Driving Capital Market Recovery Through Policy Advocacy


Monday, January 24, 2022 / 11:27 AM / By Tosin Ige, Proshare Research / Picture Credit: Nasscom


Being guidance notes around the discussion by Olufemi AWOYEMI,mni; Chairman of Proshare at the NGX Capital Markets Conference in Transcorp Hilton, Abuja, Nigeria on the 30th of November, 2021.

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The Nigerian capital market started the year on a mixed bag as the NGX ASI inched up by +5.32%, while the NASD USI closed negative by -1.04% and the FMDQ turnover also closed negative by -34.49% M-o-M in January 2021. Over time, gains in the equity market have been moderated by yield improvement in the fixed income market, depreciation in the exchange rate, rising inflation, policies uncertainty, profit-taking by investors, and poor participation of foreign portfolio investors.


However, the equity market rebounded in Q3 2021 as the NSEASI ended the period in the positive territory with a +6.10% gain as against -2.91% loss in Q2 2021 and -3.04% loss in Q1 2021 while the NASD USI closed the third quarter negative with a -2.89% loss as against +1.05% gain in Q2 2021 and +1.91% gain recorded in Q1 2021.


There has been considerable yield improvement in the fixed income and currency market. The yield on the benchmark 10-year FGN bond has increased from 7.3% as of January 2021 to 13.98% at the end of Q3 2021. The FMDQ market turnover was also up by +94.89% M-o-M and +70.79% Y-o-Y in September 2021.


On the commodity space, the AFEX commodity index (ACI) has also recorded a year-to-date improvement of 37.8% as of August 2021.


Between 2014 and 2020, the NGX recorded relatively lower market capitalisation compared with the FMDQ market turnover which recorded considerably high values. The performance of the NASD in the market has been mild (See Table 1). Analysts believe the current yield in the Nigerian equity market is less attractive compared with yield in the fixed income and commodity markets.


Table 1: Nigerian Capital Market Performance

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Source: NGX, FMDQ, NASD, Proshare Research.

* NGX data is Equity Market Capitalisation

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The Desired Retail Market - Issues for Consideration


Even though Nigeria has around four million investors (with about 50,000 active investors) captured in the capital market ecosystem, there is a surge in Ponzi Schemes in the country (See Illustration 1).

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Rather than leveraging the potentials of the Nigerian capital market with new and innovative securities, the Ponzi schemes market seems to be attracting investors in recent times. While this can be attributable to "investors greed", there is a gap in products that approximate the investment goals of changing demography.


With high risks of defaults and little-to-no regulatory sanctions for defaulters both in the Nigerian capital market and the Ponzi scheme markets, investors in Nigeria are getting attracted to the Ponzi scheme markets which promise higher returns above inflation and market returns on investments. This contributes significantly to the escalation in the number of Ponzi Schemes and the associated high level of patronage in recent times (See illustration 2).


Illustration 2: Profile of Recent Ponzi Schemes in Nigeria

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The cumulative N69.21bn lost to Ponzi schemes in the last 7 years represents about 1.5% of the total value of listings (both by way of Introduction and IPO) on the NGX - the value of new listings is approximately N4.65tn between 2015 and November 2021.


When extrapolated for the 177 Ponzi Schemes listed above (See illustration 1), the estimated value of Ponzi schemes in Nigeria between 2015 and November 2021 stands at N874.95bn, representing 18.8% of the total value of new listings on the NGX. Whereas the ratios of the Ponzi schemes to the new listings seem insignificant, it could have a damaging effect on the capital market due to the negative perception of the investment climate in the country.


The scandalous event is all too important for the development of a retail investment market much needed for the new capital market emerging - one that is shaped by the use of technology and multiple platforms for the exchange of information and trade execution.


The development has exposed the wide gap between our state of practice and the state of regulation on one hand. On the other hand, it also exposed the gaps in the remedial processes for protecting investment in products and services offered by the market and the platforms through which they are delivered.


A more worrisome trend today is the adoption of social media platforms by elements in the society to leverage the names and brands of credible entities to commit fraud, scams, and Ponzi schemes which tarnish and damage entities involved and the market at large.


This highlights the absence of a national strategy for engaging with these global platforms and their de-linkages to our sovereign revenue models, cyber laws, data privacy and protection rules, control of data, and more importantly, their commitment to corporate governance in Nigeria.


This gap must be bridged by reconstructing the regulatory framework and expanding it to cover technology issues, traditional and social media responsibilities, obligations & liabilities, national security concerns, and best practices within the profession.


The Trend of Listing and Delisting in the Market


There have been a series of listing and delisting on the Nigerian bourse in recent times.

Over ten years, from 2006 to 2016, about 77 companies delisted from the then NSE (now NGX). Findings show that 54 of the 77 delisted companies failed to meet up with the post-listing requirements, 12 of them delisted voluntarily while 11 others delisted due to reforms or expansion within their sectors, which had adverse effects on their operations (Vanguard, 2020).


From 2015 till the time of writing this report, a total of 46 companies delisted from the Nigerian bourse. Whereas 29 were forced to delist due to failure to meet regulatory requirements, 6 delisted as a result of mergers and acquisition while 11 voluntarily delisted (See illustration 3).


Illustration 3: Listing and Delisting in the Nigerian Bourse between 2015 and 2021

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* As of November 2021


Before the crunch in the stock market in 2008, the primary market had a series of activities with many companies approaching the market for IPOs. Particularly, the 2005 bank recapitalization generated a significant increase in the primary market as banks approached the market to meet the required capital.


Statistically, from 2006 - 2010, the market recorded about 180 different offers. The number of IPOs in the market then was 88, and private placements were 54 while Rights Issues were 38. Unfortunately, the number of securities decline significantly from 79 securities recorded in 2006 to 8 securities in 2010.


Between 2015 and November 2021, only 10 companies approached the primary market for listing and were successful, an indication of a significant loss of confidence in the market as a channel for raising capital (See Illustration 3).


Some analysts have attributed the low level of activities at the primary market to weak macroeconomic scenarios, persistent negative sentiments in the market, and a tense socio-political landscape.

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Policy Advocacy to Support the Development of Nigerian Capital Market


At the basic level, the problem and issue of the Nigerian capital market are that the capital market which in theory should offer businesses the opportunity to raise capital for growth now offers disincentives.


The reality of the Nigerian market is that companies delist from the market because they are not benefiting directly from the market. Rather, the cost of meeting the exchange requirement is high. Intuitively, instead of enjoying the benefits of being listed-possibly in form of tax incentives, listed companies have to pay fees to remain listed.


There is a need for structural reform of the market to support investment, reduce the cost of transactions, and boost investors' confidence in the market.


In terms of fiscal policy, taxation, annual budget, public-private partnership, sales of assets, National Development Plan, and the regulations surrounding the fiscal stances of government impact significantly on the capital market. A few advocacy efforts are essential on fiscal policy stance.


Tax incentives can be used to enhance the development of the Nigerian bourse. The existing situation in which listed companies incur costs to remain on the exchange cannot promote recovery of the market. Therefore, it is desirable to grant tax incentives to listed companies to incentivise listed companies and new listings on the exchange.


National Budget can support the development of the Nigerian capital market. On one hand, budget deficits can be financed partly from the Nigerian capital market and proposed expenditures can be directed to support listed companies. On the other hand, proper implementation of the budget can promote macroeconomic growth and stability which have a significant influence on the capital market.


For instance, the 2022 budget deficit of N6.25tn can be financed partly with bond issuance to boost activities in the capital market.


Also, a budgetary provision of direct purchase of goods and services on listed companies has a direct effect on the capital market, helping to boost the confidence of the companies and the market largely. For instance, the plan by the Federal Government of Nigeria to buy locally assembled vehicles in November 2020 in a bid to promote its policy on the local auto industry could have been directed at supporting more listing on the capital market.


Government should mainstream Public-Private Partnership (PPP) for developing infrastructure and sale of assets to support the capital market. PPP finances project with a combination of equity and debt. They tend to patronise the capital market more as a platform to raise long-term capital. Private sector participation in the market can drive innovation and deploy considerable analytics and marketing skills to the market.

Essentially, a good fiscal policy creates a stable macroeconomic environment that reduces uncertainty and encourages greater participation in the capital market, thereby improving the performance of the market.


In terms of monetary policy, advocacy efforts are required to drive inflation monetary policy rate, and cash reserve ratio in the desired direction for the growth of the capital market.


High inflation increases nominal return on large-capitalised stocks but leads to a decline in real returns on investment. Inflation also creates uncertainty in the future cash flows of companies, thereby lowering the value of stocks on the market. A lower level of inflation is desirable for the Nigerian capital market to support the stability of listed companies as inflation disrupts the efficient resource allocation by shrouding the signaling role of share price movement. 


Changes in the benchmark interest rate-The Monetary Policy Rate (MPR) in Nigeria tend to affect the performance of the capital market. A high-interest rate (at 11.5% in Nigeria) has been controlling inflation, but it is limiting capital importation and crowding out private investment. The Nigerian capital market needs an interest rate that can support domestic and foreign investment inflow but also curb the elevated inflation rates.


A study by Onyeke (2016) found that less developed capital markets like Nigerian bourse tend to find a positive relationship between cash reserve ratio (CRR) and capital market performance. Whereas developed capital markets such as the capital market in South Africa, China, US have no such relationship. The prevailing situation of keeping 27.5% of banking deposits as cash reserve ratio with the CBN cannot support credit creation and investment by the banking sector which is a major player in the Nigerian bourse. The CBN needs to keep the CRR lower to bolster an upsurge in credit creation and investment which in turn positively affect the growth of the capital market in Nigeria.


In terms of exchange rate policy, Nigeria's exchange rate (FX) affects inflation, investment, and causes disruptions in exports and imports, thereby influencing companies listed on the stock exchange.  The adoption of the NAFEX rate as the official exchange rate and the subsequent depreciation/devaluation of the naira has led to a 7.6% YTD loss in the value of naira as of November 25, 2021.


Constant devaluation of the naira encourages speculations in the foreign exchange market and encourages capital flight. This hurts the Nigerian equity market-in terms of foreign direct investment (FDI) and foreign portfolio investment (FPI) flows.


Some analysts believe such a situation supported the negative performance of the Nigerian equity market in H1 2021 where the NGX All Share Index (ASI) posted a negative return of -5.87%.


Nigeria's exchange rate is discriminatory. For both retail and institutional investors, discriminatory exchange rate creates inefficiencies and non-performance of the market. Investors who have access to the exchange rate at a lower rate have the tendency to seek additional returns on the exchange rate by trading the base currency, thereby creating an unofficial investment window.


On one hand, the Nigerian economy needs a managed floating exchange rate that is stable and fair to all. On the other hand, there is a need for exchange rates convergence to redirect international transactions from the unofficial market to the official markets as there would be no incentive for round-tripping and arbitrage.


In terms of capital accounts policy, Nigeria's capital account policy has witnessed an alternate blend of both legal and institutional policies with market-based agenda in the past few decades.


The concern, however, is that the oscillating flow of foreign investments in Nigeria may have supported the disappointing growth and development of the Nigerian capital market, as there has been a series of delisting from the market and low primary market activities.


The total value of capital importation into Nigeria declined to $875.62m in the second quarter of 2021 from $1,905.89m in the first quarter of 2021. This represents a decrease of -54.06% compared to Q1 2021 and a -32.38% decrease compared to the second quarter of 2020 (NBS).


The restrictions on exchange rate access remain the major challenge to the flow of FDI and FPI in Nigeria.


However, existing listed multinationals such as MTN and Airtel have driven the performance of the Nigerian bourse in recent times. For instance, in November 2021, heavy transactions in the shares of Airtel Africa and MTN Nigeria, among others buoyed transactions on the equities sector of the Nigerian bourse as the market maintained positive sentiment compared to October 2021.


There is the need to remove all restrictions on international transactions related to the movement of capital to aid return on investment and innovation. This will sustain the listing of existing multinationals and attract new listings on the Nigerian bourse.


In terms of investment schemes, the menace of scams, fraud, and Ponzi schemes continue to prey on the desire of Nigerians to have investment schemes that work for them.


Given the clear threat to the Nigerian capital market's decorum and harmony, a few advocacy points are essential here.


The need for an overarching architecture to aggregate the delivery of investment services in the country using social media and other platforms must be addressed through a joint resolution of the SEC (and its relevant trade groups including the CIIA), NSE, CIS, NITDA, CBN, FTAN, CAC, and the NSA office.


There is a unique opportunity for regulatory reforms in the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), National Information Technology Development Agency (NITDA), and other relevant agencies beyond the tokenism that has defined the expected collaboration that existed thus far. There is the need to institutionalise the required synergy required to deliver on the investor protection, consumer protection, and data privacy mandates that unify all agencies.


Meanwhile, no platform operating in Nigeria should allow the use of the word investment without SEC approval. Social Media platforms identified as not being vigilant, acting within set timelines, and complying with the extant rules of engagement should be subject to extreme fines over and above the cost of such losses as will be determined by the regulators and the courts as may be.

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Applicability and Viability of Special Purpose Acquisition Companies (SPACs) in the Nigerian Capital Markets


The awareness of the applicability and viability of the Special Purpose Acquisition Companies (SPACs) has grown in recent times across the globe. SPACs (also called the blank check companies) are companies that have no commercial operations but were formed to raise capital through an initial public offering (IPO) for acquiring or merging with an existing company. 


In the US, there has been an increase in the number of listings through the SPACs, with booming IPO markets. In 2020, about 247 SPACs were created with $80 billion invested and $98.5 billion investment raised from 331 SPACs in the first five months of 2021.


In Europe, there have been a few SPACs within the last few years. Europe has lagged behind the US deal with just 12 SPAC IPOs worth $3.9 billion from January to May 2021. Nonetheless, the number of deals has grown significantly in Europe, comparing January to May 2021 with the corresponding period of 2020, with $496 million investment across 4 SPACs in 2020 and $3.9 billion investment across 12 SPACs in 2021 (Deloitte, 2021).


The difference between the performance of SPACs in the US capital market and the European capital market has been attributed to the deeper capital markets in the US. The US capital market regulatory framework gave investors significant control over the SPAC acquisition. The current regulation in many European countries does not give such control to investors.


In Asia, there is currently a significant increase in the number of companies in China and across Asia considering SPACs, as investors try to mitigate some of the challenges of the conventional IPOs.


In Africa, SPAC has been adopted by two African issuers but listed on foreign markets. In the first half of 2021, a South African SPAC issuer-The African Gold Acquisition Corporation went public on the New York Stock Exchange. The PHP Ventures Acquisition Corp also raised over $50 million in Africa through SPAC listed on the Nasdaq stock exchange. There are few SPACs in African due to the lack of strong capital markets.


In Nigeria, whereas the regulatory framework needed for the applicability of SPACs in Nigeria has been drafted, uncertainty trail the applicability of SPACs in the Nigerian capital markets. On the 13th of July 2020, the Nigerian Stock Exchange published its Draft Rules for Listing of Securities issued by Special Purpose Acquisition Companies in Nigeria. Although this may seem to have prepared Nigeria for the adoption of SPAC, less oversight capacity by the regulator on the Nigerian Exchange implies that a bit more time is required to review the adaptability required for its adoption.

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Benefits and Limitations of SPACs


Special Purpose Acquisition Companies (SPACs) offer significant benefits for investors and companies that are considering being publicly listed. "SPACs typically use the funds they raised to acquire an existing, but the privately held, company. Then, they merge with the target, which allows the target to go public while avoiding the much longer IPO process".

  • First, the timing to go public through the SPAC is shorter than the conventional IPO route. While conventional IPOs routes take about six to twelve months, SPACs take fewer months.
  • Secondly, the target company can negotiate a premium price when selling on a SPAC due to the limited timeframe in making the deal.
  • Thirdly, the expenses associated with conventional IPOs can be avoided by taking the SPAC route. It is relatively cheaper than conventional IPOs.
  • Fourthly, when a company is being acquired or merged with a SPAC sponsored by prominent financiers or top business executives, it gives the target company enhance market visibility and experienced management which can generate higher returns on investment.


Lastly, investors gain access to an asset class that may help aid the diversification of their portfolios, outperform the market, and still receive dividends in the absence of unfavourable economic conditions.


  • Despite the benefits, there are downsides to the SPACs route.
  • First, opportunistic investors may leverage SPACs to take up shares on bets that the SPACs' acquisitions will not go through, thereby forcing the (SPACs) sponsors to return the cash to shareholders with interest once the timeframe elapses.
  • Secondly, limited monitoring from the regulators and the lack of disclosure from the SPAC implies that the investors run the risk of an overhyped or sometimes fraudulent investment.
  • Lastly, returns from the SPACs may underperform after the initial hype has dissipated.  According to a Renaissance Capital Strategist, about 70% of SPACs had their IPOs in 2021 trading below their $10 offer price as of Sept. 15, 2021.



Policy Advocacy for Creating Awareness about SPACs


From a policy advocacy perspective, Nigerian capital market operators should hold panel discussion sessions and sensitization programmes for businesses in Nigeria to mainstream the flexibility, viability, and efficiency of the SPACs route for going public.


In principle, SPACs offer higher flexibility for companies to go public than those offered by the private equity deal. Analysts have also estimated that selling to SPACs can add up to 20% to the sale price compared to typical private equity deals. This can be established or refuted in the case of Nigeria through stakeholders' advocacy and research.


From the regulatory standpoint, SEC should host meetings and public enlightenment on SPACs to highlight the provisions of the drafted SPAC regulations and procedures in Nigeria and also invite feedbacks on additional regulatory actions, especially on how to resolve conflicts of interests and disclosure issues- when an investor does not appreciate the effects and the risks of the SPAC structure and the sponsor's position.


The Draft Rules for SPAC in Nigeria is a welcome development in the capital market.


But there is a need for further exposition and domestication to generate buy-in among local and foreign companies needed to deepen the Nigerian capital market. Specifically, policy advocacy must focus on:

  • Provision for reporting and disclosure requirement
  • A structure that must allay deterrence and not be seen as costs of doing business
  • Provision of incentives to perform
  • Provision for investors protection rules.


Kindly send comments to research@proshareng.com 



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Related Links - Memos to the Market and Advocacy Interventions

1.      VIDEO: Market Review: The FG Should Provide More Incentives for Capital Market Development

2.     VIDEO: Innovative Regulations, Way Forward for The Nigerian Capital Market

3.     Memo to the Market: NESG v CBN: Beyond the Battleground-The Need for Facts, Perspective and Resolution Proshare, 29 September 2020

4.     MTN Nigeria Plc Market Memorandum - Proshare, May 2019

5.     Jumia: Understanding the Strategy, Numbers and Pain - Proshare, May 2019

6.     Memo to The Market: The Oando Corporate Journey - at the Regulators Gate Proshare, By Olufemi Awoyemi, 22 Nov 2017

7.     Memo to The Market - The NSE Oscar Onyema Foundation and Corporate Governance - Proshare, By Olufemi Awoyemi, 20 Aug 2018

8.     Swift Correction of Honest Mistakes Helps Build Institutional Corporate Governance - Proshare, By Olufemi Awoyemi, 05 Sept 2018

9.     Leadership, Change and Corporate Transformation - The Nigerian Experience ... - Proshare - Proshare, By Olufemi Awoyemi, Nov 07, 2017  

10.  Memo to the Market: Reappointing Arunma Oteh as DG, SEC - Proshare, 31 Dec 2014

11.   Where Nigeria got it Wrong - Proshare, Olufemi Awoyemi, 01 Dec 2014

12.  The Surprising New Math of Acquisition of Banks in Nigeria - Proshare, 24 Oct 2014

13.  How to Buy a Nigerian Bank with No Money - Proshare May 10, 2015

14.  Memo To Oscar Onyema, The CEO Nigerian Stock ... - Proshare, 20 May 2011

15.  Fundamental Considerations for Capital Market Reforms in Nigeria ...  - Proshare, 06 Sept 2010

16.  SEC, Udo Udoma and Corporate Governance: The Fact Files [PDF] - Proshare, 18 Feb 2010

17.  The Bull in the China Shop - A New Paradigm in the Banking Sector (analysis of the SLS Intervention) ... - Proshare, 21 Aug 2009

18.  The Bull in the China Shop 220809 - Proshare [PDF] - Proshare, 22 Aug 2009

19.  Memo to the Market - The Proshare Transcorp White Paper - 200763 - Proshare, 14 Jan 2007



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1.      Assessing primary market's readiness for IPOs in 2020  - The Guardian, By Helen Oji, 23 Dec 2019

2.     Nigeria's stock exchange and challenges of staying on the bourse - The Guardian, By Helen Oji, 24 May 2020

3.     36 firms delisted from stock market in five years - Punch, By Femi Asu, 15 June 2021

4.     Nigerian Capital Markets Update - PwC, Sept 2021

5.     Special Purpose Acquisition Company (SPAC) - Investopedia, By Julie Young, 16 Oct 2021

6.     The SPACs Boom: Europe Picks up the Pace (PDF) - Deloitte, By Tomas Heredia, Javier Galiano, and Mayrin Garcia 14 Jul 2021

7.     Africa-focused SPAC seeks to raise over $50 mn on Nasdaq - The Capital Quest, By Vivek Sinha, 8 June 2021

8.     SPACs: Coming-to-a-Stock-Exchange-near-You - BusinessDay, By Okafor Endurance, 15 April 2021

9.     SPACs as Engines for Public Ownership and Growth - Coronation Research, 14 June 2021

10.  SPACs- a Viable Alternative to an IPO?  - The Guardian, By Abisola Odeinde, 29 Sept 2020

11.    Ponzi Schemes: An Analysis on Coping with Economic Recession - The Nigeria Journal of Sociology and Anthropology, By Jack and Ibekwe, June 2018

12.  Monetary Policy and Capital Market Performance - Middle-East Journal of Scientific Research, By Ananwude, Echekoba, Okaro, and Akuesodo, 2017



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