Ms. Kaodi Ugoji, Vice President & Divisional Head, Corporate Planning, FMDQ Plc, in this interview with Vanguard during a workshop for Capital Market Correspondents held in Lagos spoke on issues affecting the capital market and the economy in general.
By Peter Egwuatu
DO you think there are opportunities for retail investors to grow in the Nigerian capital market?
Yes, I believe there are opportunities for the retail investors to participate in our market. The number of retail investors is quite low when compared to other countries especially the advanced economies. In South Africa, retail investors constitute about 15 per cent of the population, Malaysia 9 per cent of the population and in advanced economies they have from 20 to 40 per cent of their population participating in their capital markets, but in Nigeria, we have just 2 per cent.
What do you think could be responsible for the low level of participation by the retail investors in our market?
There are many factors that could be responsible for the low level of participation. It could be the economic situation of the country, poor level of education, lack of incentives in our market, lack of awareness, etc.
So, what are the challenges facing the Nigerian capital market?
While it is true that the Nigerian capital market has transformed itself into a more vibrant trading field for capital market instruments from the elementary market it was about a decade ago, there is still a long way to go, as development has been affected by a number of factors.
The challenges facing the market generally include: lack of depth, high implied costs , low primary issuance, high interest rate environment, illiquidity, poor transparency, lack of legal/regulatory framework, lack of awareness, high focus on risk-free securities, preference for investment grade bonds, high speculation rate, especially in the equities market.
What do you think are the solutions to these challenges?
We need a stable macroeconomic environment in order to deepen the market, reduced transaction costs, lower capital requirements for corporate issuers. For demand related solutions, we need increased awareness regarding importance and benefits of investing in the capital markets. There is also need to structure investment grade transactions from less investment grade companies. On market related solutions, there is need for increased number of market makers in order to boost liquidity. The market needs effective co-ordination and co-operation between market participants, increase efficiency of trading platforms by ensuring ease of information flow. There is also the need to strengthen the regulatory framework of the market to boost the confidence of investors. The importance of a strong and viable domestic capital market as an alternative source of finance in emerging economies has been affirmed by the success it has enjoyed in countries such as Brazil, Malaysia, Russia, India and China. With government economic reforms running at full throttle, prospects are high for the sustained development of the Nigerian capital market as a viable tool for driving Nigeria’s economic growth.
So, what do you think can be done exactly to deepen our market?
Like, I said earlier, we need to introduce measures to enlarge the domestic institutional investor base, particularly through pension sector reforms. Introduce deep restructuring and institutional reforms in core sectors to promote sustainable private investment in infrastructure. Develop enabling capital markets regulatory framework to facilitate flow of institutional capital into infrastructure.
Government support to specific projects through capital grants, minimum revenue guarantees and risk sharing. Steady flow of bankable transactions. We need to maintain macroeconomic stability, with low and falling inflation. All these measures should be able to help deepen our market.
Do you think Nigeria has all it takes to develop the market?
Yes, we have. With an estimated population of over 182.20million, Nigeria is the most populous black nation in the world, and is therefore a veritable market for business investment. We have an active labour force larger than total population of other West African States.