Tuesday, 29 October 2013

Maximising the Potential of the Capital Market

261012N.NSE-Building-Lagos.jpg - 261012N.NSE-Building-Lagos.jpgBy Arize Nwobu
The capital market is noted as one of the most important elements in the economic development in developed nations. In the United States, it is the life blood of capitalism where companies go to raise capital to finance the building of factories, airplanes, trains, ships, telephone lines and other assets, and to conduct research and development and such other essential corporate activities.

Over a trillion dollars are invested and exchanged daily in international capital markets in the world, and it is on record that many great innovations of mankind saw of the light of the day through the instrumentally of the capital market.

For instance, it was through the New York Stock Exchange working in collaboration with JP Morgan that Graham Bell was able to create the American Telephone and Telegraph Company which later became AT and T, which became one of the largest companies in the world, with investments from all over the world. Also, Thomas Edison set up the Edison General Electric Company working also with JP Morgan in 1892. By 1900 using investments from all over the world, Morgan merged Edison’s company with Thompson-Houston Electric to form General Electric (GE) which is one of the largest companies in the world.

In its effort to transform the Nigerian economy, the Federal Government should seriously consider exploring and maximizing the instrumentality of the Nigerian capital market through the development and implementation of imaginative capital market policies which will encapsulate among other things, the promotion of venture capitalism, entrepreneurship, infrastructure development, discriminative tax policies for listed companies and such other incentives to encourage and attract more local businesses to list on the Nigerian Stock Exchange. It is a plus for the economy when more businesses and listed on the stock exchange because the mechanism of the capital market remains a veritable source of wealth creation and distribution, with a tremendous capacity to catalyse economic development. 

There is a galaxy of registered local businesses that readily qualify to list on the exchange but have failed to do so, just as the listing profile of the exchange does not include corporations in the commanding heights of the Nigerian economy. And it is for these reasons that the Nigerian stock market does not truly serve as a barometer for capturing the pulse and direction of the economy.

The Federal Government should consider privatizing the nation’s oil and gas assets, refineries, PHCN and such others in the commanding heights in order to properly determine the direction of the economy give it a quantum leap and revolutionize the capital market. It was the privatization of Ashanti Goldfield, one of Ghana’s economic main stay that brought the Ghana Stock Exchange to the world stage. Ashanti Goldfield represents 65% of the market capitalization of Ghana Stock Exchange and is also listed on the New York Stock Exchange (NYSE), London Stock Exchange (LSE) and JSE of South Africa. 

In its effort to transform the Nigerian economy, the Federal Government should divorce itself from the status quo with is attendant anachronism. A transformation agenda without new and radical policy measures will only remain a fleeting illusion to be pursed but never attend.

This writer salutes courage of all businesses that are listed (with a sincerity of purpose) on the Nigerian Stock Exchange, because to be listed is to be in the public spot light which connotes transparency, accountability and integrity all of which are key aspects of corporate governance. It also shows a willingness by the owners of the businesses to share their “goodies” with the public through dividends, bonus issues, capital appreciation of share prices towards the empowerment of the investing public; though public listing can best be described as mutually beneficial business relationship between the listed companies and the investing public. Some of the reasons local businesses fail to list on the exchange include ignorance, egocentrism and unwillingness to share their “goodies” with the public, shareholders’ militancy and lack of vision among others.

The catch phrase “start local, think global” would be apt for a campaign by the regulatory authorities or even the federal government to attract local businesses to list on the stock exchange, because it captures the spirit or mentality which gave rise to most multinationals who now operate and generate tremendous multiplier effect in their various host economies.

There are numerous benefits of listing companies on the stock exchange. Besides the cost effectiveness of raising capital in the capital market when compared to the money market, it is also easier for listed companies to access capital from both the existing shareholders and the public. It is on record that in 2004 GT Bank for instance, raised N21.2billion of the prescribed N25billion capital base for banks during the banking consolidation through the capital market. But for the mechanism of the market a lot of banks would not have been able to meet up with the capital requirement.

In the past also, a lot of listed companies have been able to raise what would pass then, as mega funds, through the capital market. Thirteen years ago, in 2000 Nigerian Breweries raised N7billion in Rights Issue, while Oando raised N16billion through a hybrid of Rights Issue and Public Offer.

There are other such offerings. The Nigerian capital market has the capacity to absorb mega offers if the timing, ratios and marketing are right. Being listed also creates mergers and acquisition opportunities with the listed companies using their own stock, whereby a company stock is equivalent to currency. Other benefits include the enhancement of the company’s market value which can easily be determined. It also provides a medium for inflow of foreign portfolio investments.

As the Chartered Institute of Stockbrokers (CIS) prepare to hold its.17th Annual Conference with the theme “Power, Housing and Energy, The Capital Market Solution”, the Federal Government is advised to take heed to the deliberations and recommendations of the Institute in order to adopt and implement strategic policies for the maximum utilisation of the potential of the mechanism of the capital market towards realising its transformation agenda. Nigeria can enter the new age economy through the instrumentally of the capital market.

•€€€€€€ Nwobu is a business journalist and chartered stockbroker
Source: ThisDayLive

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