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Goodluck and the Nigerian Capital Market


NEITHER  in the NN24 debate attended by the three closest  challengers to President Goodluck Jonathan in Saturday’s presidential elections, nor in the other debate attended solely by President Jonathan, was a serious issue with perhaps far greater capacity to affect the fortunes of the economy and hence the citizen’s well-being, ever raised.

That lacuna was curiously instructive. It is all the more intriguing that in the flood of advertisements by which the candidates have solicited for votes, there has been no copy that has called attention to this serious issue either.

It may well be that the gap in knowledge is a reflection of the underdeveloped state of our economy, or more particularly the popular conception of development by which the people, and even opinion leaders, assess a political leader in the executive branch of government by the kilometres of roads tarred, or the photographs of overhead Braithwaite tanks published to show that potable water is now available in particular localities.

The issue pertains to the capital market, which crashed on these shores a little more than three years ago, and has been struggling to get up and go after its catastrophic decline. To underscore the significance of the capital market, it is useful to briefly restate the value of the stock market. Now, if all candidates are talking about providing jobs and creating an environment for the private sector to thrive, they have not made a proper linkage by harping on the fact that the lifeline of any business is access to cheap capital.

That access can come in any of three major ways: from personal savings of the investors, which are almost invariably inadequate; funds can also be borrowed in the money market, which is expensive, because of high interest rates that are usurious in our country. But, above all, there is no dispute that the capital market provides the most viable source of large funding for businesses to source for cheap funds that they can use to operate their concerns.

Indeed, what has also not been grasped in the current electioneering season is the dynamic relationship between political stability, the stock market, and economic productivity.

To illustrate, only a few months ago during the revolution in Egypt, there was a critical step taken to shut the stock exchange in that country, not because stock brokers were unable to go to work, or that the buildings of the Stock Exchange faced threats of damage.

Rather, it was to avoid a run on the market, by which the value of stocks would have plummeted disastrously as investors off-loaded their stocks in the face of the political uncertainties. More recently, as the earthquake and tsunami ravaged Japan, and panicky investors sold off their holdings, the Tokyo Stock Exchange came under intense pressure.

It is unclear why the Goodluck Jonathan administration has not been crowing about the significant steps it has undertaken to reflate the Nigerian capital market.  Even when, in the course of his grueling campaigns, President Jonathan was hosted to lavish dinners by the movers and shakers of blue-chip companies in Nigeria, there was not a story on any robust engagement about the capital market and its related matters of corporate governance. Admittedly, under President Jonathan’s administration, foreign and local investors have been returning to the Nigerian Stock Exchange(NSE). The last few months have been eventful and rewarding.

Though slow-paced, the ongoing steady recovery can largely be attributed to the various steps taken by the apex regulator, the Securities and Exchange Commission (SEC), which has been reformed by the government to play a more active role as an efficient and effective regulator of the capital market.

It seems such a distant memory now, but three years ago, in the wake of the collapse of the Nigerian stock market, President Jonathan, then Vice President, headed a public-private sector committee to steady the market once again after the roaring boom. Unfortunately, whatever measures the committee proposed were buffeted by the global economic crisis which ensued in the last quarter of 2008.

Specifically, since the current Director-General of SEC, Ms Arunma Oteh, assumed office in January 2010, and commenced her reform agenda, investor confidence has been on the increase. Most investors are pleased because the Jonathan Administration has provided the necessary environment and freehand for the SEC DG to operate despite the Commission being a parastatal in the Federal Ministry of Finance. Though the capital market is private sector driven all over the world, the activities of central governments through the operations of regulators are crucial to the mood of investors.

Indeed, under the Jonathan administration, investors at the Nigerian Stock Exchange raked in a total of N3.02 trillion in profit last year as market capitalization of listed equities closed for year 2010 at N7.913 trillion. Besides, experts have described the Exchange’s performance as one of the best in the world in 2010 when reviewed against the comparable period of 2009, especially among emerging markets.

Precisely, market capitalization of listed equities, which opened the year 2010 at N4.89 trillion closed the year at N7.913 trillion, while the All-Share Index closed higher at 24,770.52 points, up from 20,827.17 points at the beginning of January 2010. Similarly, the NSE-30 Index which accounts for 78 percent of the All-Share Index market capitalization and 84 percent of its liquidity, also closed higher at 1,081.95 points, up from 848.08 at which it closed at the end of 2009.

Finance experts are of the opinion that the Exchange’s performance indicators closed last year on a positive note despite the pendulum movement of the indices as a result of profit taking by investors. Yet, for the 2009 financial year, a Bloomberg report, which reviewed 91 largest indices across the globe, had rated the Nigerian Stock Exchange’s index as the worst performing equity index worldwide. The poor performance in 2009 had been attributed to the slow pace of the nation’s capital market’s growth.

Barely one year after that the Bloomberg report, the Jonathan administration through the apex regulator and transparency in government spending has succeeded in restoring investor confidence to the market and attracting more foreign investment to the country.

The Jonathan administration has also succeeded in developing the bond markets. Numerous state governments have subscribed to the bond market to source for the much needed resources to finance capital projects. Between  January and March this year, investors staked not less that N2.6trillion on 2.9 billion  units of FGN Bonds through the  Over-The Counter (OTC) market in  19,345 deals.

Mr. Abbas , a comentator on national  issues,wrote from Abuja.


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