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Wednesday, August 31, 2011


    Stock exchange - the market where equities and bond are traded, monetary worth of companies and governments are determined, and different kind of assets are displayed in their absence - is quite different from our layman understanding of the term market. Unlike the ordinary market a stock market is an international market that acts as barometer for measuring the health of a particular country economy. Stock market indexes like the New York Dow Jones, Japanese Nikkei, UK FTSE, and Nigerian all share index are the first sign economists and investors look unto when they want to measure the overall health of the world economy or that of any other country in the world. At the eve of the recent fears about US debts, following the down grading of its bonds, stock indexes every where around the world falls signaling investors fear about the US economy and the world economy in general. Stock exchanges have remained one of the few key transmitters of the globalization process. It functions as a meeting point between local entrepreneur firms and international capital cannot be marched by any other market. Likewise it ability to satisfy both sides to a transaction- the entrepreneur firm and the international investor- cannot be performed by any other market.

     The Nigerian stock exchange is, therefore, one of two to three major windows that linked Nigeria with the globalization process; in this matter NSE is more relevant than both the Nigerian foreign exchange market and its commodities markets. Since the liberalization of the Nigerian economy that began in the 1980s, the NSE has moved from its notorious position as a local hub for mostly domestic companies and investors to its current position of being a regional hub of investments coming to the sub Saharan Africa. Around the period 2007/2008, the NSE was ranked among the fastest growing stock markets in the world, attracting international investors from as far as Canada and China. In it drive to meet some of the challenges forced by globalization the NSE began the computerization of the its trading systems beginning from the middle of the 1990s. This began with the introduction of the central security clearing system (CSCS) in 1997 that has so far help to cut the number of transaction days taken to execute a single deal, from twenty days in those days to the current three days. Automated trading system (ATS), creation of various internet frameworks, and technological linkage were among the many changes that were introduced during that period in order to go with demands of globalization.

    But the challenges of globalisation far outstretch what we have mentioned above, as the NSE is in it present form it is yet to meet some of the most critical challenges brought by globalisation that other exchanges around the world are grappling with. The impacts of the last global economic crisis on the NSE was devastating. In fact, the exchange was one of the worst affected exchanges around the world.  Despite the recent short-lived recovery, the NSE is yet to recover half of its pre-crisis level of transactions volume as measured by the all share index. Recently, the exchange was mired in leadership crisis that called it suppose corporate governance mechanisms into question.  Many governance questions raised by the recent leadership crisis are yet to be answered by the new management put in place recently. The same way that the NSE required listed companies to abide by the most valued of world corporate governance mechanisms, NSE itself must follow those rules if it wants to remain a global force to be reckoned with. The fact that modern exchanges around the world are run as public private companies (and, because of that international investors not only look at the listed companies they are putting their capitals into but also the stock market where the companies are listed) should have served as a signal to the NSE's management to initiate more reforms.

   One of the most noticeable changes in the management of stock exchanges around the world during the last one decade is the move toward mergers between major stock exchanges in the world. The process, though it has faced some set backs in the past, is one example of changes caused by globalisation. This is telling you that one of the major agents of globalisation (i.e. stock exchange) has to change itself to conform to the reality of the process. The biggest stock market in the world, the New York stock exchange, is noted around the world not only for the technology it deploys but it flexibility and simplicity in adopting to changes as they happens. In this case we cannot say the same thing of NSE. The NSE is operating under a cabal that doesn’t want to see any significant change to the way the market is operating, because of the fear of erosion of their staunchly held power. In a period when hurricane of financial crisis has forced bourses around the world to change their norm of operation, the NSE remain adamant.  For example, the Asian financial crisis of 1997/98 is still in the minds of the Asian stock exchanges as one phenomenal factor that changed them to their present forms. As for the NSE, the last global financial crisis with it impacts on the exchange, should serve as a rallying point that will propel it to the next era of growth.

Wednesday, August 24, 2011


“The well-conceived and well-intentioned privatization programme, which was designed to, transparently, transfer state-owned assets to private hands to ensure better service delivery, has gradually been personalized and our prized economic assets and choice enterprises have been cornered and auctioned off to a tiny cabal of private sector interests closely associated, or in full partnership with those in the corridors of power, with little or no pretense at due process or transparency … (They) used the privatisation programme to auction our crowned jewels to themselves at rock-bottom prices” (ATIKU ABUBAKAR, The News, March 5, 2007)

        The above were the words of former vice president Atiku Abubakar, himself  an ex-chairman of national privatization council, before his misunderstanding and disagreement with his boss Obasanjo, that would later jeopardized his chairmanship of the council. The past weeks revelations by the senate committee on privatization has once again revealed to the poblic how rotten the Nigerian governance system is and how greed can turn supposedly well intention programs into means of personnel aggrandizement. Privatization itself as at the time it was originally championed  in the early 1980s, when former British prime minister Margaret Thatcher divested large chunk of government companies to the private sector, was introduced as a means of reducing wastage in the bureaucratic running of public companies and to improve efficiency of government agencies. The consensus about privatization was that government should concentrate on provision of things like Defense, Law and Policing, external relations while leaving the provision of things such as running of Airline, Hotel, and production of soap to the private sector who are better at doing that.

    It was the success of privatisation elsewhere around the world that further spurred the machinery of privatisation in the developing countries. The strengthening of the private sector in countries like Britain, Germany and South Korea later lent credence to the belief that any thing private sector is good while any business that bears the foot print of government is bad. In general privatisation is good but it has it own price too, it was only in hand full of countries (mostly developed democracies) that the process was undertaking without the citizens and the country itself paying dearly for it. A good example here is the post Soviet union privatisation and liberalization carried out by the former communist countries in Eastern Europe. Apart from the selling off of government properties at give away prizes to government cronies, there was the socio-economic hardship caused by that IMF-World Bank engineered movement toward free market economy. Millions of workers from Moscow to Kiev to Warsaw loss their jobs in addition to scarcity of basic good and service that caused prices to sky rocket resulting in increase in crime and social disorder. Majority of today's post Soviet Billionaires got their wealth from the privatisation of Russian state properties. Like here in Nigeria, billion of dollars worth of assets were sold to political cronies at give away prices. The same thing happened in South America when countries like Chile, Peru, Brazil and Guatemala embraced privatisation and liberalization.

    The large scale thievery and subsequent distribution of government assets that happened in Nigeria in the name of privatisation did not come to many as a surprise. Right from the time the process began in the early years of Obasanjo's government, I told myself there is something else we were not been told about this Obasanjo rush to sell government properties than the talks of efficiency and economic gains. When I read in the headline of a pan African business magazine published from London that Nigeria is to realize 100 billion Dollars from sell of government assets, I told myself that somebody somewhere is going to get rich at the expense of the Nigerian masses. Now that strategic government assets such as Ajaokuta Iron and steel mills, NICON Insurance, ALSCON aluminum smelting company, Nigerian Airways, steel rolling mills in Delta and Katsina to mention but a few have all been auctioned off, Nigerians knew better about a shenanigans call privatisation.  Unlike in the former communist bloc and South America where despite what has happen in the process of selling these companies, the privatized entities are now national champions. But, the same cannot be said of their Nigerian counter parts who are now in a sober state than before the privatisation.

           Now that about 80% of the privatized companies are not functioning as was the confession of Vice President Namadi Sambo (and the president himself declared the process as a failure), what is next for the government? Should the whole process of privatisation be reversed according to some commentators? Therefore, government buy back it former assets or a measure be taken where in auctions where it becomes clear that government was cheated the process shall be cancelled and the bidding process start a new in the most transparent of manners. To me the second option should be adopted, the sell of Ajaokuta, ALSCON, NICON and few others should be cancel immediately. Thereafter, these companies should be left under the care of government for some time to come. After all who say government cannot run companies, big companies are still being run by government agencies starting from developed countries like France, Italy and Canada to Asian giants like China, India and Malaysia. Now that President Jonathan is serious about management of the economy and the attraction of foreign investors into the country, the entire privatisation process shall form part of his strategic plan toward achieving his economic objectives. Any foreign investor who is expected to commit his capital in Nigeria will definitely be interested in what happen to our privatisation program. Therefore, the earlier Jonathan's economic team realizes this the better for this administration drive toward attracting Foreign Direct Investment (FDI), which is different from the highly speculative portfolio investments that are mean for government Bond and equities.

Friday, August 19, 2011


     No any other African country has the diverse potentials that Nigeria has been endowed with. This potential comprises both human and materials resources. With population of about 160 millions, Nigeria is 8th most populous nation and 32nd biggest economy in the world according to CIA World fact book. It is also reported to have the potential to surpass South Africa as the Africa biggest economy in no distance future, according to recent study by the investment giant Morgan Stanley. Notwithstanding these potentials, Nigeria rank among the poorest countries in the world with one of the lowest GDP per head around the world, ranked behind neighbors such as Ghana in attracting foreign direct investment (FDI), and ravaged by chronic poverty. In term of the indicators for attracting foreign investment Nigeria is also far behind some of its competitors, for example, measures such as World Bank ease of doing business ranking, electricity generation per person, state of infrastructures, legal and court reforms, corruption, just to mention a few.

     It is in this atmosphere that Olusegun Aganga, the minister of commerce and investment, is expected to deliver on his promise of attracting the much needed investment required for rapid industrialization of the country. Some few days back the honorable minister in chart with journalist in the nation commercial capital, Lagos, shade more light on the challenges ahead and what it will take to meet up. According to him, Jonathan administration has a target of N35 trillion investments in key growth areas in the next four years of the government. In order to realize this target the ministry will focus on Sovereign Wealth Fund, the pension fund, Nigerians living in the Diaspora, free trade zones as well as rejuvenation of small scale industries. But, looking at the realities on the ground this is going to be a herculean task for Aganga. Recent data released by the Central Bank shows that Foreign Direct Investment (FDI) inflow into the country in 2010 has declined substantially by 78.1% to $668m, the third consecutive year this is happening. Unlike portfolio investment, FDI is the investment required for creation of most needed jobs in the real sector of the economy.

     According to some estimates, Nigeria has 11th largest workforce in the world. Out of the total workforce, about 70% of them working in the agricultural sector. Nigeria has 70% of her citizens living below poverty line. It shows a clear link between the poverty in the country and agricultural activities, a relationship that policy makers continue to ignore including in Aganga’s investment road map. Interestingly, China which account for most of the investment in agriculture and mineral sectors in emerging countries has reduced her investment inflow into Nigeria. According to a release by the Central Bank, inflow from China reduces from $139 million in 2009 to $9.0 million in 2010. With over $1 trillion dollar in foreign reserve, China is the largest creditor country in the world, so I wonder how our policy makers would have missed that. The result of this, is seen in allowing investment inflow from China to decline. China did not even come sixth in the ranking of countries where the bulk of Nigeria’s investment is coming from.  The bulk of our foreign investment last year is speculative investment that was targeted at our equity market coming from the UK, and US.

       The most attractive destinations for FDI in the world did not attain their positions just like that. They have some of the best infrastructures and most stable macro economic environment in the world. I always say it that foreign investors are not philanthropies, they are profit maximizing and risk minimizing capitalist looking for conducive environment for investment of their capital. Places like Dubai, Hong Kong, and Singapore that are darling of investors are known for their world class infrastructures. Talking of Nigeria infrastructures and administration, right from the point of entry into the country (our Airports) an investors will have a glimpse of what await him. Nigeria airports are ranked 86th in the world. Our telecommunication sector is no better. The decades old telephone lines are dead, the only growth area being the GSM market. We are ranked a distance 163th in the world in term of internet hosts. The problem of insecurity is enough a challenge to send foreign investors away. If you are thinking that foreign investors are not aware of all these you are wrong, because these investors pay world class consultancy firms fees to advice them on where they shall put their money.

    Another factor that will make Aganga job a bit tough is the condition of global economy. Currently, the global economy is in bad shape countries from Greece, Ireland, Spain, and Italy to the US are mired in debt problems. The global outlook for Oil, Nigeria main export is also not very promising. The uncertainties of the global economy will continue to push investors away from long term engagements such as the one required in FDI into short term engagements like the equities and bonds, as we witnessed in the past one year. Despite the challenges mentioned above Nigeria future potential is still bright, if concerted efforts will be put into putting the economy in order. For example, inflow into the manufacturing and production sectors last year increased by about 190% the highest into the sector in four years. Imagine what would happened in a different scenario, where the power supply was better than what obtain now.