By Dele Sobowale
“We agree that the work involved is quite tedious but we will try to make the environment better and stronger. There is a lot of work to do in SEC and NSE and we will contribute our quota to building a world class market that all of us will be proud of”.

Mr Asuerinme Ighodalo, Chairman Technical Committee of SEC, September 22, 2011.

Mr. Ighodalo is not the only person concerned with building a world class capital market in Nigeria. The Director-General of the Securities and Exchange Commission, SEC, Ms Arunmah Oteh, had earlier in the year made the same promise.

Underlying all these statements is the realisation, at last, by wide segments of Nigerians and global investors, that the Nigerian Stock Exchange, NSE, has ceased to be, if it ever was, a world class capital market. The steady decline in share prices, which started in 2008, and which continued till last week, has seen the All-Share Index plummeting by more than 70 per cent (nearly 85 per cent for banks) in three years – if allowances are made for new listings.

Investors have literally been taken to the cleaners; yet the end is not in sight. What started as the Lagos Stock Exchange, LSE, 50 years ago, with people like Sir Odimegwu Ojukwu, and later changed its name to the Nigerian Stock Exchange, like every great Nigerian enterprise, started with an exalted aim but is ending up bo
gged down with pettiness and corruption.

While the founding fathers of the LSE set out, right from the start, to establish an exchange based on confidence, as any financial institution should be, many of their successors later viewed the exchange as an avenue for illegal self-enrichment – irrespective of what it did to the exchange itself and to our country Nigeria.

Several measures have been taken to restore, what the SEC thinks is responsible for the battered image of the NSE and to rekindle investor confidence – even as some listed companies are taking their leave of the exchange, for instance the Nigerian Bottling Company, marketers of Coca-cola; the world’s leading soft drink.

The SEC, under Ms Oteh, had sacked the former board of directors of the NSE – including the Managing Director, Mrs Ndidi Onyiuke. Although the case is now in court, it is unlikely that the former D-G, NSE will again return to her seat.

She also has charges pending in a Lagos court for abuse of office and corruption. Before that, the SEC had ordered several board members to refund large sums of money – running into billions – improperly collected as entitlements and allowances. Without exception, they have been on the board of the NSE for years and the series of revelations had shaken the NSE to its foundations.

While that matter was well handled, the issue of share price manipulation involving Alhaji Aliko Dangote and Femi Otedola, which actually called into question the integrity of the capital market, had been quietly swept under the rugs once the two have settled their differences.

Meanwhile, the billions of naira lost by other investors remain unaddressed. Nobody knows now if share prices were manipulated, as alleged, or not and who did it. Certainly, nobody will be punished for it. That is the Nigerian Factor on display in the capital market.

Unfortunately for the SEC, whether or not it might choose to follow the case to its logical conclusion, as it is done in world class exchanges, the SEC should know that collateral damage has been done and its impact will last for quite a while.

Specifically, the SEC and NSE would be out of touch with reality if they think that share price manipulation is limited to the one in dispute. No crime committed in Nigeria is ever committed in isolation; and millions of other investors have already assumed that more share prices have been fixed in the past – and are probably still being fixed.

Among the proposals to re-ignite interest in the Nigerian capital market at 50, is a global tour to sell the domestic market as one still capable of delivering above average returns. Nigerians love jamborees, especially when it is public money that will be wasted in the exercise.

With global markets in turmoil everywhere on account of the economic crises in Greece and Italy, the last thing any portfolio investment manager wants to do is to take risks very far from home. At any rate, irrespective of which country they operate from, they have missions here in Nigeria to brief them about the state of the Nigerian capital market.

They know, too well, that all is not well. The Nigerian tourists will certainly enjoy themselves immensely but they will most probably return empty-handed.

A most interesting suggestion regarding the revival of the capital market had been put forward by the governor of the Central Bank of Nigeria, CBN, Malam Sanusi Lamido. According to Sanusi, a law should be enacted mandating all multi-nationals operating in Nigeria to list their shares on the NSE.

On the face of it, this is a very attractive option which will – among other benefits – immediately lift the All-Share Index once Shell, Chevron, MTN, etc weigh in with their trillions of naira. It will also bring with it wider spread of the ownership of these enterprises.

Unquestionably, these are great benefits whose impacts cannot be easily estimated or disregarded. Unfortunately, they represent one-off advantages. The listing of trillions of naira of Dangote shares had the same impact at first.

But, it has failed to stop the relentless downward slide since the listing. Furthermore, the same companies are listed on some global exchanges which are now in disarray. There is nothing to suggest that they would restore
confidence in the NSE.

The critical issue with the Nigerian capital market is confidence; not listing. The second most important is capital. There can be no capital market without capital. Hitherto, the bulk of Nigeria’s capital market funds had come from corrupt practices in the public sector.

Appointed and elected officials have amassed great fortunes from corrupt practices and a significant proportion of these have ended in the capital market in the past – mostly to acquire bank shares. Without exception, they have lost billions since 2008 and they are not in any position to return to the market.

Where there have been changes of government – Ogun, Oyo, Osun, Ekiti, Nassarawa, Kano, Imo etc – the former officials lost whatever they invested in the capital market; the new “lords of the manors” are investing elsewhere.

Foreign investors will be difficult to lure into the capital market as long as Nigerians stay away – for various reasons too numerous to cover in a short essay. So, with all respects due to the CBN governor for a val
iant effort, the option will bring only temporary relief and will not be sustainable.

A RADICAL PROPOSAL: A NEW EXCHANGE.

“There is no problem so big you can’t run away from it.”

American comedian.

Since neither a world tour nor forced listing of multi-nationals will confer a lasting advantage on the Nigerian capital market, which is now deprived of confidence, the logical thing to do is to wipe the slate clean and start all over again.

If the Lagos Exchange can become the Nigerian Stock Exchange, why can’t the NSE be scrapped and we start another exchange which will be better regulated and managed by new people since the Onyiukes, Dangotes, Otudekos and Otedolas have had their days in the capital market sun.

It matters very little if the DG-NSE is guilty or not. Chief Executive Officers of capital markets, like Caesar’s wife, must be above reproach; the board also must demonstrate total integrity. And integrity in handling other people’s private funds is not a 90 per cent or even a 99 per cent achievement; it is 100 per cent.

No exchange in which the former officers and board members of the NSE will ever again be trusted. Most of them were involved in the abuse of office which led to the listing of TRANSCORP; they made billions of naira; Nigerians lost almost the same amount.

Apart from sending a strong signal to the world that the SEC is determined to make a definite change, it will enable the exchange to start with a new base figure and a new corporate posture on which growth can occur – perhaps with voluntary listing of the same multi-nationals which Sanusi wants to compel to be listed.

The new exchange, by whatever name it is called, can only be world-class if its board is also global in composition. It should not be a cabal of friends – which is what the NSE became towards the end. Otherwise, someone should have openly resigned from the board on account of the atrocity involved in the TRANSCORP listing alone.

Similarly, all the dirty linens washed in public by Dangote and Otedola should have been sufficient reason for others associated with the exchange to throw in the towel. None did because all condoned the conduct of the major players.

A new exchange will constitute a breath of fresh air for the Nigerian capital market. Without it, the decline will continue until the NSE fades away.

OICS STEALING OIL DAILY. What the oil companies claim they load is less than what they deliver to their customers. How many barrels? No Wikileak. Read “DeleLeaks”. Only N5000 per copy.