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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,