21 January 2013

Nigeria: Concerns Trail NSE's N155 Trillion Capitalisation Target By 2016

The outlook for the Nigerian capital market remains promising even as the National Bureau of Statistics (NBS) has projected a growth of 7.67 per cent for the economy, which is believed will be fine-tuned by the expected restrictive monetary policies from the Central Bank of Nigeria (CBN), stable crude oil prices, and the FGN's continued effort at fiscal conservatism to create an environment for single-digit inflation rates and MPR reduction.

In spite of the promising outlook, analysts are worried that the $1 trillion (N155 trillion) target for stock market capitalisation is not feasible if some knotty issues bothering on security and the low level of confidence on the equity market are not addressed.

The Chief Executive Officer of the Nigerian Stock Exchange (NSE), Oscar Onyema, who presented the performance of the capital market in 2012 and outlook for 2013 said that the Exchange would continue to strive to achieve the goal of achieving the target.

Onyema said it was realistic if the federal government would facilitate the passage of Petroleum Industry Bill (PIB) into law to help unbundle the oil and gas sector and also encourage mandatory listing of strategic companies, especially the power and telecommunications industries, on the Exchange.

Onyema, while expressing concern over the low contribution of the market capitalisation to the nation's Gross Domestic Product (GDP), said that concerted efforts and support of the government were crucial to unbundling various sectors of the economy in order to attract the needed investment into the nation's capital market.

He said, "When we gave the target of $1trillion market capitalisation in five years, it was an aspiration target. We were aware that a lot of things had to align to be able to achieve this, for instance; we depended on the regulation of the power sector and the quick passage of the PIB.

"And so, we need the support of government to ensure that the 16 companies that would come out of the power privatisation process would be listed on the NSE, and the same goes for the telecoms companies, we need government to assist in getting them to list their companies also.

"Government has to ensure that the right environment is there, and we appeal to the National Assembly to ensure quick passage of the PIB; because the oil and gas environment has generally been down owing to this. All these are the many drivers of the $1trillion mark we plan to meet, we did not pull this figure from the air; it is achievable."

On practical solutions to achieve the target, he called on government to provide tax reliefs and incentives to companies who choose to list on the NSE.

"We also use this opportunity to commend the Ministry of Finance for the pronouncement of the elimination of Value Added Tax, stamp duties," he said.

He noted that the Capital Market will continue to face challenges around liquidity and depth in 2013; however, there is a concerted effort to drive improvements in market participant experience.

"The CBN's efforts to achieve single-digit inflation and a lower MPR should have a positive impact on the equities market. As investor confidence measures implemented by the NSE mature, we expect that a growth trend similar to that experienced in Q4 2012 will extend into 2013.

Speaking on the practicability of the target, the Managing Director, Crane Securities Limited, Mr. Mike Eze, who expressed worry over the current situation in the stock market, said unless the government focuses its attention on the market and tackles the rising wave of insecurity in the country the projection will be a mirage.

Eze also expressed optimism that if the CBN focuses on the capital market as promised, the market could be in the path of glory to achieve the target.

He noted that that the liquidity squeeze in the financial system has made it difficult for the market to thrive, adding that for the market to recover from losses incurred during the unprecedented lull in the stock market, government must provide fresh fund as a bailout for the market.

"We have tried everything within our powers and the market is stubbornly holding on. There is need for government to come and bailout the market. They did same in the aviation and textile industries, CBN did same for the banks, why can't they bailout the market which is the engine room of the economy.

"They should provide the intervention fund to mop up the excess shares that are in circulation. That is the only thing that can help this market to come up again.

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