University of Nigeria               Research Publications 

BINOS, Dauda Yaroe

Aut

hor

PG/EMBA/98/0038

Title

Issues and Strategies in Deepening the Nigerian Capital Market

Facu

lty

Business Administration

Dep

artm

ent

Banking and Finance

Dat

e

December, 2002

Sign

atur

e

ISSUES AND STATEGIES IN DEEPENING THE NIGERIAN CAPITAL MARKET

BINOS DAUDA YAROE CMD-UNN/PG/EMBA/98/0038

PROJECT REPORT SUBMITTED TO THE CMD/UNN EXECUTIVE POST-GRADUATE PROGRAMMES

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF EXECUTIVE MASTER IN BUSINESS ADMINISTRATION

(MBA) IN BANKING AND FINANCE OF THE UNIVERSITY OF NIGERIA, ENUGU CAMPUS

CERTIFICATION

This is to certify that this project written by Binos Dauda Yaroe Reg. No:

CMDIUNNIPGIEMBAI98I0038 presented to the Department of Banking

and Finance, University of Nigeria, is original and has not been

submitted for the award of any degree or diploma either in this or any

other Tertiary Institution.

This is to certify that this research work by Binos Dauda Reg. No:

CMDIUNNIPGIEMBA19810038 presented to th&-~e~ar t rnen t of Banking

and Finance was submitted in partial fulfillment for the award of master

of Business Administration in Banking and Finance.

p r o f F.O. Okafor

DEDICATION

This Project is dedicated to the memory of Late Mr. Nacassius John

Tatah, himself a Post-Graduate (Ph D.) student of Ahmadu Bello

University, who died in a ghastly motor accident, a t Bauchi on 31 May

2000, on his way to Zaria to continue his programme.

ACKNOWLEDGEMENT

I am grateful to Dr. Mrs. Ndi Okereke-Onyiuke, the Director-General -of

The Nigerian Stock Exchange, for her purposeful leadership and for

creating the enabling environment that allowed me to successfully

combine my work and this programme. I am deeply indebted to my

supervisor, Professor F. 0. Okafor, for inspiring and guiding me on the

project and for his patience and understanding. I am also grateful to

Mrs. Monica Orsaah, my course-mate on this programme, who

incessantly kept egging me on that I must finish my project on time so

that we can all graduate together.

TABLE OF CONTENTS

Title Page Certification Page Dedication Acknowledgement Table of Contents List of Tables Abstract

I 11 111 IV v VI VII

CHAPTER ONE: lNTRODWCTION 1 Overview of the study Statement of problems Objectives of the study c. - - .- - .- -3 * : - . : L - L : - .- -r A acope ana urmrauon or [he study Significance of the study References

CHAPTER TWO: LITERATURE REVIEW Historical background Current developments in the Nigerian capital market Issues on the depth of the stock market Problems of the Second-tier Securities Market 1 L- - -L-- - ----: -__- LiieraLure review summry References

CHAPTER THREE: RESEARCH METHODOLY Restatement of research questions Sources of data Analysis of data Limitation of research methodology References

CHAPTER FOUR: DATA PRESENTATION & ANALYSIS Introduction Characteristics and classification of data Presentation and analysis of data References

CHAPTER FIVE: DISCUSSION OF FINDINGS Introduction Discussions of the resuIts Summary References

CHAPTER SIX: RECOMMENDATIONS AND CONCLUSIONS Introduction Summary of findings Recommendations Conclusions

Appendix 1

v

+ LIST OF TABLES

Table 3.1 Capital structures of selected companies

Table 4.1 The growth af stock markets in Africa

Table 4.2 Taxation regimes of African stock markets

Table 4.3 Market Capitalization of the Nigerian Stock Exchange (1989 to 1998)

Table 4.4 Comparative trading activity 199 1 - 2000

Table 5.1 Analysis of listed companies by listing Periods

Table 5.2 Enterprises slated for privatization

ABSTRACT

Nigeria is a great country in many respects. The country is well endowed

with a large, smart and hard-working population and abundant reserves

of natural resources. Despite such endowments Nigeria is still ranked

among the poorest in the world. She is in the same league with the likes

of Sierra Leone, Chad, Tanzania, Mozambique, Somalia, Central African

Republic and Burkina Faso.

The misapplication, misuse and misappropriation of the nation's

resources by successive governments constitute the major causes of this

underdevelopment. The market economy is generally accepted as the

best facilitator of resource allocation. At the center of the mcarket

economy is a well-developed and robust financial system. The capital

market is the segment of the financial system that mobilizes funds for

medium to long-term investment. For a capital market to effectively

perform its role of funds mobilization, it must have an efficient system of

intermediation and suitable financial instruments, in variety and volume.

Although the Nigerian capital market has been in operation since 1961

and has developed the regulatory and operational capability that

compares favorably well with other African capita! markets, it has not

been able to assume the position of pre-eminence for meeting long term

VII

funding needs for companies and government. A s a result the Nigerian r

capital market is generally regarded as being lacking in depth and not

possessing thc

internationd j

capitalization, .,, LA-IL,,, U(*LLLJ VI CLL\r UIVOU UU.IIbOCLk

Product to the extent that in global terms the market is ranked 6th in

terms of size in Africa behind such stock markets as in South Africa,

Egypt, Namibia, Morocco and Zimbabwe.

This research has therefore been designed to examine the factors

responsible for this lack of depth of the Nigerian stock market as well as

proffer recommendations for addressing the problem.

T ~ P r ~ c ~ ~ r r h hac ~ctah1ifh~t-l t h ~ t cxlthniiuh t h ~ Niu~rign W n r G F v r h a n a ~

To improve the depth of the Nigerian stock market the study is

recommending that the Federal Government actively promote the stack

market as an essential instrument for economic growth with policies that

will encourage the many quotable companies seek to list their companies

as well as make the market very attractive to investors both local and

foreign. Government is also advised to use the capita! market by

securitising its domestic debts and floating bonds to finance medium

- long-term projects rather than resorting short-term bank borrowing

ways and means.

CHAPTER 1: INTRODUCTION

1.1 Overpiew of the Study

Capil

with

avail;

provi

invez

polic

capi t

inve:

'The

term

shor

secu

BY t

evidt

S toc

corn1

'he

99:

ar:

(Appiah-Kusi and Antoniou, 1998: 21). The Johannesburg Stock Exchange,

for instance, had 642 companies and a market capitalisation of $234.3

billion. Namibia had 33 companies and a market capitalisation of $33.5

billion. The substantid f d I in stock prices on the Nigerian Stock Exchange

had reduced the market capitalisation even further to below $3 billion as a t

December 3 1, 1999. This low value of securities limits the extent of inflow of

foreign portfolio investments into Nigeria through the stock market.

r

1.2 Statement of the Problems

The Nigerian stock market has long been criticised for its lack of depth and

the dearth of securities available for trading. Following the return to

democratic governance in 1999, the Nigerian Government has continued to

urge the international community to invest in Nigeria. Foreign investment

inflow takes the form of either direct foreign investment or portfolio foreign

investment. In direct foreign investment, an investor owns and operates

physical assets in a foreign country, while in foreign portfolio investment the

interest of the investor is in the form of securities usually Iisted on a

recognised foreign stock exchange. For the foreign portfolio investment

inflow to be realised there should be a variety of instruments in sufficient

quantities to invest in. Agbodo (1997) maintained that the current level of

stocks on the Nigerian Stock Exchange could be traded in less than five

minutes on the New York Stock Exchange.

This study was designed to examine the reason for the paucity of securities

listed on the Nigerian Stock Exchange. In 1985 the Stock Exchange created

a new tier on its Daily Official List, the Second-tier Securities Market. This

tier was introduced to encourage small and medium sized indigenous

companies to get quoted by relaxing some of the listing requirements. This

has however not provided the depth and variety of traded instruments

anticipated. What are the factors militating against companies listing their

securities on the stock market? Why do quoted companies seek refuge in

t h ~ rnnnm, r n a r t ~ t h r thpir lntlcr-term finan~inu n p p A ~ 3 Whw i~ t.hp hnnd

enterprises to obtain public quotation and thereby gain access to the capital

market for their funding needs. In this regard, the study was designed to

examine the problems militating against the development of the capital

market in Nigeria, with particular reference to the Second-tier Securities

Market, by considering the growth of the market since its inception.

It has often been stated that before the commencement of operations of the

Central Securities Clearing System Limited in 1997, securities transactions

on the Nigerian capital market took up to one year to complete, thereby

restricting the liquidity of the market, This study was therefore designed to

examine the impact of the automation of the capital market on the liquidity

and depth of the market, by examining the volume of transactions in the !

market since the introduction of the automated clearing and settlement of

securities in April 1997 and automated securities trading it

1.4 Scope and Limitation of the Study

The capital market is defined as that part of the financi

involved in providing long-term funds for productive use (C - - -,. -. I '

For the purpose of this study however, the scope of the Nigerian capital

market is limiterl +A +LO n~;--.-:-- n+nal~ market, as represented presently by

the Nigerian St' the Iimitation of time the sources of

data used in this study is restrict ?

seminar/workshop papers and print media c

The design of this study was also limited

contributing to the lack of depth in the Nigerian capital market and,

accordingly, no hypothesis was formulated for testing. To guide the study,

nevertheless, the following propositions were postulated:

1. The underdevelopment and lack of depth of the Nigerian capital

market is due to ignorance and lack of understanding of the

c. commence in 2001 will also contribute to the deq

market.

1.5 Significance of the Study

This study was designed to provide a guide to potential investc

market facilitators on how to achieve a more robust and det.perieu SLUCK

market. '

that shoi

investor-

better UI

Nigerian

for acadt

1.6 References

1. Appiah-Kusi, J and Antaniou, A (1998) Investor's Guide to the

African Stock Markets (London: Emerging Markets Global Research).

2. Okafor, F. 0. (19831, Investment Decisions: Evaluation of Projects

and Securities (London, Cassell Ltd.)

3. Agbodo, 0 (April/June 19971, 'Deepeninp: the Nigerian Capital

Marketn, Media World News, Vol. 1

4. Okereke-Onyiuke, N (April/June I

is Market for Next Millennium", I

13.

5. The Daily Official List of the Nigeri:

1999.

CHAPTER 2: LITERATURE REVIEW

2.1 Historical Background

The Nigerian capital market had its beginning at the dawn of independence

when some eminent Nigerians in collaboration with some foreigners, notably

British, saw the need for the establishment of an institution in the country

to be used as an avenue for funds mobilisation and development of local

capital formation (Areago, 1984: I]. This initiative resulted in the

appointment of a committee, in May1958, to advise the Federal Minister of

Industries on ways and means of setting up a stock market in the country.

This led to the setting up of the Lagos Stock Exchange in 1960.

I Trading commenced in 1961 after the enactment of the Lagos Stock

Exchange Act of 1961, with 19 securities with a total market capitalisation

of N80 million (Osazee, 1997). At the inception of the Exchange, the Federal

Government of Nigeria, through the Central Bank of Nigeria, provided

assistance to the Exchange by way of logistic support and the listing of

development stocks. In the earIy 1970 there was a call from a section of the

Nigerian financial community for a reorganisation of the financial system,

which led to the setting up of a Commission, in 1976, headed by Dr. Pius

Okigbo, to study the structure and operations of the Nigerian financial

system and make recommendations for improvement (Alile/Anao, 1986). At

the concIusion of its work, the Commission recommended, among other

things, the decentralisation of the stock market so as to bring the benefit of

the capital market nearer to the people. The Commission's strategy for

achieving this is by way of the establishment of autonomous stock

exchanges in various parts of the country. The Federal Government, while

accepting the need for the decentralisation of the stock market, opted for a

National stock exchange with branches. The Exchange was subsequentIy

provision of Section 14611) of the Companies and Allied Matters Decree,

which stipulates that every company shall a new certificate for shares

transferred within 3 months of the lodgement of the transfer with the

company. The CSCS enabled the Nigerian Stock Exchange to reduce the

share transfer cycle to 14 days.

In continuation of the internationalisation programme, the Exchange flagged

off its automated trading system (ATS) in 1999. The CSCS and the ATS

projects of the Exchange have contributed substantially in boosting the

liquidity of the market and making it more transparent.

1 ilt: r ur cqp r l lxcr~~igc \mur~l~ur rrlg illlu m~s;tc~~;dl~r;uuu r1 uv1mu113j UCCICC I\U.

17 of 1995 establishes an Autonomous Foreign Exchange. Under the decree,

any person may invest in any Nigerian enterprise or security with foreign

L L Y ~ ~ I IL~ELILSILLI) ul u u e l werlrus uulit- LV L c v ~ w nlger t z u ~ c a p l ~ a rrrsu KCL

and make appropriate recommendations. In its report, the panel submitted

that the Nigerian stock market is one of the lowest ranked in the world in

terms of performance and that although th

of the Nigerian capital market and the s t

focus and objectives for the establishment of the regulatory agency for the

market were rather restrictive and need to be amended. The outcome of the

Odife report is the enactment of the Investments and Securities Decree in

1999, which gives the Securities and Exchange Commission wide powers for

the regulation of the financial system. The decree has vested awesome

powers on SEC to the extent that it contains provisions that oust the

jurisdictions of the courts (Investments and Securities Decree No. 45 1999

Section 242). The decree also saddles SEC with responsibilities that are not

traditionally under the purview of capital market regulators. This additional

responsibi1ity has the tendency of diminishing the effectiveness of the

Commission in its concurrent roles of regulating and developing the capital

market.

The underdevelopment of the capital market was an important subject of

discussion a t the Nigerian Economic Summit. A t the first summit held in

1993, )up of the Summit noted that the primary the Capital Markets Grc

,, :, tL, A,,.,l,,,--c ,I problcrrr 111 ulc U C V C K J ~ I I I C I ~ L U; the capital market is the illiquidity of the

secondary market and the small number of quoted companies

(Dozie/Bickersteth, 1993: 68). The group also noted that prices of shares do

not reflect the trading fortunes of the listed companies. The Nigerian

Economic Summit Group also redised that the Nigerian capitat market need

to have international exposure so that foreign capital and foreign

institutional investors will introduce vibrancy into the capital market.

By 1998, during the fifth Nigerian Economic Summit, the need to deepen

and expand the capital market was still an issue of great concern. The fifth

summit observed that the number of securities as well as volume remained

Iow in the Nigerian capital market [Nigerian Economic Summit Croup, 1998:

30). The summit group also observed that the existing tradable instruments

in the capital market have a narrow range, and that there is a need to

introduce diverse instruments including bonds, warrants, options and

equity linked issues to rnaximise the contribution of the market to nationd

economic development (Nigerian Economic Summit Group, 1998: 3 1).

2.3 Issues on the depth of the stock market

The various measures adopted to address the problem have been mostly

ineffective. A s f a r back as 1980 it was observed that the operations of the

Nigerian Stock Exchange were sluggish and the market was very thin

because very few securities were Listed (Okafor, 1983: 97). Ewuoso (2000)

maintained that although the capital market possesses the potential of

funding the sustainabIe economic devdopment, which would ensure that

Nigeria becomes globally competitive, however, the size of the capital market

is greatly limited by the number of tradable securities and quoted firms.

International observers also deride the Nigerian stock market for its failure

to live up to expectation as sub-Saharan Africa's largest equity market.

Moore (1999) observed that although the Nigerian Stock Exchange was set

up in 1960 it still suffers from low volumes and poor liquidity, noting that

as of December 1998 the 186 listings an The Exchange had a combined

capitalisation of N260 billion only, just about 7.87% of GDP and that, even

by African standards, the liquidity of the Nigerian stock market is

considered to be very low.

Okereke-Onyiuke (1997) however, maintained that but j

depreciation of the Naira in 1995 the Nigerian Stock Exchange catlnatsatlon

would still be second

(1998) supported this v.,vv, ,A,1,.,,,,, ..., , ..., . ,,, ,. ...,> ,,,,, market, particularly in US doIlar terms, is due mainly to the steep currency

depreciation in recent years as the market capitalisation of the Nigerian

Stock Exchange is under $4 billion cornuared with larger figures -.- for Morocco

and Egypt, among others in Africa.

There are many other problems that have contributed to the lack of depth of

the Nigerian capital market. The bonds market is a very importat

component of any stock market. The market for debt instruments has for a

long time been on a steady decline to a state where the instruments are now

being resisted by investors (Usman, 1996). Between 1961 and 1957, the

Federal Government raised about N 10 billion through the Nigerian Stock

Exchange for on lending to regional, and later state governments (Abubakar,

2000). These Government development stocks constituted about 48% of the

total market capitalisation of the Nigerian Stock Exchange as at 1987 (Alile,

2000). However, since 1987 the Federal Government has not issued any

new stocks for its development programmes, thus rendering the bonds

market inactive. This state of affairs informed the setting up of a committee

on June 15, 2000 by the Securities and Exchange Commission for the

reactivation of the Nigerian Bond market.

The depreciating exchange rate of the domestic currency constitutes another

problem for the Nigerian stock market. As noted by Okereke-Onyiuke

(1997), up ti11 1995 the Nigerian Stock Exchange ranked next to

Johannesburg Stock Exchange and Casablanca Stock Exchange, The

massive depreciation of the Naira from N22/$ to N8O f $ in 1995 suddenly

plummeted the market capitalisation of the Nigerian Stock Exchange from

$10 billion to about $3 billion (Okereke-Onyiuke, 1997).

The correct pricing of quoted securities has always been a controversial

issue. There are public complaints [Oboh, 20003 over the perceived under-

valuation of the securities of quoted on the stock market. Usman (1996)

maintains that SEC should reexamine the currently used methods of price

determination so as to put the prices of securities at both the primary and

-: x?- LZ~ZXP,CS at revels that wauid meet investment return exoectations

of both the local and foreign investors.

2.4 Problems of the Second-tier Securities Market

The creation of the second-tier securities market on the daily official list of

the Nigerian Stock Exchange in 1985 was expected to encourage many

medium sized indigenous orornoted enternrises to seek auotation on the

exchange. Since the introduction of the second-tier, a total of 19 con~panies

were admitted on the second board with 6 of them graduating to the main

board.

The second tier securities market has faced manv ~roblems since

L introduction that has militated against the growth of the sector. Many

indigenous entrepreneurs consider listing their companies on the stock

exchange as tantamount to surrendering control. Such momoters have a

tendency to hold on to the entire shares of their companies. Furthermore,

most promoters do not have the discipline required by the exchange in

subjecting their results to public scrutinv.

The disappointing response to the introduction of the second-tier market is

also due to the uninspiring experiences of the indigenous quoted companies

due to their dismal performance. Introduction of the sector in 1985 closely

preceded the introduction of the structural adjustment programme in the

following year, especially the deregulation of the foreign exchange market.

Such companies that were import dependent or carried foreign currency

denominated loans posted deteriorating results shortly after listing, which

gave the wrong impression that their poor performance post-listing was due

to their new status as listed companies. This correlation between obtaining

a listing status and posting dwindling performance connived to Dose a maior

disincentive to similar companies that could have benefited

tier listing.

The above problems notwithstanding, the SSM window has since inception

justified the introduction of the Board. Out of the 29 companies initially

listed on the S S M Board, the following 13 have graduated onto the Main \

Board: Grommac Industries Plc (formerly D.C.C. Company), Beta Glass Plc

(formerly Delta Glass), Amicable Assurance Plc, Tripple Gee & Company Plc,

Liz-Olofin & Company of Nigeria Plc (liquidated), Abplast

Products Plc, Unic Insurance Plc [formerly Unity Life), Afroil Plc, Rietzcot

Nigeria Plc, Hallmark Paper Products PIC, Interlinked Technology Plc and

Aluminium Extrusion Industries Plc.

2.5 Literature Review Summary

The lack of depth of the Nigerian capital market is recognised and well

documented. The problems accounting for this, despite the acclaimed

. attractive regulatory environment, include the massive depreciation of the

References

Alile, H. I. 86 Anao, A. R. (19861, The Nigerian Stock Market in

Operation (Lagos, The Nigerian Stock Exchange).

Are-, R. B. (1984), The Nigerian Stock Exchange: Genesis

Organisation and Operation (Lagos, ARB Nominees Limited].

Ok9ffir. F- n. ( I om), m-=-rru\;ut Decisions - Evaluation of Proiects

and Securities (London, Cassell Ltd, 1983).

Osazee, B (1996), Understand- the Capital Market (Benin, Bofic

Consulting Group Ltd).

Alile, H. I., Financing Public Projects through the Capital Market,

Paper organised

- "b-- '- ,= -, ,,, November

1997).

Edun, A. O., Improving the Depth of the Nigerian Capital Market:

The Role of Derivatives, Paper presented at a conference organised

by SEC and NSE on trading in Rights on the Nigerian stock market

(Lagos, February 26, 1998).

Ewuoso, B., The New Issues Imperative, (Financial Standard, July

10,2000) p. 2.

Okechukwu, K. C., Role 8s Functions of the Registrars in the

Capital Market and Interfacing with the CSCS, Paper presented at

the Pre-Clerkship Examination Induction Course (Lagos, November

1997).

(Euromoney) p. 24.

m Bank, Stockbrokers

mrrcnanpr nf Msrrrh 1 3nl

A - 0 (Lagos, Official Gazette, '

. .-. . 1. " I T . .

CHAPTER 3: RESEAFWH METHODOLOGY

3.1 Restatement of the Research Questions

This research has attempted to provide answers to the following questions:

What are the factors militating against companies listing their securities on

the Nigerian stock market? This question is informed by the fact that over

300,000 registered limited liability companies in Nigeria, out of which over

1,000 are quotable, less than 200 are listed on the Nigerian Stock Exchange

under both First-tier and Second-tier Markets of the Daily Official List.

Another question considered is: Why do quoted companies seek refuge on

the money market for their long-term financing needs rather than in the

capital market? A review of the published financial statements of 20 quoted

companies, selected at random, in the non-financial sectors for periods

ending in 1999 and 2000 indicates a high incidence of gearing using short-

term money market instruments. When the total issued share capital of the

20 companies is only N3.125 billion, the companies together owe a total of

N16.714 in interest bearing short-term, money market instruments. As a

result of this distorted capital structure, the companies paid a total of

N3.714 billion in interests, as against a total dividend of N1.856 billion paid

over the same period.

Table 3.1: Capital Structures of Selected Quoted Companies

j m r I Com~anv Overdraft I 1 Year-end 1 ! Ca~ital N' mill,

I I

I I I I N' mill ' N' mills 1 d !

-- -- - -.

2. lndlfimesbic - - T ~ i t a f o a m Nig 31.12.1999-i 151 1 146 40 r

_ I-- .- 3. I Healthcare 7 ~ ~ ~ e e c h a m I 31.12.1999- 1 - - 207 - 399 I i44

I 1 4 --I---. - - 5. ) Building Mat. j WAPCO 1 31.12.1999 / 2,631 i 286 r 2 4 9

I . -. -- -- - 1 /Textiles '1 Uni. Nig Tex 31.12.2000 1 1 , 2 5 2 1 271 , 1 6 1 - . . 4- I ! L.-. 12. 1 PetroLMarketg 1 National Oil 1 31.12.1999 1 2,260

-I_ 13. 'i ~ w d & w n i o n Dicon / 31.12.1999 i 211 1 7-0

..d-. . . .

Avon Crown 1 ~ i - 8 0 6 ~ 172

I -. -- - - -

17. 1 Services j ' ~ r i ~ ~ l e G e e 1-31.12.1999 1 4 4 0 1 121 / 2 i

fi. Paid

N' mill.

I t is generally held that the enactment of Decrees 15 and 16 of 1995, which

repealed the 1962 Exchange Control Act and the 1988 Nigerian Enterprises

Promotion Decree, will lead to the opening up of the Nigerian stock market

to foreign investors leading to a massive inflow of foreign portfolio

investment. This leads to the question of whether the expectations

engendered by the investor friendly regulatory environment has been

realised and also whether the regulatory framework is sufficiently conducive

for the development of the Nigerian capital market.

The Nigerian capitaI market is considered to be lacking in depth when

compared to other markets even in Africa. The bond market that contributes

in substantially increasing the depth of stock markets is virtually dormant

in Nigeria. This research also examined what needed doing to improve the

depth of the capital market.

3

3.2 Sources of Data

In this research, the primary method of data collection was library archival

and documentary studies. The Nigerian Stock Exchange library and the

library of the Securities and Exchange Commission have a rich collection of

materials that were considered adequate for this project. Additional data

were collected from publications in the print media. The contributors to our

data from the print media included academicians (21.4%), capital market

regulators (25.0°h), capital market operators (28.6%), financial journalists

( 10.7%) and directors of companies (14.3%).

3.3. Analysis of Data

The data collected for this research was subjected to analysis to facilitate

the identification of the issues contributing towards the present shallow

state of the Nigerian capital market. The data was also andysed to suggest

strategies that should be adopted to address the identified problems.

3,4 Limitations of Research Methodology

The data used in this research was sourced primarily from views expressed

by operators of, and commentators on, the Nigerian capital market in

addition to published materials and annual reports of quoted companies

and seminar papers on the Nigerian capital market.

3.5 Reference

1. Nnamdi Asika, Research Methodoloptlp in the Behavioural Sciences

(Lagos, Longman Nigeria, 199 1).

2. ABC Nwolise, Research Methodology (a lecture prepared for Course 5 of

the National War College, Abuja, 19961,

CHAPTER 4: DATA PRESENTATION AND ANALYSIS

4.1 Introduction

In this chapter, the results of the archival survey was summarised and

analysed for inferences. The data collected are presented through

aggregative analysis.

4.2 Characteristics and Classification o f Sources

The principal method used in collecting data for this study is library

archival and documentary studies. Comments, views and statements made

by 28 individuals and organisations on the capital market relevant to our

area of study were collected from journals and newspapers for analysis.

4.3 Presentation and Analysis of Data

Although the data was obtained from 28 sources, analysis however shows

that four of the sources contributed to two each of the issues under

consideration. Accordingly, a total of 32 views have been expressed. In

gathering data for this study, consideration was given to addressing three

basic issues:

4.3.1 I s it correct to say that the Nigerian capital market lacks depth?

Eight respondents commented on this issue and all of them, representing

loo%, state that the Nigerian capital market lacks depth. This conclusion is

supported by the level of growth in the number of listed securities on the

Nigerian Stock Exchange. Between 1983 and 1999, for example, the number

of quoted Government Stocks fell from 61 to 15, a 75.4% decline over a 16-

year period. Industrial Loans and Equities (including Second-tier company

equities] however rose from 25 and 92 to 58 and 196, an increase of 132%

and 113%, respectively. The issue of lack of depth of the Nigerian capital

market can best be appreciated when it is compared to other capita!

markets in Africa. As at the end of 1997, the market capitalisations of

African stock markets are given in Table 4.1 below, showing the

established and the number of Isted securities (equities only).

Table 4.1: The Growth of Stock Markets in Africa

_ -- --

650

Zimbabwe - -- -

I Tunisia i 1969 1 34 I 2.230

, Cote dlvoire 1 1976 1 35 1 1 ,276 Ghana 1990 I

I - -- -- -- I. 137 21- 1 - -- --

I Zambia I 1994 \ 7 \ 705 --L -- -- --

1989 614 - - I

Swaziland 1 9 3 0 ~ - 1 5 - - I - - -

- - - - -

Lugeda _?9_94 1- --~---N/A- - - 7 Source: Investors Guide to African ~tocc~ar&ets 1998

date

I

I

disadvantaged in terms of transactions costs. Although a maximum

brokerage rate of 2.75% of the value of the transaction is permitted, in

practice brokers often apply this maximum limit. This compares with

transactions on the Johannesburg Stock Exchange where, although there is

no prescribed applicable brokerage rate, actuaI rates charged seldom exceed

1.5% for small transactions and often fall in the range 0.35% to 0.4S0/0 for

most transactions. In the area of charges by regulatory authorities, the

Nigerian stock market is again uncornpetitive. Whereas the Johannesburg

Stock Exchange charges a transactions tax of 0.25% on all purchase

transactions, in the Nigerian stock market a transaction fee of 1% is payable

to the Securities 86 Exchange Commission by the buyer of securities, while

the seller pays 0.25% each to the Nigerian Stock Exchange and the Clearing

House.

The African stock markets are generally regarded as offering some of the

best taxation regimes in the world, as exhibited in Table 4.2. Among the

African stock markets however, the Nigerian capital market is one of few

that still carries the burden of withholding tax on dividends as well as

stamp duty on securities transactions.

Table 4.2: Taxation Regimes of Afdcan Stock Markets

Stamp Duty

L - *-- I Cote dlvoire ) None i lo -t"-i F.Y. I

None I

I 10 7-o-1, L - - L--

( Mauritius 1 None 0 -IPp 0 _--I - I I -

! None lo t o - - -1 - 1 Nigeria 7 0.075% 1 lo*-O- I 1

1 Uganda 1 None I N/A / N/A, / 1 Swaziland 1 None I 15 I 0 I

- - 1 - - L ~ . I zK - -~ None 0 O I

, - -- - - - -- 3

Source: Investors Guide to African Stock Markets 1998

Although the generous tax regime of the Nigerian stock market may confer

some advantages, other transaction costs however significantly erode these

benefits. The annual report of the Securities and Exchange Commission, for

example, shows that the Commission stopped receiving budgetary allocation

from the Federal Government as from the 1998 fiscal year and depended

entirely on income generated from capital market operators for its

operations. These SEC fees are made up mostly of the 1% charged on the

value of all purchase transactions on the stock market as well as filing and

registration fees for all primary market operations. These charges, when

added to the charges levied by the Nigerian Stock Exchange and

Stockbrokers makes the Nigerian stock market less attractive.

Other reasons advanced for the thin state of the Nigerian capital market

include the reluctance of family owned companies to list on the exchange

(Alile) and absence of ratings for debt instruments by a recognised agency

(Berry). It was also held that since the depth of the Nigerian capital market

is measured in U S dollar terms for ease of comparison, the drastic fall in the

value of the local currency has also impacted negatively on the depth of the

market (Okereke-Onyiuke). This last position is amply supported by the

following profile of the market capitalisation of the Nigerian Stock Exchange

within the ten-year period between 1989 and 1998.

Table 4.3: Market Capitalisation of the Nigerian Stock Exchange

--- r5 I ~ a r k E a F ] : x c h a n ~ e Rate / Market Cap. 1 N - (billion4 - - -. WS - $ - /NJ - - U S $ - (million) - -. - -

1989 12.0 1 7.37 1,628.22

I - J I . - -1 _ Source: The Nigerian Stock Exchange

In Table 4.3 above, the impact of the deterioration in the local currency

exchange rate, vis-g-vis the U.S. dollar, on the market capitalisation of the

Nigerian stock market, is clearly demonstrated. Although in Naira terms the

market capitalisation has recorded a remarkable growth between 1989 and

1998 of 2,094%, in dollar terms market capitalisation grew by a mere

90.25%. The exchange rate of the local currency does therefore have an

impact on the depth of the market when measured in global terms.

One of the respondents [Utomi), however, is of the strong view that the lack

of depth of the Nigerian capital market is not caused by lack of appropriate

P-

or sufficient tradable instruments, but is due to the absence of appropriate ,

institutions.

4.3.3 What are the strategies to be adopted in deepening the Nigerian

capital?

Andysis of our data shows that a total of 16 suggestions were proffered for

deepening of the market. A summary of the comments is as follows:

: i No 1 Comment / Frequency 1 % ,--- .I- - - -1- i 1. 1 Introduce derivative -- instruments : 7 43.75 - -- . --- - - ---

i ' 2. 1 Reduce the spread in margin in ' 1 6.25 1 securities trading 1 [ Grow through mergers and 1 ' I 6.25

4 1 L_-._ 3- _ I acquisitions . - -- - using .- -. . . -. stocks - -- -i- 4 1

1 4. i Privatise public corporations i 25.00 -. 1 5. 1 Develop don-et

- - - I - 3 -- i 18.75 ! 1 Total 16 k---- .- -7 _ -.& 1 . - 100.0 , - - - - - -

Analysis of the data shows that the strategies for deepening the Nigerian

capital market should include introduction of derivative instruments

(suggested by 43.25% of respondents), privatisation of enterprises that can

be better run by the private sector (25% of respondents) and developing a

vibrant, bond market (18.75% of respondents).

The current market capitalisation of the Nigerian Stock Exchange is said to

represent onIy 9% of the Gross Domestic Product and if the objective of

raising the rate to 90% of GDP by year 2010 is to be achieved, these

strategies must be adopted and implemented. Additional strategies that

would help in deepening the market include:

1. Substantial reduction in the time for public issues from the present

six months to a maximum of 2 months. This can be achieved by

reducing the time frame for processing and registration applications

by both the Nigerian Stock Exchange and the Securities and

Exchange Commission to one week and automating the dlotment

process for initial pubIic offers.

2. Ensuring that new issues are effectively underwritten to ensure that

issuers receive issue proceeds immediately the regulatory authorities

grant approval and parties to the issue sign-off the offer documents at

the completion board meeting.

3. Diversify companies funding options by encouraging cross-border

listings through the employment of such instruments as the American

Depository Receipts and the GlobaI Depository Receipts.

4. Reduce the high transaction costs by eliminating the 1% transaction

fees charged by the Securities and Exchange Commission on

securities buyers and also eliminating with-holding tax and stamp

duty fees on securities transactions.

5. Reduce the securities settlement cycle from the current T+3

(transaction day plus three days) to T+ 1, which would further provide

greater liquidity in the market.

Since the Nigerian Stock Exchange reduced its transaction cycle from six

months before the de-mobilisation of share certificates under the Central

Securities Clearing System in 1997, to T+5 upon the introduction of the

Automated Trading System in 1999 and finally to T+3 under the delivery-

versus-payment regime of 2000, the liquidity of the market has improved

significantly.

Table 4.4: Comparative Trading Activity 1991 - ----

Source: The Nigerian Stock Exchange

The value of transactions on the Nigerian stock market grew at an average

annual rate of 43% between 1991 and 1995. There was however a sharp

rise in the value of transactions in 1996 of 284% resulting from a

substantial rise in share prices and an increased inflow of foreign portfolio

4.3 References

1. Mark Britton-Jones, An Introduction to Futures Markets: Insurance,

Liquidity, Immediacy, Thisday Newspaper, June 16, 1996.

2. Marshall E. Blume, Stock Exchange: Forces of Change, Thisday I

Newspaper, May 24,1998. 1

3. Kjell Byborg, Introducing Options, Thisday Newspaper, June 2, 1996.

4. Brad Barber & Richard Leftwich, Assessing the Costs of Security

Trading, Thisday Newspaper, May 23, 1998.

5. Anthony Neuberger, Warrants and Convertibles, Thisday Newspaper,

August 10, 1996.

6. Nigerian Securities & Exchange Commission: 1999 Annual Report 88

Accounts.

7. Vacon Ventures Limited, A Summary Proposal to The Council of The

Nigerian Stock Exchange for Facilities Sharing with FACOMEX

(undated).

. Rasaki Oladejo, Rules and Procedures for Trading in Rights, paper

presented at The Nigerian Stock Exchange workshop on Rights Trading,

February 26, 1998.

. Financial Standard, July 10, 2000.

. Thisday Newspaper, July 3 2000.

I / . HayIora rime, r-mancmg rubllc rrojects tnrougn the capita market,

paper presented to Executive Course 2 1, National Institute of Policy and

Strategic Studies, Kuru, November 26, 1997.

18. Goodie Ibru, The Nigerian Stock Exchange and Globalisation:

Prospects and Challenges for the Nigerian Investor, paper presented in

Lagos, October 27, 1999.

- 19. Sharnsudeen Usman, Pricing Securities on the Stock Exchange, The

Guardian, May 10, 1996.

20. The Punch, March 2, 1999.

2 1. Vanguard Newslna~ers. Avril2, 1999. - A A - A

22. Oluwale Edun, Improving the

Role of Derivatives, paper pre!

in the Nigerian stock market, Fc

23. Euromoney, May 1999.

24. Media World News, Volume 1 N

25. Vitalis C. Nwaneri, The Nige~

(COMEX) in the Money &J Cap

I Depth of the Nigerian Capital Market:

sented at a Conference on Trading in Rights

o. 6, April/June 1997.

rian Commodity and Futures Exchange

ital Markets, Comex Series 3.

- securities and quoted Iirrns. rt is suggested tnat listing 01 sum enterprises

as the state-nwnd Nia~rian Tel~rnmmunications Limited (NITEL) and the

Nation cy (NEPA) would draw a multitude of

investcll s LU LIIC I I I ~ KCL uu I C ~ U I L 111 deepening it.

nes of 1972 and 1977, which facilitated

kies on the Nigerian stock market, there

igerian Stock Exchange. As the following

lpanies on the Nigerian Stock Exchange

12 obtained quotation during the period

1961 to 1972. 66 of the companies were listed between 1973 and 1979, the

period when many companies used the facilities of the stock market to

comply with the requirements of the Indigenisation Decrees of 1972 and

1977. The privatisation programme of 1988 to 1993 accounted for the

listing of 67 companies.

Table 5.1: Analysis of Listed Companies by Listing Periods -

I ig6 1-72 1972-79 [ 1980-88 1989-93 Post- i ~ o t a l - I

-- --I--- I I .. - . . , ...... . . . . . . 1993 , - .......... .-

i , . . - Agriculture . . 0 .... ... . . . - - . - - . . . I 1 3 . . > - 0 . 1 . 5 . .

Airlines - -_ - / - -..-.- 0 . . 1 1

1 ! .-.-.... . . . ..... .. 1 . . . . . . . . i

...... .....- -..-... io ld , ' - . - . - - ! - - . -

i Breweries 1 I 2 I 1 1 e -. . - -- ---I ... L ............. , - . . . . . ., . . . . . . . . . . . . . 1 Building Mat. !--- I 3 1 0 5 - .. ---__I--. - - .-- ./-. ..

h e m & P a i n t s I-- . . _._I 1 _. _. 0 _ . . . - 5 -. ._ _ . . _. O - i . . . . . .

commeicid - - 1 0 1 1 1 0 ; 1 -- .. I - - - - - A Computer 1 0 \ 3 1 I 0 i - . - - - . - - - . - - I I 0 6 --

Conglomerate ; 1 7 C 0 0 .. - . - - . . . . . ....... ............ 0 1 8 1.- .--..-I-.- ---- --

; Construction 0 5 . . ..... 1 I L _. - - - . -- - -- - L

2 .+. , ' - -. _ . 0 _-.. L - c 1 c Eng&Tech. I O i 0

- . . . . . . . . . . .......... I .. . . . 2

....... 1 3

- - < - - .- .-.. -- -. ood / Bev'ge . . . . - . .

...... . . . IF 1 1 2 ; . . - . 2 I - . - 0 . . 4 --- 14 - 1 I . . . ~ o o t w e k . 0 2 . . . . 1 . . . . . . . . . . . ,

~ o r e i ~ n ~ i s t n ~ ' 0 0 I L . . . . . . . I . . . ....... , ....... .-i I ....

0 0 / __ - _ _

I Healthcare - - - -. A 0 - - - - I 7 I 0 . . . ..... :- - - --

-rndustrial/~orn I 1 I 4 1 2 I 4 ! 1

' 1.- . Conglomerate - - - ..-I_- I - 1 ; L Construction -. - -. 0 '

-- - -- --L

C 5- 1

,- - - - -

~nsurance I

- 1 0 ' 1 MachineryMkt - I - 0 i , ~ a n a ~ e d ~ u n d s - 0

Packaging ' 0 -1

* ~ e t r o l ~ a r k e t ~ 0 1 printing 1 I

1 Real Estate -- - - 1 0 , , ' second Tier

- -- - - - - - - - . - -

source: The Nigerian stock ~xchan~e~actbook 2000

TabIe 5.1 clearly confirms the contribution of both the indigenisation

programme of 1972/77 and the privatisation programme of 1988 in the

deepening of the Nigerian stock market. Between them, the two programmes

have accounted for approximately two-thirds of all the companies presently

quoted on the Nigerian Stock Exchange.

The ongoing privatisation by the National Council on Privatisation (NCP) is

therefore expected to increase the depth of the capital market provided

companies in strategic sectors of the economy such as telecommunications,

power and oil and gas, are covered in the programme and are sold-off

through the stock market. The NCP has scheduled the following state owned

enterprises for privatisation before the end of 1993.

Table 5.2: Enterprises Slated for Privatisation - -. . .

; SECTOR - - 4 ENTERPRISE- - I

. -- -. ! A. I INSURANCE -

I 1 1. Nicon lnsur&ce ~ l c

I . -. - - . -. - -- . . - ----A 1 -: 2 Nigerian Reinsurance Carp. I I

I B. 1 HOTEL 1 3. Nigerian ~ o t e h Limited I I 1 4. Festac 77 Hotel Ltd

1 5. Abuja Int. Hotel Ltd (Sofitel) 6. Capital Hotels Plc (Sheraton)

I

1. -2 Nicon Hilton Hotel Ltd I C. I OIL SERVICES 8. ~ r e s s e r Nigeria ~ t d

13. Flopetrol Nigeria Ltd 14. Schulumberger Wise Line Ltd 1 r n 1 cl-L..l..-t.----- n1:- 1 & A I

I

I 1 / 13. U U W C l 3 C I I U I U I I I U t ; l ~ C l lY1g L L U 1 I 16. Key Drill Nigeria Ltd I 17. Bariad Nigeria Ltd

- - --- -

, - .. ; D. ( SUGAR i

t 1 19. Savannah Sugar Company Ltd 1 20. Sunti Sugar Company Ltd 1 2 1. Nigerian Sugar Company Ltd

1 22. Lafiaji Sugar Company Ltd L .+ - - - - - -- - - - -- - - - - - -- I E. , VEHICLE PLANTS t 23. ~ n a m b r a Motor Manuf. Co. Ltd

I 24. Leyland (Nig.) Ltd 1 25. Nigerian Truck Manuf. Co. Ltd ( 26. Peugeot Auto. Nigeria Ltd 1 27. Volkswagen Nigeria Ltd 28. Steyr Nigeria Limited 2 9 . - ~ a i l i ~ i m e s Nige;ia Plc

- - -- - 30. New Nigerian Newspapers Ltd 3 1. Nigeria National Paper Manuf. Co.

I 32. Nig. Newsprint Manuf. Co. Ltd I ' 33. Nigeria Paper Mills Ltd i . . . I . - - - .- - - . . . - -- - -

I H. I AFRICAN INVESTMENTS 34. Save Sugar Company, in Rep. I 1 ( 35. Onigbola cement, eni in ~ e p u b l i c

I I 36. Royal Swazi.land Cement Co.

I

I I - J -- - - - - - I - 37. - - - Chemical - -. - - Company, - - Senegal - I I. 1 TRANSPORT-- 1 38. Nigerian Airways ~imi ted I I I 1 ( 39. Nigerdock Limited

I 1 40. ~ a t i o n a l ~ ~ v i a t i o n Handling Co. - - - - -, --- -- - --- - - .-A- -- - - - - -- - - - - - - - -

; J. . TELECOMMUNICATIONS 1 4 1. Nigerian Telecommunicatioi

I I

i ~ imi ted 1 +- - - - -

: K. 1 ELECTRICITY i 42. Nigerian Electric Pow corporation

- -- - - - - - - - - - - -- - - -- -- 43. port-l$arcourt Refinery I

/ 44. Port-Harcourt Refinery 11 45. Kaduna Refinery & Petrochem

I I

1

I 1 46. Warri Refinery & Petrochemical 47. Eleme Petrochemical Co Ltd

I I 1 48. Pipelines & Products Mktg I I

i 49. Nigerian Petroleum Dev. Co

+ - - - - - - - I 1 - - -- ---- 50. Nigerian - - -- Gas - - Company - . - - - Ltd - -- -

I M. 1 FERTILISER 1 5 1. Fed. Superphos: Fertiliser Co I I I-__- __- --.____ - -- - - - - - - - - National Fertiliser Company 1 N. 1 STEEL/ALUMINIUM J o s Steel Rolling Mill Ltd 1 I I 54. Katsina Steel Rolling Mill Ltd

55. Oshogbo Steel Rolling Mill Ltd 56. Ajaokuta Steel Company Ltd 57. Delta Steel Company Ltd 58. Aluminium Smelter Co Ltd - - _ _ _ ---- -- --

I I

1 - - - - - -

. . - - - I 1 59. Nigerian Coal Corporation 1 60. Nigerian Mining Corporation

1 It 6 1. Nigerian Uranium Co. Ltd

I A , 62. ~iger ian -- Iron-Ore -- - Mining Co. -- .

~PY- I M A C ~ E TOOLS-- ; 63 ,~ i~e r i an Machine ~ o o l C O - L ~ ~ - - - K> . -

Source: atis is at ion HandBaok 3rd Edition, April 2001

Privatising the above companies through the stock market will contribute in

substantially increasing the depth and size of the Nigerian capital market.

It was also held that the market is relatively under-utilised (Hayatudeen),

perhaps suggesting that government raise funds for development projects

through the capital market rather than resorting to ways and means. Up to

1987, and on an drnost yearly basis, the Federal Government issued

development loan stocks through the stock market for on-lending to the

regions and later states. Since 1987 however, the Federal Government has

not borrowed from the capital market but rather has encouraged states and

locaI governments to approach the capital market directly for their funding

needs. In h e with this policy, the following states and local government have

utilized the stock market to finance their development projects.

1. The defunct Bendel State Government raised N 2 0 millidn in 1978 for its

housing projects. The projects were successfully completed in Benin and

the loan repaid while the security has since been de-listed from the Daily

Official List.

2. Ogun State Government raised N30 million for its water supply project.

3. The defunct Oyo State Government raised N30 million for public market

development.

4. In 1990, Lagos State Government raised N90 million in two tranches for its

New Town Development (Lekki Peninsula).

5. Former Kaduna State Government raised N60 million in two tranches for

setting up a ginger processing plant.

6. In 1992, the Lagos Island Local Government Council became the first

Municipal Council in Nigeria to use the facilities of the stock market

when it raised N l O O million to complete its Sura Market in Lagos.

7. In 1999 Edo State raised N 1 billion for a housing project in Benin.

8. The most ambitious foray into the capital market was by Delta State,

which, in 2000 successfully raised N5 billion for a variety of projects.

Regarding the strategies for addressing the lack of depth problem, various

recommendations have been made. Reference is made to the privatisation

programme of 1989 - 1991 under the defunct Technical Committee on

Privatisation and Commercialisation (TCPC), which resulted in a substantial

increase in the number of individual investors and the growth in the stock

exchange market capitalisation and volume of transactions (Ndanusa).

5.2 SUMMARY

The findings from this study have been discussed in this chapter, and it has

been shown that the issue of lack of depth of the Nigerian capital market

has been widely debated. Many strategies have been suggested for

addressing the problem and these have also been examined in this chapter.

In the next chapter we shall conclude our study with recommendations for

deepening the Nigerian capital market.

5.3 REFERENCES

1. Mohammed Hayatudeen, Raising Capital to Settle Government Debt

Through Securitisation, paper presented rm Abuja, 4 July 2000.

2. National Council on Privatisation, Privatisation Hand Book, 3 r d

Edition, April 200 I

3. Umaru Ndanusa, an address during courtesy call on the Governor of

Kano State, 20 March 2000.

4. Financial Standard, 26 June 2000.

5. Financial Standard, 10 July 2000.

CHAPTER 6: SUMMARY OF FINDINGS, RECOMMENDATIONS AND

CONCLUSIONS

6.1 SUMMARY OF FINDINGS

This study was conducted to consider the critical issues involved in the

process of deepening the Nigerian capital market and also to proffer

strategies for addressing the problem of lack of depth in the market. The

following are the findings of this study:

1. The Nigerian capital market indeed lacks depth. The greatest volume of

transactions done on The Nigerian Stock Exchange in the past 10 years

was in 1999.

2. Until the concIusion of the first phase of the 1999 privatisation

exercise, only 43% of total issued share capital of companies quoted on

the Nigerian Stock Exchange were freely traded as Federal Government,

core shareholders and institutional investors do not usually trade their

shares.

3. In well-developed capital market, the bond sector contributes

approximately 80% to the total market capitalisation, while equities

comprise 20% only. In Nigeria however, the reverse is the case: equities

make up as much as 80°h of the market capitalisation of The Nigerian

Stock Exchange.

4. The Nigerian Stock Exchange has upgraded its facilities to meet the

best standards in the world. The transaction cycle is now a T+3

(transaction day plus three days) basis, while settlement and delivery

on transactions are done sirnultaneousty.

5. The volume of transactions done on the stock market has been growing

steadily since 1996 when the Central Securities Clearing System

Limited commenced operations.

6. The Nigerian stock market is adequately positioned to meet the

financing needs of Nigerian companies. The number of banks and

insurance companies that used the stock market to meet their

statutory capital levels supports this. Out of the 24 quoted banks as at

the end of June 2000, 10 were listed in the period 1989 - 1993 during

the privatisation exercise. 8 of the 10 banks listed between 1989 and

1999, and 8 others that were listed after that period, successfully used

the capital market to meet the minimum capital requirement for banks.

6.2 RECOMMENDATIONS

To promote the deepening of the Nigerian stock market, the following are the

recommendations:

1. The various components of the capital market should be introduced or

expanded. These components include corporate bonds and debentures,

municipal bonds, mortgage finance markets, refinancing mechanisms,

syndicated loan markets, venture capital markets, private placement

markets and unit trusts.

A market for derivatives, s u ~ h as futures, forwards, options and swaps

should be developed. This will act as risk transferring instruments,

liquidity enhancing instruments, credit or debt generating instruments

and equity generating instruments.

The Federal Government should securities domestic debts a t attractive

rates, which will appeal to both domestic and foreign investors, and list

such securities on the stock exchange.

The Federal Government should utilise the facilities of the capital

market to fund its development projects rather than using the ways

and means.

The Federal Government should encourage the regional integration of

capital markets within the West African sub-region, rather than

sponsoring the domestic fragmentation of the stock market.

The Federal Government should adequately fund the Securities and

Exchange Commission (SEC) for effective discharge of its regulatory

and development functions. This will significantly reduce transaction

cost in the Nigerian stock market by eliminating the I% SEC fees on all

buy transactions.

The Federal Government should make the Nigerian stock market even

more attractive to investors by eliminating with-holding tax and stamp

duties from transactions.

Government should support the development of the Nigerian capital

market by underwriting the cost of automating of the stock market.

9. Issuing houses, investment banks, insurance companies and pensions

should promote and participate in the underwriting of issues. This is

necessary in order to promote liquidity in the market.

10. The time cycle of raising funds from the Nigerian capital market should

be reduced to 3 months or Iess. Presently it takes up to 6 months to

complete a public issue in the capital market. This can be achieved by

speeding up the approval process by both the Securities and Exchange

Commission, and the Nigerian Stock Exchange.

11. More companies should be encouraged to obtain stock exchange

quotation, most especially the upstream petroleum comp,mies that

control the commanding heights of the Nigerian economy. To achieve

this, such companies could be given incentives, such as tax holidays

for the first five years after listing, to enmurage them to list on the

stock market.

12. An intensive enlightenment campaign should be mounted by the

regulators and operators in the Nigerian capital market emphasizing

the viable option offered by the capital market for providing the much-

needed capital to grow businesses.

6.4 CONCLUSIONS

It is an established fact that the Nigerian stock market is lacking in depth.

This is very evident when we consider the total number of securities listed

on the market, the market capitalisation of those securities in dollar terms

and the average deals done per day in number, voIume and value. Many

factors have been advanced for this unsatisfactory state of affairs and the

strategies for redressing the situation have been proffered.

The Nigerian capital market, by virtue of the size of the economy, the

abundant human and material resources, has the potential to rival the

South African market in depth if the strategies recommended in this study

are implemented.

\. APPENDIX 1: LIQUIDITY AND DEPTH OF THE NIGERIAN CAPITAL MARKET --

--- -- - - -- - --

No. Submission ' status I Summary of proposal Source I I 1 - b y _ -

1. I Mark Brittor -- - . . --

Market depth c& b e improved by ' Mastering Finance, the introduction of futures Thisday Newspaper, instruments that have hedging June 16, 1996 capability. I I

- -

Assistant Prof. Of Finance, London Business School (LBS) -- - - Prof. Of Financial Mgt., Wharton Bus. School Asst. Prof. Of Finance, LBS.

Jones

- . . - - .- - -- - - . - Exchanges must become more Mastering Finance, proactive in the face of global ' Thisday Newspaper, May

Marshall Blume

competition, by reducing the spread in securities pricing.

Management Thisday, Thisday Newspaper, June - - . 6, 1996 -. . . - - - . - - - - Mastering Finance, Thisday Newspaper, 10 August 1996

Options are fundamental to the workings of the world's capital markets. - - . - - - - - - - -.

Various factors, including the cost --

4. I Brad ~ a r b e r I & Richard Leftwich

-- - - .-.

Professors of Finance & Fin. Acct.

of securities trading, determine market liquidity and depth. These must be addressed to improve depth. - - - -- - - -

Warrants and Convertibles are- 5. ~ n t h o n y ; Asst Prof of j Neuberger ; Fin/Econs, LBS

- - - - - - - - - - - -

Mastering Finance, Thisday Newspaper, 10 August 1996 - --

~ r o ~ o s & to the Council of the Nigerian Stock

attractive alternatives to bonds and equity. - . - . - . - - -

~ntroduction of new instruments .L _ + -__.. . .

6 . Vacon l Capital market I -

I Ventures I operator into the Nigerian capital market through the establishment of the Exchange.

I I I First African Commodities , I

Exchange that will share the spare I I

capacity of the Nigerian Stock Exchange. I I

- - - -. . .- . - - - . - -- . - . . . .. . - -. -.- . . . i I

Director, ~agos-! .i. The absence of appropriate ; Daily champion, 7 1 1

-

7. r Pat Utomi !

Business institutions, and not School 1 instruments, inhibit the

I deepening of the Nigerian I I capital market. ii. Quoted companies can grow,

and therefore increase their market capitalisation, through

August 2000.

Paper presented at a and 24

PtbIUat-_y - zuuu.

seminar on mergers I acquisitions, Lagos I - . ?.#..-.A i mergers and acquisitions.

-. , - - --. -

- - .. . -. - - -

Submission by --

Ndi Okereke- Onyiuke

.. ~ ~ - -

status 1 Summary of proposal Source .. -

Director- I Volume is a major problem of the # Financial s t a d = General/CEO, 1 Nigerian stock market and the June 26, 2000. the Nigerian I listing of such enterprises as i Stock Exchange ' NITEL and NEPA will draw a -

I multitude of investors to the I

- . I market.

- -. -.

Managing I The Nigerian capital market is Director, FSB / relatively under utilised. International I

i Bank Plc.

- . . . . . - -

Mohammed Hayatudeen

-

Paper on 'Raising F u n d to Settle Governmer Debt Throug Secudtisation" presented in Abuja Jul 4, 2000. Report of the ~ o u n c Committee on tk Review of tk Investment & Securitic

---

The Nigerian , Market Stock I Regulator Exchange 1

. . - - - - - - - - -

The investment and securities Decree 1999 is draconian and is inimical to the development of the capital market. -

Privatisation - can broaden - and deepen the capital market through increased listings and market size. Pricing of securities on the stock market directly impacts on market capitalisation.

Decree of 1999. -. -

Daily Champion, Jur 8, 2000.

Suleyman Ndanusa General, SEC

- - .

Managing Director, Union Bank of Nigeria

- . - - - . -

This&y Newspape March 1, 2000.

Plc I

-- - - - -

Asst-Director 1 Rights Trading is one of the General, NSE , strategies of the Nigerian Stock

I Exchange for deepening the market.

:

- . - - - - -- - - Paper titled "Rules ar Procedures for Tradir Rights" presented I

Lagos February 21 1998. - - .- - - - -

Financial Standar July 10, 2000.

Rasaki Oladejo

- - - - - - - -- --

Stockbroker the resources ~ i ~ e r i a :s, the size and depth of

Babajide Ewuoso

I 1 I I c market is greatly limited

I I 1 I - number of tradable

8 - - - I - - securities/quoted firms, 15. 1 securities & capital Marketi There i s a - need to revivep the

1 Exchange 1 Regulator j moribund bond market.

- - -. -. - - - - - -

SEC advertorial Thisday Newspapc July 3,-2000 -- . - -- -- - Paper on "Financh Public Projects Throul the Capital Markc presented at Abu November 26, 1997. Paper presented Executive Course 2 1 the National Institute f Policy and Strateg Studies, -- - Kuru. -

1 1 Commission I

_ -1 . - -. . . - -

I 16. I Hayford Alile Former DG, i. Securitization of government I I NSE I domestic debt would I I 1

I 1 substantially increase the depth of the capital market.

I

I ii. A great problem in establishing

an equities market is the I

I I I reluctance of family owned 1 i - i

I companies to list on the stock I 1 exchange. - - - - - - - - - - --

--

submission - by_-- Goodie 1bG-

- . - - - - . -

Status T summary of proposal !

- - - . . . . - . . . . - . - - - - Resident, NSE - f o increase & d retain domestic ( Paper on The Nigerian

individual and institutional Stock Exchange and investors, and attract foreign ones, ithe Nigerian capital market must be dynamic and innovative by introducing new trading 'instruments with which investors

Globalisation: Prospects and Challenges for thr Nigerian Investorsx presented in Lagos October 27, 1999.

- - . - . - - - can hedge risks. - - - . -. -

chairman. he privatisation programme of -. --A

umaru S. Ndanusa

. - . . . - - . . . . - - --

An address during courtesy call on tht Governor of K m o State March 20, 2000.

Publicity 11988-93 has helped deepen and Committee of broaden the Nigerian Stock National exchange. Council

-

On I Privatisation , - - -- . . - . - -. -. - -- - - . - . .-

Deputy rhere is a need to revive the bond Governor, CBN 'market, which has been on decline (formerly MD, for a number of years. NAL Merchant 1 Bank Plc) I

- . - - -

Article on "~ric& Securities on tht Nigerian StocE Exchange" published ir The Guardian, May 10 1996. The Punch, March 2 1999

--

Shamsudeen Usman

- _ _ - 0 -

MD, Investment Dep&&ory Receipt programs will Asset and facilitate the inflow of foreign Finance Ltd I .-- - investment into the country. -

~inancial The Nigerian stock market is very

-. . - -

Simeon Ibitoye - -- -- - -

Abdul Imoyo -- - . . - - - - .- Vanguard ~ e w s ~ a p e r April 2, .- 1999. -- -

-paper presented a conference on trading i~ rights in Lagos February 26, 1998.

I , journalist . .....

OIuwale I CEO, Denham Edun Asset

I Management ! Ltd

much &active and illiquid. -, -

i. ~ l though the ~ i ~ e & l market is relatively

I developed, the overall vz 1 thc market is low, parti1

in US dollar terms. I.. * . . q . , .

- -. -

capital well

due 01 cularly

~ iqu ia~ ry rs very imporrant in capital markets and is determined by suficiently high turnover in the secondary market. While turnover averages about 85% in leading markets, it is only 2.5% in

Essay published i~ Media World News, Vol 1 No. 6, April/Junl 1997.

I I I I i I I . . . . -1

Philip Moore Euromoney ! I Columnist I

Nigeria. - - - . . . . - - - - - -. -- Euromoney May 1999.

- - . - despite largest om low

- - - - . - . - -- - -

Submission I Status Summary of proposal I source by+ - - - - -- - - . I I

- - -- - - - - - - - - - Orezina The capitalisation of the Nigerian 1 Article in Media World Agbodo 1 ?,",",'Et stock market can be increased News, Vol. 1 No. 6,

I through privatisation, creation of April/June 1997.

I the enabling environment for

L I L r. -- 2 7. Ayo Akadiri

j

: I I I companies to list, issuing of

I I ! 'government instruments such as

hnnrln arid attraction of foreign ' I

-- - + -- - - - . . -- . . . - - - . - - . - - - - - -- - - .t.

25. Vitalis C. Banker luction"f the futures and Nigerian commodity

bI1b"UI U S 1 1 1 6 1 V I b 1 5 1 1 lllll""

foreign investment into Nigeria. e t ~ h e ratio of market capitalisat:

to GDP is quite low compared T L L * - I T .

1 , Nwaneri

I I 1

',

- - - - -. -- - Capital Mark ion Operator to

wnar oDrams m veaoing emerging markets. Lack of depth manifests mainly in low capitalisation and

- limited number of listed securities. MD, Fitch IBCA, ' ~ e b t &strum&ts will not be a South African 'marketable if they are not rated. Rating Agency

'commodities market in Nigeria will and Futures Exchange: I lachieve the objective of Comex Series 3 ~n~, . - . . inn C m i n n ; n f l , r of Publiciation

-- . - -. - - - - - - - - - - - -

Exec. Director, Pricing method on The Nigerian Cadbury Nig. Stock Exchange is faulty, outdated PIC ;and capable of slowing down

economic growth.

~ - . .

BGL ~inanckil Monitor, October 1999.

- - . - - -- Statement made during visit to the DG, Nigerian Stock Exchange, Septernber 7, 2000. - .- - - -

The Guardian, September 1 1, 2000.

PERSONAL DATA: i

lVAlKE: BINOS DAUDA YAROE (MR.) BORN: JANUARY lST, 1955, WAGOLE STATE: ADAMAWA STATE LOCAL GOVERNMENT: MAY 0-BELWA LANGUAGES: ENGLISH, HAUSA, YANDANG RELIGION: CHRISTIANITY

SCHOOLS ATTENDED WITH DATES: PRIMARY: L.E.A. PRIMARY SCHOOL

MAYO-BELWA, 1963-1969

SECONDARY: GOVERNMENT COLLEGE, KADWNA, 1970-1974

POST-SECONDARY: SCHOOL OF BASIC STUDIES, A.B.U. ZARIA, 1974-1975

UNIVERSITY: AHMADU BELL0 UNIVERSITY, ZARIA, 1975- 1978

QUALIFICATIONS AND WEST AFRICAN SCHOOL CERTIFICATE PROFESSIONAL DIVISION 1, 1974 MEMBERSHIPS:

8. SC. (ACCOUNTING) SECOND CLASS UPPER, 1978

MEMBER, NIGERIAN INSTITUTE OF MANAGEMENT

ASSOCIATE, INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

FELLOW, CHARTERED INSTITUTE .OF TAXATION OF NIGERIA

PRESENT WORK: DEPUTY GENERAL MANAGER AND HEAD, QUOTATIONS/LISTINGS DEPARTMENT, THE NIGERIAN STOCK EXCHANGE, LAGOS Major function is the co-ordination of the activities of the department in screening or appraising companies that seek listing on The Nigerian Stock Exchange or, if already listed, seek to make supplementary issues as well as monitoring quoted companies to ensure compliance with the post

listing requirements of The Nigerian Exchange. Period: May 1998 to date.

PREVIOUS WORK: FINANCIAL CONTROLLER, NATIONAL ENGINEERING & TECHNICAL COMPANY LIMITED (a subsidiary of the Nigerian National Petroleum Corporation), LAGOS Chief Financial Officer of the company responsible to the Managing Director thrtlug Director (Services) for managing tl- company and preparing periodic I m u 1 a g c r I r t : r l i m u statutory financial statements and reports. Period: Nov. 1996 to April 1998.

CHIEF ACCOUNTANT/ASST. CHIEF ACCOUNTANT, NATIONAL ENGINEERING & TECHNICAL CO. LTD Head of the general accounting section responsible to the Financial Controller for efficient operation of the computerized accounting system and preparation of quarterly and annual financial statements. Period: March 199 1 to October 1996.

BURSAR, ADAMAWA STATE POLYTECHNIC (formerly COLLEGE OF PRELIMINARY STUDIES), YOLA Chief Financial Officer of the College responsible to the Principal/Rector for financial management and control. Period: Aug. 1980 to Feb. 1991.

STAFF ACCOUNTANT, DELOI'ITE HASKINS -t

SELCS/UNUIGBE DANGANA & CO, KANO (CHARTERED ACCOUNTANTS). Responsible to the engagement partner through the Audit Manage / Senior for audit and accounting assignments. Period: Aug. 1979 to Jul. 1980.

LECTURER IN ACCOUNTING, ANAMBRA STATE COLLEGE OF EDUCATION AWKA, (National Youth Service). Developed the curricular for the Nigerian Certificate of Education (N.C.E.) programme for the College and lectured financial accounting and business mathematics to first year students of the N.C.E. programme. Period: Aug. 1978 to Jul. 1979.

INTERNATIONAL EXPOSURES: 4 Weeks attachment with the Accounts Section of

the Secretariat of the Organization of Petroleum Exporting Countries (OPEC) in Vienna Austria (October 1992)

3 months attachment with the Finance Department of Bechtel Corporation of the United States in their London Office (Jan. to April 1994).

PUBLIC SERVICE: State Government appointed . Secretary to Zing Local Government in the former Gongola State (January 1988 to February 1989)

Member, Students Affairs Committee of the Institute of Chartered Accountants of Nigeria, 1998 to 200 1.

Member, Publications, Public Affairs & Image Committee, Institute of Chartered Accountants of Nigeria (2002-2003)

Alternate Member, Nigerian Accounting Standard Board (Representing The Nigerian Stock Exchange), 1998 to date.

Member, Technical Committee of the Nigerian Accounting Standards Board (NASB), on an Accounting Standard ,r on Abridged Financial Statements (SAS No. 20).

Member, Technical Committee of the NASB on an Accounting Standard on Earnings Per Share (SAS No. 21)

Chairman, Technical Committee of NASB on an Accounting Standard on Interim ~inancial Reports.

CURRENT CONTACT: The Nigerian Stock Exchange 214 Customs Street P. 0. Box 2457, Lagos Tel.: 4702982,26661 90, 08022908228,080421 04240

PERMANENT CONTACT: Yandang Quarters P.O. Box 20, Mayo-Belwa, Adamawa State. Telephone: 075-626782