Total Pageviews

Thursday, January 26, 2012


      As the third biggest stock market in Africa, Nigerian stock exchange is one of the few African exchanges that foreign investors continued to invest in. The other two bigger than Nigeria stock exchange (i.e. Johannesburg and Cairo stock exchanges) have over time become the only African capital markets that regularly feature among emerging market drivers. The fact that South African economy is many times bigger than Nigeria’s provided some explanations behind inclusion of Johannesburg exchange among the emerging markets. While Cairo stock exchange is not only a hub for rising capital for African firms but more importantly it strategic location in one of the fastest growing regions in the world, the Middle East,  provided it with some vibrancy. Like most stock markets around the world Nigerian stock exchange was devastated by the global financial crisis of 2008, but unlike many that have recovered the recovery of the NSE is taking time. In fact, pessimists see the situation as if the market would never recover to its pre-crisis level. Many factors account for this slow recovery. Some of the factors include recent management crisis experienced in the exchange, accusations of unethical dealings, bankruptcy of some stock broking firms, current financial sector reforms, as well as fear of  re-occurance of losses incurred by shareholders at the height of the financial crisis of 2008/9. Others include problems created by margin lendings by banks who on their part do so in order to boost value of their shares. The fake growth in transaction volumes created by the bubble led many investors to invest their hard earn money, later losing same when the market turned sour. 

    Stock exchanges reflect the strength of their mother economies. For example, technology firms are among most capitalized firms on American exchanges, financial service firms in London stock market, and mining companies in Johannesburg stock exchange. In Nigeria the most capitalized company are Dangote group and some of Nigeria big banks. But, because the combine market capitalization of the financial firms on the exchange is significant, NSE continue to move with the fortune of the banking industry. Hence, the current slide in the value of the exchange as the Nigerian banking sector recover slowly from the crisis of 2008-09. Analysts predicted a growth of 14% in the performance of the exchange, anchored on expected recovery in the banking sector in 2012. The forecast growth in Nigerian economy this year and hope of success in the on going mediation of EU debt problems, where the other factors taken into consideration in arriving at the forecast of NSE performance. But I have my doubts, given the reversal of forecasts on the world economy by the International Monetary Funds. IMF in its 2012 outlook have reduced it earlier forecast on the world economy this year. Though, the expected rise in the price of crude oil may offset any slow down in the world economy, but looming threats to internal security is another major problem. Looking at transactions on the exchange last year (especially before crisis of 2008) one major mover of prices in the market was foreign investment. Now, the era of a spectacular rise in NSE capitalization is one to two years ahead or even more. 

     The news that management of the NSE is planning to issue new licenses to ten of its members in order to act as market makers so as to help deepen the market and increase liquidity is a good move. But, it must be handled carefully. It is necessary to appoint reputable institutions as market makers to avoid the kind of shenanigans that tainted the image of the exchange over the last few years. The Johannesburg stock exchange, though bigger than Nigeria stock exchange, do not have the kind of complications we have in the NSE. The reason for this is not far fetch, the board and the management team are the best in Africa. It was in order to reform NSE that (I am sure) the appointment of current CEO was made. But appointing some one from New York stock exchange alone will not do magic. The exchanges infrastructures and the economies in which the two exchanges operate are not similar, likewise the listed companies. NSE alone cannot change much if the management style and governance mechanisms of listed companies do not change. Many Nigerian companies are a long way from meeting international listing standard. Hence, the absence of Nigerian companies on the richest stock exchanges in the world. In some academic studies measuring relationship between corporate governance and financial performance of listed companies on Nigerian stock exchange, it was discovered that concentration of share ownership (very common with listed companies) affect performance. The study also finds adaptation of good corporate governance increases firm performance. 

  Current depreciation in the value of Naira and inflation affect shares listed on the NSE in a negative way. With inflation and possible rise in interest rate the performance of the NSE slow down a bit. Plethora of reforms being put in place by NSE and Security and exchange commission (SEC) slow down recovery of the market. Unless the reforms are undertaking to achieve short term ends. But if they are there in order to set the exchange on a long term growth path, then they would take time and in the process clash with interest of powerful individuals with stakes in the running of the market. Leadership of the exchange under Ndidi Okereke was accused of creating current problems affecting the exchange. It was Okereke who abundant her job to rise money for re-election of PDP. This act is out of tune with the accepted practice world over. At that time NSE was rated worst performing market in the world (2009) with market capitalization hitting N5 trillion from height of N14 trillion. It later led to calls for the sacking of Okereke as CEO of the market. Finally, since good policies are now being put in place all necessary measures must be taken to avoid repeating the mistakes of previous managements. Being fortunate to find itself in an economy with a lot of potentials, Nigerian stock exchange should brace itself for challenges as Nigerian economy moves to become largest economy in Africa.


1- Egwuatu, Peter, (2012), 'Capital market operators seek bailout as illiquidity trail market in 2011"
17 OCTOBER, 2011
3- Iheanyi, N. (2012), 'NSE projects $1 trillion market capitalisation by 2016"
4- Egwuatu, P., and etals (2012), 'Capital market:NSE to engage FG over fiscal policy',
5- Sanda, A.U., and etals (2008), 'Board independence and firm financial performance: evidence from Nigeria', A Paper Submitted to the Centre for the Study of African Economies (CSAE) for presentation
at the CSAE Conference 2008 titled Economic Development in Africa at St Catherine’s
College, University of Oxford, Oxford, 16-18 March 2008.
6- New York stock exchange,
7- Egene, G. (January 2012), 'market making: NSE may begin with 10 stock broking firms', 
8- Johannesburg stock exchange,
9- Abiodun, E. (January 2012), 'Expert predict 14% growth for all share index in 2012',
10- Johannesburg stock exchange,

Wednesday, January 18, 2012


  It was the American approach to business management that spearheaded the current global obsession with MBA, as the main pre-qualification for any one who want to make a deeper inroad into today global business environment. An MBA from Harvard, Chicago, London Wharton, Stanford, or INSEAD is all that an aspiring youngster needs to secure a good white collar job that pays around $110,879 and prospect of making it to the top. Today, business schools around the world that run MBA programs are in thousands spreading from Western coast of United States to Japan, making billions of Dollars in the process. Even here in Nigeria we have good business schools such as the Lagos Business School that are doing well in that area. Though many academic studies have found little in the way of correlation between producing a business guru and possession of an MBA, recruiters still value applicants with the degree because it is a positive signal to its holder knowledge of management. Prominent individuals in the business world from Jack Welch, Bill Gate, to Steve Jobs got to where they are today without having any MBA, likewise thousands of other Gurus around the globe. While cases abound where big corporations, despite their policy of recruiting those at the top among the MBA holders, collapsed. In what many sees as problem of valuing qualifications over experience, which reach it climax with the collapsed of energy giant Enron in the US. The Enron collapsed and that of other giants like long-term capital management have sent a strong signal to corporate world.

     One place to look at that provide interesting case studies of it own is India (that provides the best of the two world) the obsession with qualifications that is prominent in the West and the conservative business tradition that emphasizes family connection and local knowledge of a typical developing country. As one of the fastest growing economies in the world India has provide ample opportunities for young entrepreneurs to put their skills into practice. This has provided old businesses such as Tata group, Reliance industries, and Mahindra group with space to continue consolidating without muscling air out of new comers and start ups.  One unique feature of Indian business that continue to baffle Western management Gurus is the growth of conglomerates business model instead of Western styled special businesses that focus on one line of business. Most of the giant of Indian business that are making global headline today are conglomerates, examples here include Tata groups, Reliance industries, Mahindra group, Bharti, and Essar. While the only prominent Western corporation type of business is Infosys, which specialize in IT software business. Companies such as Infosys are the exception rather than the rule in India murky business environment. But family control business is not only unique with India, as is feature common to all developing countries and emerging markets., Examples are Chaebol in South Korea, Dantatas here in Nigeria, Sawiris in Egypt to mention just a few. Though a lot of changes are taking place in the way family businesses are run with the coming of young generation mangers who received their education in the West to positions previously occupied by their parents and grandfathers. According to some estimates, family businesses account for some 70% of total sales of India 250 biggest private companies.  

      Business executives such as Jack Welch are rarer among the old guard of Indian business builders. Somebody with firmed belief in the capitalist mode of production and it emphasis on shareholders over other stakeholders management style. India executives, due to their linkage to socialist and central command system of the old Indian economy, are skeptical towards embracing capitalist model of governance. A turning point in the India business environment was the liberalization of the economy in 1991 that open the economy to competition. As a result of the liberalization many Western style business corporations evolves, threatening to take away a large market share from family control businesses. Despite the success of companies such as Infosys, American style businesses have a long way to go in order to take away market share from the traditional conglomerates that dominate Indian business environment. One feature common to family businesses in India is that they are very cautious in their investment undertakings; sometimes they like to test waters with small investments to be followed later by large investments. This in some ways has prevented them from riskier investments, but at the same time prohibited them from the windfalls that come with such investments when its succeeded. Riskier investment tends to be undertaking by new generation investors who cut their teeth in the western world. In Nigeria people like Dangote provide a good example of successful business individuals who come from wealthier business family but excelled because of adaptation of modern conduct of business. Though Dangote is educated to Masters of business level, his business empire like that of Tata of India is conglomerate rather than specialized type of business such as American technology giant Apple. 

    Despite resorting to family ways of running business, some of the most successful family businesses in India are run by family members with MBAs. A good example here is Ambani brothers who manage the split Reliance group. Both Anil and Mukesh Ambani hold MBAs from Wharton Business School of University of Pennsylvania. Even in the western world there are large number of businesses that are still being run by families, Rupert Murdoch business empire is a classic example here. There are hundreds of family businesses in Germany and France that are being run as successful as professional businesses, some even better. Thus, having family run businesses dominating the commercial environment in a country is not a bad thing. But, the most important things for these business is to ensure they conform to modern business and adapt to changes as they happen. In Nigeria we cannot say the same thing when its comes to family businesses dominating the top 100 businesses. Many of Nigeria top corporations are own by diverse shareholders, but there are still large number of family business in the country. Some of the biggest business firms in South Korea such as Samsung, Hyundai, and Daewoo are own by family groups, Nigeria has a lot to learn from these giants. Even Western management Guru are learning lessons from these companies. I can recall the time Obasanjo's government tried to push private sector players into creating business behemoth like Korea’s Chaebol. but, that attempt later failed because of agendas of the people behind the project. In conclusion, Indian business environment has reached the level it is today because of the roles played by family businesses such as Tata. I am very sure burden entrepreneurs in Nigeria can learn one or two things from them.


Ramachandran, K., "Indian Family Businesses: Their survival Beyond Three Generations",   Indian School of Business, Working paper series 
The Economist, October 22, 2011
Wikipedia Encyclopedia 
Menon, V., "Indian Business Families: Redefining the Roles", V. L. B Janakiammal College of Arts & Science  

Monday, January 9, 2012


      Over the last few days, Nigeria has found herself in a very unique conundrum, a situation that call for reflections especially on the part of the Nigerian leadership. The removal of fuel subsidy by President Jonathan on the first day of this new year have really taken Nigerians by surprise, likewise the responses of Nigerians to this perpetual removal have equally surprise the Nigeria authorities so far. No one ever thought that divers Nigerians across religious and cultural divides will forget their perceive differences and responses to this subsidy removal the way they did over the last one week. Equally, few observers thought Jonathan will stood his ground this far, looking at the public perception of him as some one who is very soft and easily given to external pressure, which many currently belief is what made him to pass the removal in the first place. Nigerians from Lagos, Ibadan Ilorin, Kaduna, to Kano have response with various degrees of energy and temperaments even before the nation wide strike the Nigerian Labour congress (NLC) embarked on Monday. On the part of government various arguments have been put forward as the reason behind subsidy removal which mainly centered on economic reasons as there is little in the way of political justification for this hike. Even the economic justifications being put forward by the supporters of the removal can be shelved away if one take into consideration one major tools of economic analysis; the elementary level scale of preference which emphasize doing things in accordance to their importance in time of need: as at now Nigeria need the war against corruption more than removal of fuel subsidy.
   All austerity measures are regressive in nature no matter the economic arguments put forward to justify them. No economic argument can justify increasing the price of a very dear and strategic commodity like fuel by over hundred percent at one time; even the countries we are citing as an example did not increase their own by over hundred at a time, instead they do it at intervals, by something like 25, 30, and for some few 45%. In term of enjoyment of fuel subsidy Nigeria is not unique in the world, according to an estimates by Morgan Stanley, almost half the world population enjoy some kind of fuel subsidy. In Oil exporters like Venezuela, Saudi Arabia, Iran, and Malaysia people still enjoy some of the highest oil subsidy in the world, more than what we were enjoying before the present increase. Even in countries that are not known around the world as oil exporters their people are enjoying some kind of oil subsidies, example here include China, India, and Taiwan. In the United States itself, despite the fact that they are richer and economically stronger than us its people enjoy some subsidy (especially when measure in term of purchasing power parity and cost comparisons), fuel price in the US is still lower than what obtain in UK and Germany. Why remove fuel subsidy and leave other subsidies that only the rich enjoy such as access to lucrative jobs and contracts, foreign education and health care, and easier access to our collective treasure?
      The harmful effects of this removal of subsidy from petrol pump price have been under emphasized by this government talking only of the positive side of the policy. For example, one of the likely effects of this policy in the short run is to increase unemployment as some big and small businesses will definitely layoff to adjust to the changing cost of fuel. Economic growth in the short run may likely also be affected as industry and businesses adjust to this changing circumstance, and the continuous labour strike and occupy Nigeria protest begin to have it effect on the economy. Inflation is bound to rise a bit higher in the economy as price of good and service move to adjust to changing price of fuel, this will transmit it effect to the foreign exchange market as the value of Naira will depreciate further in response to rising inflation. As inflation rises and value of Naira depreciate interest charges by lenders (Banks) in the economy is bound to increase making nonsense of Sanusi’s policy of reducing interest rate and cost of running banks. All the purported benefits that is to be realized by CBN cashless policy will be outweigh by the resultant increase in cost to come from this subsidy removal. The price of food items to which most of poor people’s income is going is bound to skyrocket, this together with soaring transportation bills is going to make the life of Nigerian poor more miserable. Though , Nigeria is neither officially a social state nor a welfare state, the current fuel price increase is going to do a lasting damage to the little that remain of government assistance to the poor man on the street.

Tuesday, January 3, 2012


    As promised by this administration in the 2011, that starting from January 1, 2012 fuel subsidy will be removed, that prediction has come and gone. Monday January 2, 2012, Nigerians woke up to find that fuel pump price has been increased (in fact, sky rocketed) to N144 per litre from the official price of N65 per litre. As some of us might have predicted before, that this subsidy removal is matter of do or die to this administration, that 2012 budget will be made so depended on it that without it the whole budget will (as it was presented) collapse, has come and gone. Already, Ghana and Cameroon has been coerced by IMF into doing the same, thus, Nigerian own did not come as a surprise to many global watchers of Africa, especially with the recent visit of IMF head to the country. Some analysts from Nigeria thought that this administration could not get the mind and energy to increase the price of fuel as much as it did yesterday. But, all these are now history, President Jonathan has shown us what he is capable of doing now, henceforth, any body who doubt Mr. Jonathan, do so at his own risk. With fuel subsidy cuts executed, other though economic decisions like hike in the price of electric power, increase in the costs of education and health, returns of toll gates, banning of importations of certain commodities will now look probable. With all these waiting for Nigerians this 2012, the road ahead is going to be tough, as Wahala dey wait.
   Many people are now seeing the connection between December 31 2011, declaration of state of emergency in some of Nigeria’s most trouble spots, and this later day announcement of subsidy removal. As the state of emergency will help forestall any violent opposition that may come against the decision from these trouble locations. Nigerians, who are already paying the price of misrule and corrupt leadership, now have to bear with an inflationary 2012, that will wipe away all the salary increments that salary earners get in the year 2011 and 2010. For the majority that are in the informal sector, such as traders and labourers, hell await them as 2012 is going to be tougher than 2011. The cost of every commodity available in the market as from Sunday January 1 is going to increase making the temperature in Nigeria a bit hotter. As the Western countries have already gotten their own share of street protests in opposition to government draconian economic policies that continue to suffer millions of people, Nigerian authorities are making their own environment ready for their own occupy Aso Rock protests. As the Arab spring, inspired by a jobless and hungry Tunisian youth, continue to topple Arab regime, Nigerian authorities are preparing there own already ripe environment for the same protests.
   There are theoretical and empirical evidences that point to a relationship between austerity and economic stagnation in one hand, and instability and social divisions in the other. For example, in Latin America over the period of their implementations of austerity measures the cases of violent protests, strikes, and attempted revolutions became common phenomenon. The same is true in Indonesia, especially, towards the end of dictatorship of Suharto, when he accepted IMF demand for him to introduce tough economic cuts. As an aftermath of these nation wide strikes, Suharto had to vacate his seat of power. Even in the history of Europe, major violent protests and revolts were recorded to have taken place during the period of economic stagnation and cuts. Unlike in the case of Ghana or Cameroon, the incidence of poverty in Nigeria is high, one of the highest in the word, these together with high level of youth unemployment make Nigeria unsuitable for this kind of fuel price increase. What this administration should have done, if at all it is very serious with subsidy removal, is to have done it in a gradual manner; in such a way that the impact will not be very hard felt by the Nigerian masses. As the effects of subsidy removal spread deep and wide, food prices are on their way to reach the top, this together with already anticipated increase in the global food prices will make the little savings Nigerians have made over the years to go into buying food. Though, the proponents of subsidy removal have argued that the removal and other structural changes this regime is about to embark on will spur economic growth; as in other countries around the world, but growth that undermine exisisting social institutions and increase inequality leads to increase instability.
     Though, in desperation to calm the minds of agitated Nigerians who were shocked by this sudden jolt in the price of oil, Jonathan has appointed committee to manage the proceeds from the subsidy withdrawal, this will not change anything as Nigerians know quite well.  In as much as corruption remains in these ministries where the committee is expected to channel the proceeds to, nothing will change (it is just business as usual). The other committee appointed to negotiate with opposing groups, should not have been there in the beginning, if at all the federal government has stick to it earlier promise of entering into nation wide discussions before introducing the price hike. As for the Labour unions, students groups, civil society bodies, traders association, transporters, and human right campaigners, we wait to see what their next action will be; already Abuja and it environs have started welcoming the echoes of these protest, as ‘Occupy Abuja’ has already started.