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The Nigerian Government and Prioritization of the Capital Market - Yemi Osinbajo

Capital Market	1141 VIEWS
Capital Market
1141 VIEWS

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Thursday, January 14, 2022 / 01:27 PM / by Prof. Yemi Osinbajo / Header Image Credit: NGX

Being remarks by His Excellency, Prof. Yemi Osinbajo, SAN, GCON, the Vice President of the Federal Republic of Nigeria at the Nigerian Exchange Group Capital Markets Conference 2021 held at the Transcorp Hotels on the 30^th of November, 2021.

Mr. AB Mahmoud SAN, the Chair of the Nigerian Exchange Group, and the CEO, Mr. Temi Popoola, thank you for the very kind invitation to join you at this first Capital Market Conference of the Nigerian Exchange Limited in its new shape and form.

This is probably the most exciting time in the history of capital markets in Nigeria. You have just successfully completed the demutualization process, which now fully commercializes the functions of the exchange as a corporate entity and importantly, separates the regulatory function to prevent conflicts of interest. The NGX can now focus on its core function of exploring new opportunities, leveraging strategic partnerships, and transacting business to deliver profit.

Also, the NGX Group has also successfully listed its shares on the main board of the Exchange, enabling institutional investors globally and the Nigerian public to invest in the exchange group. And there are strong foundations to build on the NGX being the foremost multi-asset securities exchange in Africa's largest economy. There is also much room to play and even greater potential.

Your primary market has the largest concentration of young people which opens up opportunities to replace the aging current players in the market many times over. Besides you are now positioned to reverse the trend of declining IPOs in capital markets worldwide, with offerings that are more business-oriented and less constrained exchange such as you have now.

We also now have a greater room for redefining the exchange for international competitiveness. This is especially so as is currently being done reviewing the governance framework and of course the profit orientation of the exchange means that the investors can look forward to seeing more fast-growing companies listed on the exchange.

Every smart investor must be looking now at how to be a part of the miracle of the Nigerian Unicorns, the six and now probably seven wholly indigenous Nigerian companies that became billion-dollar enterprises since 2015 in the midst of two recessions! By the way, I know you are working on that.

Indeed, the theme of this conference "The Future Ready Capital Market: Innovating for Nigeria's Sustainable Recovery", speaks eloquently to these huge and exciting prospects. And as is always the case with great opportunities they come with their own challenges.

You are not functioning in a vacuum, you operate within a macroeconomic environment that is in itself challenged and a global economy in the throes of economic convulsions such as it's never been seen before, supply chain disruptions, rising inflation, and the threat of further lockdowns on account of new variants of the COVID-19 virus.

But if history is any guide, it is in the midst of uncertainties and disruptions that the new era of capital market ascendancy will be birthed. And I am glad that the NGX understands this interpretation of local and international developments. This is apparent from your focus on the evident silver linings in these clouds. First with the work of the growth board of the exchange, which I understand is focusing on bringing in fast-growing companies, especially by dealing with the barriers to entry into the market including access to finance, time to market, and cost of listings.

The introduction of derivative products that provide more diversified opportunities for liquidity, wealth creation, and risk management, as well as the Special Purpose Acquisition Companies, which create less restrictive requirements for Mergers & Acquisitions type investments that can be listed on the Exchange.

You have recognized from your strategy that this effort must be collaborative. The trade groups, chambers of commerce and other business associations, and of course government, must play key and active roles. And while we are on that point, I think so far, we must commend the Securities and Exchange Commission for its steady regulatory oversight in stress-testing these products and interrogating the implications of introducing them before they are exposed to the investing public.

Second is your strategic focus on technology. and this is two-pronged. Technology to bring in a new crop of young investors many of who use their smartphones primarily for engaging with commerce and banking activities today. And You have commendably begun the journey to the digital transformation of the market, following the highly successful example of the banks and of course the telcos.

Today the huge retail outlets already created by the telcos with well over a hundred million subscribers, the wide reach of banks especially with the numerous financial inclusion initiatives make this probably the most auspicious moment for digitizing the capital market to bring in the millions of new young retail investors.

I think it is noteworthy that you are already leveraging on your existing digital platforms, X-fact book, and X-mobile not just to bring in this new generation of investors, but also to enable access to data that would enhance investor decisions.

The second prong of the technology drive which I understand is being driven by the NGX Technology Board is attracting the tech companies, the present and future tech unicorns to the market as a viable option for raising capital. And at the same time, giving more investors the opportunity to benefit from the phenomenal growth of these companies. There is a great deal of work here to be done by the regulator primarily to enable faster and less cumbersome access to the market for an understandably impatient class of potential investors who have other options that may be faster on the draw, especially foreign option the opportunity for raising capital from foreign markets.

But we must work gingerly to ensure that where policy may be involved, we enhance and not encumber the ability of these companies to raise capital quickly and efficiently. This of course will call for monitoring and mirroring successful global best practices.

In the wake of the urgent imperatives and implications of climate change, climate finance has become central to the conversations on finance and capital markets too. The Federal Government and the NGX Group have since 2017 taken the initiative of issuing the first African Sovereign Green Bond and the first Climate Bonds Certified Sovereign bond. And we became only the fourth nation in the world to issue one. The value of Nigeria's green bonds market has now hit $136million within three years with four issuances recorded since the debut issuance by the Federal Government in 2017. And it continues to grow.

I am aware that in keeping with our thought leadership in this area, the NGX has already produced guidelines for sustainability reporting, that is, the disclosure and communication of environmental, social, and governance (ESG) goals as well as a company's progress towards them.

Sustainability reporting is mandatory for premium board-listed companies, and it is even more important, especially as we seek to attract foreign institutional investors for whom sustainability reporting is becoming the norm.

In any event, the benefits of sustainability reporting are extremely useful for corporates, as they improve corporate reputation, build consumer confidence, and even increase innovation.

In that same rubric of socially responsible and SDG compliant investment products, we must also leverage our experience with issuing Sukuk bonds. Sukuk bonds have considerably deepened our capital markets, and proceeds have been particularly beneficial in government infrastructure projects. There is a great deal of room here for bringing in more retail investors.

The African Continental Free Trade Agreement also offers exciting new prospects for cross-border listings and activity and the formation of long-term capital.

Your brand campaign, the Stock of which Africa is made of, which was well commended by Mr. President in his keynote at that launch, is not only imaginative but bold and focussed. I think of importance now is that the NGX must work with government AfCFTA negotiators especially as the process progresses to setting the rules in the service sector.

I think that this is particularly important, the NGX Group must see itself as a critical player in the negotiations of the AfCFTA. We are at a point where we are looking at negotiating Service Rules, we have looked at Rules of Origin already, so this is the time to come into play to get the best deals possible from all our partners all across Africa.

I had spoken earlier of the role of the macroeconomic environment and of course the regulatory regime in realizing the huge opportunities we now have in the capital markets. This issue is crucial. Government policy and action are important. The NGX in 2020 was the highest performing exchange with a return of 50% on the All-Share Index, when compared with 98 other exchanges tracked globally by Bloomberg. Yet in 2021, so far the Exchange has experienced a significant withdrawal of foreign investor participation as well as domestic institutional participation, leading to a meager year-to-date performance of about 7.65%.

To correct this and usher in the return of foreign and domestic institutional participation, I must say that it is clear that government and I believe that all government agencies and regulators in our financial system such as the Central Bank of Nigeria, the SEC, PENCOM among other key stakeholders, realize that we must work with the NGX to ensure that the excessive risk premium within the market is abated and foreign investors are reassured of a transparent foreign exchange mechanism and other regulations that will enable them to channel their resources in and take their resources out with the least possible constraint.

This government has shown its commitment to working with the NGX, in many ways including the President's signing of the demutualization bill into law in 2018. And so the point of a reassuring business environment for foreign and local investors is not lost on us as a government.

Our Medium-Term National Development Plan (MT-NDP) 2021-2025 contains robust policy-planning attempts at achieving fast and sustainable growth. The objectives of the Medium-Term Plan include establishing a strong foundation for a diversified economy, investing in critical infrastructure, enabling human capital development and improving governance, and strengthening security.

It envisages that the economy will grow from about 3% this year rising to 6.33% in 2025. The key, of course, is the implementation of the Plan which is expected to be supported by a range of measures of fiscal, monetary, and trade measures.

The new National Development Plan envisages an investment commitment of N348trillion over the plan period. Government at all levels is expected to come up with about N49.7trillion or about 14% of that, while the private sector is expected to invest N298trillion or about 86%. The role of the private sector is quite evident. The capital market will undoubtedly have a key role to play in mobilizing these resources.

Next year, the Federal Government will further strengthen the frameworks for concessions and public-private partnerships (PPPs) especially as they relate to infrastructure. The implementation of capital projects will be further aided by Infraco, the N15trillion Infrastructure Fund being set up in partnership with the private sector. Infraco will certainly help to bridge a significant portion of the infrastructural gaps.

The recent passage of the Petroleum Industry Act 2021, and consequent incorporation of the Nigeria National Petroleum Corporation should also result in the rationalization of expenditure, as well as increased investments and improved output in the oil and gas industry.

But also, where the NNPC makes good its plans to be listed this will not only deepen the market hugely but also enhance its own governance framework.

Let me conclude by reiterating the Federal Government's commitment to a partnership with the NGX Group. In any event, neither the government nor the capital markets have a choice. We need the capital markets for the economy and the capital markets need a thriving economy for its own growth. We expect that there will be more consultations as we go forward, and we hope that all the regulatory authorities would be joining in these consultations.

I think we have an absolutely incredible opportunity now to advance our capital markets not just locally, but globally.

Thank you.