THE past three weeks have witnessed a flurry of measures by the Federal Government, regulatory authorities and other stakeholders, in a determined bid to shore up the eroded fortunes of the Nigerian capital market. On August 26, after a meeting with stakeholders, Vice President Goodluck Jonathan announced a rescue plan. It included the constitution of a 16-member presidential advisory team, comprising public and private sector chiefs, that would meet regularly and advise on measures to bolster the market. Exemption was also granted for companies to buy-back up to 20 per cent of the company's shares, while the Securities and Exchange Commission and the Nigerian Stock Exchange (NSE) were directed to reduce their fees.
In addition, a capital market stabilisation fund is afoot. But the Central Bank has been asked to review the liquidity situation in the economy. Commercial banks have equally been mandated to restructure existing facilities given to licensed stockbrokers, institutional as well as individual investors. As part of the remedial measures, the NSE has since revised its trading rules. Consequently, there is now a one per cent (from the previous five per cent) maximum downward limit on daily price movement, while the prevailing five per cent limit on upward movement is retained. The Exchange has also delisted 32 moribund companies, and will henceforth reduce the rate of new listings until the market recuperates.
On Monday last week, SEC amplified the rescue plan by detailing mandatory steps for share buy-back, which must not be above 15 per cent of the existing issued and paid-up capital of the purchasing company. There can be only one buy-back within a financial year and the transaction shall be authorised by a special resolution. To fortify the market, the SEC also inaugurated the Committee on the Review of Corporate Governance for Public Companies and the Committee for the Review of Capital Market Structure and Processes.
Little persuasion is needed now for all to realise that the Nigerian capital market is in the throes of a debilitating crisis. The lifeline announced on August 26 came after more than five months of crippling losses on the stock exchange. The market had lost more than N3.5 trillion, that is about 40 per cent of its value, and showed no signs of recovery. Yet, the efficacy of the government-backed rescue plan can be gauged by the reaction of investors. In the first seven days after the remedial measures were made public, the market indices began to point upwards. But, thereafter, the bears returned and stock prices are falling once again. The only saving grace is the maximum one per cent decline rule now in force, otherwise, stock prices would have fallen faster than they rose in seven trading days after the recovery plan came into force.
The scenario of partial rejuvenation of the market has played itself out in the course of the meltdown. In the early period of the crisis, the regulatory authorities outlined steps to frustrate price manipulation. These included the requirement of trading a minimum of 100,000 units of a stock for its price to change and the debarring of quoted companies tendering for public offers less than one year after their last offer. The market responded positively for a few days, then went into slumber. When the CBN announced that it had not embargoed margin accounts, and also abandoned its quest for uniform year-end for banks, the stock market indices looked up for a few days, then plunged southward. In the same vein, the market resurrected for a while after the new board of SEC slammed the requirement of a new capital base of at least N1 billion for stock broking firms.
The market is apparently defying all remedial measures, thus far, for a number of reasons. Policy inconsistency by the CBN and SEC precipitated the dumping of shares by discerning investors, who in turn created a bandwagon effect. As prices plummeted, investors were alarmed by the rapid erosion of their wealth. The ensuing shock has created a crisis of confidence in the market, as those who managed to salvage their assets have sought alternative sources of investment. Such investors, the government and other stakeholders, must seek to woo back.
The negative vibrations in the global economy have also impacted the Nigerian capital market. This is especially so with regard to portfolio investors, who were among the first to take flight when the signs of a dramatic downward slide first emerged on the Nigerian stock market. This has exposed the underbelly of the Nigerian capital market, as being driven not by real wealth from within the country but by foreign investors who are ready to dump the country at short notice. In this sense, the fact that the government has not achieved much in reducing the country's risk-rating, which remains high, has been contributory to investor flight.
However, the biggest challenge to the capital market recovery is the larger economy itself. While the CBN announces with relish the latest balance in the country's foreign reserves, local companies are dying. Those that manage to operate battle with high overheads arising from infrastructural paucity and energy inefficiency. Local producers are also contending with dumping, owing to government's unhelpful fiscal policies that encourage importation, such as is the case with Dunlop Plc, the only surviving tyre manufacturer, which faces a bleak future from the influx of tyres from all corners of the globe. Nigeria's economic managers have not been alive to their responsibilities. And the shocks in the capital market have exposed the fragility of the economy. Where developmental capital is paltry, or the real sector is prostrate, it would be a miracle to expect the stock market to rebound to an appreciable level.