The Nigerian capital market under democratic dispensation

The Nigerian capital market under democratic dispensation

Wednesday, June 4, 2014 1:09 pm

by Chinyere Joel-Nwokeoma (NAN)

The Nigerian Stock Exchange (NSE) was established in 1960 as the Lagos Stock Exchange.

Observers note that over the years, the NSE has weathered several storms before emerging as one of the best performing equities market in Africa.

From all indications, the Nigerian capital market has grown to become the most preferred investment destination for foreign investors due to its enhanced return on investment.

However, economic experts argue that the 15 years of uninterrupted democracy in Nigeria has been a major driver of the market’s growth.

They say that the factors, which facilitated the market’s growth, include several initiatives introduced by the market regulators to ensure strict adherence to the principles of corporate governance.

The other factors, they add, are the consolidation of the banking industry in 2005, the licensing of market markers in 2012, the establishment of short selling and securities lending, the prompt release of information by quoted companies and improved financial results.

As at May 26, 2014, the NSE’s Market Capitalisation increased to N13.154 trillion, as against a little above N10 trillion posted on May 28, 1999.

Also, the All-Share Index also appreciated to 39, 755.47 points as at May 26, 2014.

The market in 2013 witnessed a growth of 37.96 per cent, as against 34.5 per cent which was achieved in 2012.

However, from January 2014 to May 26, 2014, the market declined by 3.81 per cent, following what analysts attributed to nation’s security challenges and the general uncertainty surrounding the 2015 general elections.

Consequently, the NSE index in the first five months dropped by 1,573 points to close trading on May 26, 2014 at 39,755.47 points; compared with opening index of 41,329.10 points.

Besides, the market capitalisation, which opened for the year at N13.226 trillion, lost N72 billion or 0.54 per cent to close trading on May 26, 2014 at N13.154 trillion.

However, the market capitalisation was enhanced by the listing of the shares of Seplat Petroleum Company and Caverton Company in April and May respectively.

In spite of the unprecedented growth posted so far at the nation’s bourse, the growing rate of unclaimed dividends and the non-elimination of stamp duties and Value Added Tax (VAT) on transactions have remained an albatross for portfolio investments.

This is because the Federal Government’s pledge in December 2012 to cancel stamp duties and VAT charges on capital market transactions has not translated into a reality following the bureaucratic bottlenecks encountered in gazetting the policy.

Speaking on the market performance, Alhaji Rasheed Yussuf, the immediate-past President, Association of Stockbroking Houses of Nigeria, described democracy as a blessing to the nation’s bourse.

Yussuf said that the country’s democracy had particularly increased the confidence of foreign investors in the Nigerian capital market.

He said that the market would have recorded more growth if not for the security challenges in some parts of the country, the tight monetary policy of the Central Bank of Nigeria (CBN) and the suspension of Mallam Lamido Sanusi Lamido, the former Governor of CBN.

He, however, noted that the market was still battling with the issue of unclaimed dividends in spite of the introduction of e-dividend policy.

Available records indicate that unclaimed dividends stood at N60 billion as at Dec. 31, 2012.

Yussuf urged stakeholders in the capital market and quoted companies to intensify efforts to reduce the menace of outrageous figures quoted in some companies’ financial reports so as to build investors’ confidence in the market.

Mr Ariyo Olushekun, the immediate-past President of the Chartered Institute of Stockbrokers, called on the government to ensure urgent implementation of plans to remove VAT charges and stamp duties on capital market transactions so as to increase transactions and boost the confidence of investors.

He urged the Federal Government to expedite action on gazetting the policy so as to facilitate its prompt implementation.

Nevertheless, Mr Sehinde Adenagbe, the Managing Director of Standard Union Securities Ltd., said that the capital market had gained international acceptability in terms of transactions since the advent of democracy.

He noted that many foreign companies had started business in Nigeria since the advent of democracy, while creating employment opportunities for the citizens.

“However, we can do better if not for the corruption that is endemic in our system,” Adenagbe added.

All the same, Mr Adebayo Adeleke, the National Secretary, Independent Shareholders Association of Nigeria (ISAN), said that the national economy had yet to feel the full impact of the potential of democracy

He said that the democracy ought to facilitate wealth creation and value orientation in the country, adding that this would increase the citizens’ living standards.

Adeleke, nonetheless, urged the government at all levels to embrace economic platforms like the capital market in efforts to create wealth and develop the country’s infrastructure.

All in all, capital market experts contend that portfolio investments usually perform better under a democratic government.

They say that the Nigerian democracy, in spite of emerging economic challenges, has provided the basis for proactive thoughts and development of new investment vehicles.

To them, the new investment horizon, if sustained, will gradually expand the national economy and create diverse opportunities for the Nigerian population.


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