CMR Recommendations to the National Economic Conference



Wednesday, March 23, 2016 1.28PM / Capital Market Roundtable (CMR) 

The Nigerian Capital Market Roundtable (CMR) is a meeting point for all categories of past and present operators in the Nigerian Capital Market. It is non-governmental and non-profit. The Forum is a voluntary Think-Tank made-up of tested professionals with genuine passion for best practices, the development and growth of the Capital Market in Nigeria. The Platform is structured to serve as an intellectual power house in the Nigerian Capital Market for the good of a vibrant national economy as a going concern. 

Members of the CMR deliberate on national economic and contemporary issues through an online interactive portal, 24x7 all the year round. In line with the Charter of the Forum which is evoked as the need arises, the CMR resolved to avail the Federal Government of Nigeria with the relevant extracts of ongoing deliberations in The Forum through the convened National Economic Conference (NEC).  

Thus, the submission of CMR is articulated under Economy and Capital Market with specific subheadings of relevant economic indicators that the deliberations covered.  

The dwindling fortune of the Nigerian economy due to an unprecedented fall in the oil price which is the main foreign exchange earner, rising unemployment, declining growth in GDP in the successive past quarters an indication of an economic depression, widening balance of trade deficit and unchecked fall in the value of naira in the parallel market which resulted to call for the devaluation of naira. All these have generated debates from which the following deductions arose as a form of recommendation to the Federal Government of Nigeria from the Capital Market Community. 

The CMR is not unaware of the fact that the government is not short of ideas on the way of the economic situation. Consequently, this white paper is not only highlighting the real issues but to some extent articulates the steps that could aid effective implementation which is the bane of the expected breakthrough for the Nigerian economy on a lasting note.  

Diversification of the Economy: 
The Nigerian economy cannot be sustained by oil alone; we must alter the economic course by producing more of what Nigerians consume. Though we are yet to achieve domestic self-sufficiency in cement production, yet the replication of strategy in this sector in every industry in which we have resource endowments becomes inevitable for the Nigerian economy to grow. CMR strongly recommends that the automobile industry be looked into for implementation under the diversification and import substitution strategy. The automobile industrial sector has about 3,000 components that can be progressively manufactured in Nigeria. Let us go for it now.

If the diversification strategy is carefully implemented, we can catch-up with what has been missed out in the LNG project since 1983, Nigeria can still regain its achievable position of being the hub of Volks Wagen African production and the likes of Dunlop and Michelin can find their ways back in Nigeria.  

Value of Naira: 
An economy that grows in strength is bound to impact positively on the value of the currency. A strong Naira that will endure is not going to be the one determined by the CBN but by a system that allows the currency to progressively appreciate as we strengthen our economy. Nigeria must avoid using her reserves to defend a currency value that subsidizes consumption of foreign goods and services while constituting disincentives to those who can export goods. It amounts to economic contraction if the dollar receipt of Federal Revenue which State Governments depend on is translated into Naira at N199, while the imported goods and services they consume reflect the parallel market rate.   

The solution rests with focusing more on boosting domestic production:

·         By producing more of what we eat;

·         More of material we use to build our houses;

·         More of material we deploy to construction of our roads;

·         Nigeria should become No1 exporter of cocoa and manufactured cocoa products;

·         Start exporting refined petroleum products and petrochemicals from oil and gas;

·         Stop importing vegetable oil and other similar products we should produce locally 

The challenge of dual exchange rate includes arbitrage and abuse by those who have access at preferential rate who are not angels after all. No matter how well meaning the President is, he cannot monitor everyone under him or regulate the behaviour of those who get favoured treatment (justifiably or not) and then turn around and "round-trip".  

A fair system as much as possible is the best way out of the situation and this is what this administration should go all-out to achieve.  

The Government must be firm on what will be allowed as imports and the appropriate tariff for importable items. Through a guided deregulation, Government should realistically determine what we want to support in the official market and free the market. Let the market determine the rate at which eligible transactions access the dollar. In essence, the system can influence the supply and demand for foreign currency yet allow the market to determine the equilibrium price. 

Devaluation of Naira: 
Any official devaluation of Naira should not be done in isolation. It has to be accompanied with tested initiatives that will ensure that Nigeria does not end up like the SAP years with the Naira constantly depreciating. Government must be fiscally disciplined, set out clear incentives for local resource-based manufacturing and with a combination of example setting and trade instruments change the consumption culture (not just food but in all things, consuming what we make and shunning what we do not make). We must also return to planning our economy whereby the Government provides incentives for activities in a rational manner to ensure input-output congruence.  

Integrated Restructuring of the Economy and the System: 
The Government should invest more in technical education at all levels, encourage faster domestic capital formation, supplemented with foreign investments (yes, foreign investments, preferably direct), in ten to twenty years the economy will be radically transformed. The nation needs true transformation that will create more Dangotes. We will be looking for people to employ and the speculation in international circles will be when Nigeria will revalue its currency. Nigeria should learn from the history of South Korea, China and India. Yes we can; it would only take sincere leadership and commitment to a lasting vision that will deliver Nigerians and take the economy me to desired level.  

Every operating environment has its own peculiarities. A capital market that will entrench lasting effective and productive policies that will contribute to a vibrant economy must factor into consideration the foundation of the market by essentially putting into consideration where they were coming from, where it is now and where it should be as a going coning concern in view of a continuously changing operating environment.  

Nominal players in all tiers of the market have a unique place in the evolution of the Nigerian Stock Market. Any policy that will phase out this deck in the system out-rightly may not augur well for the market and the national economy. A fruitful nation that will sustain a vibrant economy creates a political and economic space capable of re-jigging its commitment rules without stifling productive enterprises of the formal and informal players. In essence there should be room for small and big players to ply their trades in an effective and well structured manner all other things being equal. A Capital Market Structure that facilitates a transparently fair system as much as possible has no rival; it is the ultimate and the recommendation of the CMR.  

Blind Trust: 
There is no mention of Blind Trust in any of our laws but the issue really goes beyond mere terminology. The issues are whether the underlying concept involved is consistent with Nigerian law and helps to resolve the conflicts from legal point for Nigerian political office holders.  In the CMR legal view, the underlying concept is consistent with Nigerian law and helps to resolve the conflicts in question. However, it is not simply about fully giving up one's power to manage assets.  It is no less important about ongoing beneficial ownership, about empowering the trustee freely to dispose of the assets entirely at its discretion such that the person creating or benefiting from the trust cannot be sure at any given time whether or not any given asset is still in the trust and still beneficially owned by him.  Under the terms of the Trust, if the trustee cannot freely sell the asset then there is no "blind trust" in the relevant sense. 

The defining factors that must be guaranteed to effectively set up a Blind Trust include: 

·              Can we find any institution within our political and legal systems that can ensure that any trust property declared by a public official becomes completely removed from under his influence?

·             Can a settlor be totally blind to the nature of the holdings and investments made by the trust administrators?

·           Can the settlor be effectively prevented from having communication with the trustees with respect to the trust property under the Nigerian circumstances? 

A Nigerian official is not obliged under any law to so declare a Blind Trust of his assets before filing them at the CCB. The CCB is not mandated to monitor or prevent public officials in Nigeria from dealing with their assets in whatever manner they choose while in office; all that is required is that notices of transfers of interests affecting these assets be given to the Bureau. The Nigerian structure does not even recognize that a trust arrangement creates any blindness, as exemplified by Paragraph 13 of the Fifth Schedule to the Nigerian constitution  

It is true that public officers can appoint professional trustees, such as Fund Managers and Investment Banks etc. to manage their assets, especially portfolio investments, while they occupy public offices. The question is will a Trust Deed so executed in accordance with the relevant provisions of the Investments and Securities Act 2007 (ISA) operate as a Blind Trust? 

Does anything under Nigerian law prevent a public officer who is a settlor of such Trust Deed from influencing the trustee’s choice of investing in a particular Unit Trust Scheme, Real Estate Investment Trust or any form of Collective Investment Schemes? If the answer is no, it then appears there cannot be a Blind Trust validly set up in Nigeria in the same manner as is being done in other jurisdictions. 

Our local circumstances may not permit a truly Blind Trust. First, there is no legal and regulatory framework in our system established to govern the structuring of such a Trust, in a way that will make the settlor completely blocked from information about the holdings in his trust portfolio, or from influencing managerial decisions of administrators of his trust. To therefore rely on an individual’s sense of moral probity and adherence to values and the ethics of public office, without putting in place effective legal machinery to regulate their conduct is, at best, an exercise in futility. 

Recommendations on Blind Trust

·         Reforms should be made to our public service rules to provide for legal instruments that will clearly provide for and guide the declaration of Blind Trusts for public office holders, besides the constitutional requirement of declaring their assets at the CCB or relying only on their integrity. This will not only promote the sanctity of public office and the image of public officers, but also bring ethical certitude to our legal system.

·      Public office holders are advised to always and promptly inform their appointor, wherever the possibility arises of a conflict of interest in their duties vis a vis the contents of the asset declarations they make to the CCB. Similar to what directors of public companies do as required under the Companies and Allied Matters Act 1990, they may, having declared possible conflicts of interests, choose to stay clear of transactions or offices that could compromise their integrity. We do not have the Blind Trust arrangement that can do this at the moment.  

The membership comprises of those whose email addresses have been enlisted at one time or the other from inception of the Forum in 2008 till date. They follow deliberations and share their informed thoughts on topical issues as the need arises from time to time.  

At the initial stage, the Forum was restricted to Chairmen, CEOs, Managing Directors, Executive Directors of Companies and Partners of Professional Firms that render services in the Capital Market. This has been reviewed to accommodate other senior management staffs of these relevant organisations as well as the regulatory institutions in the market (all caveats noted). 


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