Sustaining The Vision Of Building World Class Capital Market

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The President Muhammadu Buhari administration recently presented a three-year Medium Term Expenditure Framework (MTEF) running from 2017 to 2019. The government proposed to borrow N3.21 trillion to finance a growing budget deficit triggered by dwindling oil production and prices in international market. It is significant that out of this amount, N1.25 trillion will be sourced from the Nigerian capital market and the rest from external sources.

The current depth of the domestic stock market is a testament that it has come of age. From a market capitalisation of N4.99 trillion in January 2010, it has has grown to over N9 trillion, making it one of the fastest growing markets globally.

That success did not just happen. It was a product of visionary leadership and commitment to performance driven by the Director-General of the Securities and Exchange Commission (SEC), Mounir Gwarzo. The SEC has been transformed under the new leadership, and is run in line with set guidelines and international best practices.

Gwarzo is not a new comer at SEC. When his predecessor, Arunma Oteh was in office, he was in charge of operations of the Commission, a role that allowed him to execute its vision under his boss. It was not surprising that when Oteh ended her five-year tenure in January 2015, the mantle of leadership fell on him.

Since then, he has not only sustained the vision and tempo of operations of the Commission, but has moved it several notches higher. He has worked in Nigerian Capital Market both as an operator and a regulator, in a career spanning over 25 years. That experience has placed him in a unique position to drive the SEC vision.

Shortly after taking over, a 10-year Capital Market Master Plan was developed. The Nigerian Capital Market Master Plan: 2015 TO 2025, in the words of Gwarzo himself, represents his team’s strategic blueprint to boost both the attractiveness and competitiveness of the domestic capital market. The plan aims to make Nigeria one of the biggest, broadest, most liquid, diversified and sophisticated emerging markets by 2025.

This is, no doubt, a tall ambition, but not one that is not achievable. Developing a highly competitive market boasting of a favourable operating environment that engenders global best practices, innovation and efficiency is the next destination. The market must grow to be nationally and internationally recognised for its robustness, efficiency, liquidity and depth of product offering, among others.

But the Gwarzo team at SEC must also recognise, if they had not done so already, that they must bequeath a sustainable market growth beyond 2025. Thus, even after attaining the envisioned scale, the market must keep growing. The regulatory framework must continually conform to international best practices.

It is significant that a dedicated high level Capital Market Master Plan Implementation Council (CAMMIC), has been inaugurated to champion advocacy for it. This will no doubt engender ownership of the plan at the highest levels and tiers of government. The SEC’s desire is to ensure that the plan is adopted as part of the broader national economic development strategy of the government.

The Commission has impressively stuck to this plan from day one with an implementation strategy that identifies initiatives within it at the beginning of the year and focuses on implementation models.

Regulating the capital market is as important as the market itself. Capital markets are not just important for raising funds for infrastructure and business expansion, by government and businesses, they also engender good corporate governance and accountability and promote transparency. This enables wealth creation and distribution and, in the words of Gwarzo, democratises access to prosperity.

Nigeria’s experience has shown that the capital market cannot be allowed to regulate itself otherwise it would become a cartel at crossroads with the national economic vision. This is why a strong SEC is desirable and government must ensure the Commission gets all it needs to succeed and fulfil its vision.

The ongoing repositioning of the market to serve Nigeria and Nigerians more by providing government with the funds to fix infrastructure and businesses to create more jobs is necessary to get the country out of economic recession. Of course, the capital market is a reflection of the broader economy, and the current recession expectedly has its impact on the market. That is why the fixed income and equities segments of the market have witnessed dips in activity.

Market performance has been adversely affected by the oil price shock, the declining foreign reserves, foreign exchange volatility, the delisting of Federal Government of Nigeria (FGN) Bonds from major emerging market and exit of foreign portfolio investors. But with the determined focus of SEC and full implementation of the plan, the drop in liquidity will be temporary and the market will bounce back in no time.

The management must continue to focus on key areas of the Master Plan, and especially prioritise initiatives that deepen the market and make it more competitive. SEC is already focusing on getting major companies in strategic sectors of the economy to get listed on any of the SEC-licenced platforms while a national savings strategy document is being developed to improve domestic savings culture and accelerate the development of a domestic investor base.

The current administration has acknowledged the urgent need to address challenges of infrastructure deficit, poor access to finance and unemployment. This will necessitate more government borrowing to fund investment in critical infrastructure, and pursue economic diversification by focusing on key sectors to serve as growth drivers such as agriculture and solid minerals. This will create more jobs and ensure a more rapid exit from economic recession.

Therefore, government must support SEC to strengthen aspects of the market that can impact on infrastructure funding. SEC on its own must deepen the capacity of its manpower to be able to drive innovative products of the Commission. The capital market will no doubt play an important role in financing government initiatives.

This is why all hands must be on deck to strengthen the regulatory frameworks of the Commission and make the market more investor-friendly. Priority must also be given to making rules that support product innovation related to infrastructure funding, strong investor protection and monitoring and pre/post offer inspections, among others.

The Commission must also make good its plans for outreaches to State Governments about the potential of leveraging the capital market to fund infrastructure, and cooperate with other Federal Government agencies.

In particular, SEC must work together with the Debt Management Office (DMO) and offer its technical expertise in areas of need.

Oteh had received commendation for restoring the integrity of the market through a zero tolerance for rules infraction. Gwarzo must sustain that tempo as he is already doing, and strengthen the Commission’s enforcement machinery to respond to the new vision. The Gwarzo team must continue to strengthen disclosures and transparency requirements, and the implementation of international financial reporting standards for listed companies.

The capital market will continue to be relevant and critical to the economic growth of the country as government and businesses look to it for the much needed funds for infrastructure development and business expansion. SEC, as the apex regulatory authority for the market, must continually re-invent itself to ensure appropriate and effective interventions in the market.

This is not a tall order as the previous and current leadership of the Commission have demonstrated integrity and professionalism in the course of discharging their responsibilities, and these have boosted the market’s global competitiveness.

Gwarzo, an economist and development finance expert, has the competence, experience, passion and drive to take the Commission to the next level. He must sustain the vision of making Nigeria’s capital market world class. Anything less is not good enough.


Ume is the Managing Consultant

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