Onyema: Nigerian Capital Market Ready for Burden of Project Funding
Director-General The Nigerian Stock Exchange, Mr. Oscar Onyema, in this interview with Festus Akanbi, speaks on the impressive performance of the exchange for the 2014 financial year and the role of the capital market in an austere period, among other iss
Our market has always served as a source of capital for companies and governments to raise funds for economic expansion. In this challenging time, our market is liquid and robust enough to cater to capital needs that traditional lenders cannot handle
How did you achieve the feat of generating the largest operating surplus in the history of the NSE in the 2014 financial year? As a privately held company, we always challenge ourselves to be the best we can be in all our business operations. The impressive growth recorded in our operating surplus in 2014 will be attributed to our focused business model and the completion of several strategic initiatives. In 2014, we revised our business strategy to support our growth aspirations around products, order flow and market integrity. We also improved on the execution of our cost management strategies to boost our profitability margins..
It is this focus, coupled with the stellar contributions of our talented and motivated people that guided us to N4.0 billion in operating profits, up 21 per cent from 2013 despite a slight increase in our cost-to-income ratio – 66 per cent in 2014, compared to 62 per cent the preceding year, but a long way from the 86 per cent recorded in 2012. Five new equity listings were recoded and at the same time revenues from strategic investments jumped 75 per cent, comprised primarily of interest and dividend income.
What is the outlook for the current financial year?
The Nigerian capital market and the business of the stock exchange will always be impacted by dynamic economic trends and investor demands. However, achieving success through growth that creates value will increase the bourse’s ability to operate efficiently and profitably in the transientadvantage economy that has unfolded in Nigeria and around the world.
While there has been little respite in the macro economy and operating environment due to lingering oil price and foreign exchange pressures, we maintain a positive outlook for The Nigerian Stock Exchange as listed companies continue to show resilience and as our members consolidate and reposition to deliver superior value to investors. These factors will combine to shore up investors’ confidence in these challenging times.
At the Exchange, we will continue to work on reducing the effect of disruptive short-term market cycles with the right market structure and a diverse set of products that perform well in different market conditions. We will also continue to champion policy that provides stability to the marketplace, and gives confidence to issuers and investors.
What do you think are responsible for the sustained interest by domestic investors in the Nigerian capital market?
Diverse investment products, strong regulation, increased transparency and easy access to the market have ensured increased participation by domestic investors. Also, our listed companies are making their mark on the global stage, with many making inroads into foreign markets and many others continuously being listed in the top echelon in global company rankings. Nigerians are tracking the progress of these companies and want to be part of their success stories.
However, most of the trading activities we see are from foreign investors if we look at it from an institutional and retail perspective. We do not have a strong portfolio management culture here. What we do have are pension funds, which are typical buy-and-hold models, along with insurance companies, which have not been very active because of the last market downturn. Getting domestic institutional funds to take a more structured approach to investing in the equity market, including portfolio rebalancing, is the kind of thing that drives underlying liquidity. Getting them to participate in short selling is another way. For retail investors, we also encourage them to maintain proper diversification, asset allocation and periodic rebalancing, which helps them achieve their investment objectives as they move along their life cycle, depending on their level of risk tolerance
How can the capital market contribute to the nation’s economic development at a period of dip in revenue like this?
These economic headwinds have created a situation where many lenders are slowing down loan book growth over fears of accelerated non-performing loan growth. Our market has always served as a source of capital for companies and governments to raise funds for economic expansion. In this challenging time, our market is liquid and robust enough to cater to capital needs that traditional lenders cannot handle.
What sort of changes in the capital market are you envisaging with the change of government in Nigeria?
We anticipate increased engagement as austere times lead government at all levels to seek alternative sources of funding for their enterprises and projects. We look forward to working with the new administration to create a framework for transferring the burden of providing capital for projects from state treasuries to the Nigerian capital market through debt and equity listings.
There have been controversies over the pricing of banking stocks over the years. Do you think banks are appropriately priced and if not what could be done to achieve a more realistic pricing of banking stocks on the exchange?
Our pricing system is transparent and subject purely to the interaction of demand and supply. We have ensured that issuers release results and other disclosures in a timely manner to enable investors make decisions. Hence, we believe the prices of securities listed on our market reflect the perception investors hold of the value of these securities.