UNENDING CAPITAL MARKET CRISIS OTEH, WHAT SOLUTION IS ON HAND?

By Dr. Uchenna Agwu
We have just cruised past the proverbial half year, and our capital market is still lying prostrate. Ten months down the line, nothing tangible has been done. Investors are groaning under severe pains inflicted through some incoherent and discordant reforms that have made Nigerians look so stupid.

Moves, judicial and extra-judicial that have demystified some of the assumptions have been left unattended to, and the market is taking a bash from them. Expectations that the record level of over 12 trillion capitalization would be recovered in 2011 has continued to wane, amidst poor policies from the Securities and Exchanges Commission(SEC).

This development has been the consequence of the forced exit of the Director General/Chief Executive Officer of The Nigerian Stock Exchange, Professor Ndi Okereke-Onyiuke, which last month the Federal High Court, Lagos, declared unlawful and in effect re-instated Professor Okereke-Onyiuke to her position.

•Arunma Oteh
Even though SEC has announced its decision to appeal the ruling of the Federal High Court presided over by Justice Muhammed Idris, there is no denying the fact that the Nigerian stock market has been worse for wear since the event of 5th August 2010.

All the market performance indicators have continued to fall without cease, contrary to the promise of SEC when it marched on The Stock Exchange.

SEC had promised restoration of investor confidence, which has not happened, thus eliciting questions as to whether the action of SEC was based on a sincere but faulty consideration of the problem of the market before 5th of August 2010 and whether it was a case of state power being used to settle private scores, as has been postulated.

It is all too evident and indeed worrisome that the Nigerian stock market is far from recovery. Recent media reports have pointed to a worsening market condition, ten months after the SEC intervention in the management of The Exchange and its market.

The Nigerian All-Share Index, which on 4th August 2010 stood at 25, 691.30, has fallen to 25, 185.27 as at Thursday, 23rd June 2011. The media have reported this in dramatic headlines.

Proshare, the Nigerian internet-based financial markets analysts, reported last Tuesday (21st June 2011) that 'Equity market bleeds 229.67 points, as ASI dips below 25, 000 psychological line.'

Earlier, on 20th June 2011, Proshare had reported that 'NSE ASI dips below 6 weeks low to enter full bearish mode'. In the same vein, Thisday newspaper of 22nd June 2011 reported: 'NSE Index slides to three-month low' - a report that was in substance not different from the newspaper's report of 1st April 2011, which read 'NSE closes Q1 in red'. Such depressing headlines have come to define Nigeria's stock market which today is managed in the image of SEC.

The curious thing is that public response to all of this has been uncharacteristic grave yard quietness. Have the sustained losses in the market numbed our capacity to raise issues with unfulfilled promises, more so when, beyond the poor state of the secondary market, virtually nothing is happening in the new issues market that should work to channel funds to businesses and thereby promote production and employment in the country? Significantly, there has not been any serious capital raising in the Nigerian stock in the last ten months.

Rather, the market has had to deal with cases of delisting: Nigerian Bottling Company Plc, Nampak Plc, etc. From all indications, 2011 will turn out to be the worst year for the Nigerian stock market in every area of performance measurement.

Last week, Proshare wrote in a review of the Nigerian equity market (2008 - 2011) that 'the outlook in the year 2011 has not been impressive, trending below expectations as the market appeared unstable due to pessimistic and low risk appetite positions of most investors in the market.'

Even though there have been attempts to blame the discouraging performance of the market on certain developments in governance at the national level, there is no gainsaying that the market is burdened by a host of internal problems that are holding it down while markets elsewhere have since moved on, leaving the meltdown of 2008 to history.

SEC as an institution is a divided house, with a fractious board and management, which has led to the conception and implementation of policies that a broad section of board members and staff consider alien to the organization and harmful to the development and growth aspirations of the capital market in Nigeria. It is common knowledge that SEC today is run by 'consultants' instead of officers in full employment.

Beyond the ill-advised sacking of the Council and Management of The Nigerian Stock Exchange, it is all too obvious that the leadership of SEC has taken on more than it can handle, either because it does not understand the issues at hand or it lacks the maturity and discernment to deal with the issues in a manner that does not endanger the operations of the market. Thus, SEC has succeeded in grounding the market rather than heal it of any perceived malady.

SEC broke the leadership of The Nigerian Stock Exchange without mending it. Today there is no clarity as to the status of the Council of The Exchange. From all indications, it may be safe to conclude that what is still in place at The Exchange is an 'Interim Council', with SEC appointees dominating the composition of the Council. There is a Second Vice-Chairman in Chief Reginald Abbey-Hart and a 'Deputy Interim President' in Mr. Emmanuel Ikazoboh - appointments that raise questions of hierarchy and order in the management of The Exchange, and which would inform investment decisions in the market.

How would the market recover and grow when, as reported in the media, the stockbrokers are at war with the Commission on the issue of stockbroker representation in the Council, demutualization, and recapitalization of stockbroking firms? Why SEC would want to do all of this at the same time is mind-boggling and, again, point at a limited understanding of the issues in the market by the Commission.

In any case, is demutualization a subject for consideration by an Interim Council that is made up mostly of disparate professionals many of who are still struggling to understand what the market is about? This would be the case only if SEC is pushing a personal agenda as opposed to a national programme of capital market development.

Dr. Uchenna Agwu is a financial analyst based in Port Harcourt