The stock exchange and the economy

It is evident that the Nigerian stock market is comfortably ahead of its peers in sub-Saharan Africa (SSA), but can we confidently say its growth has been quite impressive considering the huge potentials of the Nigerian economy?

The International Monetary Fund (IMF) reveals that Nigeria compared to Kenya and South Africa has the best growth prospects in 2013. Nigeria’s GDP for 2013 is estimated to be 7.2 percent compared to Kenya, 5.8 percent, and South Africa 2 percent. Going by IMF’s permutation on Nigeria’s growth prospects, the question, and a task for those who direct the economy, is whether the market can go anywhere farther than where it is presently without listing equities from the fastest growing sectors.

Though Nigeria’s economy is oil-driven none of the major oil companies operating in the economy is listed. Telcos operating in Nigeria are making profits but are not keen about sharing a bigger piece of their pie with more shareholders. Why has this not been achieved? Has it got any link to undefined and clear objectives from managers of the economy which has direct implication on the markets? Or is it connected to the reality that there are cabals who run the economy not for public good?

Stock, bond or other fixed income securities are an effective medium through which the success of the economy is measured and ascertained. Our politicians will say they have tried to push the proposal for listing companies in key sectors of the economy, but to no. Today, what we hear are policy pronouncements, no implementation. Are our Ministries, Departments and Agencies (MDAs) in collaboration with the apex capital market regulator and Self Regulatory Agencies (SROs) not yet convinced that the time is now to ensure that fastest growing sectors are brought to the market?

Quite recently it was noted that global uncertainty and weak local fiscal revenue remain key downside risks to price assets in Nigeria. Can the talk of achieving a $1trillion dollar market cap at the Nigerian Stock Exchange by 2016 be realized without big listings? The market cap is well below N12 trillion and the benchmark index is around 36,000 points threshold.

The Nigerian Stock has made efforts to facilitate innovative trading by introduction of X-GEN. XGEN opens up an unprecedented level of innovative trading capabilities for the Nigerian capital market, providing low latency trading, straight through processing from broker order management systems to the exchange, direct market access for the buy-side and mobile access through smartphones to the retail investors.

As the Nigerian capital market grows and expands its vision for greater market efficiency, liquidity and transparency, the question remains: what major impact will this make when only about 5 million out of about 160 million Nigerians play in the capital market.

There are plans in the near future to introduce futures and derivatives like what is obtainable in developed markets. Will these new products upon their introduction be for the same few players in the market? What is the capacity of our broker-dealers to trade on futures and derivates? We note that despite recent introductions to the market e.g. market-making, securities lending, and even the government stockbrokers for FGN bonds; we hear about illiquidity in the market.

Nonetheless, the NSE has been by far the strongest of the three principal all-share indices (ASI) in sub-Saharan Africa. One major reason for this pre-eminence is the sharp increase in domestic institutional demand.

Will this increase in domestic institutional demand continue? What strategy or vision is in place to ensure that this trend deepens?