12 November 2012

Nigeria: Need to Stimulate Brokers' Business Through Debt Cancellation

Across the economy the macroeconomic authorities have responded to the effect of the global financial crisis on the domestic economy by taking action to curtail losses of key sectors. Two prominent examples are the banking and aviation sectors which have benefited from quasi-fiscal operations by the Central Bank of Nigeria (CBN).

There is no doubt that the intervention by the Asset Management Corporation of Nigeria (AMCON) was instrumental in the quick recovery of the banking sector from the adverse environment created by the details of the August 2009 Special Audit of the nation's banks. Similarly, we have seen evidence of the positive impact of the Aviation Fund on the health of the nation's airlines.

Though the regulatory authorities took certain measures, some of which are commendable especially the commencement of market making process which has contributed in giving the market index a leap thereby restoring considerable confidence, there are other critical issues that touch the core of the problem which have not been addressed.

Some operators in the nation's stock market have, in difference for a, reiterated the need for an intervention fund from the government to help mop up the excess shares in circulation to facilitate market stability.

They agreed that the market could only regain its past glory if the authorities would provide a bailout fund to stabilise the market as it was done in the banking and textile industries, adding that the fund would boost the market and help restore and sustain investors' confidence which have been eroded since the global financial meltdown.

However as the operators on the Nigerian Stock Exchange (NSE), awaits the forbearance package from the federal government as promised recently by the Coordinating Minister of the Economy Dr. Ngozi Okonjo-Iwela to cushion the effect of bad loans, stockbrokers have said that what operators need presently is outright debt forgiveness.

The operators said that since most of them who suffered from the crash of the market owning to the bad loans in 2008, have had their businesses severely damaged and need debt forgiveness to return to business.

It would be recalled that, operators in the equities market had loss about N300 billion to the meltdown in the market, even as this resulted in most of them closing shop and lying off their staff.

The Managing Director of Lambert Securities, Mr. David Adonri said "the details of that forbearance package, to my own understanding I may be wrong. I think forbearance appears to be giving the debtors longer period to repay a debt, but what we have observed is that, damage which a lot of operators have suffered is beyond just elongating repayment period.

He explained that "most of the stock that served as collateral securities for those facilities they got from financial institutions have already being taken over by AMCON, and so this market operators no longer have the means of repayment. So it is therefore difficult for us to contemplate the elongation of the repayment period. So, on the basis of that, a lot people, stakeholders have been advocating for debt forgiveness. In most cases the balance sheets have been completely damage and the means of repayment have vanished. So it is only through debt forgiveness that those market operators can revive their businesses and come back to the market, and perform important intermediating roles in the capital market. You know the global meltdown and the resultant domestic financial crisis damage the entire spectrum of the financial industry, and so the financial authorities have taken measures to rescue the money market and they have left the capital market to cater for itself; the implication is that at the level of economic development now, the capital market is more important than the money market, because it is the capital market that provide the long term finance with which the fixed asset required for production in this economy can be obtained.

Adonri who said that the major responsibility of the money market is financing the working capital of existing producers, noted that "the whole system has been structured in a manner that the money market has become the main focus, the dominant focus of financial activity in the economy, and because the money market is short term, almost all economic activity are short term and focus on trading, there is no support for production for the real sector, because the aspect of the economy that should provide that leverage for the real sector which is the capital market is less understood; have suffered serious neglect all this year, but that cannot continue if we are serious about transforming this economy.

He reiterated that, the money from which this economy is going to be transformed will not come from the money market, "it has to come from the capital market. And that capital market is now being crowded out by excessive debt financing programme of the Federal and State Government of Nigeria," he added.

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