SEGUN ADENIYI: Does the Market Still Matter?

The Verdict By Olusegun Adeniyi. Email, olusegun.adeniyi@thisdaylive.com

FLASHBACK

April 26, 2001:

The Nigerian Stock(fish) Market

Understanding the workings of the Nigerian economy is like trying to read a doctor’s prescription. It is never an easy task. That explains why when I see two or more “experts” arguing about movement of share capital, “bullish runs” and all that, I try as much as possible to keep my distance. Because they could be con-men!

Even as a lay man in business and economy, I have learnt enough from my friend and colleague, Ijeoma Nwogwugwu, to know that the death of a political leader, electricity failure for as insignificant a period as three minutes and even the bedroom antics of State officials can affect the movement of shares on the Tokyo, London or New York Stock Exchange markets with far-reaching consequences for the global economy. Interestingly, the Nigerian Stock Exchange (NSE) has for years been immune to political or economic factors, making one to wonder whether what they sell there is not stockfish after all.

To write this piece, I took some tutorials from Ijeoma and she explained that our Stock Market is still very rudimentary, that it is not considered an emerging capital market outside our shores, and that the only market considered to have some depth in Africa is the Johannesburg Stock Exchange. With that, you would think all hands would be on deck to ensure that the sector is developed and deepened. But the relevant authorities would rather squabble over inanities. Given that the one in Lagos is not even as respected as the Aswani market, I fail to understand why some people must create a Stock Market in Abuja.

I have in the last couple of years believed that we are yet to have a capital market for many reasons. Do you think any serious Market can absorb quietly a lingering fuel crisis that we have had for years with many factories closing shop? What has been the impact of NEPA’s ineptitude on the “bullish” run or whatever they call it at the Market? And wonders of all wonders, how can any serious Stock Exchange just go on with business as usual with no impact on trading when some street urchins in the name of OPC decided to take laws unto their hands with many people killed in the process? How come Abacha’s death had no impact on the market?

In the last two years of democracy, when there have been a deluge of drama, our stock market has remained unmoved. All the political intrigues in the National Assembly that have seen to the enthronement of three Senate Presidents and two House of Representatives Speakers within two years have had no effect. Yet from what we see elsewhere, these are big issues that should ordinarily impact on the trading floor of a credible Stock Market. But in our country today, quoted prices are rising even for companies that are not producing!

I have tried several times to question why our Market does not respond to poor company results or remain insulated from gyrations in other countries and my conclusion is that the Market operates basically on sentiment, essentially on the whims and caprices of a small group of men and women who have turned themselves to a Mafia. They are indeed the “market forces”, the “visible hands”that Adam Smith made no allowances for in his book, “Wealth of Nations”. They simply allocate share prices based on criteria that cannot be plotted as either supply or demand on what economists describe as “curve”.

For instance, there was a case in point in 1997 when some major companies recorded losses. It took repeated warnings from the Market before these companies submitted their report, which in other societies would have led to a serious fall in share prices but instead, the share prices of the affected companies got frozen. The bottom-line: The NSE responds to neither economic nor political factors.

The funny thing though is that even the illiterate market woman at Iyana-Ipaja, a Lagos suburb, understands the underlining principle. A slight increase in transport fare and you notice an upward movement in prices of tubers of yam. You go and ask a saucy yam seller why and she would retort back by asking you whether she carried the yam tubers on her back to the market. And if a meat seller at Ketu market wakes up tomorrow to challenge the authority of Alhaja Abibatu Magaji as Iyaloja of Lagos, you can bet that such effrontery will, within hours, bring down the prices of vegetable for sellers who would want to dispose of their goods and go home before trouble begins…

The foregoing is an abridged version of my column published on this page 12 years ago. It was a response to the attempt to establish a Stock Exchange Market in Abuja on the pretext that we needed to expand capital formation in the country. But with no enabling laws or even how it would work, it was no surprise that the idea eventually crumbled. However, its promoters later sought permission from the government and renamed it Abuja Securities and Commodities Exchange (ASCE) so that it could trade in both shares and commodities. All these have become mere illusion even when the vibrancy of the capital market has become a major barometer for measuring the modern economy.

In the current edition of “Economist” magazine are two interesting stories about Nigeria. The first quotes Jim O’Neill, the Goldman Sachs economist who in 2001 coined the BRIC acronym (Brazil, Russia, India and China) for the emerging economic big player-countries, as arguing that with its huge potentials, Nigeria deserves a better place on the global economic table than even South Africa. As for the second story, the introduction sums up the paradox: “Like a heavyweight boxer who has gone too many rounds, Nigeria sometimes seems punch-drunk. One minute it acts like a champion by virtue of the size of its girth and the smile on its face, the next it could be flat on its back, groaning in anguish. On the whole, the country is tottering along, acclaimed as much for its massive potential as for its actual achievements. It is still a sick man all the same.”

For anybody to understand why we are in the current economic bind as a nation, one needs not look further than our capital market. This is because the well-being of any society is predicated on the state of its physical, social and economic infrastructure the development of which requires investments from both the public and private sectors. Investment in this context refers to the accumulation of real assets when government implements policies that encourage savings. Making good use of such savings is where the capital market comes in, by mobilising and transferring funds to stimulate economic growth and development. But since our economy is still based on the distribution of spoils, there is no encouragement for such investments and there is little or no attention to how we can deepen the capital market to ginger productive activities.

In an environment such as ours, regulation is key to the development of the capital market but that is one area that has been successfully subverted over the years. While in the past, Mrs Ndidi Okereke-Onyiuke (as NSE Director General) used to nominate whoever she wanted to be appointed as Security and Exchange Commission (SEC) DG (her regulator!), we have now moved to a situation where the commission has practically been crippled because of some petty politics. Such is the level of perfidy that the National Assembly would pass an appropriation law with a whole clause targeted at one single individual!

While I am not a fan of the embattled SEC DG, Ms Arunma Oteh, who evidently needs some lessons in humility and human relations, it is also apparent that she is honest in her dealings (something you cannot say of many public officials in our country today) if after all the huffing and puffing our lawmakers cannot find anything tangible against her. Yet they would want to arm-twist the president just to score a cheap political point. Let’s be clear about it, whether Oteh goes or stays is of no interest to me (I in fact believe she has become too divisive for her retention to be of any value to SEC). But the manner in which the issue has been handled by both the executive and the legislature shows a lack of appreciation of the critical role SEC is expected to play in our economic development.

It is indeed noteworthy that in the last 14 years of our democracy, hundreds of billions of Naira have been spent by our political office holders at all levels on foreign trips and the excuse has always been that they were seeking foreign investors. Yet we have a stock market that has practically been left to its own devices because our economy is driven by rent and not production. But we deceive ourselves if we imagine we can join the industrialised nations of the world with the kind of capital market we have today.

In most other countries, companies are set up with minimum seed capital and then listed on their stock exchange. Their listing then becomes a veritable platform for raising long-term capital for development. But in our country, none of our oil and gas companies, not even the ones owned by Nigerians, is listed on the NSE. It is the same with the telecoms operators who are also not listed. What we have mainly are banks that simply prey on government funds. That then brings us to the question: If the main drivers of the nation’s economy (most of the FDI inflow into Nigeria since 1999 are in Oil and gas and telecoms not manufacturing) are not listed on our Exchange what will the market respond to?

Following the global financial crisis of 2008, series of regulatory reforms were introduced in several countries. But perhaps because its impact on our national economy was minimal, government seems oblivious to the loss suffered by several Nigerians, especially those who invested their life savings to buy shares in the banks. Those savings were practically wiped out yet we seem not to have learnt sufficient lessons from that crisis given the little attention we now pay to the regulation of our capital market.

While I confess to being an illiterate in economic matters, I am aware of the critical role the capital market can play in providing opportunity for long-term investment purposes and the multiplier effects of such on the economy. Yet I don’t know of any country where the market is expected to play such intermediation role after successfully emasculating the regulator.