This article is a section from a report “Investing in Nigeria” and shall be viewed in the context of the title. Please view the report for more information on the subject as well as references for this article.
The NSE has set a very high goal of market capitalization of $1trn in 2016. As with many things in Nigeria, there is also a masterplan for the capital markets – a lot of emphasis are put by the NSE on strategic development of the market, to attract investors and make it as transparent as possible.
The NSE recognizes that many investors still view Nigeria with a negative investment sentiment from the 2008 market blowout as well as the events of the last couple of years. A lot of efforts are put to educate investors of the changes at the exchange now. There have been a lot of emphasis on encouraging companies to do proper corporate governance. There is a corporate governance ranking system for the listed companies, with the goal to develop a corporate governance ranking that will reveal the compliance the companies have with the exchanges rules. There is also a whistle-blower service for the capital markets.
The SEC has seen budget cuts, to fund itself, the commission has stepped up penalties on market participants. This is resulting in better policing of the corporate governance rules, but is also discouraging some participants.
NSE recognizes the need to provide a safe, transparent market to attract investors from across the world and is working towards such market conditions. This is done by means of putting out as much information as possible, so that investors can make informed decisions. The NSE website is content rich, giving generic information as well as more specific information – reports of companies that have been involved in bad behaviour, as well as the previously mentioned corporate governance rankings.
The technology used in transactions is highly innovative, it’s to international standards. A lot of efforts have been put to also introduce new services and assets. Short selling is soon to be introduced in the markets. There is also a platform for OTC trading of shares in unlisted companies.
For growing the market, the exchange is trying to get new companies listed. This is necessary for the goal of $1trn market capitalization as well as to increase the liquidity. Market making companies have been introduced on the market to increase liquidity, they haven’t gained much traction yet, but they are considered something that the market needs in the long term.
The NSE and SEC have implemented multiple reforms to enhance corporate governance of the listed companies and make the market more appealing to investors. For instance, the NSE introduced a new rule in 2012, requiring a minimum float of 20% for listed companies, with an exception for the big multi billion market cap ones. The securities commission has introduced a directive for a minimum capital requirement for companies that are listed on the exchange.
There is a desire to create a retail market of some sorts by the NSE. The NSE recognizes the potential in the domestic investor pool – out of 180 million people, there are only about 5 million registered investors.
There are efforts put in place to increase the financial literacy of the population, from capital market essay writing competitions for students, to seminars across the country. A programme “Investor Clinic” has been conducted, targeted at high net worth individuals and up-skilled professionals. The program aims to educate people on the reforms made and the zero tolerance against infractions, to communicate that there are new rules that everyone is aware of and any infractions will see action taken against.
The NSE has 30 other locations outside of Lagos, this provides a platform for organizing seminars to promote financial literacy. There have been 300 education literacy seminars around the country in the last 2 years. Similar activities are seen with foreigner investors – there have been roadshows organized by the NSE in Asian countries, to promote the markets, with the CEO’s of listed companies attending as well.
A lot of the education activities won’t see immediate impact due to their nature, it’s a process and the exchange is just at the beginning steps of this process.
A lot of the success of the market in the long term will depend on the NSE, its policies and activities. For long term investors, it’s important to follow the execution and progress with any plans the exchange puts forward.