Nigeria Content Online

Nigerian banks sitting on excess cash

Nigerian
banks are currently sitting on excess level of liquidity as financial
institutions are cautious to do real banking business post crisis
period. A recent report by Renaissance Capital (RenCap) stated that
with the relatively robust returns from government instruments, the
banks have virtually abandoned their intermediation role and are
playing safe.

“Traditionally
low-risk government T-bills, and recently government guaranteed
interbank assets, offer high-single digit to low-double-digit returns,
which encourages banks to run their balance sheets like hedge funds, as
opposed to proper economic intermediators of funds, as the additional
return (if any) on lending for the increased risk involved is, at
times, simply not worth the risk,” the report stated.

Deputy
governor, economic policy of the Central Bank of Nigeria (CBN), Sarah
Alade said recently that banks now prefer lending to government instead
of the real sector. “In terms of interest rate being high, when
government borrows money, offering banks higher rates than the private
sector can offer, banks naturally lend to government,” she said last
week at a forum in Lagos.

Efficient intervention needed

The
RenCap report therefore advised banks to grow their loan books. “For
us, the bottom line here is that the structure of Nigerian banks’
balance sheets, on average, highlights a very cautious, underleveraged
banking system that could comfortably squeeze-out more leverage, and
therefore bigger profits, without dramatically shifting out of their
low-risk comfort zones.” The report mentioned UBA and Zenith Bank as
institutions with the largest pool of cheap funds.

Recent positive trends

The
report incorporates coverage on Zenith Bank, First Bank, Access Bank,
Diamond Bank, Guaranty Trust Bank (GTB), United Bank for Africa (UBA),
Skye Bank, First City Monument Bank (FCMB) and Fidelity Bank. It
incorporates strong buy recommendation for Zenith Bank, First Bank,
UBA, FCMB, Skye Bank and Fidelity Bank as the sector looks forward to a
new growth spurt following the clean-up process undertaken by AMCON
(ASSET Management Corporation of Nigeria).

Renaissance Capital also anticipates strong credit growth in 2011
following recent positive trends. Speaking about the report, lead
author David Nangle said, “Taking into account AMCON’s success at
restoring confidence in the Nigerian Banking sector, we believe it is
poised for a new era of growth. This is based on Nigeria’s strong
macro-economic outlook, with growth projected to be between 7-8 per
cent in 2011 and the strong capitalisation in the banking sector.” The
report added that the moves by foreign banks to buy into the sector may
represent a medium-term threat to the current local private
bank-dominated playing field.

The
report stated that though the Nigerian banking space offers an
appealing investment base, there was still the risk associated with
frontier-markets investment. These include the legal system, with
regards to the length of time required to resolve financial court
cases, corruption, weak corporate governance, and the need to diversify
the economy.

Money

OIL POLITICS: The petroleum bill and last minute legislative contortion

OIL POLITICS: The petroleum bill and last minute legislative contortion

Legislative advocacy can a double-edged sword, if what you fight
for is shrouded in secrecy and all you depend on is the initial draft that was
in the public domain. One case in point is the much-expected Petroleum Industry
Bill (PIB). The PIB has generated so much interest because the oil and gas
sector has been left open to manipulation by political and industry players who
made massive gains while the nation got short-changed.

Aside the campaign for the passage of the Freedom of Information
bill, the clamour for the passage of the PIB has really captured the attention
of many. We all remember the recent public demonstrations of extractive sector
transparency campaigners in Abuja, demanding that the national assembly passes
the PIB into law before their tenure elapses later on this month.

Some observers have been careful to note that passage of the
bill, without public inkling as to what the final contents are, could be quite
injurious and on that account it is essential that the public be let in on what
has been cooked between the legislators, the petroleum ministry (the executive)
and the oil companies.

As May 29 draws close and industry watchers expect that the PIB
will be passed into law anytime before then, we have sought to have a peek into
what the final document may look like. The best we have been able to see is a
document that is yet to be cleaned up, but that gives an indication as to what
we may expect.

If you have pointed interest in environmental and social
elements of our laws, as some of us do, you can expect a PIB that is not as
good as the initial draft that was made public and was subject to many comments
and inputs.

A cursory look at the items deleted from the original document
by the final draughtsmen gives an indication that the pressures for this
watered-down law came heavily from those who care least about the environment
and the communities in whose territory the oil fields happen to be.

At the same time one gets the impression that the lawmakers
believe that the concerns of the communities can be fully taken care of by
allocating some cash to them. This has always been the bait and is not
innovative in the least.

The senate committee recommends the deletion of a section that
stipulated that oil companies “be responsible for any environmental damage,
pollution or ecological degradation occurring within the licence or lease area
as the result of exploration or production activities, in the case of upstream
operators and as a result of any licensed activity in the case of downstream
activities.”

The reason for the deletion is that another section provides
sufficiently for any “direct” impacts on the environment. Deleting the section
is suspicious, just as we note that environmental degradation is not only
caused by “direct” impacts and polluters should not be allowed to carry on with
business as usual under this cover.

The “final” PIB also rejects the proposal to measure production
volumes at wellhead rather than at distribution terminals. This will
undoubtedly ensure the opacity of the sector and the reckless thievery it
engenders. To add to the profit pile of the oil companies’, royalty and tax
regimes have been manipulated in their favour.

Another section that has significant deletions is found in the
provisions for labour rights. The legislators would not allow anything that
protects the rights of workers in the sector and the reason given is that other
laws already cover such needs. They pointedly deleted the “right to freedom of
association and effective recognition of the right of collective bargaining.” They
also chucked out protection against forced labour or use of underaged persons.

In reality, the restriction of collective bargaining rights
(including the sustained casualisation of labour) has been a major area of
struggle for labour unionists in the sector.

The legislators also think that it is wrong to create space for
the engagement of federal, state and local governments and communities in
promoting and ensuring “peace and development of the petroleum producing
areas.” The reason given for this is that the provision is a mere policy
statement and “has no legal binding character.” At another level, the final PIB
rejects the idea of incorporating the existing joint ventures and thus promotes
the retaining of business as usual.

On the trump card that should silence communities, the PIB seeks
to create a Host Communities Fund which would require that operators pay a
“nominal ten percent equity participation in upstream petroleum operations in
the Fund as beneficial owners to hold in trust.” This section is presented in
such a contorted way that even anyone can dance any which way.

Of the total sum held, 80 percent will, from time to time, be
allocated for development projects within the communities. The provision here
is that it will be of benefit to communities wholly or partially within the
lease areas of the oil and gas operators. It is very interesting to note that
the benefiting communities will have to demonstrate their direct involvement or
exposure to petroleum operation within the licensing area.

How would the direct involvement of the communities be
determined? Watch this: they have to collate the number of oil wells, flow
stations, oil terminals and power generating plants in their territory. They
also have to sum up the length of pipelines that cross their area and also the
number of gas flares. If gas flares suddenly become an asset, one wonders why
communities are not equally required to count the number of oil spills as well
as measure the volumes of oil spilled into their lands, swamps and rivers for
the same purpose.

Gas flares?

One would have thought that the final drafters of the PIB knew
nothing about gas flares because even the little mention of this illegal
activity in the initial draft has been completed yanked off the “final” copy.

If the copy of the PIB we have seen is an indication of what we are to
expect, it is clear that another opportunity to sanitise the sector is being
squandered. It will be a sad day indeed if the current legislators foist a
rigged PIB on the nation on the throes of their departure.

Money

Ghana inflation dips in April, rate hold seen

Ghana inflation dips in April, rate hold seen

Ghana’s annual inflation rate fell to 9.02 percent in April, the
country’s statistics office said on Wednesday, the second dip in a row that
reinforces prospects of a rate hold decision by the Bank of Ghana this week.

Analysts said the surprise fall from 9.13 percent in March might
spark calls for a further rate cut, but for now, the consensus was for the
prime rate to be held at 13.5 percent and some analysts warned that inflation
could take off again soon.

Fuel price hikes pushed inflation higher in January but the
national statistics office said the stabilisation of fuel prices, coupled with
the abundance of food and a relatively stable exchange rate, had led to dip in
April.

“This is a good reading, especially given the inflationary
pressures stemming from high oil prices and a relatively weak currency,” said
Lisa Lewin, an analyst at London-based Business Monitor International.

“It looks almost certain that rates will be kept on hold this
time around, but as soon as inflation edges back into the double digits, we can
expect a hiking cycle to commence,” she added.

Separately, the statistics office said the Ghanaian economy grew
7.7 percent in 2010. Analysts see that accelerating to around 13 percent this
year thanks to oil revenues. An expected announcement of first quarter 2011
growth was put back to June.

Food for thought

The Bank of Ghana’s Monetary Policy Committee is due to announce
its decision on interest rates on Friday. Ahead of Wednesday’s announcement,
seven out of ten banks polled said they were expecting the rate to be unchanged
at 13.5 percent.

“The immediate impact of this will be to set people thinking
…whether with the Prime Rate at 13.5 percent since last July there is any
probability of a late-cycle rate cut,” said Standard Chartered analyst Razia
Khan.

“While the good news on inflation will certainly boost the case
of those who have been arguing for a rate cut, our call is still for the Bank
of Ghana to keep interest rates on hold.” Mr Khan cited possible volatility in
the Ghana cedi, concern over Ghana’s fiscal deficit, a trend towards higher
inflation and improved credit access for the private sector as reasons for
holding the rate steady.

Non-food inflation was almost three times that of the food group
in April. High fuel prices, hikes in public sector wages and the influx of oil
revenues since Ghana started pumping oil last year have all raised the
prospects of steady increases in the pace of inflation over the year.

Reuters

Money

Stock market performance remains shaky

Stock market performance remains shaky

Mixed performances have continued to characterise trading
activities at the Nigerian Stock Exchange (NSE) as market indicators maintained
unsteady movements.

The NSE market capitalisation and the All-Share Index, the two
market measuring parameters, which depreciated by 0.16 percent at the close of
trading on Monday, went up by 0.17 percent yesterday after appreciating by 0.68
percent on Tuesday.

Stockbrokers at GTI Capital, a stock broking firm, said the mix
trading performances could be attributed to the activities of profit takers in
the market.

They said the market opened the new week on a negative note
despite the increased activities on the floor of exchange. “Early hours of
trade revealed moderate activities savoured with investors willingness to
consolidate positions on some handful of fundamental stocks. However, selling
pressure emerged toward the closing hours pushing indicators down,” they
explained.

Meanwhile, they said recent gains on some blue chip stocks have
been driving the positive performance in the market.

Market rebounds

The market capitalisation of the 194 first-tier equities closed
yesterday at N8.140 trillion after opening the day at N8.126 trillion,
reflecting N14 billion gains. About N55 billion was gained on Tuesday after the
market lost N13 billion the preceding day. The All-Share Index gained 45.24
units yesterday on the previous day’s figures of 25,432.93 basis points, to
close at 25,478.17.

At the end of Wednesday’s trading, the number of gainers closed
higher at 361 compared with the 32 recorded on Tuesday, while losers also
closed higher at 22 against the 19 recorded the previous trading day.

Costain West Africa topped the gainers chart for the day with
4.97 percent price appreciation, while Northern Nigeria Flour Mills topped the
losers chart with 4.98 percent depreciation.

Guinness Nigeria yesterday released its unaudited results for
the third quarter ended March 31 2011. The financial results show a turnover of
N89.801 billion as against N80.576 billion in the comparable period of 2010.
Profit after tax stood at N17.562 billion compared with profit after tax
ofN13.754 billion in 2010.

Also, the board of directors of Julius Berger yesterday proposed
a dividend of N2 per share to its shareholders.

Exchange commission

In the meantime, Daisy Ekineh, the executive commissioner in
charge of operations at the Securities and Exchange Commission (SEC), said
recently that some of SEC’s main objectives to improve market activities this
year include encouraging companies to stay listed in the market by “continuing
to introduce best practices in periodic disclosure, securities issuance, and
merger and acquisition mandatory takeovers.”

Mrs Ekineh said the commission is “understanding and addressing
concerns of listed companies without undermining disclosure standards and
market integrity.” She said that SEC is working at promoting new products in
the market while the commission “improves on its process of electronic filing
of returns and offer documents.”

Meanwhile, the Association of Stockbroking Houses of Nigeria,
through its chairman, Rashed Yussuff, has expressed readiness to cooperate with
the new management of the NSE to reposition the market while they charged the
new management team to evolve policies that will benefit the market operators.

The assurance was given when Adeolu Bajomo, the newly appointed executive
director in charge of the NSE’s Market Operations and Information Technology,
was introduced to the stockbrokers on the floor of the exchange by Oscar
Onyema, the chief executive officer of the exchange.

Money

Kwara tribunal orders forensic examination of election materials

Kwara tribunal orders forensic examination of election materials

The Kwara State Governorship Election Petition Tribunal
yesterday granted an order that all election materials used during the April 26
elections be made available for inspection. The order followed an ex-parte
application by Osaro Eghobamien, the counsel to the Action Congress of Nigeria
(ACN) governorship candidate, Dele Belgore.

Mr Eghobemien, on behalf of his client, had ahead of yesterday’s
inaugural sitting of the tribunal filed an application before the tribunal on
May 7, to challenge the election victory of the Peoples Democratic Party’s
(PDP) candidate, Abdulaziz Ahmed.

The three-man panel, headed by Ngozi Priscilla Emehelu, while
granting the prayers sought by the applicant, ruled among others,

that there should be an inspection of polling booths and
election materials used and unused for the April 26 governorship elections in
about 200 wards in the state.

The tribunal also granted permission for the forensic
examination, as well as the electronic scanning of the election materials.

Relying on section 151(1) of the Electoral Act (amended 2010),
and the case of Rauf Aregbesola V. Olagunsoye Oyinlola, the tribunal directed
compliance with the consequential orders.

However, the tribunal did not honour the prayer of the applicant
that the documents and materials be kept in the court custody, and this was
because of the provision of section 72 of the Electoral Act which is to the
effect that only the Independent Electoral Commission (INEC), that is, the Resident
Electoral Commission (REC) shall have the custody of election documents.

The tribunal ordered the respondents to the petition to comply
with the orders made by the tribunal.

Ms Emehelu said the establishment of the panel was pursuant to
section 285 of the Constitution of the Federal Republic of Nigeria 1999, as
amended by section 9 of the Second Alteration Act 2010, paragraph 1 and 2 of
the sixth schedule of the constitution, 2010.

She said the secretary of the tribunal, Fransisca Mesiobi Emeto
had earlier reported in Ilorin to set up the registry of the tribunal with
supporting staff. She, however added that as at the time of its sitting on
Wednesday, no single petition had been received.

“As I speak to you, no petition has been filed before this
tribunal, save for an application, EPT/KWA/GOV/1M/2011: Mohammed Dele Belgore
of the Action Congress of Nigeria and two others V. Fatahi Ahmed of the Peoples
Democratic Party and 4 others, which was filed on the 7th May 2011 seeking
inter-alia, for the leave of the court to inspect and make copies of certain
documents used in the conduct of the governorship election of Kwara State for
the purpose of instituting and, or maintaining the applicants election
petition,” she said.

Ms Emehelu, who promised that the tribunal would give petitions
before it “expeditious adjudication”, pleaded that people should know that
election tribunals “are sui generis”, that is, belonging to a class of their
own, and give it maximum cooperation to enable the accelerated hearing of the petitions.

Other justices sitting as part of the tribunal are Kadi Dahiru Abubakar and
Saidu Sifawa.

Free and Fair

Free and Fair

A national official
of the Independent National Electoral Commission (INEC) yesterday
declared that the April general elections were conducted with utmost
transparency and fairness, hence the acceptability of its results by
most of the contestants.

The INEC national
commissioner in charge of Osun, Oyo and Ondo states, Adedeji Soyebi,
speaking in Osogbo at the presentation of certificates of return to all
the elected candidates, said INEC conducted the elections with the fear
of God and without prejudice to any authority.

He said the
elections were adjudged the best in the history of the country’s
elections even by the international community, saying INEC achieved
such a lofty height through commitment and determination to building a
virile society.

Mr Soyebi, who
acknowledged the support of the people, said the credible conduct of
the polls was made possible by the co-operation the commission enjoyed
from the people.

Particularly, the
INEC boss noted that the electoral body recorded peace in Osun state
during the polls, saying that the elections were conducted in a
relatively peaceful atmosphere in all the Local Government Areas in the
state compared with other parts of the country.

The INEC resident
electoral commissioner in the state, Rufus Akeju said the commission
succeeded in redefining the electoral landscape of the country with its
performance during the last eletion.

“We are today
celebrating the results of national political consciousness and its
process for the conduct of election with transparency, fairness and
freedom,” he said.

Mr Akeju said the
commission is focused on its vision and mission for a new democratic
order in the country and advised the newly elected political office
holders to place the interest of the people above their personal
interest in all that they do.

Road safety agency generates N1.4b from traffic offenders

Road safety agency generates N1.4b from traffic offenders

The Federal Roads Safety Commission (FRSC) has generated N1.4
billion as fines from traffic offenders in the country in the last four years,
the Corps Marshal of the commission, Osita Chidoka said yesterday in Abuja.

Speaking at the launch of the UN Decade Of Action On Road, with
the theme: “Committed To The Decade Of Action Road Safety 2011-2020,” Mr
Chidoka warned that the FRSC will not spare any violator of road safety rules
regardless of who ever is involved, stressing that if serious measures are not
taken, accidents will overtake malaria, tuberculosis and AIDS as the leading
cause of death in the country.

“Efforts are in top gear to ensure a national council on road
safety and inclusion of a broad coalition of multi-agency stakeholder
approach,” he said.

Traffic collisions

Speaking also at the event was the minister of health, Onyebuchi
Chukwu who said traffic collisions constitute major health and economic hazards
globally, with extensive deleterious effect in developing countries such as
Nigeria.

He also announced that the World Health Organisation and the
World Health Assembly have projected that by 2020, road traffic collisions
would have risen to be the third leading cause of disability and the fifth
leading cause of death by 2030.

The minister also revealed that a national stakeholders committee
has been constituted towards preventing collisions and making roads safer. He
said the committee would ensure effective collaboration among identified
stakeholders as well as partner with local and international agencies and
organisations.

The Obi of Onitsha, Alfred Achebe; Works minister, Sanusi
Daggash and the Women Affairs and Social Development minister, Josephine Anenih
all signed commitment cards which forbids them from over speeding, drinking
while driving and using mobile phones while driving. It also commits them to
always wear seat belts while driving.

Senate leader blames civil servants for excessive spending

Senate leader blames civil servants for excessive spending

The senate deputy leader, Victor Ndoma-Egba, has risen in
defence of the National Assembly over allegations of profligacy, saying the
civil service and not the legislature consumes most of the the nation’s wealth.

In a veiled reference to claims by the governor of the Central
Bank of Nigeria, Sanusi Lamido Sanusi, that the National Assembly takes home a
greater part of the nation’s income, the re-elected senator said the civil
service consumes more.

He called for a review of public expenditure at all levels so
that more money is available for investment in infrastructure, social service,
health care and industrialisation.

“I do not think that the National Assembly is consuming the
wealth of this nation more than any other group,” he said. “Check the
parastatals, main civil service and local government councils; they consume
more. Every office has overhead costs. When you add these together every month,
you discover that civil servants consume more of the nation’s resources.”

Continuity in service

On the just-concluded general elections in the country, Mr
Ndoma-Egba said the high rate of attrition in the National Assembly is
affecting robust legislation, as fresh lawmakers find it difficult to catch up
with their older colleagues on thorny issues.

“[The] high turnover of senators in this country affects
lawmaking as newcomers start from the scratch, finding it difficult to catch up
with their senior colleagues,” he said. “The senate in the USA is stable
because it does not experience such a huge number of new members, despite the
biennial conduct of legislative elections in that country.” He recommended that
senators be allowed to spend more years at the National Assembly to gain
experience in lawmaking for the good of the country, as having a new crop of
senators every four years negatively impacts on administration at the federal
level.

Mr Ndoma-Egba said, although parliamentary bodies the world over
are bolstered by the equality of their members, irrespective of the spread of
their constituencies, the experience of older members is what keeps that arm of
government moving so that it does not fall short of expectations nor become a
rubber stamp for the executive.

The senator, who has just secured a third mandate, sees his
re-election as victory for history.

“This is the first time a senator from Cross River State will be
doing a third term at the National Assembly, but I am not the first from the
Niger Delta to be so elected. James Manager is older than me at the senate. He
is also from the Niger Delta,” he said.

Fair elections, but…

He described the recent elections as transparent, orderly and
fair; and asked INEC to correct the lapses it noticed in the 2011 exercise
since the country’s democracy is still growing.

“If INEC had an arrangement whereby accredited voters exercise
their franchise immediately, more people would have come out to participate,”
he said. “In rural communities of Cross River State where the inhabitants are
predominantly farmers, they find it difficult to wait for many hours after
being accredited before voting,” he said.

Mr Ndoma-Egba, who said it was a challenge for him to convince his kinsmen,
who are mainly farmers, to get accredited and wait for some hours before
voting, advised INEC to develop a new voting system that would ensure Nigerians
vote immediately after accreditation and leave for their homes or farms.

Senate approves $1b for sovereign wealth fund

Senate approves $1b for sovereign wealth fund

The senate on Wednesday, passed the Nigeria Sovereign Investment
Authority bill, with an approval that it be jump started with the Naira
equivalence of $1 billion.

The start-up capital is to be contributed by the three tiers of
government including the federal capital territory, each contributing a
percentage of the initial fund equal to such government’s share of the
federation revenue in accordance with the subsisting formula.

Subsequent funding for the fund will be derived from residual
funds from the federation account which shall be transferred to the authority.
The derivation portion of the revenue allocation formula is excluded from the
subsequent funding source.

60 percent of both the start-up capital and subsequent funds
will be allocated equally to the authorities’ three main investment options:
The Future Generation Funds, the Infrastructure fund and the Stabilization
Fund.

The fund, when established, would replace the country’s excess
crude account (ECA) that banks Nigeria oil revenue above a benchmark oil price.

Critics of the excess crude account, created by the
administration of Olusegun Obasanjo, says it lacks a legal framework. The
account was set-up in 2004 following a fiscal policy decision to check the
negative impact of the swings in crude oil prices at the international oil
market on government expenditure, and to help create savings from excess crude
earnings for the country.

The incumbent administration in March 2011, revealed plans to
abolish the excess crude account as the minister of finance Olusegun Aganga,
told NEXT in an interview that the government resolved to abolish the account
not only because its existence was illegal and unconstitutional, but also that
management of the ECA has in recent times been subjected to abuses that tend to
defeat the objective for which it was established.

He noted that the process for accessing the ECA is not
transparent and clear to the Nigerians, therefore there is a general perception
that there is some level of mismanagement.

“The intention is that the (sovereign wealth) fund will be
funded by what we have in the excess crude oil account,” Olusegun Aganga told
reporters after the economic council meeting last month.

“The present arrangement is just an administrative arrangement,
it has no legal basis”, he said. “What we have to begin now is to give it a
legal basis so the excess crude account will be replaced by a legal
arrangement.”

The authority is expected to invest the funds in a diversified
portfolio of medium and long term investments for the benefit of future
generation of Nigerian citizens.

Mr Aganga said the fund adds to fiscal discipline of government
and is capable of attracting investment in infrastructure development from
sovereign wealth funds of other countries. According to him, accruals to the
fund would be put to work to intervene in critical sectors of the economy.

“The fund will have the ability to attract both local and
international investors. So even if they have $1 billion, it will be capable of
attracting more than $5 or $6 billion from other funds. Already we have had
interest from other sovereign wealth funds. It will be managed in a very
transparent way because we will have better control.”

The finance minister said the setting up of the sovereign wealth
fund will improve Nigeria’s rating in the international financial market. The estimated
value of global sovereign wealth funds is currently put at $2.5 trillion.

“Creation of the fund will ensure that the present and future
generations of Nigeria will still have a country to call their own,” Teslim
Folarin, leader of the senate said in his lead debate.

In exceptional circumstances set out in the act, the authority
will utilize certain liquid assets in the stabilization fund to supplement
other available fiscal stabilization funds to temporarily sustain duly budgeted
public expenditure in the interest of macroeconomic stability in Nigeria.

Bribery allegation denied

The Senate also denied media allegations that its members
demanded N25 million in bribes to hasten the passage of the Sovereign Wealth
Fund and Petroleum Industry bills.

The Senate President, David Mark, described the allegations as
“sheer blackmail.” The denial followed complaints by Dahiru Kuta, a member of
the committee that reviewed the bills, about a Monday publication in Punch
Newspaper claiming the senators demanded bribes to pass the bills.

“This blackmail is totally unnecessary and uncalled for. It is
not a very good thing by Punch Newspapers. I think they owe this hallowed
chamber an apology,” the senate president said.

“We will investigate this and the ethics committee should take it up live on
TV. No senator has demanded for anything. It is totally uncalled.”

Capital market working towards global integration

11/05/2011 nigeriang No comments

Capital market working towards global integration

The Nigerian Stock
Exchange (NSE) says it is on track towards its integration into global
capital market operations and standards.

The chairman of the
Securities and Exchange Commission’s (SEC) board of directors, Udoma
Udoma, told participants in the ongoing Thomson Reuters Foundation
journalism training course on financial and economic reporting in
Lagos, that apart from the reforms to restore confidence in the wake of
the 2008 market crash, steps have been taken to upgrade the operational
process to bring them to global standards.

He noted
unprecedented growth by all market indicators, saying capitalisation
rose fromN2.5 trillion in 2005 to N12.1 trillion by March 2008, while
trading value increased with a daily average of N1.06 billion from
N254.7 billion in 2005 to N2.086 trillion in 2007, with a daily average
of N8.62 billion.

Though he said
market capitalisation as of December 31, 2010, was at about N10.33
trillion, with about 264 listed securities comprised of 217 equities
and 47 debts, Mr Udoma, however, traced the collapse of the capital
market to insider dealings as well as abuses of margin lending by
banks, which gave loans to many investors to buy shares without
collateral.

He said the
reactivation of FGN bond resulted in the issuance of over N3.5 trillion
bonds between 2003 and 2010, while secondary transactions of the bonds
on OTC market was over N48 trillion between 2006 and 2010, with about
11 state governments going to the market to raise funds for their
programmes.

Market challenges

He listed the
challenges the market is currently facing to include low investor
confidence; poor market depth, in terms of limited securities and
products on offer; poor savings and investment culture as a result of
the country’s low per capita income; low market liquidity; excessive
market concentration, with over 60 percent of trading activities on
bank stocks as well as legal constraints.

As part of the
reforms, he said 52 new rules and amendments have been introduced since
2008, including new margin trading guide lines by the Central Bank of
Nigeria and the Anti-Money Laundering/Combating Financing of Terrorism
manual to help banks and stockbrokers check incidences of money
laundering.

Besides, he said a
new code of corporate governance, which became effective last month,
requires auditors to report on the adequacy and effective of internal
regulatory systems as well as change the company’s audit and partners
every year, while upgrades have been carried out on the NSE platform to
meet international standards.

“We are on track
towards reforming the Nigerian Stock Exchange into a world class
capital market. The country’s capital market is not in isolation from
the international community. The Nigerian economy is poised to take off
with the stability being provided better elections,” he said.

Other actions taken
to reform the system include development of a model for risk-based
supervision, particularly for regulated entities; rationalization of
the market’s intermediary structure through stratification of the
broker-community; overhauling of complaints management framework to
ensure improved efficiency and alignment of the market with
international best practices in complaint management as well as
encouragement of functional market makers to facilitate securities
lending and borrowing.

International regulatory standards

Apart from
migration to International Financial Reporting Standard before 2012,
the SEC board chairman said the commission is considering the
self-assessment exercise of the implementation of the 38 International
Organisation of Securities Commission objectives as well as the
principles of securities regulations to conform to international
regulatory standards.

“Capital market
offers enterprises and governments wider opportunities to secure funds
for development. Where there is no developed capital market, short-term
funds from commercial banks are not the best sources of funding for
business enterprises and long term investments.

“In Nigeria, where industrial production is as low as 4 percent of
gross domestic product (GDP), as against an average of 8.5 percent
about 15 years, it is the country’s low industrial capacity that is
partly responsible for the current high unemployment in the country.
Therefore, if Nigeria must realize its aspiration to be among the
world’s top 20 economies by 2020, industry share of the GDP has to
increase to about 20-25 percent. That is why the integration of the
capital market is crucial,’ he said.