, in this interview, speaks on the need to instil market discipline to restore investors confidence in the stock market, stressing that the prospect of the market experiencing significant recovery in 2010  largely depends on the ability  to introduce corrective measures.
Stocks of developed economies affected by the global economic crisis are already showing signs of recovery while Nigeria’s stock market, though shows signs of upward trend, has not yet recovered in the same mode. Why do you think it is taking the market too long to bounce back?

Well, I think you made a comparison between what has happened to developed economies, particularly their capital market, and the Nigerian capital market whereas some of the developed countries are fast recovering, ours, though might be showing signs of upward trend, it has not recovered in the same mode as we are seeing in other developed economies. But then, you also need to step back a little bit and look at how the market got to where it is because the underlining reason for the market dip in Nigeria is different from what happened abroad.

Abroad, they had fundamental problem with their economy. In Nigeria, the fundamentals of our economy remain strong throughout and even our GDP grew by 7 percent when in  those developed countries, they would be happy with one percent or flat growth rate.  So, that shows you that the fundamentals of the Nigerian economy remain strong while those of the developed economies that we are comparing ourselves with show a dip and some of them are just coming back and staying around one percent or thereabouts. What that means is that the Nigerian economy never got into recession.

Therefore, the global meltdown affected the Nigerian economy than its capital market but what affected the capital market more than the meltdown was the way Nigerians reacted to the global meltdown. Lack of confidence and the way we initially spent too much time  blaming each other as opposed to identifying what has happened and then taking corrective measures has not done us any good.

We spent a lot of time analyzing, playing blame games without taking any action until  recently. So,  we spent the greater part of 2008/2009 debating who was responsible or was not responsible and what action is to be taken in order to punish or not to punish, while the rest of the developed world recognized immediately that they had a worldwide meltdown which was caused by a situation completely outside a particular country’s control .

Therefore,  they took measures in terms of stimulus plan. Two years after, we are yet to do a similar thing and that is why the Nigerian capital market has not reacted coupled with the fact that some of the pronouncements by government officials, individuals and press were totally discouraging investors and, therefore, everybody moved back their money because they lost confidence in the market.

So, it was more of a confidence erosion that affected the Nigerian market and also when the banking crisis came, that again dampened confidence but, having said that, the market is beginning to show signs of stability because we have not seen the downward trend that characterized the greater part of 2009. Now, prices have stabilized or bottomed out and, therefore, the only direction it can move now is upward and that’s why you are seeing some signs of positive movement.

Since January, the prices have been showing tendency of moving up and that also was brought about by the fact that at last government was doing what was done abroad. That is the AMC. We now have a bill before the National Assembly which seeks to take up the share overhang that has been the major factor in the price of the stocks coming down.

We have all learnt our lesson that the blame games would never help anybody and that the government deserves taking actions that were taken by other governments about 18 months ago. So, that is what is responsible for the kind of positive movement that we are beginning to see.
Talking about positive movement at the nation’s stock market, how sustainable is it?

Again, the question of how sustainable depends on you and I because there was nothing wrong with the market initially .What went wrong with the market was the fact that you and I lost confidence because of the meltdown, the banking crisis and all of that but if we are now all convinced that despite all of these, government is now beginning to take the right action, then our confidence would be boosted and, once investors confidence continue to rise, then sustained ability would be guaranteed.. But if our confidence wades again, God forbid.
The CBN recently announced a 10-year tenure limit for bank CEOs.  How is that going to impact on the stock market?

We as brokers work with price movement which is an indication of how the investors feel about any issue. Since that particular measure was introduced, the market has been going up and I think the tenure measure has been taken as a positive development by the market because if it was perceived as a negative step, you would have seen that  market reaction would have been in the  downward side.

Again, when the tenure limit was announced, some of  the banks accepted it and came out with a very reassuring statement and steps in the sense that they have already put in their succession plan to reassure the public that, as far as they are concerned, the policy is in line with their thinking.

So, if the people that are affected have given their assurance that the step is good, then whole market is also taking it as a good development. Apart from that, on a theoretical level, the policy has its own good side also because it is saying after 10 years, give somebody else a chance because by the time you spent 10 years in a particular position, you would have run out of new ideas. So, allowing somebody else to come and continue with fresh ideas should be good for the organization.

The only reason people are not very comfortable with the policy is because this is the first time it is being introduced but if properly implemented, it should be a good development in the banking industry. Although there is this argument that if you are the owner, why should somebody tell you when to leave, I am trying to look at the positive rather than the negative as we must learn in this country to continue to see the positive. Even on the positive side we are assuming that some of these MDs can no longer be useful elsewhere.

I am sure that if you look at some that have even retired before now, some of them are still playing major roles in the economy. So, I would expect some of the MDs that are leaving to channel their wealth of experience to other sectors to help the economy develop.

You mentioned earlier that the AMC bill, a brainchild of the CBN , NIDC and the Ministry of Finance, is now before the National Assembly. How far has you association gone in lending its voice to it?

The Asset Management Company (AMC Bill) is sponsored by the Central Bank, NIDC and the Ministry of Finance. So, to a greater degree, that means government has already accepted it because it is their baby.  One of the things the bill is supposed to do as far as the capital market is concerned is that we all know that most of the banks gave a lot of money to people and  brokers to buy shares and when the meltdown was here the price of those shares went down and so the banks carried those stock and that has affected their balance sheet.

Also, when the market was up and doing, those shares were not difficult to sell because there were so many buyers around. Now that both local and foreign investors are no longer investing in stock as they used to, there were lots of shares in the market and fewer buyers and that in effect is what kept the price going down because if you have everybody wanting to sell and only very few people wanting to buy, the price would continue to drop.

So, that is what we call share overhang. What AMC is coming to do would be to take over those shares that nobody wants to buy and hold it so that the market equilibrium can be established. So, as the market balance is restored, then you sell it back to the market.

That is what was done abroad,  the company they formed that took those shares that were hanging on the market is now selling them back to the market and is making profit for government.  In most countries where these things have been tried, government ended up making more money because it is not going to buy up those shares at the old price rather it is buying it at the price that it is today. So if because you have taken those excess shares off the market, the market moves up, again.

In mono economy like ours, why is it difficult to get the oil majors in the country listed in the capital market?
It is not difficult to have the oil majors in the Nigerian market.

It is just that the government has not made it sufficiently attractive for them. Most of the oil producing companies in other countries are listed on their exchanges but in Nigeria that is not so. There are many reasons for that. In some countries, it is made a requirement for them before they can operate in such countries, they must leave certain percentage of their stock on the market. In Nigeria, that compulsion is not there although most of the oil companies are probably running as a private company and so when you run as a private company, you don’t have to tell anybody how much profit you have made or what it costs.

So, when you get listed, you have to be transparent and accountable and some of the oil  companies possibly feel more comfortable the way they are now as they don’t have to be accountable to anybody other than their shareholders and board of directors. So, they don’t have to disclose some information because they are private companies.

However, government can encourage them by way of providing additional incentives or by way of legislative requirement because oil is a major earner for the country and by listing it on the exchange, we are allowing all Nigerians to participate in the critical source of their own revenue. So, we on the capital market have met with government and done everything we can to encourage the oil companies to list on the stock exchange as it is done all over the world. We would be very happy to have them listed but presently as the law stands we can’t force them. We can only continue to market them, explaining to them and government that you cannot have a major sector of your economic activities standing outside.

So government too has to help by making it a requirement for them to operate in the country. In China, you can’t go there to drill oil without being listed and so also is it in other developed countries, so why not Nigeria.

Looking at the current state of the market, what is your outlook for the Nigerian Stock Exchange in 2010?
The capital market is the mirror of the economy. If it is doing well, then it means your economy is doing well and if it is not doing well, then it means your economy is not doing well. So, when we talk about the future of the  Nigerian economy vis-a-vis the capital market, we cannot but say it has to be bright for your sake and my sake because if our economic future is not bright, then that means a lot of problems for the country.

There is no reason our economy should not be bright as the fundamentals of our economy are still strong. We are still producing our oil and even producing more now than we were producing in 2009 and the oil prices have also stabilized between 70/80 dollars per barrel as opposed to around 45 dollars in 2008. So, everything points to the economy fundamentals growing stronger and if they grow stronger, then the capital market will reflect that strength. So, for any wise investor, this is the right time to buy stock. The right time in the sense that the prices are very low now and since they are no longer falling, the prospect can only be one way which is up .The only thing is that we don’t know when it would get up but it has started and we can see more of it going up.


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