New Telegraph

Govt’s intervention as pathway to market growth

More government intervention is needed in the capital market to create enabling business environment to bolster the local bourse. Chris Ugwu writes

Despite the Nigeria Stock Exchange (NSE) acting and performing as a catalyst in the nation’s stride to economic greatness, safe for the current rally, the nation’s stock market has on many occasions witnessed investors, both foreign and local, selling their shareholdings in a bid to exit at all cost.

This is because some economic policies by authorities and the plunge in oil price, which puts Nigeria’s currency under pressure and dampen appetite for assets in Africa’s biggest economy and chief oil exporter, among other critical factors, have affected the market adversely.

It is believed that an enabling business environment, policies that promote ease of doing business and market forces in line with best practices are key factors that can encourage companies to list on the Nigerian Stock Exchange. Analysts have continued to crave for connection between critical sectors of the economy and the capital market in order to broaden the market and create avenues for Nigerians to partake in the wealth creation process. Upstream oil firms like Shell, Chevron and telecommunications firms like Globalcom are yet to list on the Nigerian market, despite the huge returns these firms have reaped from the economy.

However, the clamour for the new set of requirements and intervention to save investment in the stock market from further depreciation has continued to be louder despite some items in the recently implemented Finance Act by the Federal Government are seen to boost some sectors of the market. The apex market regulators and other market stakeholders though commended the bill, still believe that there is need for more initiatives to jumpstart more listings on the local bourse.

Implication of Finance Act on stock market

The Nigerian Stock Exchange (NSE) had said that the elimination of double taxation in Collective Investment Schemes (CIS) including Real Estate Investment Structures as stated in the Finance Act is expected to have a significant impact on the growth of the currently nascent $2.77 billion asset management industry in Nigeria.

The Chief Executive Officer, NSE, Mr. Oscar Onyema, stated this at a symposium tagged, “Finance Act 2019” in Lagos. The event was held in collaboration with KPMG Nigeria to highlight the implications of Nigeria’s Finance Bill 2019 passed into law by the National Assembly in October 2019.

The Bill, which took effect on February 1, 2020, has the objectives to promote fiscal equity, align domestic laws with global best practices, support MSMEs, increase government revenues and incentivize activities in the capital market. Onyema said: “We have convened committees and conferences to dimension the real estate industry and the necessary policy changes required to jumpstart financing into the sector, and so this positive policy announcement is a good start towards increasing the viability of REITs for issuers and investors.

“With the nation’s housing deficit put at 17 million units as estimated by the African Development Bank, I believe strongly that REITs and other real estate investment vehicles will play a critical role in funding real estate and infrastructure development in Nigeria.

“We also expect an exponential growth in securities lending activities which will further boost market liquidity given the elimination of tax on manufactured dividend arising from securities loan transaction. Whilst there have been some improvements with 20 million units of shares currently available for lending, the multiple taxation embedded in an SLB arrangement has slowed down its adoption in the Nigerian capital market despite being a $2.44 trillion market globally.” He noted that the recent amendment to the tax laws in the Finance Act 2020 was in line with global best practices for securities lending.

“I want to seize this opportunity to enjoin capital market operators and asset owners to take advantage of the benefits in expressing your views of the market via short or long positions. Speaking on the Finance Act 2020, Partner & Head, Tax, Regulatory and People Services, KPMG, Mr. Wole Obayomi, said: “Finance Act 2020 is a landmark legislation that should be embraced by all stakeholders to ensure it achieves its laudable objectives.

“The removal of multiple tax footprints for securities lending and real estate investment schemes is expected to stimulate activities in those segments of the market. The generous incentives for the small and medium enterprises (SMEs) in the Finance Act coupled with the launching of the Growth Board for capital raising by that sector from the Nigerian Stock Exchange, are timely interventions to drive the growth of the economy through the SMEs. Overall, the Finance Act 2019 is a welcome development.”

Stakeholders seek government’s intervention

Financial stakeholders at the Chartered Institute of Stockbrokers (CIS) annual Economic Review 2020 and outlook 2021 identified leeway for capital market growth. At a webinar conference organised by the institute, the stakeholders agreed that the Nigeria’s sustainable economic growth and stability could be achieved by leveraging the capital market.

A key speaker and Chairman, Research and Technical Committee for CIS, Mr. Akeem Oyewale, said even though Covid-19 brought the world to a standstill in 2020 and economies were completely locked down for months, with business volumes, revenues and employment grossly depreciated for the entire year, the current year has potentials for speedy recovery through the capital market.

Given outlooks for 2021 in the Nigeria capital market, Akeem urged that government should create an intervention fund for securities dealing firms, to avail them the necessary liquidity to maintain a consistent position on quoted securities, thus stabilising the market.

“Private sector activity needs to be significantly stimulated, while the Micro Small and Medium Scale business class should have greater access to viable long term capital. These will be effectively accomplished if the equity capital market is supported, strengthened and stabilised with continuous liquidity.

Based on the universally acknowledged principle that the money (short term) and capital (long term) markets complement each other in the economic development process, we wish to call on the Central Bank of Nigeria (CBN) to extend the following structural / liquidity support to the equity arm of the Nigerian capital market. “Creation of an intervention fund for securities dealing firms, to avail them the necessary liquidity to maintain consistent position on quoted securities, thus stabilising the market. “Permit banks’ stocks to qualify for investment of margin lending facilities, under strict regulatory controls, because of its significant impact on market turnover.

In view of the gradual return of local investors, we enjoin the Central Bank of Nigeria to be temperate in dealing with interest rate, liquidity and yield adjustments in its monetary policy. “Historically, local pension funds served as the critical catalyst for stabilizing and propelling growth in the advanced economies of the world. We, therefore, urge the National Pension Commission (PenCom) and Nigeria’s Pension Fund Administrators (PFAs) to significantly increase the percentage of pension funds invested in the Nigerian equity mar-ket.

Investment of Nigerian pension funds in local equities remain less than 10 per cent of pension funds under management, but we strongly believe that, given the current needs and safety structures of the market, the 25 per cent statutory cap can be safely made a minimum figure for the PFAs.

“The impressive equity index performance aside, the massive 446 per cent oversubscription of the FGN’s third Sukuk Bond, issued to construct and rehabilitate as many as 44 major roads across the country, has further confirmed the strong absorptive capacity of the Nigerian capital market,” according to the paper. In his contribution, a Professor of Capital Market Studies, Nasarawa State University and President, Association of Capital Market Academics of Nigeria, Prof. Uche Uwaleke, said the government could finance the budget deficit of N5.2 Trillion through floating of Federal Government Bond, securitisation of debts and privatization of moribund companies.

Speaking on the topic “Capital Market Pathways To Financing The FGN Budget Deficits,” Uwaleke stated that government should “issue infrastructure/revenue bonds/ project-tied bonds to ensure that the proceeds are ring-fenced as opposed to the current resort to general obligations bonds which proceeds often go into recurrent spending.”

An economic consultant, Dr Biodun Adedipe of B. Adedipe and Associates, who spoke on “Global Economic Dynamics in 2021,” explained that success of COVID-19 vaccine in the United States and China would have positive impacts on Nigeria but strongly advocated for investment in agriculture, ICT and manufacturing as they have potentials to revive the economy. Adedipe added that Government should make credit available, accessible and attractive for investment. Another economic consultant, Mrs Kemi Akinde, urged the government to align fiscal and monetary policies and ensure consistency of both policies.

She also advised the Nigerian Stock Exchange to commence trading in derivatives without further delay to enable investors enjoy the opportunities for risk management. Akinde stated that the Securities and Exchange Commission ( SEC) should fully automate its fillings for efficient service delivery.

The President/Chairman of the Council, Chartered Institute of stockbrokers (CIS), Mr. Olatunde Mohammed Amolegbe, said that two years ago, the council of the CIS approved a recommendation of the Research & Technical Committee. He noted that the institute carried out a thorough review of the Nigerian economy every year with a view to helping government, policymakers and industry regulators in the country craft effective strategies to accelerate GDP growth in the country.

Last line

Call for the Federal Government to come up with more interventions and palliatives is a much needed tonic to ginger market activities.

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