The Federal Government should lead other stakeholders to develop a frontal purpose-driven domestic investment policy that will encourage participation by Nigerians in the capital market to create a sustainable pool of capital for development.
Less than three per cent of Nigerians participate in the stock market, while about 0.5 per cent patronise collective investment schemes, otherwise known as mutual funds.
The President, Chartered Institute of Stockbrokers (CIS), Mr Oluwaseyi Abe, said the government needs to pay more attention to measures aimed at enhancing the development of the capital market and reducing the volatility usually driven by inflow and outflow of the dominant foreign investors. This, he said, would be by instituting policies aimed at encouraging the participation of Nigerians in the nation’s capital market.
According to him, while the capital market would continue to depend on the interplay of foreign portfolio funds and domestic funds, it is only the presence of a large domestic investors’ base that can mitigate the volatility of the capital market.
“At the heart of the capital market is the issue of participation of local investors. Expectedly, it is the local investors who ultimately will bring stability to the equity market. The critical issue is that the Federal Government and other stakeholders must be prepared to address the need to encourage our local investors to return to the market,” Abe said.
He added that though Nigeria’s natural endowments still make her a very attractive investment destination with potential to deliver competitive returns to investors, the market must be strategically supported by well thought-out policies.
“The truth of the matter is that many foreign investors still regard Nigeria as a good investment destination because of our current political stability. However, they will be further encouraged if we also have some consistency with our foreign exchange policies in line with global best practices,” Abe said.
He emphasised the need for the government to pay attention to the capital market, noting that history has shown that the capital market provides the surest route for developing countries to accelerate the pace of their economic development.
According to him, some of the factors that draw investors into the capital market include positive expectation about the economy, adequate and positive information about the market, security of investment, good returns in the form of dividends and capital gains, and favourable government policies.
“The question we should be asking is: are we making maximum utilisation of our capital market in formulating and implementing development policies? Government urgently needs to focus more on the capital market and craft policies that will make the market thrive for local and foreign investors,” Abe said.
He allayed fears over the prospects of the Nigerian capital market pointing out that the current depression is due to the prevailing macroeconomic environment as the market mirrors the fundamentals of the economy.
According to him, it is normal for the market to swing upward and downward because that is what makes it a market, but the fact is that the direction of the capital market is a reflection of the economy.
He said the downtrend presents opportunities for Nigerians to enter the capital market at very attractive prices and position to earn good returns as the economy recovers.
“It’s a known fact that the economy has not been doing too well lately. In this regard, it is even the best time to invest in the capital market because once the economy gets better, the capital market will recover as well,” Abe said.
He urged capital market regulators and other stakeholders to strengthen the regulatory framework to forestall any loss of investors’ confidence due to lack of transparency and weak corporate governance structure.
According to him, investors’ confidence is still low as a result of massive losses arising from the 2008 global recession, though this is being addressed. Quoted companies are also going through challenging times with regard to rising costs, which is affecting their dividend paying ability.
The Nation Newspaper August 10th, 2017.