Nigeria: MTN, Stock Market and the Economy

opinion

The current state of prices of stocks listed on the Nigerian Stock Exchange creates lots of room for concern. The low prices of stocks and the seeming instability of the country's equity market do not augur well for the economy. Nigerian stocks are at the moment regarded as virtually the cheapest in relation to other major African economies such as South Africa, Egypt, Kenya and Ghana. While this downturn in the market persists, a recent report about the imminent listing of telecommunications giant, MTN Nigeria Communications on the Nigerian Stock Exchange appears cheery more so in the midst of unfavourable developments emanating from the market.

Besides, the conversion of MTN to a public company is expected to drive the tempo of activities in the market and thus significantly increase market capitalisation. The market operators have been clamouring for listing of the company for quite a long time. The exercise is expected to be by introduction. The lack of sufficient depth of the Nigerian stock market, in relation to the Johannesburg Securities Exchange (JSE), in South Africa, the home country of the company, MTN has led to calls by many market watchers on the regulatory authorities to compel MTN to list on the Nigerian Bourse. This appears more compelling given that MTN is listed on the JSE whereas the bulk of its revenue is earned in the Nigerian market. Hence, the proposed listing of MTN on the Nigerian market is actually the right thing to do - to afford the ordinary Nigerian the opportunity to be part owners in the conglomerate and thus partake in its success story.

Merely growing its business turnover or making money in Nigeria without giving Nigerians the opportunity to be shareholders in the company is not morally justifiable nor does it make good business sense. Once this listing on the market is settled, the next issue is the need for the company to exceed the free float permitted in the market. The free float requirement on the Main Board of the Nigerian market is 20 % of a company's capital or above N40 billion on the date the Exchange receives the Issuer's application to list. For smaller companies, which are normally listed on the Alternative Securities Market (ASEM), the free float is 15%. MTN, being a very big organisation, should sufficiently exceed this minimum float set by the market. It should sufficiently increase the amount of shares it intends to make available to the Nigerian public, else the proposed listing would just be tokenism and just a ploy to deceive the Nigerian public and thus escape the continual criticism of its lack of listing of its shares, over the years.

While the listing of MTN is continuing as a work in progress, a worrisome unfavourable development in the Nigerian market is the very low investors' appetite for shares of even companies that are doing well and posting very good year-end operating results. The case of the banking sector readily comes to mind in this case. For example, the demand for the shares of the top five banks, by operating end-of-year profits, has dwindled despite their very good performance. This is the case of Zenith Bank, Guaranty Trust Bank, United Bank for Africa, Access Bank and First Bank. A breakdown of the 2018 performance of these five banks showed that Zenith Bank, which is currently trading at about N20.90 kobo, recorded N231 billion as profit before tax while Guaranty Trust Bank earned a whopping N215 billion and trading at N34.80 kobo. UBA ranked third with a profit and stock price of N106.7 billion and N6.65 kobo per share respectively. Access Bank, trading at N6.85 kobo, made N103 billion as profit before tax while FBN Holdings rounded up the top five with a profit of N65.2 billion and trading value of N7.65 kobo. Despite these very excellent operating results by these banks, there is a low investor interest in their shares. Something is definitely wrong with the market or even the entire economy.

The simple explanation that can be adduced for this is the high level of uncertainty in the economy. Investors are not amused by the positive results being posted by these companies and are very sceptical in taking positions in the market. The low demand for stocks is thus one of the key reasons there has been a continual fall in the market index as well as market capitalisation. Given this unfavourable circumstance, this economy needs a high level of hope for both local and foreign investors to make financial commitments in the market. This dismal perception of the trajectory of the economy needs to be arrested soon. This weak demand for stocks or equities is an indication of lack of confidence in the economy. People are scared of taking investment decisions in the markets.

Government needs to allay the fears of investors by addressing the very obvious distortions in the Nigerian economy. People need confidence to risk their hard-earned money in this economy. There is thus the need for a paradigm shift in the conduct of economic policy in the country. It is very instructive that the stock market reacted negatively when INEC announced a winner of the 2019 Presidential election. It means the market is wary of the continuation of the existing policy framework, which has not yielded the desired dividends of good governance. The listing of MTN should be leveraged upon, by the authorities to help in restoring some hope of the investors in the fortunes of the stock market and of the economy at large. A stitch in time saves nine.

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