NIGERIAN CAPITAL MARKET:MODERNIZATION, REFORMS, TRENDS &
OUTLOOK FOR THE FUTURE
Presented by
Oscar N. Onyema
CEO, The Nigerian Stock Exchange
for
NIGERIA ECONOMIC & FINANCIAL MARKETS CONFERENCE
Bloomberg Auditorium, London, UK
23 March, 2012
23/03/2012 1The Nigerian Stock Exchange
Established in 1960
Approx. 5 million investors:Foreign – 81% of market activityLocal – 19% of market activity
234 active Broker-Dealer firms28 member Issuing Houses
Equities – 199 listed cos. N6.35t ($40.56b) mkt cap
Bonds – 52 bonds N5.23t ($33.40b) mkt capETFs – 1 ETF N1.09b ($6.96m) AUM
14 electronic trading floors around Nigeria
About the NSE
23/03/2012 The Nigerian Stock Exchange 2
Figures as at 29-Feb-2012
NSE Vision and Goal
23/03/2012 The Nigerian Stock Exchange 3
• Consistent inflationary pressure
– 10.9% 12-mo average (12.6% in Jan 2012 – remains in double-digit territory)
• Tight monetary policy to manage inflation and high FX demand
– High MPR from 6.25% to 12%
• Increase in credit to private sector
– Up 30% month-on-month
• High lending rates
– 16.75% prime (23.21% max)
• High level of unemployment
– 23.9%; 15-24 year olds are highest bracket (approx 35m)
• Relative exchange rate stability
– N148.67 to N156.70 for USD1
23/03/2012 The Nigerian Stock Exchange 4
Nigerian Economic Trends2011
23/03/2012 The Nigerian Stock Exchange 5
Equity Market Performance2002 - 2011
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
-
5
10
15
20
25
30
35
2-Jan-02 2-Jan-03 2-Jan-04 2-Jan-05 2-Jan-06 2-Jan-07 2-Jan-08 2-Jan-09 2-Jan-10 2-Jan-11
ASI
(D
aily
)
Tota
l Val
ue
of
Shar
es
Trad
ed
(B
illio
ns)
Share Value ASI
A N1,000 investment in 1996 would
have been worth N13,029.26.
Peak:March 5, 2008ASI 66,371.20
-17.07
-20.39
• Soft global economy and cautious foreign investors
– Eurozone contraction (Aug-Dec) with 17-year unemployment high in UK and record high of
10.7% in 17-member zone; Credit ratings for 9 Euro nations cut by S&P (Jan 2012)
– US economy recovering – 3.0% growth in Q411; Inflation at 2.9%; Unemployment down to
8.30% (Jan 2012) from 8.50%
• Eroded investor confidence
– Preference for fixed income, especially for government paper
• Nigeria banking crisis
– N30b ($119.13m) market cap erased in one day; Banking Index down 34.69%
• Low broker-dealer participation rates
– Margin loan debt overhang and lack of access to financing (CBN prudential guidelines)
• Unfavorable interest rates
• Lack of liquidity and depth
– Low equity issuance, no IPO in 2011
– PFAs and Institutionals on the sidelines; Inordinate ratio of foreign-to-local participation
Equity Market Drivers
23/03/2012 The Nigerian Stock Exchange 6
23/03/2012 The Nigerian Stock Exchange 7
Investment Flows
Type of Investors% of Total Value Traded
2008 2009 2010 2011
Foreign Investors 53% 30% 49% 81%
Local Investors 47% 70% 51% 19%
2004 2005 2006 2007 2008 2009 2010 2011
New CSD Accounts(Retail )
206,264 220,650 308,072 950,992 1,817,616 424,813 168,148 128,638
FPI inflows accounted for over 80% of total transactions, driven primarily by
the UK and US, and Hong Kong, Luxemburg, South Africa and Germany
FPI estimated at N511.72 bn ($3.37 bn) in 2011,
up 34.19% from 2010
• Stocks
– 1 fund: Closed-end fund – Sim Capital Alliance Value Fund
– Prospective issuers delaying raising new capital, i.e., no IPOs
– Investors rewarded with bonus and rights ($24.85b) issues, and dividends
• Exchange Traded Products
– 1 ETF: 1st ETF in Nigeria (and West Africa) – NewGold ETF; up 10.2% YTD (Feb 2012)
• Sovereign/State Bonds
– 2 state bonds: $329.33m Delta bond and $59.28m Niger bond
• Corporate Bonds
– 7 corporate bonds:
• $14.16m NAHCO bond
• $30.5m Tower Funding (x2) bonds
• $52.76m Dana Group bond
• $230.54m UBA bond
• $4.45b AMCON (3 tranches) bonds
23/03/2012 The Nigerian Stock Exchange 8
New Issues
2011
Offering Blue Chip and Growth Companies
Main Board - 2011
• 187 listed companies spanning multiple
sectors of the economy
• N6.53t ($43.01b) market capitalization
• 89.29b shares traded, valued at N634.90b
($4.18b); 43% of cos. paid dividends
ASeM - 2011
• Board for small and medium enterprises
• 12 listed companies spanning multiple
sectors of the economy
• N4.07b ($26.81m) market capitalization
• 284.73m shares traded, valued at N154.67m
($1.02m); 8% of cos. paid dividends
23/03/2012 The Nigerian Stock Exchange 9
AGRICULTURE
0%
CONGLOMERATES
1%
CONSTRUCTION/ REAL ESTATE
2%CONSUMER GOODS
31%
FINANCIAL SERVICES
31%
HEALTHCARE1%
ICT1%
INDUSTRIAL GOODS
29%
NATURAL RESOURCES
0%
OIL & GAS3%
SERVICES1%
CONSTRUCTION/REAL ESTATE
1%
CONSUMER GOODS
6%
HEALTHCARE0%
INDUSTRIAL GOODS
5%
NATURAL RESOURCES
0%
OIL & GAS74%
SERVICES14%
TURNOVER RATIO = 9.7%
Avg. dividend yield of 11.54%
Avg. dividend yield of 3.97%
• Global recovery underway, surrounded by risks
• Eurozone debt crisis remains a key risk to the world economy
• Concerns surrounding sovereign debt sustainability
• Volatility in certain regions (and sectors) driven by prolonged
unrest
• Slower growth projected in OECD countries*
– 2.1% (2011), 2.6% (2012), 2.5% (2013)
• US 2.9%, Eurozone 1.8%, Japan 2.6%
• Non-OECD countries to sustain world growth*
– East Asia & Pacific 8.1%, South Asia 7.7%; Sub-Saharan Africa 5.7%
• Nigeria 7.5%
2012 Outlook - Global
23/03/2012 The Nigerian Stock Exchange 10
* Figures reported by World Bank
• Potential deregulation of Oil & Gas sector
– Passage of revised Petroleum Industry Bill (PIB)
– Focus on downstream Oil & Gas sector
• Urgent requirement for fiscal consolidation
– Shift towards balancing capital and recurrent expenditures
• Urgent attention to unemployment
– Agriculture initiative to increase employment potential
• Deployment of the SWF funds
• Returning liquidity in the banking system
• Deeper capital market reforms
– Slight market recovery anticipated
2012 Outlook - Nigeria
23/03/2012 The Nigerian Stock Exchange 11
Reform-Driven 5-Year Outlook
23/03/2012 The Nigerian Stock Exchange 12
Targeted Business
Development Efforts
Strong Regulatory
Environment
“21st” Century
Technology Strategies
Growth-Enabling Market
Structure
First-Rate Investor
Protection Programs
$1t Market
Cap Target
Legal & Regulation Division
BROKER DEALER REGULATION
1. Supervision, monitoring and enforcement of rules –new penalties for violations
2. Compliance – 90% for submission of financial accounts (was 5%)
3. Investigation Panel –reconstituted; new Code of Conduct
LISTINGS REGULATION
1. Disclosure Standards –updated penalties for violations
2. Compliance - 96.81% for submission of annual accounts (2010)
3. Corporate Governance –annual certification requirement
4. ‘Share Buy-Back’ Policy –revised
5. Listings Requirements –revised
SURVEILLANCE
1. Automation
2. Implementation of Market Quality analysis
RULES AND INTERPRETATIONS
1. Formation of Department
2. Rule Book Revision
3. Rule-Making Processes
4. Interpretative Guidance
23/03/2012 The Nigerian Stock Exchange 13
NSE Regulatory Reforms
• Technology infrastructure
• X-Net (virtual private network) for brokers
• Development of NASDAQ OMX X-stream
trading platform
• New corporate database
• Market data services
• New data policy
• Feeds, subscriptions and reports for
market participants
• NSE Web site
• Access and market information for
investors and all stakeholders
• Value-added services
• Corporate Governance, Investor
Relations, Institutional Services, Equity
Research Coverage, and Corporate
Access for listed companies
23/03/2012 The Nigerian Stock Exchange 14
New Products and Services
Equities
Bonds
ETFs (Launched 2011)
Options (2013)
Futures (2015)
Reform-Based Key Initiatives
23/03/2012 The Nigerian Stock Exchange 15
Term
Short (2011) Medium (2012)
Key
Init
iati
ves
Wit
hin
NSE
Co
ntr
ol
- Market Segmentation
- Company Share Buy-Back
- Introduction of ETFs
- Investor Clinics
- New Web Site
- Revised Listing Rules - Market Making (rules approved)
- Securities Lending (rules approved)
- Short Selling (rules approved)
- Develop Product Liquidity and Depth- Attract and Retain More Listings- E2E Trading Automation- Continued Enhancement of Regulatory Programs- Financial Literacy Program- IFRS Compliance- Demutualization- Market Data Services- Advocacy- Dematerialization
Ou
tsid
e N
SE C
on
tro
l - AMCON Debt Resolution- Advocacy
- Review PFA Investment Guidelines- Tax Breaks on Transaction Fees- Policy on Large Cap Firms to Deepen Market- Access to SWF Funds- Exit Strategy for Privatized Entities- Reduce Focus on Dividends- Capacity of Local Institutional Investors- Broker Margin Debt Resolution- Broker Access to Funding
First-Rate Market, First-Rate Companies
23/03/2012 The Nigerian Stock Exchange 16
“The Gateway to African Markets”
23/03/2012 The Nigerian Stock Exchange 17
We offer some of the highest yields
available at maturity, and the
potential for capital appreciation.
Growing per capita income as a result of an
economy that is growing over 7% annually.
The Nigerian Stock ExchangeStock Exchange House
2-4 Customs Street
P.O. Box 2457, Marina
Lagos Island
Lagos, Nigeria
www.nse.com.ng
Thank You
23/03/2012 The Nigerian Stock Exchange 18
