$20 Billion Diaspora Remittance Can Boost Liquidity on The Capital Market

Although Nigeria’s capital market is one of the most traded capital markets in Africa, it has however witnessed increased volatility and inadequate liquidity which has triggered a persistent downturn in the stock market.

This challenge of inadequate liquidity has impacted negatively on market performance and explained why some prospect-loaded companies like Flutterwave partly shun the Nigeria Exchange Limited.

Investors King had earlier reported that Flutterwave is set to go public on Nasdaq through Initial Public Offering (IPO).

Since the global financial crisis of 2008, there has been an underperformance of some listed stocks on the Nigeria Exchange Limited (NGX). Much of the problem has been attributed to illiquidity and low investors’ confidence.

The development has continued to fuel persistent fall in share prices of listed firms, with several blue-chip stocks recording a 10-year low.

A seven-year review of the banking stocks shows that the shares of Unity Bank Plc, which stood at N2.29 kobo as of 2015, dropped to 43 kobo as at the close of a transaction on Friday, shedding more than 80 per cent in value.

Similarly, Union Bank Plc also shed 35.5 per cent in the same period to close at N5.60 kobo. 

In the consumer goods subsector, PZ Cussons Plc lost 60.72 per cent during the period, dropping from N29.18 kobo to N8.20 kobo while Honeywell depreciated to N2.53 kobo from N3.72 kobo. 

Nonetheless, it should be noted that some companies have performed amazingly well on the NGX in the last seven years. For example, the FUGAZ ( First bank, GTB, UBA, Access, and Zenith Bank,) have all witnessed increased growth. For instance, Zenith Bank shares price which was trading at N14.76 in December 2017 is now trading at N21.50.

Regardless, experts have suggested that the regulators should restrategise and reposition the capital market to leverage the remittance windfall to boost the economy.

Nigeria topped sub-Saharan Africa (SSA) in remittances with $20 billion in 2021. This performance was a remarkable improvement from the $17.21 billion recorded in 2020. If investment-friendly mechanisms and safety policies are put in place on the Nigeria Exchange Limited, it could attract diaspora remittance. 

According to Paul Uzom, Head of Equity Trading at Planet Capital, “if dollar-denominated equities or fixed income is introduced in the market, it would attract the diaspora funds into the capital market. Most diaspora investors are only interested in Eurobonds because of a lack of confidence in the local currency”.

Naira has been on a consistent fall in the last few years. In 2015, the Nigerian Naira was trading at an average of N197 to $1. It is, however, trading at an average of N425 today.