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Plans by the Securities and Exchange Commission (SEC) to raise the minimum capital for capital market operators is causing upset at the Nigerian capital market.

Operators who perceive that the commission is contemplating moves in this direction, said the regulators should instead work at improving investor confidence and efficiency in the system.

Lanre Oloyi, SEC’s spokesperson, said though the commission had muted the idea in the past, he is not aware of the latest development, he said in a telephone response.

No official communication

Joshua Omokehinde, managing director of Marimpex Finance and Investment Limited, a stock broking firm, said there have been plans in the past for an increase, adding that there is no official communication from the commission to operators on the issue.

Mr. Omokehinde said the commission should shelve whatever plans it has on increasing minimum capital, as the market is in a fragile condition at the moment.

“It is the anticipation of increase in minimum capital that brought about the problem we have in the capital market today, as many stock broking firms began to undertake margin loans in order to increase the volume of their business and shore up their capital base,” he said.

He said while an increase in capital for capital market operators may be desireable, it would not be feasible for now, as it would plunge the market into further crisis.

“Stockbrokers act as intermediaries and so may not need too much capital to operate. If the market is efficient, we would not have the kind of problems we are faced with today,” he said.

Integrity, not huge capital

Mr. Omokehinde said the major issue in the capital market is integrity, and not huge capital.

“Some small operators even have more integrity than the big firms. SEC should be able to know those firms that have integrity and label them as such,” he said.

SEC, in April 2007, announced a new capital base of N1 billion for stock broking firms from N70 million; while issuing houses’ capital base was increased to N2 billion from N150 million. The deadline for compliance was December 2008.

Prior to that, the capital was raised in December 2005 from N20 million, and N40 million for stock broking firms and issuing houses. However, with the global financial crisis, which also led to the massive depreciation in the Nigerian capital market, the commission had to put this latest increase on hold.

The report of the February 2009 Dotun Suleiman-led SEC committee on the Nigerian Capital Market recommended that capital requirements for different market operators should not be unilaterally set at a uniform amount for all operators within a category.

The report suggested that start-up capital requirements for new operators should be based on minimum required start-up costs plus risk-adjusted weightings (to be reviewed periodically).

“For dealers, capital requirements should be determined on a risk-adjusted basis, increasing as levels of risk taking grows for each individual dealer, and weighted in line with the risk profile of instruments traded and assets held,” the report said.

The relief from the recently announced ease in inflation may not hold much water, as some finance experts remain sceptical, saying inflation pressures would persist, given factors such as marginal increase in money supply, stimulus funds, among others.

Nigeria’s consumer inflation eased to 13.6 percent year-on-year in September from 13.7 percent the previous month, the National Bureau of Statistics said on Monday.

In a Reuters report, the Bureau says growth in food prices, which form the bulk of the inflation index basket in Nigeria, dropped to 14.6 percent year-on-year, from 15.1 percent in August.

Bismarck Rewane, managing director, Financial Derivatives Company, a finance firm, said that with marginal increase in money supply, stimulus funds, bailout funds for rescued banks, and the forthcoming 2011 elections, inflationary threats would remain.

“A currency depreciation of 10 percent will make imports cheaper, and help mute inflation in the short run, but increase import dependency in the long run,” he said, adding that inflationary pressures would persist as the naira is expected to weaken while external pressure is also a serious threat.

Headline inflation increased to 13.7 percent in August, from 13 percent in July. Similarly, food and core inflation increased marginally to 15.1 percent and 12.4 percent in August from 14 percent and 11.3 percent in July; while urban and rural index rose in August to 10.9 percent and 15.6 percent (year on year) respectively.

In September, the Central Bank unpredictably raised its benchmark lending rate for the first time in more than a year to 6.25 percent from six percent, in an attempt to address rising inflation concerns as against boosting growth, and also to contain the anticipated higher government spending ahead of elections due next April, which is also poised to keep an upward pressure on inflation.

Other threats

The Monetary Policy Committee (MPC) of the Central Bank, also in September, reiterated its earlier position on the threat of inflationary pressure arising from several other factors, including implementation of the new salary structure in the civil service.

Furthermore, expected fiscal injections arising from electioneering expenses, and the injections relating to the Asset Management Company (AMCON) purchase of non-performing loans of banks, and spill over effects of the rising food prices from famine in neighbouring Niger Republic are identifiable threats too.

Similarly, floods in Asia, deregulation of energy prices, as well as the expected increase in household-spending toward year-end festivities remain threat factors.

The committee supported the deregulation policy of the Federal Government, but stated that it would continue to monitor price developments with a view to taking appropriate policy measures to stem any inflationary threat and ensure that the upside risk of inflation to growth is minimised.

Savannah Bank, whose licence was restored 18 months ago, says it has other issues to address than the recapitalisation deadline given by Central Bank.

The bank, which was ordered to be reopened in February 2009 by the Court of Appeal, was given 18 months to raise N25 billion for its recapitalisation.

“The present state is that the verification exercise of assets and renovation is going on,” said Wemimo Ogunde, the lawyer who argued the bank’s case. “We cannot talk on recapitalisation at this stage. Right now, we are concerned about… the customers who want to get their money back and those who want to remain.”

Mr. Ogunde said that there have been meetings with the Central Bank on the matter, but he would not say what the outcome of the meetings was.

“The bank has just completed its verification exercise, to know the state of the branches, and the assets of the bank,” he added.

The Central Bank did not confirm whether an extension will be granted to the bank, but confirmed that the bank was yet to raise the N25 billion capital required to put the bank back on track.

“With the information we have, they have been doing a lot of things to raise the capital, but there is no information reaching the CBN confirming that such capital has been raised,” said Mohammed Abdullahi, the Central Bank spokesman.

On Monday, a newspaper reported that First Inland Bank has begun moves to sell property belonging to a former governor of Enugu State, Jim Nwobodo, for failing to settle a N258 million loan he took to help in recapitalising Savannah Bank.

Depositors and shareholders of Savannah Bank, who were excited after the ruling and the bank’s licence restoration, may have to wait longer before accessing their funds, since the Central Bank has outlined conditions under which it can reopen for business.

Last August, the Central Bank’s governor, Sanusi Lamido Sanusi, said even though its licence have been returned, the bank must show proof of strong financial capacity, a new business model, and foreign or local partners, to show that they are ready for business before it can extend any assistance to the promoters of the bank.

“Of course, with non performing loans, if they have collateral, we can buy the non performing loans. If they want support similar to the ones we have extended to other banks, CBN will give them all the support that is reasonable,” Mr. Sanusi said.

The retreat witnessed at the Nigerian Stock Exchange (NSE) on Tuesday continued yesterday, as the performance of equities closed on a negative note.

The market capitalisation of 199 first-tier securities closed lower, as market net worth dropped by N78.64 billion at the close of Wednesday’s transaction. The NSE All-Share Index retreated by 1.26 percent, to close on a negative note.

Market watchers said equities’ value declined because short term traders focused on reaping part of the attractive profit recorded in recent rally sessions.

Equity research analysts at GTI Capital Limited, a stock brokerage firm, said most investors were scared-off the market due to the slight drop noticed on Tuesday.

“It sounds wise to take the little profit before it goes with pull back. Nevertheless, we advise that all investment decision should be linked with trend on each security; panic selling should be strictly avoided,” the analysts said.

The Exchange sectoral indexes reflected selling activities yesterday as NSE-30, which measures the performance of blue chips in the market, dropped by 1.21 percent. The NSE Food/Beverages dropped the highest points by 2.25 percent, followed by Banking, which dropped by 1.97 percent; the Oil/Gas dropped by 0.67 percent, while the NSE Insurance, the only gainer, appreciated by 0.23 percent.

Most active

The banking subsector on Wednesday led on the most active subsector table with 311.78 million shares valued at N1.65 billion, as against the 217.45 million units valued at N1.92 billion recorded on Tuesday.

The volume in the subsector was driven by shares of Unity Bank, Oceanic Bank, BankPHB, First Bank, and Guaranty Trust Bank. The total volume of 183.51 million units, valued at N899.87 billion, traded in the shares of the five stocks, accounted for 45.36 percent of the entire market volume.

Gainers decrease

The number of stocks that gained at the close of trading session on Wednesday closed lower at 14, as against 30 stocks recorded the previous day, while losers closed higher at 38, compared with the 28 recorded on Tuesday.

Custodian Insurance and Honeywell Flour topped the price gainers’ chart with an increase of 13 kobo and 11 kobo on their opening prices of N2.62 and N5.27 per share respectively. On the flip side, Flour Mills and Cadbury topped the chart with a decrease of N1.54 and N1.48, to close at N71.01 and N28.31 per share respectively.

Meanwhile, the Exchange, in a statement on Wednesday, said that Dangote Cement, which is billed for listing on 26th October, has submitted its unaudited results for nine months ended September 30.

The live coverage of the rescue of the 33 miners who were entombed in Chile’s copper and gold mine for 69 days captured a global audience. It was one of the few moments when good news eclipsed the bad. It was a celebration of human resilience and a picture of the efforts of humanity to search for resources at extreme locations. Spare a moment to ask how many miners would have emerged alive if such an accident had occurred in your country.

In all the celebrations that followed the rescue, few questions were asked about why the mine collapsed in the first place. Was this a rare occurrence here and elsewhere? It is reported that the San Jose mine was so unsafe in 2007 that it had to be closed down for a while. We note that on 30 July, six days before the mine accident, the Chilean labour department had warned again of “serious safety deficiencies.” Until the 33 miners got sealed up in the mines, the government is not known to have taken any action.

Official data in Chile shows that 373 workers died in mining accidents in the last decade. In 2010 alone, 31 lives have been lost.

The mining sector is Chile’s main economic powerhouse. The largely privatised mines reap huge profits. However, fatal mining accidents in this country is as high as 39 every year. As the miners emerged from the tomb, the government lapped up the limelight – who wouldn’t – and the applause that resounded across the globe. It was also interesting to see President Evo Morales of Bolivia visiting the mine to meet with the lone Bolivian miner who was among the rescued men. This miner had immigrated to Chile for lack of employment in his home country. President Morales offered the man a promise of a job as well as a house. Hopefully, it will not be a job in a Bolivian mine.

With regards to the San Jose mine, in 2007, there was a complaint filed at the Chilean appeals court and the National Geology and Mining Service by workers of the company together with unions of other companies following deaths in the mines. At that time, the workers demanded the closure of the mine due to poor mine ventilation and lack of proper escape routes. The mine was shut on 22 September 2007 and reopened in 2008, without any changes in the safety provisions.

Stories of industrial accidents emerge regularly around the oil industry. The oil spills of the Niger Delta are daily in occurrence. The massive sludge spill from an aluminium company in Hungary raised huge safety issues about industrial practices, but was almost eclipsed by the reports of the Chilean rescue efforts. As this piece is being written, reports are emerging of a collapsed mining tunnel in Ecuador where four miners are said to be trapped.

As pictures of the families of the Chilean miners camping at the site ran on television screens and websites, viewers could not pick out the fact that some key players were missing. We are talking about figures such as Alejandro Bohn and Marcelo Kemen, the businessmen owners of the San Esteban mines. They left the mine two days after information was obtained that the miners were alive. They did not return there for over two months.

Mining deaths

Thousands of deaths are recorded annually in mining accidents around the world. Recorded figures run as high as 12,000 deaths of workers in the sector every year. In China alone, 2,631 miners died in 2009, while 200 perished in Sierra Leone. In the USA, 26 fatal accidents at her mines were recorded in 2007, and 23 in 2008.

Recent deaths from mine accidents in South Africa are 309 in 1999 while 220 died in 2007. In 2008, the deaths added up to 171, while 165 died in 2009. In the first half of this year, 67 deaths were recorded. A rockfall accident in the Marikana mine killed 6 mine workers.

It is shocking that only 24 countries have ratified the Safety and Health in Mines Convention of the International Labour Organisation (ILO) signed in 1995. Chile has not ratified this instrument.

Some analysts have argued that there is already no need for certain minerals to be mined anymore, as enough of the substance have already been brought out of the mines; an example is gold.

As for crude oil, there is an urgent need for the world to move away from fossil fuels and embrace renewable energy sources. The direct and indirect deaths resulting from mining and utilization of these products should urge us to pause and think.

The resurrection of the Chilean miners, and their return from the bowels of the earth may receive our applause, but we cannot continue to push our luck with unsafe mines, reckless pursuit of capital, and cheap dispensation of human lives.