BY CHINYERE OBIORA, LAGOS – A financial Expert and Chairman of Proshare, Mr Olufemi Awoyemi has listed high transaction cost, double taxation, and liquidity problem as issues negatively impacting the growth of Nigeria’s capital market.
This is as he also fingered the non-integration of Securities Settlement, lack of collaboration between stakeholders, and trust deficit in fund managers for the challenging situation being experienced in the market
In his keynote address during the Legislative Retreat and Engagement on the Investment and Securities Bill 202, Mr Awoyemi said these factors which remain intractable have over the years amplified the challenges that are making the financial markets unattractive to many operators.
He lamented that market operators are burdened with the payment of several taxes, including Value Added Tax (VAT), 10 percent Withholding Tax (WHT) paid to the government, and regulatory duties paid by operators.
For the Proshare Chairman, the nation’s capital market can only expand with effective cooperation between the Exchange and the regulatory body, noting that the Nigerian Capital Market is limited in the variety of instruments available to investors with experts arguing the market is not representative of the Nigerian Economy.
Awoyemi said the Market Capitalization to Gross Domestic Products (GDP) ratio of the NGX, which stood at 29.7 percent in December 2007, has declined to 18 percent, indicating that key players in growth sectors in the Nigerian Economy do not have their securities listed on the capital market.
He said that taken together as of December 2021, the market capitalization of the three major exchanges in the country, namely FMDQ Group with $45.64 billion, NGX with $74.14 billion, and NASD which has $1.19 billion amounted to $120.9 billion, a figure that is less than 50 percent of the Country’s $400 billion GDP in 2021.
Comparing it with other countries, the Proshare boss said, in economies with more sophisticated capital markets, the situation is different, noting that the ratio of market capitalization to GDP in the USA was 151 percent as of June 2022, while the long-term average market capitalization to GDP was 82.55 percent; the situation in the United Kingdom (UK) is similar. As of December 2021, market capitalization as a percent of GDP was 106.4 percent, with an all-time high of 130.8 percent.
According to him, the South African case further typifies the argument for a more vibrant capital market, adding that the market capitalization of the Johannesburg Stock Exchange (JSE) as a proportion of South Africa’s GDP in 2021 was 329.3 percent.
In demanding proper implementation of the Master plan from 2015 to 2025, Awoyemi said this would promote greater Investor confidence, which is critical to the market’s growth, and increase domestic and foreign investor participation.
He also said that steps must be taken to encourage complete dematerialization of certificates, direct cash settlement, recapitalization of Capital Market Operators (CMOs), and e-Dividend Mandate Management System.
Similarly, the Proshare Chief Executive said National Savings Strategy must also be employed to grow domestic risk capital formation, the Roadmap on Enhancing Commodities Trading Ecosystem, Establishment of the West African Securities Regulators Association (WASRA) to encourage the integration of capital markets in West Africa, among others.
Awoyemi stated that there is a need for the regulator to use the updated version of the document to engage stakeholders on the current level of market development and opportunities for further capital growth; review and update the assumptions and vision of the CMMP.
Insisting that the revised plan, which incorporates the views and aspirations of stakeholders in the market and global best practices, should alter market direction, the financial expert said revised document should also provide the SEC and market participants with clarity of the vision and a road map to foster a conducive business environment and encourage innovation, investment, growth, and economic expansion.
