Monday March 15, 2021 / 12:45 PM / by CSL Research
/ Header Image Credit: NSE
A punch report says the Securities and Exchange Commission (SEC) noted that there have been no significant increase in the number of listed firms on the Nigerian capital market when compared with its peers in other emerging markets. The Nigerian capital market apex regulator highlighted that though the market has witnessed some periods of appreciable capitalization, there has been no appreciable growth in the number of quoted firms. As a way of boosting the required capital market growth, the SEC stated the need to increase investor participation.
The SEC, which was established in 1962 as Capital Issues Commission, had gone through a series of reforms to strengthen the Nigerian financial market and address the weaknesses in corporate governance practices among listed companies. Several policies and corporate actions have seen the number of listed firms on the Nigerian Stock Exchange (NSE) reduce over the number of years.
An old yet popular reform in 2005 was the recapitalization exercise for banks from N2bn to N25bn minimum capital base designed to strengthen the financial system and alleviate the impact of possible shocks. As a result, the options of mergers and acquisition became the viable means for banks to meet up with the new capital base which forced a significant reduction in the number of listed banks from 89 to 25 in the post-consolidation era. Currently, we have 156 listed companies on the local bourse with a market capitalization of N20.2tn.
The market capitalization to GDP ratio currently stands at 19% which still lags behind its peers (327% recorded in South Africa, 44% in China and 53% in Russia), thus the need to broaden and deepen the Nigerian capital market. While the country is faced with a huge infrastructural deficit in the face of a growing budget deficit, the government needs to adopt other viable funding options.
According to estimates from the Nigerian Investment Promotion Commission (NIPC), the country needs US$2.8tn in infrastructure investment over the next 30 years. At a time when the country needs funding to bridge the existing infrastructural deficit, enhancing private sector participation in the capital market may be an efficient strategy.