Nigeria Content Online

The Nigerian Stock
Exchange recorded a total gain of N662 billion on equities at the close
of trading activities in January, after the marginal gains of N5
billion in the preceding month.

The market value of
the 217 listed equities, which opened the month at N7.913 trillion,
closed on the last trading day in January at N8.575 trillion,
reflecting a N662 billion gains or 8.37 per cent increase.

The 217 listed
equities accounted for 81.13 per cent of total market capitalisation of
the 264 listed securities which closed January at N10.583 trillion; up
by 6.7 per cent from N9.92 trillion in December.

The Exchange’s
strategy and business development department said the stock market
performance during the first three weeks of January “was very
impressive with the Nigerian market ranking among the world’s best,”
adding that “the fourth week was rather bearish.”

The NSE attributed
the downturn recorded during the fourth week “to the upward review in
the monetary policy rate, profit taking by investors, and the impact of
the regulatory action, which prevented some operators believed to be
undercapitalised from participating in the market.”

Market turnover

The market recorded
a turnover of 10.84 billion shares valued at N104.1 billion in 139,950
deals during January, in contrast to a total of 6.63 billion shares
valued at N56.7 billion exchanged during last December in 111,114
deals. Trading days in January were 20, compared with the 21 days in
December.

Measuring by
turnover volume, the Banking subsector was the most active in January
with traded volume of 8.1 billion shares valued at N76.8 billion, while
the Insurance subsector was second with traded volume of 816.01 million
shares valued at N694.22 million. The Food and Beverages subsector was
third with transaction volume of 408.9 million worth N7.3 million.

A total of 174
equities out of the 217 listed were traded during the month compared
with 173 in December. As in the preceding month, Zenith Bank was the
most active stock with transaction volume of 1.72 billion shares,
followed by First Bank with 1.22 billion shares while FinBank placed
third with 697.12 million shares.

Meanwhile, analysts
at Vetiva Capital Management Limited, a financial service company, said
the market is expected to perform better in the coming months on the
back of quoted companies posting “positive earnings growth induced by
higher profitability and stronger balance sheets.”

They said other
expectations in the market include “investor optimism, barring any
negative surprises on the political front; a post-election rally in the
equities market; increased portfolio flows from developed markets as
investors search for higher returns.”

Bond trading

Over-The-Counter
(OTC) bond market, a turnover of 875.62 million units worth N801.134
billion was recorded in January, in contrast to a total of 465.9
million shares valued at N430.03 billion exchanged during the preceding
month.

The most active
bond, in terms of volume, was the 10.00 per cent Federal Government of
Nigeria (FGN) Bond July 2030 with a traded volume of 218.6 million
units valued at N170.2 billion.

It was followed by
5.50 per cent FGN Feb 2013 with traded volume of 206.9 million units
valued at N194.2 billion. Only 24 of the available 33 FGN Bonds were
traded during the month, same as in the preceding month.

The 36 state
governments on Monday restated their demand for more transparency and
accountability from the Nigerian National Petroleum Corporation (NNPC)
and other revenue collection agencies in the country to enhance the
profile of federally generated revenue.

Akwa Ibom State
governor, Godswill Akpabio, who made the states’ position known at the
retreat for Revenue Mobilisation Allocation and Fiscal Commission
(RMAFC) commissioners and management in Uyo, Akwa Ibom State, restated
their resolve not to relent in their agitations for a greater share
from the federation account as the commission is working on a new
allocation formula for the country.

“The call from the
states for more revenue allocation would persist given the need to
promote development from the grassroots to the centre, instead of the
present situation of the federal government taking on too much funds
for very little work done,” the governor said.

Transparency report

The Nigerian
Extractive Industries Transparency Initiative (NEITI) in its latest
report indicted the NNPC for lack of transparency in the measurement of
revenue flows from exploration of oil and gas. The NEITI report, which
covered activities in the oil and gas sector between 2006 and 2008,
also revealed impropriety in the sale of tax and royalty oil by the
corporation.

“Improved
accounting procedures are required to improve the transparency of
NNPC’s handling of these components of the proceeds of crude sales,”
the report added, noting that the volumes reported by NNPC for crude
oil lifting differed from those reported by companies operating the
terminals.

Mr. Akpabio argued
that instead of the Federal Government deploying a larger proportion of
funds from the Federation Account to consultancy services and other
sundry expenses that do not impact positively on the people, such
monies should have been given to the states that have more
developmental challenges to attend to.

Urging the RMAFC to
urgently come up with a new revenue allocation formula that would
ensure equity, justice, and fairness to all stakeholders, the governor
pointed out that the Federal Government must agree that development can
only move from the states to the center and not the other way round.

According to him,
the commission must also closely consider addressing the issues of
compensation for states currently suffering from the adverse effects of
oil production activities and security beyond 200 metres isobaths,
adding that a critique of existing processes for reviewing indices of
sharing the 13 per cent derivation fund must be carried out to avoid
the recurrent problem of over payment and under payment for some states.

Diversifying revenue base

The governor said
there was need for RMAFC to seriously tackle the diversification of the
country’s revenue base, adding that a close examination of all past
reports on lack of transparency and accountability on the part of
stakeholders in the collection and management of revenue accruing into
the federation account would be helpful.

Vice president,
Namadi Sambo, who declared the retreat open, pledged federal
government’s readiness to support RMAFC in producing a new Revenue
Allocation Formula, adding that government was aware of the enormous
responsibilities of the commission and would not renege in its pledge
to provide the necessary environment for it to deliver on its mandate.

Mr. Sambo,
represented by the minister of finance, Olusegun Aganga, said
government is desirous to reduce the high cost of governance, adding
that it has already taken steps in the 2011 budget to address the
issue, while challenging the RMAFC to come up with a solution to the
problem.

RMAFC chairman, Elias Mbam, said the retreat, which was packaged to
enable the newly appointed members of the commission to carefully
examine and understand the operations and fundamental responsibilities
of its operations, would also provide the opportunity to set its agenda
and chart a new course for the achievements of its targets.

The Ondo State
government is to carry out soil treatment on 500 hectares of land for
the planting of the Ghana high-yield cocoa at Oda Plantation in Akure.

The state
commissioner for agriculture, Julius Akinnigbagbe, told the News Agency
of Nigeria (NAN) on Tuesday in Akure that the government would also
train farmers on the production of the cocoa type. He said the
treatment would allow the government to establish the suitability of
the soil for the cocoa specie.

“We have already carried out some experimental plantation at Oda
farm but we still want to establish the suitability of our environment
and land for mass production of the cocoa here,” Mr. Akinnigbagbe said.

The minister of
petroleum resources, Diezani Allison-Madueke, says Nigeria’s energy
sector will witness unprecedented transformation in the next four years.

Mrs.
Allison-Madueke said this on Monday in Abuja at the opening of the
Chief Officers’ Management Development Programme Batches 063 to 068 of
the NNPC.

The minister said
the federal government had prepared an enabling environment for the
transformation initiative. She also said that government was holding
talks with investors and making plans to build a 1.3 million tonne
petrochemical plant in the country.

“The success of any
organisation rests on its staff. It is, therefore, imperative that we
ensure the right quality of managers that would lead the sector,” she
said.

The proposed deal
between Wal-Mart and South Africa’s Massmart Holdings should support
local procurement and job creation in Africa’s biggest economy, South
African economic development minister, Ebrahim Patel, said on Tuesday.

Mr. Patel said his department is in talks with both the U.S. retailer and South African unions who oppose the deal.

“What we would be
seeking to ensure is that there is strong local procurement, that the
South African supply base is supported, and that our capacity to create
jobs locally is highlighted. This is what the conversation with
Wal-Mart is about,” he told reporters.

Tanzania’s
year-on-year inflation rate rose for the third successive month in
January, driven higher by fuel and food prices, the country’s
statistics office said on Tuesday.

The inflation rate
hit 6.4 per cent in January, up from 5.6 per cent in December, and a
low of 4.2 per cent in October – the month the National Bureau of
Statistics (NBS) changed the calculation methodology and reduced the
weighting of food.

“The increase of
the inflation rate was mainly caused by a significant rise in food,
fuel, and house rent costs,” Ephraim Kwesigabo, director of population
census and social statistics at NBS, told a news conference.

Disruptions to
energy supplies have forced some cocoa processing facilities in Ivory
Coast to shut temporarily and shipping services have halted, inhibiting
cocoa exports and wheat and rice imports, two trade bodies said.

The Federation of
Cocoa Commerce and the European Cocoa Association said in a joint
statement on Tuesday that they had observed not only a massive
displacement of people, but also an increase in cocoa smuggling across
neighbouring borders.

Ordinarily, consolidation makes a position of power or success stronger so that it is more likely to continue.

Several enterprises
have utilised consolidation by way of mergers, acquisitions, and
combinations to avert failure or grow their businesses. However, it is a
risky double-edged sword that could mar the fortunes of enterprises if
improperly conceived.

The case of
Nigeria’s banking industry is a vivid illustration of how forced
consolidation can derail the orderly growth of an entire industry.
Experience has shown that consolidations that work are those driven
internally by enterprise peculiar needs rather than industry wide
imposition by external forces.

In context of free
market economy, consolidations are treated with utmost suspicions as
they could engineer emergence of monopolies or oligopolies which stifle
competition to the detriment of consumers. For economic sectors where
unfettered competitions precede the attainment of perfect market,
anti-trust regulators resist combinations that could breed monopolies.

Soon after
consolidation of Nigeria’s banks and emergence of 25 mega banks out of
the 89 that hitherto existed, monetary regulators were forced to
introduce Microfinance Banks (MFBs) to fill the void that arose from
constriction. Today, there are over 400 MFBs servicing the neglected
needs of Small Scale Enterprises that generally had no access to credits
from the mega banks.

A similar fate
awaits retail clients in the stockbroking industry if consolidated into
fewer numbers of firms. The few emergent large firms will set
prohibitive minimum requirements which retail investors cannot meet,
thus denying a large segment of Nigerian investors’ direct access to
investment opportunities in the nation’s capital market. It is common
knowledge that before global meltdown, several large stockbroking firms
set N5 million as minimum investment entry requirement to open
investors’ stockholding accounts.

The stock market is a
mass market. Its capital formation power is derived from mass
participation driven by investors’ confidence which stockbrokers work
strenuously to cultivate. Large number of stockbroking firms in a
country as populated as ours constitute the vital bridges that connect
an equally large number of diverse investors who are remotely located to
the capital market. With fewer stockbrokers, the bridges will also be
fewer.

Odife reform panel
on the capital market even advocated multiple stock exchanges and
capital trade points to bring capital formation mechanism close to the
grass root in Nigeria. Had his recommendations been implemented, several
more stockbroking firms would have been required to trade on those
platforms. Odife’s expansionary reform, geared towards growth of the
capital market and the economy at large, remain superior as remedy to
challenges that beset the market today, rather than moves to consolidate
into monopolies and elitism.

In recent past,
consolidation of Stock Exchanges was a popular reform theme in the
global capital market. This worked against establishment of multiple
stock exchanges in Nigeria. However, to date, all major European stock
exchanges and Asian stock exchanges have failed to consolidate into one
entity.

As a result, global
competition among stock exchanges has continued with undiminished
intensity. China is even establishing more stock exchanges with
fanatical zeal. Major stock exchanges including London, Frankfurt,
Paris, Hong Kong, Tokyo etc have maintained their individual identities
because the cultures and structures of capital markets and economies
they serve differ from place to place.

Between banking and stockbroking

Renewed threat by
government after previous hesitation to consolidate capital market
operators in Nigeria with possible increase of minimum capital base of
stockbroking firms from N70 million to N1.5 billion, has stimulated
public debate about desirability of the move at this time when the
capital market is just recovering from a major catastrophic meltdown.

In spite of the now
evident disaster consolidation wreaked on the banking sector,
stakeholders are surprised that the bandwagon effect continues to haunt
other sectors of the finance industry, fundamental differences between
banking and stockbroking notwithstanding.

For clarity, banking
is a trade in which the relationship between the banker and his
customer are Debtor and Creditor respectively. In contrast, stockbroking
is a profession in which the relationship between the stockbroker and
his client is Agent and Principal respectively.

The capital base of a
bank is security required to mitigate the risk of non performance of
risk assets created from customers deposit liabilities because the risk
assets are owned by the bank. Whereas, in stockbroking, the assets
purchased for investor clients are owned and registered in names of the
investors.

Because stockbrokers
do not create risk assets, their need for capital is only limited to
infrastructure they require to efficiently deliver their professional
services. All over the world, professional service providers including
stockbroking firms, carry unlimited liabilities and mitigate their risks
with fidelity guarantee insurance. It is for this reason that the
highest capital requirement for stockbroking in India prescribed by
Bombay Stock Exchange is equivalent of N2 million. Other 22 stock
exchanges in India prescribe lesser amounts. India is about the fifth
largest economy in the world. The country has a large population and
similar neo-colonial economic heritage as Nigeria, yet its capital
requirement for stockbroking firms is so infinitesimal compared to
Nigeria’s current N70 million.

Although
consolidation could lead to large entities and economies of scale up to
the point of diminishing returns, there is no concrete evidence that
size alone is panacea for cost effectiveness, efficiency of service
delivery, and profitability.

Today, Nigeria’s
finance industry is replete with several distressed large stockbroking
firms, failed rescued big banks, succeeding and strong small banks and
stockbroking firms.

The competitive
future of Nigeria can only materialise if market mechanism determines
free entry and free exit of economic enterprises under effective market
friendly regulatory framework.

Adonri is the CEO, Lambeth Trust & Investment Company Ltd, Lagos