Capital market public hearing: Time for a result oriented approach
It may no longer be news that Nigeria's capital market capitalization went down from a high of N13.5tr to N4.6tr within ten months in 2008. A market crash of such magnitude usually occurs once in a while. Such situations require special attention and overhaul of the system to prevent recurrence. The public hearing on the capital market whose ultimate goal is to examine the cause of the crash and proffer solutions was therefore a welcome development to all stakeholders. It started with good intentions boosting the hope of stakeholders in the sector. However, the botched public hearing later turned out to be the undoing of the market, achieving nothing but the reverse of what it intended to achieve. The minimal gains initially recorded were eroded.
There is no gainsaying the fact that if the hearing is handled professionally and effectively, the nation will surely get to the root of the challenge in the capital market. Specifically, we need to know why we have seen a sustained downturn and not upturn, especially given that the global economy is beginning to recover. We can get solutions only if we know how we got to where we are today.
The main objective of the public hearing is to find out the factors that led to the dwindling fortunes of the capital market; why investors lost significant part of their investments and seek corrective measures to put it back on its feet. It is neither a trial nor is it an attempt to witch-hunt or victimize anybody but to restore sanity in the capital market. It was designed with a view to restoring investors' confidence but the botched public hearing degenerated to a spate of accusations and counter-accusations of corruption and financial recklessness among key parties in the probe.
Shareholders are surely major losers in the on-going imbroglio, as it appears that their quest for justice and fair hearing on what happened to their investments is faced with uncertainty. Equally stunned are stockbrokers who had since been plunged into debts from margin transactions estimated at about N500 billion. The imbroglio and confusion that trailed the botched public hearing has not offered a reprieve to any of these primary victims. Obviously, the public hearing on the capital market is welcome. As long as the inquisition is forced to revolve around the issues while attempts to use emotions and blackmail to divert the process is discouraged. There is no doubt that the outcome will help in positively transforming the market.
The botched public hearing
The Hembe-led botched public hearing on the capital market deviated from the core issues to focus on irrelevances. Instead of concentrating on issues that led to the near collapse of the capital market, it pursued personal and political agenda to the detriment of investors in the market. The Committee deviated from what was expected of the public hearing to probing the Director General of SEC, Ms. Arunmah Oteh. Some stakeholders have expressed strong reservations on the turn of events and opined that if the law makers had any issue to settle with Oteh, they should do so outside the capital market, which is the economic pivot and hope of majority of shareholders. The way the botched public hearing carried on amounted to probing Oteh and not the market.
Operators have expressed disgust at the way and manner the Herman Hembe-led House Committee on Capital Market conducted the public hearing prior to withdrawal of the committee by the House of Representatives. However, the Hembe panel's withdrawal from continuing with the investigation elicited a collective sigh of relief from members of the House who were disturbed by the allegation against the committee and the implications for the image and integrity of the House which has had its fair share of corruption controversy. It was feared that if Hembe and his team had insisted on continuing with the public hearing, its essence would roundly have been defeated as the stakeholders in the sector would have lost confidence in the committee.
It was unfortunate that what was supposed to be a public hearing to determine the cause of the protracted lull in the market was hijacked by some personal interest and turned instead to a probe and witch hunt against the person of the Director General of Securities and Exchange Commission (SEC).
The market decline
From being one of the fastest growing among the capital markets in different parts of the world, the Nigerian capital market shed a cumulative 70 per cent from its peak market capitalization in March 2008. When measured against comparable markets, the Nigerian capital market still consistently falls short of the benchmark as shown by several key market performance indicators like market depth/ breadth, liquidity, sector concentration and transaction costs.
Nigerian Stock Exchange's All-Share Index (ASI) started with an index value of 100 in 1984. With increased listings and financial activity, it attained a value of 57,990 at the end of 2007. It started the year 2008 at 58,580 (with a market capitalization of N10.284 trillion). Between 2007 and 2008, the market capitalization of equities in the Nigerian capital market grew to about N13 trillion with 212 equities listed on the NSE, and the number of shares traded rose to about N18 billion. By mid 2008, as a result of the global financial crisis (meltdown), the market capitalization of equities dropped to about N8.8 trillion though the number of equities increased to about 216. Since the beginning of the economic meltdown, the market is yet to regain its confidence due to the loss suffered by investors.
Besides the global financial crisis, the capital market crash can also be traced to poor governance, lax market enforcement and infraction penalization and a regime of pervasive malpractices such as insider trading, share price manipulations, general regulatory failure amongst other corrupt practices. At the height of the manipulation, investors embraced the Nigerian stock business like fast food without any education. Stockbrokers connived with quoted companies to always adjust prices upwardly and paint an impression of well-performing stocks. The trick worked brilliantly for a couple of years, with investors and market statistics the better for it. Stocks that were priced not more than N10 in 2005 had climbed to as high as N50-N60 by 2007. Similarly, the All-Share Index, ASI, which stood at a mere 23.844.45 basis points in December 2004 had gone up to 57,990 by 31 December 2007 while market capitalization, N1.92tn in December 2004 had jumped up to N13.29tn by December 2007.
Having established that the root cause of the market crash predates Oteh's assumption of office as the Director General of SEC, focusing on Oteh is an attempt to divert attention from the major issues. That diversion is not good because it is important to get to the depth of the problem so as to know what happened at the capital market. That way, lessons can also be learnt.
Now that an Ad-hoc committee is in place, there is need to critically examine the past and the present so that a better future can be fashioned for the Nigerian capital market. Past leaderships of both SEC and NSE should be called up to testify and give account of their stewardship so that the present and future leaders of the market can learn from their experiences. Their testimonies can also assist the National Assembly in making laws that will enhance effectiveness of the entire finance industry.
It will be recalled that Oteh, who assumed office in January 2010 when the market was already in crisis, was charged with the task of reviving the flagging capital market. She indeed met SEC in shambles when she assumed office in January 2010.
The public hearing by the new Ad-hoc Committee on capital market needs to be comprehensive and thorough so that at the end of the exercise the factors that produced those negative trends and almost killed our capital market will be properly identified and resolved. Every stakeholder in the market should put aside all controversies and sentiments regarding the aborted investigative exercise and be objective in whatever contribution they are making to the exercise.
The desire of Nigerians, particularly the investors is for the capital market to bounce back to life stronger to the admiration of both international and local stakeholders. That should be the ultimate goal of the exercise.
*Innocent Badmus, a market analyst writes from Ikeja ([email protected])