Tinubu, stockbrokers’ pain points and market reform

The appointment of Mr. Olawale Edun, a seasoned stockbroker and  consummate banker with strong background in economics,  as the minister  of  finance and coordinating  minister of economy can be described as a metaphor for turning around the Nigerian dwindling economy under the administration of President Bola Tinubu.

I have known the unassuming Edun as a stockbroker since the early 90s, when I was reporting the market for The Guardian during the Open Outcry trading system termed the Call-Over. As an executive director at Investment Banking and Trust Company (IBTC) Limited now, Stanbic IBTC PLC, he was highly respected as a cerebral professional. His credentials as a former commissioner for finance in Lagos State remains a reference point. We met at the golden jubilee anniversary of one of my former colleagues at The Nigerian Stock Exchange about six years ago. When we discussed my certification as a stockbroker, he was happy. He jocularly said that my watching  stockbrokers on the trading floor for many years was sufficient for me  to become a stockbroker. We both laughed.

Edun’s first policy pronouncement that the federal government would not indulge in borrowing at the moment but utilize the savings from the removal of fuel subsidy to create an enabling environment for businesses to thrive is comforting. As a stockbroker, Edun reinforced his policy pronouncement with reference to the stock market saying: “… the aim of all reforms at this time is to focus on what we call equity to focus on investment, to attract investment by Nigerians. Investment by foreign direct investors and even investment by portfolio investors that want to invest in the financial aspects of the Nigerian economy, such as the stock market, such as the bond market.”

Tinubu’s choice of Edun is strategic. The new High Priest of the Nigerian economy understands the linear relationship between the growth of an economy and the development of its capital market. He speaks the language of stockbrokers and decodes the profession’s nuances with ease. Edun cannot claim ignorance of the challenges facing the Nigerian capital market and how the governments  at all tiers have grossly underutilized the market.

One of the earliest pronouncements of President Tinubu was the plan by his administration to reform the Nigerian financial market: The reform aims at reactivating the economy. A committee has been constituted, co-chaired by the former governor of Kebbi State, Atiku Bagudu, and a former governor of Jigawa State, Abubakar Badaru to drive the process of restructuring the government boards, agencies and parastatals. But it is doubtful if a meaningful reform can be done without inclusion of stockbrokers. They are multi-dimensional professionals. Many of them  have reached the commanding heights of their initial professions before they developed capacity in the securities market. We have recorded a stockbroker as a governor and he is doing well. We have them as legislators. Stockbrokers, also called City Gentlemen, are trained to unlock private sector investment in sustainable infrastructures. They cannot be ignored if Tinubu wants to do something different from the past administrations.

Annually, the Chartered Institute of Stockbrokers (CIS) holds National Workshop which brings many talents from the financial market to dissect the economy and advise the government on the medium and long term investment opportunities in the Nigerian capital market.  This year’s Workshop, themed: “ Leveraging the Capital Market to Drive Public-Private Partnership (PPP) for Effective National Economic Growth” is scheduled to hold on Thursday, September 7, 2023 at Nicon Hilton Hotel, Abuja. This is a strong platform for Edun to renew his  relationship with the members of his constituency, the stockbrokers, gain their current thinking  about the critical areas where the new administration should commence the financial market reform  as a matter of urgency.

This year’s National Workshop is the first to be held during the tenure of President Tinubu. Market watchers are already betting whether Tinubu shall declare the Workshop open and seize the opportunity to interact with these financial engineers on their expectation from the new administration in the short, medium and long term. According to the President, of CIS, Oluwole Adeosun, issues that will dominate discourse at the Workshop include: “Macro-Economic Policy Framework for the New Administration”, “Capital   Market Development in  Nigeria”, “Impact Reporting on Bond Issuance in the Nigerian Capital Market”, “Environmental, Social and Governance Investing (ESG) in Nigeria: Issues and Prospects”, and launch of “History of the Nigerian Capital Market” (Book and Documentary) among others.

Barring unexpected glitch, the newly sworn-in minister of industry, trade and investment, Doris Uzoka-Aniete and minister of marine and blue economy, Adegboyega Oyetola are expected at the Workshop to gain insights from stockbrokers on the revival of the economy. The failure of successive governments to key into the annual communique of the Chartered Institute of Stockbrokers (CIS) from either its National Workshop or Annual Conference, has always rendered the previous market reforms of the federal government ineffectual.

The least Edun can do is to ensure that the Communique issued  at the end of the event does not end in the indefinite keep-in-view file in Aso Rock. Stockbrokers understand the economy. They know the achilles heels of the market and the low-hanging fruits that the government can deploy to reinvigorate it. But the history of communiques from market operators is replete with the government’s failure to implement the recommendations.

As an emerging market, the Nigerian capital market suffers from a significant funding gap. The Primary market is largely inactive nowadays. Many investors have lost confidence in the market following loss of funds to investors who raked money from the primary market and reneged on listing the shares in the secondary market with impunity while the Securities and Exchange Commission (SEC) appears helpless. There is also an issue of limited choice as issuers lack options to diversify funding and match it with their needs. The high cost of transaction still remains a major disincentive to investors. Many have  put a large part of their savings in physical assets such as real estate, gold, and bank deposits as options to investment in the market. There is pricing inefficiency with consequences of poor resource allocation.

Market reform under the new administration should be geared towards development of financial infrastructure and increase in effectiveness of the existing institutions. Pension administrators should be made to invest more in the market. Tax reform should reduce transaction cost to attract investors into the market. Stockbrokers need an effective capital market that is deep with a range of product offerings that meet diverse needs of investors. The reform should clip the wings of corporate raiders who deploy new tactics to put minority shareholders at a disadvantage. The transaction procedures in the secondary market should be reviewed to eliminate bureaucracy whereby an investor can use only one account for all market transactions.

McKinsey & Company, has identified some pillars of financial market reforms that are applicable to any environment: Review of regulatory bodies and their institutions, addressing the issues of governance and ownership, ensuring transparent regulations and predictable enforcement, introduction of tax policies and incentives and building of market infrastructure and technology. These should serve as a compass for those who will be saddled with the responsibility of market reform under the new administration. The reform must attract private equity. It must encourage more listing of blue chips companies across diverse sectors of the economy.  It must address the issue of privatisation of moribund government parastatals and listing of their shares on the secondary market of securities exchanges. The market is awaiting NNPC Limited.

Stockbrokers should be allowed to play key roles in the reform of the Nigerian financial market. The City Gentlemen have a lot to offer on the policies that shape the Nigerian financial market. They play a pivotal role in the development of the Capital Market Master Plan of Securities and Exchange Commission (SEC). The Nigerian Exchange Limited (NGX) cannot underrate the City Gentlemen in policy formulation and implementation. The reform under Tinubu’s administration should create a deliberate policy by the government at all tiers to invest in infrastructure by raising funds from revenue bonds and other relevant financial assets. Government bonds are usually a delight to risk-averse investors as the bond is protected with Irrevocable Standing Payment Order (ISPO), issued by the Accountant-General of the State through a Special Purpose Vehicle (SPV) to hedge against default.

The federal government should take a cue from Lagos State government that has a trajectory of sourcing long-term funds from the market to build infrastructure. Municipal Bond was floated to build the popular Sura Market over three decades ago. The state government has floated a N100 billion bond this year to finance priority projects. Lagos State has also become a major player in the commodity ecosystem through its sustained partnership with Lagos Commodities and Futures Exchange (LCFE).