Market Capitalisation: 'We Still Have a Long Way to Go'
By Olusegun Obasanjo
I must say that the word, "special", also describes the NSE and its indefatigable Director-General, Dr. Ndi Okereke Onyiuke, her team and the other stakeholders whose hard work and dynamism have helped to make the Nigerian Stock Market one of the fastest- growing in the world.
Their achievement is a tribute to the Nigerian spirit and it shows what this nation is capable of. The Total Market Capitalization figure estimated at over One Trillion, Nine Hundred Billion Naira as of this last month, is a clear indicator of this rapid growth. The equities market in
particular has been a major source of growth. Market turnover doubled in a year from N60.3 billion in 2002 to N120.70 Billion in 2003. Likewise new issues approved grew from N67.3 billion in 2002 to N185.02 billion in 2003. Current daily market turnover (buying & selling) amounts to on average 1 billion naira as against last year's figure of 200 million naira per day. This represents a growth of 400%. As at June 7th 2004 the all-share index was recorded at 27,692.36. I am told that the NSE expects market turnover at the end of the year 2004 to amount to 250 to 300 billion naira (roughly 1 billion per day).
It is clear that the current leadership of the NSE has contributed in no small measure to raising the volume, profitability, and depth of the stock market. On its watch, public awareness of the positive performance of the stock market has also grown tremendously to the extent that the number of Nigerians participating and benefiting from the stock market is increasing everyday. The recent upsurge in IPO's involving corporate entities such as Oceanic Bank,
Standard Trust Bank, Guaranty Trust Bank, and Zenith Bank confirms the growing popularity of the stock market. You are doing very good work for the economy and for the people of Nigeria, and I have to tell you that the Federal Government is aware of your excellent contribution.
Government's recognition of the importance of the Stock Market is underscored by the central place it has been given in the National Economic Empowerment and Development Strategy (NEEDS). Essentially, the stock market should be a major source of funding for the economic reform program. The ambitious goals of the medium term economic plan are anchored on the robust participation of the private sector. And to say the obvious, there can be no serious private sector investment without large infusions of capital from the Capital Market. It is anticipated that the estimated 4.5 to 5 billion dollars per annum needed to fund the economic reform program will come from sources such as domestic and foreign direct investment (FDI) and government
financing. However the capital market is really centrai tO tne achievement of this goal. In all a total of approximately 20 billion dollars is required for finance the program between 2003 and 2007. Against this background, it is easy to see why the NEEDS document gives prominence to the critical place of the capital market in the development of a stronger economy.
But, it is not enough to say that the capital market and the Nigerian Stock Exchange within it are important. The Nigerian Stock Exchange has a huge responsibility on its shoulders. There is a need for the various institutions, players, and actors in the system, including the NSE itself to think seriously and come up with strategies to enhance capacity and develop new strengths which are needed to achieve the objectives encapsulated in the NEEDS document. This is the central challenge which faces you today and it is a historic responsibility. A critical aspect of this is the consolidation of good corporate governance, especially in the areas of sound ethical practices. I know that the overwhelming majority of the stakeholders in your sector are people of integrity who are doing their best to keep on the straight and narrow path of professional practices. But, the well publicized fraud involving NESTLE shares shows, there also exists a tiny minority of persons who are seeking short cuts to wealth using the stock market. Such practices are not only wrong, but also have the potential of sabotaging the good work you are doing. They attack the stock market where it hurts most - public confidence. A stock market is only as good as the confidence it inspires in the stakeholders and the investing public. That is why you have a responsibility to tighten the processes so that the dangerous actions of the conscienceless few do not hurt the short and long term prospects of this important sector.
The regulatory requirement to disclose both operational and financial information periodically must be scrupulously enforced so that the system becomes more transparent in order to reduce the opportunities for unscrupulous persons to dupe shareholders.
Having said this, I must add that the NESTLE fraud would not have been news if the company was not listed on the exchange. To that extent, the stock market is intrinsically good. But action must be taken against anything that affects confidence so that the momentum of growth in the services is not halted.
The volume of investment will only improve if the NSE is forward looking and continues to improve itself. Though capitalization has increased exponentially from 280 billion naira in 1999 to 1.9 trillion naira today, the number of Nigerians who are participating in the stock market, can be compared to a mere drop in the ocean compared to the potential. Place this against South Africa's 290 billion dollars or 29 trillion naira in market capitalisation as of last month and you will appreciate the fact that we still have a long way to go. It is clearly evident that we need further strategies for encouraging investors to use the stock exchange. In the case of foreign investors, among the major institutional indicators that can
attract them are performance, integrity, and sophistication of the exchange.
For this administration, deepening the capital market is a major imperative. This explains the return of the federal government, after 17 years of absence, to the capital market. As you are aware, the federal government issued N150 billion bonds with maturities ranging from three, five, seven, and ten years.
These bonds, which have already been listed on the stock exchange, have helped to raise capitalization of the Stock Exchange and enriched the variety of securities available in the market. I passionately believe the advantages of helping to deepen the capital market are many.
This is a role played by governments all over the world and you all have the responsibility to better explain this to the Nigerian public and to critical groups such as our legislators some of whom do not see or believe in these advantages but at the same time are eager to understand better and assist. Sovereign bonds, the least risky form of securities, play an important role in stock markets around the world because they boost confidence in the system by providing a benchmark for other issues.
Another area that deserves your attention is the existing federal government bonds of N1.3 trillion in securitized public domestic debts, out of which over 60% is in 91-day treasury bills. These will have to be restructured to longer terms and listed on the Stock Exchange. Moving these bonds from the money market to the capital market would help to further deepen the market.
It needs to be noted that government's return to the market is not just for the purpose of financing the deficit, but also to stimulate all round development of the market. The private sector cannot lead growth without a vibrant and active capital market to promote the requisite long - term funds for investment. To make these funds available, all possible legitimate avenues, including government participation, should be explored. That is the logic and the wisdom behind the move.
Finally, I would like to briefly touch upon an important issue which is critical to the sustainable development of the stock market in Nigeria. Here I am talking about the importance of education. There is a need to institute a process of consistent learning for market operators, other players and the general public. Happily, the Nigerian Stock Exchange has done quite a lot in the area of enhancing public awareness of the features and benefits of the stock market. I am particularly impressed by the special outreach program tailored to educate secondary school students on stocks, shares, bonds, and related issues.
The numerous workshops organised by the NSE to update the knowledge of market operators are also commendable. However, a lot more work is needed to ensure that other critical segments of the population such as national and state legislators, as well as policy makers also benefit from this campaign. It may be necessary for the NSE to develop a more detailed education and communication programme to reach these and other Nigerians.
Let me end by thanking you alI for your hard work and support in the development of this economy. Let me encourage you all to do even more working in partnership with government. I am sure that with the efforts put in the Nigerian capital market and the NSE in particular, we can look forward to developing beyond a national stock exchange to a regional powerhouse.
President Obasanjo's speech was presented by the Minister of Finance, Dr Ngozi Okonjo-Iweala, at the recently concluded conference organised by the Nigerian Stock Exchange
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