The capital market benefits from flow of fund in the economy, and up till now, the fifth month into the year, the 2017 budget, which is supposed to spur spending in the economy has just been passed, but yet to be signed by the president. Aigboje Higo, Managing Director, Capital Bancorp Plc, x-rays the impact on the stock market and several other issues. Excerpts:
By Nkiruka Nnorom
Thisis the fifth month of the year and the 2017 budget has just been passed. What is the effect of the delayed passage on the capital market?
The impact is not positive because usually when the budget is passed, it requires spending and part of what we need to do to get out of recession is to have good infrastructure in the economy. But the capital market has moved on; it is tired of waiting for the budget. You find out that the capital market is looking at things like inflation that has gone downward for two consecutive months. It is looking at the first quarter result of a lot of the banks and some of the other quoted companies. Most of these results are improvement over the previous year. The capital market is also looking at the fact in the last two to three months, the Naira has been appreciating very steadily. Those other factors are more than enough to mitigate the impact of the non-passage of the budget. But the budget impact will be useful and it will bring more investors to the market.
So what you are saying is that the market has not really felt the impact of the delayed passage of the budget because of the other factors you mentioned?
It is affecting the market, but not as badly as it would if there is nothing positive. But, there are other positive things the market is responding to.
One of the consensus reached at the last Budget Seminar organised by Securities and Exchange Commission, SEC was that the Federal Government should collaborate with other capital market stakeholders to improve the financial performance of quoted companies and in extension, the capital market. What are some of the practical ways that this could be achieved?
By constantly engaging and collaborating on the part of the regulators. Both the SEC, the Nigerian Stock Exchange, NSE, and even Debt Management Office, DMO, to an extent should, have been meeting to discuss issues that affect the bond market. All of them are advocating and dialoguing on the need to use the capital market to raise funds. There is a Capital Market Master Plan Implementation Committee (CAMIC). I know that CAMIC has a lot of key people and they are dialoguing with officials in government, the Vice-president, the Finance minister, and other relevant people. I hope they have looked at ways the capital market can partner with the government for infrastructural development and for the capital market to grow. There is constant dialogue and I think concrete and specific things are being looked at. I know, for instance, that the Federal Inland Revenue Service, FIRS, is being engaged on the issue of taxation and things like that. So, there is constant engagement with operators and regulators in the capital market and key officials in government, both in the Presidency and even in the cabinet. That’s on-going.
Are you in agreement with the assertion by some operators that issuance of Treasury Bills and other money market instruments by the federal government at very attractive rate is not good for the equities market?
I won’t say that it is not good for the equities market. All I will say is that it is a challenge because if investors have money, and they can get 18 per cent, they will take their chances with 18 per cent or 13 per cent that is risk-free. You are not losing money and it is tax free, so, it is affecting the flow of funds into the equities market. So, I won’t say that is bad; it is only a challenge. The equities market has some attraction, basically because if you choose and invest wisely, you can get better return than the returns in the money market, even though there is more risk in equities. But, as the economy improves, you will see that regardless of what government is doing with issuance of those instruments, capital market will still grow because if you increase disposable income, then hopefully, there is more money for people to save. They will have enough for Treasury Bills, they will have enough for Savings Bonds and they will still have enough for equities. Definitely, the FGN Savings Bonds is having an impact on the market and is a challenge to the equities market, but because for me as an operator, I sell the FGN savings bonds, and I sell equities, for me it is fine. I am more concerned about what the customers want and a lot of clients are still buying equities though not at the rate we will like.
How much longer will the equities market wait for improvement in the disposable income that you talked about?
Let me tell you, people’s disposable income is improving gradually. About six, four months ago, many states could not pay salary. More and more states are able to pay salary now because of bailout one, bailout two and there is more money to share now because they are getting more money from foreign exchange, FX. So, more people are being paid from government level unlike six months ago. The factories that were laying off workers everyday some months ago are trying to hire people now because they are getting FX. Their productive capacity is improving. I am not saying that it is well in Nigeria now, but there is steady improvement. What I am saying is that more and more people are getting money. Over time, disposable income will grow. Clearly the prices of things are also going down, and even if you are earning the same salary, for the fact that prices have gone down, you will have more money to save. What I am saying is that as the economy is improving, disposable income should also improve. I am not saying that it is happening tomorrow, but that is the stage we are heading to now and definitely the capital market will benefit.