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Investment Climate Reforms and NSE market capitalisation

By Babajide Komolafe

In spite of the challenge of a difficult operating environment, major companies listed on the Nigeria Stock Exchange have continued to post improved financial performances. In response to these performances, market capitalisation rose further to reach a post crisis peak of N35.225 trillion last Friday.

But the market is still far below its potential level. Much of its potential is held captive by the difficult operating environment of listed companies, which constrain their performance and profitability.  Realising this connection, the Nigeria Stock  Exchange commenced moves to partner with1 the Ministry of Industry, Trade and Investment, to ensure that the on-going efforts of the ministry to attract foreign investment into the country through the various initiatives to liberate the business environment  enhance the capitalisation of the Exchange.

In this regard, the NSE hosted the Minister of Trade, Industry and Investment, Dr. Olusegun Aganga at the NSE CEO Dinner  held for the  Industrial Sector recently. The Minister said that the Ministry is aware of the influence of the operating environment on the stock market, and it is addressing this through efforts to make the country both conducive for businesses and attractive for foreign investment.

According to Aganga, various policies of government would make the operating environment conduce for companies to do well and list on the NSE, while listed ones would declare better results and pay better dividends.

He said these efforts are packaged under its Investment Climate Reforms Programme, which is aimed at  attracting and sustaining local and foreign direct investments and also improving the country’s business environment.

He said “one of our strategies is to create the right enabling environment for  businesses to thrive while   the second strategy is sharing the good news across the world thus making it easier for investments to flow into the country.

“In terms of creating the right environment,  we have commenced an Investment Climate Reform Programme which we are working close with the World Bank and DFID. We have the policy framework for investment which covers seven policy areas. We are working with the OECD on that. Also, we have reviewed all the relevant laws governing investments in the country and the process of amending them.

“In addition to these, we have set up a National Competitiveness Council which is driven by the private sector. The idea is for the private sector to drive the competitiveness of the country. Today, I must tell you that the Nigerian story is a beautiful story to tell: to tell the rest of the world that Nigeria has been growing at an average of about 7.4 per cent for the past 10 to 14 years; to tell the world that the debt to GDP ratio of Nigeria is less than 20 per cent when you compare that average to Europe which is more than 80 per cent.”

One of the highlights of these initiatives is the 24 hours business registration introduced by the Corporate Affairs Corporation, CAC, which is one of the parastatals under the Ministry. According to a recent report titled “Statistics For New Registration Services For Abuja and Lagos Offices”, which was released by the Ministry of Trade and Investment, in Abuja, recently, the total number of new companies registered within 24 hours since the commencement of its 24-hour start-to finish business registration initiative, has hit 10,723.

In its efforts to expand the 24 hour business registration to its other offices across the country, and ensure achievement of its objectives, The Chairman of CAC, Funsho Lawal led the new board to the NSE recently. During the visit, he said the CAC is forging new relations with NSE with the aim of facilitating access to companies and registration of new ones.

Hopefully for capital market operators, these efforts to liberate the business climate in the country have started yielding result. For example, Nigeria emerged has  one of the top four investment destination in a  recent survey by KPMG, one of the world’s foremost audit, financial and tax advisory firms.

According to KPMG, Nigeria’s newfound status followed the disappointing returns recorded by the BRICS, with the exception of China. KPMG noted that the poor regulatory environment, slower than expected growth prospects and disappointment returns on investment recorded by the BRICS, with the exception of China, has worked in the favour of Mexico, Indonesia, Nigeria and Turkey which have been termed the MINTs, as well as the ASEAN (Association of South East Asian Nations) region, now considered the new destinations for global capital and investors.

Similarly a report by the United Nations Conference on Trade and Development show that that Nigeria is Africa’s biggest destination for Foreign Direct Investment in 2011, with total Foreign Direct Investment inflows of $8.92 billion.

The World Investment Report 2012, subtitled “Towards a New Generation of Investment Policies”,  stated that Nigeria received $8.92 billion in FDI, thereby placing it as first in Africa, while South Africa was ranked next with total FDI inflows of $5.81 billion.

The above are indications of bright prospect for future growth of the stock exchange. Hopefully, the inflow of foreign investment occasioned by the efforts of the ministry would complement the on-going reforms to attract more firms into the market, especially multinational oil and telecommunication firms,  to further enhance the performances of listed companies and improved returns for shareholders.


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