Nigeria’s return to FTSE Russell’s Frontier Market universe is an achievement. But if the country is serious about reaching emerging-market status, the restoration should be treated as a starting gun rather than a victory lap.
There is no shortcut to becoming an emerging market. Vietnam’s experience is instructive: its progression required years of work on market accessibility, settlement, foreign-investor participation and market infrastructure. Egypt, meanwhile, illustrates the danger of allowing reforms to lose momentum once an immediate crisis has passed.
Nigeria has been here before. Its 2023 foreign-exchange crisis exposed how quickly hard-won market credibility can be lost.
The objective now should be to make the next phase of reform broad, simultaneous and institutional rather than reactive.
Raise the quality of the free float
Nigeria needs to focus less on the number of companies listed and more on the amount of genuinely investable stock available to the public.
Minimum public-shareholding requirements exist for a reason: without sufficient free float, even a large listed company can produce an illiquid market. Where major companies have relatively small portions of their equity available for public trading, the headline size of the exchange can mask the limited supply of shares that investors can actually buy and sell.
Nigeria should therefore review its free-float requirements and establish a credible timetable for compliance, particularly for large companies whose limited public float constrains market liquidity.
The objective should not be to punish companies. It should be to create a market in which institutional investors can deploy meaningful amounts of capital without distorting prices.
Expand the investable universe
Nigeria cannot build an emerging-market capital market around a small group of heavily traded stocks.
The investable universe needs to become broader and deeper. More state-owned enterprises should be prepared for credible listings where appropriate. Nigerian technology, financial-services and other high-growth companies should have compelling reasons to list domestically rather than looking overseas as their first option.
Medium-sized private companies should also be encouraged into the public market through sensible tax and regulatory incentives.
A larger and more diversified pool of listed companies would give domestic and international investors more choice while making the market less vulnerable to the fortunes of a handful of major stocks.
Institutionalise foreign-exchange stability
The reforms to the foreign-exchange market and the clearance of outstanding obligations were essential to Nigeria’s restoration.
But investors need something more durable than crisis management.
The country needs a transparent, rules-based framework for foreign-exchange market operations and reserve management that does not depend excessively on the preferences of an individual central-bank governor or on ad hoc intervention when pressure builds.
The lesson from 2023 is that market confidence can disappear quickly when investors believe they cannot move their money freely. The objective now should be to ensure that the next governor inherits a functioning framework rather than a system that must be reinvented.
Build the infrastructure emerging-market investors expect
Nigeria’s T+1 settlement reform was important, but settlement speed is only one part of a modern capital market.
The country still needs to deepen securities lending, establish a robust short-selling framework, improve tax-reclaim processes for foreign investors and develop derivatives markets capable of allowing institutions to hedge Nigerian exposure effectively.
These reforms are technical and rarely generate political headlines. They are nevertheless the infrastructure on which sophisticated institutional participation depends.
If Nigeria wants emerging-market capital, it needs an emerging-market operating environment.
Protect the gains from T+1
The successful transition to T+1 should now be consolidated.
The Nigerian Exchange, Central Securities Clearing System and other market-infrastructure providers need sufficient investment in technology, operational resilience and back-office capacity to ensure that the system performs under stress—not merely on ordinary trading days.
A major settlement failure can damage investor confidence disproportionately. Years of incremental credibility can be undermined by one preventable market-infrastructure breakdown.
Put the reform agenda into law and institutions
Perhaps the most important reform is political rather than technical.
Nigeria needs a capital-market development strategy that survives changes in personalities and administrations. The Securities and Exchange Commission, CBN, Nigerian Exchange and CSCS should work against clearly defined, measurable objectives, with progress reported transparently.
That is particularly important as the country approaches the 2027 elections.
The lesson of 2023 is that market credibility can be lost when policy becomes unpredictable. The answer is not simply to promise that the next crisis will be handled better. It is to build institutions and rules that make the next crisis less likely.
Deepen the domestic investor base
Foreign capital is important, but no resilient capital market can depend excessively on foreign investors.
Nigeria needs deeper participation from pension funds, insurers, asset managers, retail investors and other domestic institutions. A broader domestic investor base can provide stability when global investors reduce exposure to emerging and frontier markets.
It also creates a stronger link between the capital market and the domestic economy.
The ultimate test is not how much foreign money can be attracted during a period of global optimism. It is whether Nigerians themselves increasingly regard the capital market as a reliable mechanism for saving, investing and financing productive businesses.
The three-to-five-year test
Nigeria should not expect to become an emerging market overnight. Nor should it accept the idea that such a transition must automatically take a decade.
A focused programme of reforms could accelerate the process, but only if the government and market institutions work on several fronts simultaneously.
The FTSE decision provides Nigeria with something more valuable than a headline: a benchmark against which the next phase of reform can be measured.
The country now has to demonstrate that the improvements which restored its frontier-market status are permanent—and that the market can become deeper, more liquid, more accessible and more predictable.
For a country of more than 220 million people and one of Africa’s largest economies, frontier status should not be the ambition.
The ambition should be a capital market that no longer needs a classification to prove its credibility.
Nigeria is back on the map. The real question is whether it can stay there—and move higher.
- business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com
Oluwatosin Oladetan, (MBA, ACCA, PMP, FMVA, BIDA, MICBC, CNSS, SPY-SP, NIM, TRCN), a vice president (finance), public policy expert, corporate and business strategist, independent director, trusted advisor, is a Volunteering Contributing Analyst with Business a.m.
How bad leaders engender brain drain in Nigeria