Chidi Ajaegbu, the Chief Executive Officer, Heritage Capital Markets Limited, and the immediate past President, Institute of Chartered Accountants of Nigeria, speaks with OLAWUNMI OJO of Punch News on how government could reverse the dwindling fortunes of the capital market
The Nigerian capital market is said to be second only to that of South Africa. But the market is crumbling. What is responsible for this and how can the trend be reversed?
In an economy, there are a lot of variables that drive the valuations in the capital market or the asset pricing in other sectors. The market does not work in isolation of the economic policies of government; it takes a cue from how policies of the government impacts on people’s standard of living.
Looking at the last 12 months, especially in the last quarter and considering the seamless transition of power between the incumbent and the immediate past administrations, we felt the market would build on that to sustain a rally. Unfortunately, the decline in the crude oil price and the obvious challenges the economy has had over a period of time created a lot of issues in terms of valuation of the naira.
The very adamant posture of the government does not apply to economics. Economics does not obey order. We must recognise that for us to attract foreign investors, we have to devalue. There are no two ways about it; we do not have the resources to fund the naira at the level it is today. We have to tell President Muhammadu Buhari without equivocation that it is not an ego thing but something necessary that must be done to attract foreigh investors.
Foreign investors in the market are in a hurry to exit, which has led to a lot of glut. And when there is excessive supply, it impacts on the price. Price begins to go south. So, the inability of the market to sustain any rally is because the foreign investors who constitute about 70 per cent of the market are no longer participating in it from the demand side. They are dumping stocks and trying to get away as quickly as possible, probably so as not to be caught with the issue of devaluation. Once that happens, no matter what your returns are in the market, you are going to take a direct hit of whatever percentage devaluation government comes up with.
We also need to deal with the perception issue. For instance, the reputation risk the government is going through with the very punitive MTN fine has far-reaching implications. Nobody is saying MTN should not obey the laws. But the company probably employs over a 100,000 people. And if it has committed an infraction, yes it should be sanctioned. But how do you ask a company to pay a fine equivalent to its 15 years profit after tax. You want to liquidate the company? As a foreign investor, would I want to come into the country under this kind of hostile environment? Even when you imprison people, it is a correctional thing; it is not meant to be terminal. There is need for consistency in our policy positions.
What I have seen is that we are fighting corruption on the one the hand but the rule of law that should drive the culture of excellence and atract investors is being trampled upon. If a court of competent jurisdiction grants somebody a bail, it is wrong for government to generally disregard such decisions. As such, you send negative signals to investors that you decide what court order to obey and which not to obey.
Aside from this, I think the anti-corruption crusade is being given more bite and it is good for us. But to take the capital market out of the bearish cycle where it is now, we need to first devalue our currency and then institute a rule of law that is functional.
The President says he is not convinced on the need for devaluation, especially by his economic team? Are they not seeing things from your perspective?
They are political appointees and there is a limit to how far they can drive a contrary position to the President’s. Even a non-finance or economics student will know that devaluation is the thing to do.
In any case, we would not have a choice; it is not about convincing the President. We would devalue this year. The President would be forced to devalue. What he probably does not understand is that the more aversed he is to devaluation, the more the economy will suffer. We do not have resources to fund the naira at the level we are funding it. The world knows that; if the President does not, it is unfortunate. The President’s grasp of economic issues is limited because of his background but that is why he has economic advisers and ministers. He has to listen them; he must have an open mind.
Some experts have opined that even if Nigeria devalues, it would in no way add to its reserves. What, in your view, would be the advantages of devaluation?
You would be paying probably less for a lot of imported goods. You would attract foreign investors as they return with money that would give them more naira. The multiplier effects could actually reflate and drive the economy to where it should be.
What do we stand to gain by remaining where we are now and doing nothing about it? I am not calling for a total devaluation. But by now, the economic team should be giving us scenarios that if we devalue by certain percentages – 25, 50 or 75, so and so would be the policy implications. They should simulate those scenarios for the President to have options to choose from. And then, they should also let him know that if we do not devalue, so and so are the implications. The President could then study the opinions, call for independent third party opinions from one or two economists he respects, and compare the opinions. But that he is not convinced? That should not be the attitude.
Is there anything stakeholders and the Nigerian Stock Exchange can do to change the fortunes of the capital market?
It is totally out of their control. They have done all they can – giving zero-tolerance to market infraction, with which they have built confidence.
That is not enough to drive a bullish rally in the market and sustain it. It is a free market – free entry, free exit; you can not stop people from selling their stocks if they want to, except you want to close down temporarily like they do in the far-east. But you cannot suggest that here. As a matter of fact, when you do that, you are sending wrong signals. In China, Hong Kong and all of those places, what they do is that their government intervenes by mopping up excess supplies in the market. Government would buy it up to stabilise the market.
As we speak, the capital market has lost over 20 per cent this year alone in terms of total capitalisation, yet there is no government intervention or pronouncement. Meanwhile, the capital market is the single most important indicator of how your economy is doing. It determines a lot of things. So, ministers should be very sensitive and proactive in what is happening in the market. For government not to be saying anything when the market is almost collapsing totally shows the level of appreciation of the market in government circle.
But do you see the market rebounding anytime soon, perhaps this year?
Not immediately. Perhaps, towards the end of the year. But that again would depend on if the crude oil price picks up and we begin to see that Nigeria can effectively sustain and fund the foreign exchange element of our economy. May be that could attract foreign investors. Without investors coming back, the market cannot rebound.
We also anticipate that earnings this year would be impacted on – banks, oil companies and virtually all the sectors. We would start seeing the result. There is no way major banks and oil companies would not take hits because the decline in growth of the GDP would reflect in their performance.
Government has been fixing the foreign exchange rate. But some experts opine that it should be determined by free market forces. What’s your view on this?
No, that would be too dangerous for Nigeria because we are not producing anything. Government is right by fixing it but they need to be more flexible, not too rigid. Nigeria cannot allow her currency to float. Even China, with over $2 trillion in reserves, cannot. You would open your economy and currency to attacks by set economy or individuals. Look at Russia spending 40 per cent of their reserves to defend their currency, it was not necessary. Yet, they lost massively.
Foreign investors are said to dominate the market at a ratio of 70 to 30 per cent of indigenous investors. How can the nation improve local participation?
Indigenous investors lost confidence after the crisis of 2008/09, many of them lost a lot of money. The foreign investors are far more discerning than the locals, that is why they are still in the market.
However, what the Exchange has done since then is to try and rebuild confidence of local investors in the market by introducing zero-tolerance for infractions, transparency in transactions and all of that. But even at that, it has taken our people longer time to get over the losses they incurred. Until you are able to deal with that psychological thing, you cannot have them come back the way they came pre-2008.
On the whole, government must devalue the currency, change their posture and be more flexible with policy positions, while the Central Bank of Nigeria needs to work on a lot of things.
People are being careful now because of the renewed anti-crime crusade but I think government is wasting too much time on it. We hear there are recoveries but we have not seen facts and figures; government should be more open on how much is being returned and how the funds are being applied. You may not necessarily disclose names but let us know how much is being recovered.
Farmers Are Refusing To Pay Back Loans – CBN Cries Out
The Central Bank of Nigeria (CBN) has cried out over the refusal of the majority of farmers who benefited from the Anchor Borrowers’ Programme (ABP) to repay their loans.
CBN Development Finance Officer, Mr Sadeeq Ajayi revealed this at the Agribusiness Innovation Clinic.
He claimed that the majority of the beneficiaries regard the loan as their part of the national cake in his speech entitled Fostering Innovation and Collaboration Across the Agricultural Value Chain, which was organized by the Global Alliance for Improved Nutrition (GAIN).
He urged farmers who had delayed their agricultural loans to repay them, claiming that the CBN’s failure to retrieve the loans from defaulting farmers had jeopardized the plan and prohibited other farmers from using it.
“While the Anchor Borrowers’ Programme had recorded some level of success, the failure of farmers to repay the loans has, however, been a major setback.
“Many of the farmers refused to pay back their loans due to the misconception that since CBN is the lender, the loan is a ‘national cake’ and they do not have to pay back what they consider theirs as citizens.
“This attitude has made it difficult for other farmers, who also want to access the loan, to benefit from the scheme,” he said.
In 2021, about 2.85 million farmers benefitted from the Anchor Borrowers Programme. Investors King gathered that N554.63bn was disbursed, of which N61.02bn was allocated to 359,370 dry season farmers.
In its October monthly report, the CBN also revealed that the Anchor Borrowers Program disbursed N1.9 billion to 2,521 farmers to cultivate 8,963 hectares of land through three participating financial institutions.
Cassava, cotton, fish, groundnut, maize, poultry, rice, soya beans, wheat, cattle, sorghum, ginger, castor seed, sesame, tomato, cocoa, yellow pepper, oil palm, cowpea, and onion were among the crops cultivated on 3,097,834 hectares, according to the report.
ABP is an agricultural loan scheme launched by the federal government in 2015 through the Central Bank of Nigeria (CBN) to provide loans (in kind and cash) to smallholder farmers in order to increase agricultural production, create jobs, and reduce food import bills in order to conserve foreign reserves.
MTN Nigeria’s MoMo Formally Commences Operation
MoMo has commenced a full commercial Payment Service Bank operations, today, 19th May, 2022
MTN Nigeria’s subsidiary company, MoMo has commenced a full commercial Payment Service Bank (PSB) operations, today, 19th May, 2022.
This comes after a successful trial that began on May 16, 2022, to commemorate the start of MTN’s GSM operations on May 16, 2001, and MTN’s listing on the Nigerian Exchange Limited on May 16, 2019.
Investors King had reported the CBN’s approval of this process some months back stating; “This is the first step in the process towards a final approval, subject to the fulfillment of certain conditions as stipulated by the CBN. The decision to issue a final approval is firmly within the regulatory purview of the CBN and we respect their right and judgment in that regard.
“MTN Nigeria affirms its commitment towards the financial inclusion agenda of the CBN and the Federal Republic of Nigeria and continues to explore means whereby it can contribute to its fulfillment…”
MoMo PSB is determined to enable millions of Nigerians to access a broad range of financial service products. With an expansive agent network of over 166,000 active agents and digitized partnership infrastructure, MoMo PSB will continue to expand its agent network in order to serve Nigerians across the country and eliminate friction from routine transactions by digitizing cash payments.
Customers can open a MoMo wallet, send money to any phone number in the country, and pay their bills by dialing *671# from any network.
Furthermore, MoMo wallets will allow Nigerians in the Diaspora to send money to any phone number in the country in the future, a crucial feature considering Nigeria’s position as the top recipient of remittances in Sub-Saharan Africa.
“We are grateful to the Central Bank of Nigeria (CBN) for their support and guidance through the process,” said Karl Toriola, CEO of MTN Nigeria. “This is an important milestone for MTN Nigeria in our mission to support the government’s drive towards financial inclusion in Nigeria.
Not just for those in urban centers and markets, but also people in the rural and remote areas of the country who remain excluded from the financial system,” he added.
MoMo PSB CEO, Usoro Usoro said: “Providing easy to use, accessible and affordable financial services to all Nigerians is essential to executing the CBN’s financial inclusion strategy and the digital inclusion agenda of the Minister of Communications and Digital Economy. We look forward to playing our part and are excited about the opportunities to partner with relevant institutions across various sectors to co-create and expand access nationwide.”
CBN Issues Directive For Open Banking to Improve Financial Services
In an effort to stimulate innovation and widen the range of financial products and services available to banks’ customers, the apex regulatory bank, the Central Bank of Nigeria (CBN), has established the legal framework for Open Banking in Nigeria.
This was revealed in a circular titled ‘Operational guidelines for open banking in Nigeria’ which was obtained by Investors King.
The Regulatory Framework for Open Banking in Nigeria, according to the CBN, establishes standards for data sharing across the banking and payments systems in order to stimulate innovation and expand the range of financial products and services available to bank customers.
According to the CBN, the financial sector data guideline would allow clients to access innovative financial products and services.
The Apex bank said: “Open banking recognises the ownership and control of data by customers of financial and non-financial services, and their right to grant authorisations to service providers to access innovative financial products and services. This is anticipated to drive competition and improve access to banking and payments services”.
The CBN also added that participants in open banking shall adhere strictly to security standards when accessing and storing data, and shall be subject to minimum privacy standards, operational standards, risk management standards and customer experience standards as prescribed by the Bank.
According to the CBN, any organization with customer data that may be transferred with other businesses in order to deliver innovative financial services within Nigeria is eligible to participate in the Open Banking ecosystem.
Open banking is a banking practice in which banks and non-bank financial organizations provide third-party financial service providers open access to customer banking, transaction, and other financial data via application programming interfaces (APIs).
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