Interview: Oscar Onyema
How can capital markets help the budget deficit?
OSCAR ONYEMA: As a critical pillar to fund mobilisation needed for capital formation to fast-track economic growth and development, the Nigerian capital markets facilitate the generation of long-term financing and active private sector participation in infrastructure development. For example, the listing of state-owned enterprises (SOEs), will unlock liquidity for the government, open new horizons for financing and expand the portfolios of these companies, increasing their competitiveness and reducing the burden on the state budget. Proceeds from listing can either go to the treasury to bridge the budget deficit or to increase the companies’ capital and help with their development, stimulating their production capacity, as was the Chinese experience with privatisation. Public listing would also reduce SOEs’ traditionally high debt-to-asset ratios and inefficiencies. Public listing can help separate government from business and increase enterprise autonomy, efficiencies and effectiveness. Shareholders will be able to question management decisions and will have access to financial statements, which creates transparency.
Nigeria’s capital markets provide various financing instruments and investor categories that could lead to a larger pool of funds. Rather than relying solely on crude oil and internally generated revenues, all tiers of government can finance infrastructure projects through bond instruments. Governments can float bonds at intervals for specific development projects via the primary market to fund public works projects.
Which products is the NSE looking to introduce?
ONYEMA: The NSE is looking to enable the trading of derivatives – such as futures and options in interest rates, currencies and equity indexes – by the end of 2016. Surveys have shown strong demand for derivatives, which help investors to manage the amount of risk they take on and to benefit from a down market such as we have seen recently. We expect further diversification of our offering to empower investors to create stronger portfolios of uncorrelated products. The NSE is considering futures and options on both single stocks and equity indexes among financial derivatives, and is focused on setting up a clearing house with other players in the market. We are intensifying our efforts to develop the necessary technology, legal and regulatory infrastructure to launch derivative products. In 2015 the NSE entered a strategic partnership with global index solutions provider, MSCI. This will create a co-branded family of Nigeria-based indexes that can be marketed around the world. The combination of MSCI’s index expertise in similar markets and NSE’s position as a leading exchange in Africa will deliver high quality index product offerings. This also reflects our commitment to continue to develop products that will increase the sophistication of African capital markets and establish Nigeria as a market for sustainable growth.
What are the effects of the NSE demutualisation?
ONYEMA: Demutualisation is important for our market growth and development. We operate a fair and efficient market at the NSE, but perception is key for investors in the capital market. Institutional and foreign investors perceive that enforcement is lax in mutual organisations. Demutualisation frees the NSE from this inaccurate and negative perception. A demutualised exchange with the management free to decide on operational issues is perceived to be effective and fair in enforcement. It will ensure that the Nigerian market becomes more efficient and competitive. It will dispel any fears regarding conflicts of interest in our decision-making. Morevover, demutualisation is in line with global best practice and has been carried out by stock markets all over the world to widen investor access to the market, improve corporate governance and promote strategic partnerships.
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