The Nigerian Stock Exchange became a member of the World Federation of Exchanges in October following the introduction of key reforms. The stage seemed carefully prepared for it to go out and advertise its attractions to international investors.
“In the past few years the Nigerian capital market has undergone a transformation of great proportions,” Oscar Onyema, CEO of the NSE, told FinanceAsia in an interview.
“The aim is to raise Asian portfolio investment into Nigeria to a level similar to the flows of Asian direct investment into the country. At the moment it is disproportionately low [at 3% of the total foreign portfolio investment],” he said.
For example, China Railway Construction inked a $12 billion deal on November 20 to build a 1,400km railway along Nigeria’s coast, representing China’s biggest-ever overseas contract.
However, the collapse in the price of oil -- Nigeria's chief export -- in the last two months has done Onyema’s promotion campaign no favours. As the price of crude has tumbled, so the naira currency has fallen 11% against the dollar, prompting a rise benchmark Nigerian interest rates and leaving the NSE All Share Index some 17% lower for the year-to-date period.
There are also concerns of escalating political strife ahead of February’s presidential election and fears that the Islamist group Boko Haram is stepping up its terrorist campaign in the country’s north-east.
What a contrast to 2013 when the Nigerian stock market put on 47.2%, its best return since 2008 and the strongest performance in Africa that year. The government’s statisticians also rebased the country’s GDP in April, expanding its estimated size by three-quarters and making it the largest economy in Africa.
Onyema stressed that investors should not view Nigeria simply as an oil play. Agriculture makes up 40% of the country’s GDP and consumer goods 17%, whereas oil and gas contribute 14%.
“We need to cultivate the region’s fund managers by exposing them to leading Nigerian companies as well as advertising the world-class quality of the stock exchange,” Onyema said.
Senior executives from major listed Nigerian companies accompanied him on visits to Singapore, Hong Kong and Shanghai last week, where he also met officials at the city’s stock exchanges.
The companies included Caverton Offshore Support Group, Nigeria’s leading oil and gas services provider, top local oil and gas exploration firm Seplat Petroleum (which is also listed in London), FBN Holdings, the country’s biggest bank, Fidelity Bank, which specialises in corporate finance, and the two largest cement companies, Dangote and Lafarge Africa.
“We are trying to attract both institutional emerging market funds and also retail investors. That means explaining the market structure and constituents, pre- and post-trade operations as well execution process, and regulatory regime,” Onyema said.
Since 2011, regulatory oversight has been improved by giving the Securities & Exchange Commission and the NSE more inspection, surveillance, enforcement and disciplinary power. Transparency has also been enhanced through real-time data feeds to the NSE website and regular compliance updates on both brokers and listed companies, and an Investor Protection Fund has been set up.
There is also now greater product diversification. There are 200 stocks listed on the exchange covering 12 industry sectors with a market capitalisation of about $69 billion. Securities include preference shares, Exchange Traded Products, investment trusts and closed-end funds as well as common shares.
Alternatively, investors have the choice of 28 listed mutual funds to gain broad market exposure.
A small-cap board with 11 listings was launched in April 2013 and a Premium Board will be introduced next year for companies with minimum market capitalisations of $1 billion.
A feasibility study for creating a derivatives market has just been completed and the project for setting one up will begin in 2015.
The fixed income market includes federal and municipal government bonds and corporate issues, but trading activity is sparse.
Onyema pointed out that market transparency has been further enhanced by the FIX order management system, commonly used in other stock exchanges.
The market structure was also redesigned earlier this year with open and close auctions bookending a period of continuous trading to dampen volatility and reduce traders’ imbalances.
“Executing stock trades on the exchange is a straight-forward process and can be done either directly with Nigerian brokerages or through a foreign brokerage that has a relationship with a Nigerian one,” explained Onyema.
Unfortunately, the oil price, politics and security fears are now driving investors away. Onyema must feel like the proprietor of a newly opened shop waiting for customers to turn up. And for the time being they are put off by its location.