Amid reforms, concerns mount over migration, low patronage of foreigners

It has been established that foreign investors account for over 50 per cent of investments in the Nigerian equities market. However, the challenges faced by the Nigerian economy in recent times, especially insecurity and policy issues, have resulted in massive selloffs and mass exodus of foreign investments from the nation’s capital market, HELEN OJI writes

For a long time, the equities sector of the Nigerian capital market was driven by huge patronage from foreign investors. Like most other emerging markets in Africa, foreign investors saw the Nigerian market as a fertile ground and believed that it held a lot of promises.

Indeed, this was mainly as a result of efforts put in by the capital market regulators to ensure that the Nigerian market became a world-class market.

Analysts had said that foreign investors started looking seriously at sub-Saharan Africa market since after 2005, when debt forgiveness deals paved the way for growth and reforms across the continent.

Moreso, in the last few years, the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) have been involved in various reforms and measures aimed at boosting the market, as well as tightening the processes and procedures for trading at the Exchange.

For instance in 2016, SEC, in collaboration with the Nigerian Stock Exchange (NSE) introduced the Direct Cash Settlement, As part of the ongoing initiatives to protect investors and eliminate fraudulent activities on the NSE.

Direct cash settlement is a process where cash proceeds from trades executed by brokers on the Exchange settles directly into investors’ bank account. It starts when a client gives his broker the mandate to sell his or her shares.

Once those shares are sold, payment is made directly into the client’s account. This is in contrast to the initial practice where proceed from sale of securities is paid directly into the stockbroker’s account and stockbrokers then deduct transaction fees and remit the balance to the client’s account.

SEC also increased capital requirements for market operators, a measure taken improve investor’ confidence that would, in the long run. This was done alongside the NSE, which took measures to deepen the market and expand the number of instruments available to investors in the market

The commission launched the E-dividend Payment System to reduce many administrative bottlenecks leading to rising incidences of unclaimed dividends.

E-dividend refers to the payment of cash dividend into a shareholder’s nominated bank through a direct credit rather than issuing a cheque or warrant.

The apex regulator took the step with a view to stemming the observed occurrences of market abuse, improving the efficiency of the capital market and enhancing the level of investors’ confidence.

Also, the initiative is expected to minimise cases of unclaimed dividends, eliminate dividend loss-in-transit and enhance shareholders’ ability to access and utilise their dividends immediately.

Under the current leadership of the Acting Director General of the SEC, Ms Mary Uduk, the commission and the NSE further streamlined the processes for issuance of new securities making the issuance process shorter and more efficient. The streamlining was aimed at eliminating duplication of processes between the SEC and the NSE.

The commission also introduced a checklist review process for the issuance of debt securities, which will reduce the time to market of debt securities and encourage more issuances. Time within which approval is given by the commission for debt issues has now fallen from six to two weeks.

Last year, the NSE announced the launch of the NSE Investor Relations (IR) Data Pack, an innovative and dynamic webpage integrated with key market data, corporate news and disclosures, for corporate issuers.

NSE Investor Relations Data Pack is designed to reduce burden on issuers, by providing them with an intuitive investor relations webpage which can easily be integrated to their existing corporate websites. Hosted in the cloud, it features enhanced interactive functionalities with 99.5 percent uptime. The IR Data Pack was created with an easy-to-use, secure, and customizable interface to boost access and adoption.

The Chief Executive Officer, NSE, Oscar Onyema, said: “We are delighted to provide a solution that enables adequate exposure to capital market information. Issuers can now drive a more robust market interaction on their corporate websites and potentially position themselves to attract more investors.

“NSE is committed to building a market that thrives on innovation, and we will continuously adopt new technologies in providing customer-centric solutions to make financial services more inclusive whilst providing a superior customer experience in accessing and using capital.

“Through the use of cutting-edge technologies, we are decentralizing business collaborations, which will allow global scale and transformation of not just The Exchange’s business but that of NSE listed companies, in line with global digitalization trends”.

In 2005, the Exchange gained full membership of the World Federation of Exchanges as part of its aim of being a top Exchange and performing in line with global practices, thereby encouraging more foreign investments in the country.

Regrettably, despite these strategies and strict regulatory framework and reforms introduced by the regulators to reposition the market for growth and development, the nation’s macro economic challenges, especially the heightening insecurity, government and monetary policy issues have continued to hit hard on the equities market.

The development has propelled massive selloff of shares and exit of foreign investors from the market.

For instance, between 2017 and 2018, foreign investors pulled out N1.77trillion from the nation’s stock market citing insecurity and economic uncertainties

Specifically, a total of N435.31 foreign portfolio investment outflow was recorded in 2017 while foreign investors withdrew a total of N642.65 billion during the corresponding period in 2018

Within the period, foreign transactions accounted for about 51 per cent of the total transactions carried out in 2018, while domestic transactions constituted about 49 per cent.

Stakeholders at the weekend expressed displeasure on the free fall of equities prices, occasioned by consistent sell offs from foreign investors who constitute dominant figure in the market, urging federal government to intensify efforts towards tackling the security challenges in the country to forestall further loss of investment.

They categorically stated that local investors can not fill the gap created by the exit of the foreign investors because they dominate the market.

This is coupled with the recent decision of the Central Bank of Nigeria (CBN) Monetary Policy Committee MPC) to adjust the industry’s Cash Reserve Requirement (CRR) for banks from 22.5 per cent to 27.5 per cent, as well as the coronavirus threats, they claimed had triggered panic and massive selloff in stock market, causing investors to lose over N700 billion in less than two weeks.

Some of them, who spoke with The Guardian, cited brutal killing of Christians in the North that led to the recent protest by the Christian Association of Nigeria (CAN), an umbrella organisation of some Christian denominations in Nigeria.

They categorically stated that insecurity a major impediment to the ease of doing business anywhere in the world.

According to them, virtually all the stocks in the market are currently undervalued due to uncertainties and fear, culminating to apathy in investment

The investors argued that war, insecurity and social disorder are disincentive to investment, noting that no investor would stake his fund in a country where his investment cannot be protected.

Furthermore, they maintained that major factor that attracts or lures foreign investors to the market before the issue of return on investment is considered.

The Nigeria equities market capitalisation, which stood at N15, 261 trillion as at January 24, 2020, reopened for transaction on February 9, 2020 with N14, 464 trillion shedding N797 billion or 5.2 per cent within ten trading days, while the All-share index loss 1,856.65 points or 6.26 per cent to 27,772.19 from 29,628.84.

Recall that the equities market defied New Year trends as the performance indices of the market (the All-share index and market capitalisation), which rose significantly for one weeks, from January 2, 2020, the first trading day of the year. .

The rally caused the value of listed equities has increased by over N816 billion or 5.9 per cent within five days, while cumulative value of listed equities rose to N13.787 trillion as at January 8, 2020 from N12.971 trillion at the beginning of the year.

In his reaction on the development, the Head Research, FSL Securities, Victor Chiazor, said: “Activities in the Nigerian equities market has not been as impressive as it should be, largely as a result of the state of the Nigerian economy. Despite this reality, in the last few years, the equities market has continued to be mainly dominated by foreign investors who most times account for between 50 percent and 70 percent of total transactions done for the month.

“On a month on month basis for 2019, the percentage of transactions done by foreign investors were above 50 percent for most of the months with exception of May, June and December were transactions by domestic investors were higher.

“A further risk to this has also been that most of the transactions done during the period were more of foreign outflow as against inflow, which may signify that most of the funds may have left the country or moved to other asset class outside the equities market and this is expected to further reduce the level of activity and liquidity in the equities market given their level of participation.

“Going forward, the level of insecurity and other significant economic issues need to be addressed as soon as possible to forestall capital outflow from the market as the level of domestic participation is not yet significant enough to drive the equities market.”

The President of New Dimension Shareholders Association, Patrick Ajudua, said: “Two things foreign investors watch out for before investing is issues of security and rule of law. In the absence of the two, coupled with stagnant economy and poor returns from most companies have necessitate their exit.

“Therefore government need to improve on the level of insecurity as local investors will find it difficult to fill the gap created by the exit. There is need to fasttrack economic recovery program in the midst of dwindling international oil price. Safe and secure environment is sine qua non for investment to thrive.”

An independent investor, Amaechi Egbo, noted that the situation in Nigeria in recent time had not been conducive to both local and foreign investors, noting that this was evident in the instability that the market had been recording from the last quarter of last year.

He pointed out that there was also some level of uncertainty in the polity, adding that this also might pose a hindrance to foreign investors who usually flock the Nigerian market, especially those who are not used to the Nigerian clime.

“They would like to know what is happening before they stake huge funds hi the market for fear of losses. And so, it is only natural for them to be skeptical about investing in our market going by the recent occurrences here,” he said.