Interview: Mounir Gwarzo

Which steps are being taken to increase the volume of foreign portfolio investment (FPI) in Nigeria?

MOUNIR GWARZO: The goal of the Nigerian SEC is to develop the country’s capital markets by working with regional stakeholders, country-wide regulatory bodies and foreign partners. We are pursuing this in accordance with the country’s Capital Market Master Plan, which aims to make Nigeria’s capital markets the largest and most developed in Africa by 2025. We are setting corresponding targets with the intention of attracting FPI, promoting sound corporate governance, improving risk-based management systems and ensuring better disclosure of accounting information in line with international standards. These measures, amongst others, have already produced noticeable results, with market capitalisation nearing the pre-financial crisis peak.

We have also seen a return of FPI. In the first half of 2017 total investment in the capital markets stood at N220.27bn ($778.4m), with FPI accounting for nearly half of this. The fight against corruption is gathering pace, the ease of doing business is improving and macroeconomic policies – on exchange rates, for example – are becoming more market-friendly. As we continue to strengthen the development of the capital markets in accordance with government efforts to promote transparency and accountability, the outlook for foreign investment in Nigeria certainly remains positive.

How can trading churn be increased across the equity and debt markets in particular?

GWARZO: Data from the capital markets shows an overwhelming dominance of the equity market. At the end of June 2017 total market capitalisation was at N19.03trn ($67.3bn), with equities contributing N11.46trn ($40.5bn) and bonds N7.55trn ($26.7bn). In terms of the value of trading, there is an overwhelming dominance of equities, which accounted for nearly 99% in the first half of 2017. The need to improve the level of activity in the debt market is urgent, although overall activity should also be boosted across all spheres. In addition to corporate and country-level governance, we need to continue implementing the initiatives of the master plan in order to increase churn. These measures include the direct cash settlement and e-dividend policies that remove the need for dividend warrants and the associated tendency towards market infractions.

What can be done to increase the volume of listings on the alternative securities market?

GWARZO: Increasing listings on the country’s securities market is an important pillar of our policy in regard to the development of the market. A host of initiatives are involved, including working with stakeholders in the capital markets and improving market literacy among firms as well as the general public. We are also forging ties with the tax authorities and the National Assembly, with the intention of generating a review of the tax laws that are required to foster company listings.

How can integration between SECs be achieved?

GWARZO: Legal compliance is a key factor that motivates the cross-border movement of capital. Asset quality can only yield return if managers are ready to guarantee investor protection. As the first country in Africa to adopt a corporate governance scorecard, we have no doubt that our market is ready for faster integration into the global system. Market integration produces desirable outcomes through portfolio diversification, but holds its own risk – in the face of negative shocks, foreign investors tend to exhibit herding behaviour; the challenge for us is to ensure that our market is able to cope with such situations. Regional integration has been hindered by differing legal systems in West African countries that stem from differences in colonial experiences. However, as members of the International Organisation of Securities Commissions and the West African Securities Regulators Association, there is certainly scope to overcome these challenges.