By NBF News
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The prolonged debate over the appointment of core investors for some of the nation's banks seeking to recapitalize their operations reached a feverish peak recently with several foreign financial institutions mainly from South Africa and Europe, angling to take vantage stakes in the equity structure of the various banks.

But as much as the planned incursion of foreign investors may be good business from an economic point of view, some observers are still advocating that the nation's business environment should be reviewed to ensure that the economy is not re-colonized again to the detriment of Nigerians.

In a recent interview with Daily Sun, Mr Abdulfatai Ayodeji, a chartered stockbroker, financial and IT consultant, warned that the investment laws were due for change. He stressed that the capital market was too strategic to be left to the vagaries of global portfolio investors. He also gave some insight into the real causes of bobble in the capital market, blaming much of the problem to misplacement of priorities by banking sector and operators of the market.

Ayodeji also lampooned regulators of the Nigerian capital market for failing in their oversight functions

The problem with Nigerian capital market
The problem is that even the operators and regulators of the capital market are seeing some of the foreign investors as being real, while in actual fact most of them are not.

When some of these investors were going, people were saying that they were withdrawing their money, but you begin to ask yourself what kind of money they were actually talking about; what was the quantum of money they came in with and how much of it were they taking out. Is there any control like we have in more developed markets?

I think we need to work on our legislation. To say that if a foreign investor is coming into the country, there must be a period of time that the money must stay in the system before it is taken out. There must also be a certain percentage of that money that can be taken out at any giving time.

This was what really affected our capital market. And I must say that the government has not helped the matter in any form, not being able to create a bail-out fund for the market. You can imagine what has happened to the market before they started thinking about creating AMCON. Government must realize that sometimes it has to use exigency laws to get things going and get certain situations arrested.

Though Nigeria's capital market was affected by what happened in other parts of the world, but the deficiencies and failure of relevant authorities to act when it was necessary really compounded our capital market's problems.

A lot of Nigerians who invested lost money in the market, but the volume of money that these foreign investors left with was more than what they brought into the economy. Most of them came with very little dollar and approached our local banks, which then gave them facilities to play in the market. But by the time of the meltdown, the investment had grown and, when they were leaving, they took everything with them. That is not how to grow the economy.

There should be legal limits beyond which foreign investors should take out of the economy, unless we want to bleed the economy to death. Every genuine investor must have confidence and belief in the economy you are investing in and that means that even in the midst of crisis, you will not be struggling to take out everything, including selling your stocks at ridiculously low prices just to get out of the market.

For instance, those that invested in developed economies did not do panic selling as we did, reason being that they have confidence in those economies. They all agreed there is a zero level after which prices will start moving up again. Check the US market, it has rebounded, as people that lost money have started gaining it back. Even at the London Stock Exchange, investors are also beginning to regain their losses.

It almost started in Nigeria, but for the crisis in the Nigerian Stock Exchange (NSE).

The feeling in most quarters was that the regulators were not doing their work as expected, particularly the Securities and Exchange Commission (SEC). A situation where we see SEC and NSE battling each other and doing nothing serious without anybody policing anyone does not augur well for our market development.

At a time we also had a stock exchange that was acting as if it was the senior brother of SEC, and you begin to wonder who really is in charge.

Recently, we are beginning to see what looks serious in terms of running of the market, and one is hoping that it would continue.

Forensic Audit
What the audit came up with was an eye opener and we really could not understand the magnitude of the problem at the NSE. Unfortunately, a lot of us cannot talk much because we believe it is our market and if, as result of an unguarded utterance, the whole market crumbles on our head, where shall we run to.

So the best thing is for everyone to join hands together to cleans the market and ensure it is up and running

Amending Nigeria's investment laws
We have experts in investment law and they should be able to give us laws that should guide us on foreign investments, using the experiences of other countries. Unfortunately, the laws we are still using today are British laws. Britain has already amended their laws, while we are still carrying on with the old ones.

Our Investment laws should not be static at this point in time.

They should be laws that should have increment changes as the situation permits. If you come in with $1 million and invest it here and it suddenly grows to $2 million after sometime, there is no reason why you should pull out the $2 million at once because of some problems in the economy. But I think there is nothing wrong for a man that came in with $1million leaving with 15 per cent and leaving 85 per cent in the country if you have confidence in the economy.

Even when you win $1 million in a lottery in the USA, you may not get the amount in full, so why would an investor take all that he came in with at once talk less an investment. So I suggest that we should put in place an investment law that should regulate how remittances are done in the economy so that investors coming into the country will have a clear cut understanding that we are not doing gambling here..

Investing in the capital market now
There is no sector of the economy where it is easy to invest. The time people were making money from oil and gas is over and I am sure if you ask some people who invested in that sector their experiences, they will tell you it is not easy at all. Don't forget also that part of the problem we had in the market was as a result of loans given to operators in the oil and gas industry which they later could not pay back.

In fact the only real investment that people can comfortably do irrespective of the situation in the market at the moment is the capital market, because it is one business that promotes growth and development in the economy. If you have a market where everyone is running away from, I am afraid there may not be real development. It is in the capital market that people move surplus funds in the economy to the manufacturing sector and other areas of need.

But beyond this argument it is important that the thing that the economy is lacking must be put in place. For instance, our manufacturing sector is still complaining of lack of power. Everybody knows the relevance of electricity to the economy and I am confident that once that area is fixed, we don don't need to preach to anyone to go back to the capital market

But for me as an investment adviser, there is no way we can have real growth in the economy of this country without the capital market, and that the channel we can use to promote industrial growth on a sustainable basis. So my advice to any investor that has money and is looking into the future, I believe this is the time to invest. Invest in the market and free yourself of the mentality of thinking that you will make 100 per cent in a year.

Capital market is not meant for that.
I have always told my colleagues while we were starting way back, that each time we were moving stocks beyond certain percentage you were always cautioned, The late Deputy Director General of the NSE then, Chief Henry Ogiri, would ask you if you want to be out of job.

I also think that we should be cautious of our actions in the market because the growth of the Nigeria economy depends on that. We should not turn the market into a casino centre where you will invest one naira and make two immediately. It is a place where people are expected to invest and allow their investment to grow over time. The capital market will continue to remain a place where people will invest and get rewarded over the years.

Role of brokers in share pricing
As a stockbroker, my client cannot tell me how much he wants to sell a stock. I think I would prefer that prices be determined by forces of demand and supply. As a professional stockbroker, I think I have the right to advice my clients when to sell or buy. As at that time, the banks have universal banking licences which empowered them to do anything in the financial services industry including owning stockbroking houses.

The banks were not lending to the real sector of the economy which was the reason why the leadership of the Nigerian Stock Exchange under late Chief Henry Ogiri made sure that banks do not have stock broking firms. The major reaction behind that policy was to protect the market.

But with universal banking, banks became everything and remember they had public funds in their hands. As at the time in question, you could see that banks were not lending to the real sector but were merely trading with depositors funds at their disposal, prompting the CBN governor to call the banks and the NSE casino centres. But we all knew that it was the entry of banks into the stock market that created the problems that almost swallowed the market. For instance, we knew what happened in the days when foreign exchange was being sold by banks and what they did with it.

As a matter of fact most banks had no other business doing than selling foreign exchange and when that avenue closed, the next viable option for them was the stock market. And it is important to note that our market had no depth at that point in time. How many shares were even available in the market for people to buy considering that the corporate investors hardly sell their shares in the market. The people that are really selling were the pension fund managers and some insurance companies.

Again, it is often difficult to get the high networth investors to sell their shares and these are people that have controlling shares in the market. So the tradable shares in the market are very small and the banks were giving loans to their customers to buy shares and so you see that the economy was only reacting to development in the market. What we saw was that everybody was marketing to buy shares when in actual fact only few shares were available for sale and such that prices of stocks started rising and that was what led to upsurge in private placement in the market.

So I would not put the blame on stock brokers or investors because all their actions are dictated by the need to make more profit. So I will not take it when anybody tells me that his client told him to sell at a particular price but I think that it is what the market determines that shares should be sold. I could professionally tell my client when to buy but not him dictating at what price I should sell.

What we really saw then was that banks were marketing for customers, brokers too and this created demand for stocks that were not available in the market. That also led to an upsurge in the number of private placements and the listing of several companies that were not really prepared for the market then. The hype about high returns on shares was so much that even traders at Balogun market were buying and selling shares having realized that one could buy on Monday and sell on Friday.

So, cannot blame it on stock brokers but the total environment that created the situation.

Equities as source of recapitalization.
Because of the current situation of the market, it may be very difficult for any one to raise money now through equities. Even private placement could also be tough because sentiments in the market are affecting everybody and I strongly believe that bonds are the best alternative for now. Even the government is now leading the way by raising activity in the bond market.

So if government is not ready to extend funding to the private sector and global funding is not coming to them also, then the best option for business financing would be corporate bonds. But we must be wary of convertible bonds. When bonds are convertible, it means it could be converted to equity and this will lead to re-colonization of indigenous businesses if the investors are coming from overseas.

It will then mean that the life of Nigerians are in the hands of foreigners. But if the bonds are well packaged and of long term maturity and not for foreigners to come and take away everything from the economy then there is hope that this economy will improve in no distant time. With the coming of AMCON, I think there is hope that even when they are converting, they will be able to sell to Nigerians.