Interview: Oscar N Onyema
What are the greatest challenges in attracting new listings on the NSE?
OSCAR N ONYEMA: There are a number of different challenges facing the various players in the sector. With privatised companies the biggest challenge is probably that these entities were so run down to start with and lacked appropriate financial statements that would qualify them as good companies to be listed. We also believe that the fortitude and willingness of the government to push hard for these companies to join the exchange, and to do so quickly, is a challenge. There are further complexities around ownership structures. If you look at power, for example, it is not only strategic investors buying, with the federal government on the other side. Within the government pool there are different requirements for what goes to the federal government, state government and staff.
From a small company perspective, where you have a founder, there are three major issues. First is the fear of giving up control. Then there is transparency and having to open up your books and share information that your competitors are not necessarily sharing because they are not listed. Then there is fear of taxation, because when you open up your books people then know what you are doing. We try to highlight the benefits of listing a company. When you are the sole founder of a business, one of the best ways to maintain control is by listing, because at some point you will leave that business, and if you do not have a proper corporate governance structure in place it is difficult to transfer that company and the associated wealth to the next generation.
The last group of companies are large multinationals that do not feel the need to raise capital, even though most of their revenues are generated from Nigeria. The solution is to constantly engage them, but also to have strong government backing in addressing their issues around licensing, taxation and the need to maintain an appropriate balance between the requirements here and in their home country.
What can be done to boost churn, particularly from domestic traders on the main board?
ONYEMA: Most of the trading activity we see is from foreign participants, not local, and in that you really need to look at it from an institutional and retail perspective. We do not have a strong portfolio management culture here. What we do have are pension funds, which are typical buy-and-hold models, along with insurance companies, which have not been very active because of the last market downturn. Getting domestic institutional funds to take a more structured approach to investing in the equity market, including portfolio rebalancing, is the kind of thing that drives underlying liquidity. Getting them to participate in short selling is another way. For the retail participants we also encourage them to maintain proper diversification, asset allocation and periodic rebalancing, which helps them achieve their investment objectives as they move along their life cycle, depending on their level of risk tolerance.
How exposed is the NSE to the tapering of the US’s quantitative easing programme?
ONYEMA: We were somewhat affected when the initial news broke in May-June of 2013, but then we came back and finished the year strong, up 47%. The pressures we are seeing now involve our currency, certainty around politics, and the fact people, especially frontier fund portfolio managers, are rotating out of Nigeria into underperforming markets that they believe will improve. We think this phenomenon will largely stop once the rebasing of the frontier market index occurs, and Qatar and the UAE enter the emerging market category. Nigeria will have a bigger portion, so manager benchmarking to that will allocate more of their portfolio. International funds still see Nigeria as an attractive destination, particularly given the rebasing of the GDP. All in all we are not expecting any major shocks from rebasing as long as the US Federal Reserve manages its tapering properly.
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