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Capital market has absorptive capacity to finance national budget —Ogiemwonyi

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Mr. Victor Ogiemwonyi is the CEO of Partnership Investment Plc, Chairman of the Association of Issuing Houses of Nigeria, AIHN and Council member of the Nigerian Stock Exchange, NSE . In this interview, Mr. Ogiemwonyi spoke on a lot of issues such as the 2015 national budget, inflation, interest rate, Foreign Exchange, FOREX , long term financing, among others.

Does the capital market have absorptive capacity in the event that the Federal government decides to raise substantial fund to execute the 2015 budget

Yes. We have proven that already with the banking consolidation of 2004/2005. The same questions were asked then, and we answered by raising over N700billion for banks and has since raised more billions for other companies like Dangote Cement and Sugar. Our market is wider than our borders. We have investors outside our shores that will bring money if they think there is opportunity for them.

Victor-OgiewonyWe have a very large population that is an attraction for serious investors. The population can also be galvanized to make the Capital market a major investor hub. A rapid savings habit will soon emerge to make investors out of our very large population. We saw this in 2007/2008, when the market was vibrant; many Nigerians became investors in the market. We also have an emergent pension industry that can provide the source of local institutional funds that will help have infrastructure securities funded and traded with benefits for all.

In your own opinion, why has the governments at different tiers been shying away from deploying the capital market to fund infrastructural deficits?

I believe there was not enough knowledge on how the market can help Governments get the funding it needs to get Infrastructure to standard. Some of that blame is on us. We now want to get the message out there. That is one of the reasons we are coming together to give visibility to what we do and how we can play our role in the economy. No serious Government at any level can borrow its way to developing their infrastructure using the existing Commercial Banks.

The debt capital markets and possible Private Public projects with equity kickers will allow Governments the required funding and proper utilization and discipline only the market can provide. There is however a small percentage of the Governments that find the ease of commercial Bank loans that have little public scrutiny attractive.

How would you advise investors who had lost substantial amount to the stock market crash in 2008 to patronize the market?

The stock market is a long-term market. If you weighted out the last crisis, the chances are, that you may have recovered or near recovery. Until the recent crash relating to the uncertainties in the economy. Only those who borrowed to be in the market and have a lot of debt to worry about may have challenges. Those who sold may have suffered, but it is better to find someone to help you with professional advice.

What you pay is nothing compared to what you will gain if you use the right adviser.   The market remains the most profitable in the long run. I will also advise that you invest evenly, that is buy stocks at different times at different prices and just hold it for a long time. Only professional traders can really make money from trading stocks. Trying to trade your portfolio on your own will cost you money if you don’t know what you are doing.

What roles should the capital market regulators play in order to bring about effective and efficient utilization of the market by the governments at different tiers?

The Market regulators will have to embark on enlightenment of the public and Governments and continually impress on the Governments that the capital market is the market for long-term funding of infrastructure and it is a more appropriate market to fund long-term Infrastructure projects.

What should be the roles of the market operators in this situation?

The role of market operators will apart from giving useful information to these governments, to also work with others in the market to educate Governments as issuers of securities and let them know the usefulness of accessing the market.  Investors who buy these products and the general public who pay the taxes to service this long term debts all need to be educated about the market.

Operators and everyone else need to push Governments at all levels to privatize more of their services to the public as a way of making them self-funding when they access the market as well as provide better services because of the market discipline required. We have seen this with earlier privatization of Government banks in the 1980s. Nobody remembers today that First Bank. UBA and Union Bank were once Federal Government owned.

What informed the decision to hold the recently concluded One-Day Dialogue by the Chartered Institute of Stockbrokers (CIS), Association of Stockbroking Houses of Nigeria (ASHON) and Association of Issuing Houses of Nigeria (AIHN)?

The dialogue was on the proposed 2015 budget. We wanted our input in the national budget making process. We wanted to make sure the capital market’s point of view was made known. We represent a very important segment and voice in the economy; we feel we need to be part of the discussion and to make our views known early enough to be considered by the seriously

How would you assess the forum?

The forum was very successful. This was our first of such forums and we were happy that the market enthusiasm was there to encourage us. It was also a good pointer to the synergy that can come from the the three market Trade groups or market associations teaming together to do this. Many others  will follow. We intend to expand the reach to other capital market associations to possibly form an apex capital market association, to represent one voice for  the Buy  and Sell side of the our market.

What issues would you say dominated the discussion?Victor--Ogiemwo2

The current economic situation was most discussed and the interconnectedness of Inflation, Interest, and the Foreign Exchange , Forex Rates. Suggestions were made on how we could possibly manage these rates. There were also issues around the Stock Brokerage industry and national economic growth

What message(s) can we say that CIS, ASHON and AIHN are sending to the Federal, State and Local government?

Let all levels of Government know that they can use the capital market to quickly develop this economy. The capital market is waiting to play its rightful role. The focus on it will provide some answers to our infrastructural development problems. We need an integrated approach that will put in place a market wide strategy to meet the needs of investors from the Sellers side and to meet the needs of the market from all users of the market. The Government can purposely patronise and partner with the market to help the Market develop to meet the needs of the economy.

How would you advise the Central Bank of Nigeria on the management of the interest rate, inflation rate, monetary policy rate (MPR) and exchange rate?

My position is very clear on this, not only was my discussion at the dialogue session focused on the recommendations that I postulated, I have since written what that position is, and published  in  my column in Business Day ( Economics and Markets) and several newspapers just to tell you how strongly I feel about it. The debate is going on out there. My position is that the current environment is ideal for us to make some changes.

It is an opportunity we must seize. Changes are much easier to make in a crisis. We must use the opportunity to diversify our economy by weaning ourselves of those imports we don’t need. We must make the Naira cheap to stimulate exports and generate Foreign Exchange, Forex .A cheap Naira will attract tourism. We have no business defending the Naira at all cost. The question is, who are we defending the Naira for? Is it for marginal foreign investors who come to prey on us?

You cannot hold back water after the dam has broken. The only thing to do now is let the Naira find a level from where we can support it. My threshold is N200. The CBN should not support the Naira below this level. We should also come out with a list of what is eligible for official foreign exchange. All luxury should not qualify for official Forex. Any item with local production or substitute should not be given any official foreign exchange.

The high exchange rate will allow us lower interest rate to align with the lower trending inflation at 8.2 per cent and discourage some speculators. The current Monetary Policy Rate, MPR at 13 per cent is a drag on the productive sector of the economy. We need to focus on growth; we will maintain modest inflation and high exchange rates to make our local industries competitive.

A high exchange rate for the Naira will also help balance the budget with the hidden re inflation that will come from a N200 exchange rate. The budget surpluses can be used to intervene in certain industries where there might be shortages and enhance their increased supply of that product.  This can be addressed by helping those industries access loans at low interest rates to increase capacity quickly to meet the need.

  What is your take on cost of investment on the Nigerian Capital Market?

The cost is too high but the problem is on the regulatory fees. Those costs will need to be reviewed. The volume of business in the market will not allow market operators bring their cost any further down. Anyway, competitiveness amongst operators is stopping them from even charging full fees. There is always a negotiated fee that most times, favours the buyer of the various services.

Investor education is very key to growing the market. It has a lot of benefits for everyone in the market. As for the operator, it is far easier to sell to a knowledgeable investor. The best protection for investors is knowledge. All investing is about knowledge. We all have a responsibility to reeducate all users of the market. We need to employ some innovative ways for engaging the public. There are some very good ideas in the 10 Year Capital Market Master Plan that we just completed.

Any other comments that would be of interest to the investing public?

The investing public needs to know that it is usual for markets to go up or down. The current situation will not last forever. When the stock market go down, and is persistent, it usually goes down for a good reason. If the users perceive that the economy is unstable and cannot be predicted, they usually want to get out. Investing is about the future, unless people can read the future more clearly, they will want to move into other perceived less risky investments.

After a while the risk is over stated and the value in the market becomes irresistible and investors will flood back into the market and stocks rise and those who are in, make money. The value in the market is at that point now or near it. Those who want to make money in the next wave must begin to position themselves now.

The un usual low value of stocks now, is due to the unusual events propelling the uncertainty, which, when they start to correct themselves as they must at some point, prices will start to go up. Because no one can predict what that point is, you will have to invest broadly and consistently. But do no borrow to invest in the market unless you understand the risk.

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