For the nation’s capital market to benefit from the 2018 budget and grow the economy, experts have urged the Federal Government to refinance its deficit, and develop huge infrastructural projects through the instrumentality of the market.
Besides, the stakeholders expressed worry on the level at which government’s activities in the market is crowding out real investment in equities because the rate of government bond is extremely high.
Indeed, the experts, who spoke in a chat with The Guardian, argued that the key in ensuring the 2018 budget is fully executed in terms of funding, depends on the ability of the government to tap into the resources available within the market space.
Specifically, the President, Association of Stockbroking Houses of Nigeria (ASHON), Patrick Ezeagu, maintained that government needed to access a pool of less volatile funds readily available in capital market, in order to succeed in the areas of capital infrastructure.
Furthermore, he argued that the capital market is the only platform that primarily helps to mobilise funds from the surplus economic units, and subsequently deployed to deficit areas.
“The budget has a deficit that has to be financed, and this has to be done through borrowings and that provides a veritable avenue for the capital market to shoulder the responsibility of funding that deficit. The key in actually ensuring that the budget is fully executed in terms of funding will depend on the ability of government to tap into the resources that are easily available within the capital market space.
“I would advise the government to take advantage of this Salah period not only to refinance but to refinance at a very cheaper rate, because the activities of government in the capital market have been crowding out real investment in terms of other people accessing the market.
“The listed firms’ cannot even issue their bond because the rate at which government is issuing bond is very high. For the sovereign wealth bond, I think it is also over-priced because that is more than risk edge bond debt, which must be paid and the price they are quoting currently, even though Treasury Bill had dropped to 15 or 18 per cent, we still consider it as a higher rate.
“Also, the Federal Savings Bond, which is being undertaken by the brokers currently, has moved. For instance, for the two-year bond, 12 points while the three-year about 13 points, and we still consider that as very high.
“So if government wants to succeed in the areas of capital infrastructure, we need to access the market because this is where you have a pool of less volatile funds that you can access, and use it to drive long term infrastructural development.”
The Head, Economic Research and Policy Management, Securities and Exchange Commission (SEC), Dr Afolabi Olowookere, said the 2018 budget earmarked 30.8 per cent for infrastructure, noting that listed firms are likely to incur lower costs in operations with increased profitability if fully implemented.
He added that government could award contracts and buy from companies that are listed on the Exchange to execute their capital projects.
According to him, this would enhance their performance and ultimately grow the capital market.
“There are many ways the capital market can benefit from 2018 budget, for instance, the budget plans to spend 30.8 per cent on infrastructure. That means if we are able to implement that deal, companies that are listed will have lower cost, because if I have good roads, water and the rest, it lowers my cost; and if it lowers my cost, it increases my profitability, and what lowers my cost will give me opportunity to pay more dividend, and my prices in stock market will grow. So stock market is likely to grow when infrastructure is provided.
“Again, government can also buy from companies that are listed, for their capital projects. Government can buy from Julius Berger, Dangote or Lafarge. So this would enhance their performance and ultimately boost the capital market.
“If the budget is able to achieve its growth target with lower inflation and interest rate, then it creates stable micro economic environment that would attract foreign investors to the market.”
The President, Constance Shareholders Association, Shehu Mallam Mikail, said government must put into consideration an effective privatisation exercise, channelled through the capital market, in order free up resources being directed to manage Government’s ailing assets, for other critical sectors of the economy.
“If government can woo companies to list on the Exchange, give them incentives and create a special policy on taxation, if government can implement the budget in full on a timely basis, both foreign investors and retail investors would come to the market.”
By Helen Oji
The Guardian Newspaper November 20th, 2017