How The Capital Market Can Create A Better Future For All - Adesewa Adeniyi, 2019 NSE Essay Winner

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Friday, December 05, 2019 / 06:00AM / BukolaAkinyele for Proshare WebTV / Header Image Credit: NSE

 

At the just-concluded 2019 Nigerian Stock Exchange (NSE) Essay Competition with over 40,000 secondary schools students across all the 6 geographical zones in the country participating, Miss Adesewa Adeniyi from Grandmates Secondary schools in Isolo, Lagos emerged the overall winner and was given N500,000 in scholarship fund for university education, N500,000 worth of equity investment and a laptop.
 
The NSE Annual Essay Competition is designed to bridge the gap between classroom learning and creating a long term financial planning strategy. Miss Adeniyi gave a full presentation of her essay at the event. 
 
According to Adeniyi, the capital market helps to channel surplus funds from small investors to institutions that can put to productive use. In Nigeria, the capital market is primarily used for raising medium term and long term funds to finance capital projects at the federal, state, and local government levels in addition to private corporate entities.
 
Institutions of the capital market according to the budding young investor, can be traced back to the colonial era, as the capital market was used to regulate activities in the economy, helping farmers majorly in the production of food and cash crops for export. Since then, the capital market has been used to regulate the economy.
 
Speaking further, she added that the capital market helps in channelling surplus funds from surplus spending units to deficit spending units, through the issue of instruments. Also, she noted that the stock exchange was a medium where investors could make money through the buying and selling of shares.
 
She noted that fixed income instruments such as Treasury bills and bonds are low-risk capital market investment instruments, which range from 3-5 years and have relatively lower yields than riskier money market instruments. Adeniyi said that when the investment instruments are issued by federal government they are called sovereign bonds, but when issued by state government they are called state bonds, when issued by the local government they are called municipal bonds, and when issued by corporates or companies they are called industrial bonds or corporate bonds.
 
The young award winner noted that when the word shares are used they could equally refer to ownership of mutual funds, limited partnerships or real estate investment trusts (REITs). However, the role of the capital market cannot be underestimated in the general running of the economy, which creates channels for productive investments that would yield high returns.
 
The efficiency of the capital market, she said, occurs when share prices reflect available and relevant information.
The growth of the capital market is a problem that has proved difficult. She stressed that the capital market was one of the compartments of the financial system that promotes investment in an economy.

Adesewa Adeniyi outlined the following as issues to be addressed in the Nigerian capital market;

 

Issues Addressed In The Capital Market

  • Unstable market-The The Nigerian capital market has faced severe downward fluctuation of prices in 2019, which has proved unfavourable for local investors. She cited the example of the global financial crises in 2009 and 2017; the last crises nudged Nigeria into a recession.  Adeniyi observed that the market was largely risky and unpredictable.
  • Lack of Technology-There is a low level of information technology assimilation in the capital market, according to the essayist. There was a need to modernize operating models and encourage smaller investors to invest in technology, as it leads to a more productive and effective market.
  •  Savings Setback Problem- She noted that Nigeria had a low national savings rate of 10.79% as of December 2015.  From the report the Securities and Exchange Commission (SEC) Master Plan 2015-2025, it was observed that a country like Malaysia had a national savings ratio of 32% while the average for the world was 18.95% in the same period.
  • The Market size problem- The SEC 2015-2025 master plan report on the capital market stated that Nigerians seem to have limited knowledge of the market, which is a big problem and could hinder the growth and development of the long-term market for capital. Nigerians, according to Adeniyi, should have basic knowledge of shares, alternative investments, and bonds in the market.

 

Solutions To The Problems

  • Transparency and effective compliance in the capital market- Leadership in the capital market, said the essayist, must accept the rules and guidelines of the market. Complete compliance to regulatory framework of the capital market should be encouraged to win the confidence of investors. Disclosure of material facts such as the director's activity, shareholder visibility must be done as when due and must be accurate and dependable.
  • The problem of lack of information on matters as the operation of the capital market could change by organising seminars, educational workshops, events or television and radio talk shows to educate Nigerians on the capital market. Also, curriculum in secondary schools and tertiary institutions could be introduced to teach students at an early stage on economic opportunities and how to invest in the market to increase their participation.
  • Entrepreneurs and business owners- Entrepreneurs can also make use of the capital market for their sustainable business plans. By publicly listing their company, they would adopt policies of transparency and regulatory compliance, which are key policy actions for building enduring institutions.

 

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