7 October 2008

Nigeria: Private Sector to Bail Out Stock Market

Lagos — Efforts to find a solution to the nation's lingering stock market meltdown continue today as officials of the Nigerian Stock Exchange (NSE) and Securities and Exchange Commission (SEC) meet to work out a plan that will inject private funds to bail out the market.

The meeting to halt the nation's plummeting global market came on a day stocks suffered sharp falls as worries about the extent of the global financial sector crisis deepened after finance ministers failed to reach a consensus on how to react.

The Director-General and Chief Executive Officer of the NSE, Prof. Ndi Okereke-Onyiuke, dropped the hint about the regulators' meeting at the Annual General Meeting of the Central Securities Clearing Systems Limited (CSCS) in Lagos yesterday.

Worried by the persistent fall in the prices of shares, the Federal Government had last August introduced some recovery measures to stem the negative trend. However, almost two months after, there appears to be no respite in sight.

Okereke-Onyiuke said that the NSE and Board of SEC would meet today to map out a bail-out plan that would help stem the falling share prices.

Okekereke-Onyiuke, who was silent on the details of the bail-out, added that the plan would also involve the Central Bank of Nigeria (CBN) and market operators including banks.

She explained that the market regulators decided to use the internal mechanism to bail out the market because the Nigerian Government is not in a position to take the decision similar to that of the United States Government.

The US government is using $700 billion to mitigate the impact of its current financial crisis. The Nigerian government had recently shelved plans to set up a Stabilisation Fund meant to enhance liquidity in the stock market.

The Finance Minister, Dr. Shamsuddeen Usman, who announced the decision to shelve the stabilisation fund, had explained that the measures already introduced by the CBN and the Share Buy-Back were enough to address the liquidity problem.

But Okereke-Onyiuke said that US government agreed to inject $700 billion into the market because of the number of citizens that invest in their financial system.

Specifically, she said the ratio of Nigerians investing in the Nigerian stock market is very minimal compared to the entire population. This, she explained, informed the regulators' decision to embark on an internal bail-out plan apart from other efforts by the government.

She said: "Our nation is not in a position to do what America did. If by October 2008, they have not passed the budget for 2007, is it the intervention fund that they will meet to approve? We went to the government in the first place to use moral suasion to allow the CBN take part in whatever measures we are going to take because they are an organ of the government. After the meeting tomorrow (today) you will see what will happen in the market. I tell you there is hope for this market."

Okereke-Onyiuke called on well-meaning Nigerians to imbibe the American spirit of patriotism and not selfishness.

"Nigerians should develop the American spirit. You can see how they put aside political and personal interests to bail out their market. It is even now that we are even appreciating the fact that the capital market is the barometer with which you measure the economy," she said.

The stock market has been depreciating since early March after two months of bull run. The market climbed to a historic level with the NSE All-Share Index peaking at 66,371.20 on March 5, 2008. The market capitalisation on that date was N12.6 trillion.

However, the bear run that set in afterwards has persisted and has caused the index to shed 31 per cent to close at 45,504.69 yesterday. Similarly, the market capitalisation of equities has dipped by N2.9 trillion as at close of trading yesterday.

In a related development, on Wall Street, the Dow Jones Industrial Average fell 4.3 per cent to 9,884.9, a drop of 445 points that took it under 10,000 mark for the first time since October 2004. The S&P 500 fell 4.8 per cent to 1,046.9.

London's FTSE 100 closed 7.9 per cent lower at 4,589.2, a loss of 391 points. The sell-off was the UK benchmark index's third biggest one-day drop on record, its largest since Black Monday in 1987 and took it to levels last seen in October 2004.

Meanwhile, crude oil prices fell to its lowest in eight months yesterday, trading below $90 a barrel on speculation that the financial crisis will exacerbate a global economic slowdown and cut demand for crude oil.

For most of 2008, oil had been well over $100 a barrel, causing pain at the pumps.

But amid the global financial crisis, light, sweet crude for November delivery fell $3.06 to $90.82 a barrel on the New York Mercantile Exchange, after earlier dipping to $88.89, the lowest level since February, 8. Last Friday, the November contract lost nine cents to close at $93.88 a barrel.

Oil prices have tumbled nearly 40 per cent since peaking in July. A significantly stronger dollar also weighed on prices.

Copyright © 2008 This Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.