Nigeria’s fiscal deficit which expanded above 2.2 per cent of Gross Domestic Product (GDP) in the 2017 is to be financed exclusively with domestic borrowing. In this interview with CHIMA NWOKOJI, Mrs Titi Ogungbesan, the Chief Executive Officer, Stanbic IBTC Stockbrokers Limited spoke on funding options for government as well as investment opportunities for investors.
The capital market is expected to play a major role in helping government finance a huge budget deficit this year. Considering the general apathy in the market, particularly by foreign investors, how best, can the market support government’s financing efforts?
The Federal Government has always and will continue to tap into the fixed income market as a way of providing funds and finances to fund a budget deficit. We believe that the domestic pension funds and other investors have sufficient capacity to support government’s bond issues. Issuing project related bonds would also be an avenue to raise funds to plug the budget deficit in our view. This will, however, have to be looked at from a contract sanctity perspective. On the equity side of the capital market space, one way to fund the government deficit is by getting some of the properly-run government agencies to list on the exchange. Take for example NNPC listing on The Exchange or perhaps the National Communications Commission (NCC). The power of sovereignty alone could be compelling enough for investors to invest and hence for the government to source the liquidity it requires.
Closely tied to investors’ confidence is market diversification. The Nigerian capital market is predominantly equity-driven, and we may argue it is still in its infancy; but given the current economic situation, what else can be done in the area of diversification?
More products are being developed by market operators and participants to further deepen the Nigerian capital market. Over the past few years, a few products such as ETFs have been introduced and constant engagements are going on to build a suite of exchange tradable products. We believe having a range of products will also attract new investible funds. Additionally, the sector split of the NSE is skewed to financials and manufacturing sector and not a true reflection of the Nigerian economy. The listing of more companies in sectors such as ICT, agriculture, power and oil and gas should increase diversification.
It is generally believed that there is no better time to invest in the Nigerian capital market than now when prices of equities are falling. On the other hand, analysts have predicted a possible elongation of the present economic impairment. What will be your advice to an investor caught in this dilemma?
The downward trend in the equities market presents buying opportunities, in my view, as many of the listed stocks are believed to be under-priced compared with their intrinsic value. We at Stanbic IBTC believe it is the right time for investors to take position in the market, especially in quality names with attractive valuation supported by compelling outlook.
Rather than refer to Nigeria’s current economic situation as ‘impairment’, we prefer to call it a ‘slowdown’ as the country passes through this transition phase to what we potentially call a reinvigorated growth phase. We believe on-going economic reforms if properly managed will be the much needed catalyst to unlocking the country’s vast potential. We favour development of domestic manufacturing capacity as a sustainable fulcrum for Nigeria’s growth. There is an urgent need to develop other key manufacturing sectors of the economy to an export potential so as to be less dependent on oil for foreign exchange and deliver inclusive growth. While we acknowledge that the weak macro economy could keep valuations depressed for a prolonged period, it is difficult to time when the market will turnaround. Hence in the near term, we will advise investors to take positions in quality names as the opportunity arises.
The Debt Management Office a few years ago appointed Stanbic IBTC Stockbrokers Ltd as the stockbroker to FGN Bonds and a key part of that mandate was to create awareness on retail bond trading in collaboration with stakeholders. What has been the response of the market since this appointment?
Market response has been positive and retail investors’ participation has improved over time. We expect further future improvement in the level of participation. Stanbic IBTC Stockbrokers Limited in its role as Stockbroker to FGN bonds has organised seminars/workshop in partnership with the DMO and the NSE aimed at creating more awareness amongst investors on the opportunities in the fixed income market. There has been renewed passion for retail bond trading and we expect this to translate into more transactions on the floor of the NSE.
The current slowdown being experienced in the Nigerian economy has intensified the clamour to shift focus from an oil-led, public sector-dominated economy to a more sustainable private sector-driven and diversified economy. Such clamour resonated at the 7th Standard Bank West Africa Investors’ Conference. What will you consider as the key lessons from last year’s conference?
The theme of our conference, held in February 2016 was unlocking Nigeria’s Potential…. “Growth through diversification” and this was particularly borne from our belief that diversification of government revenues away from oil will be a step in the right direction towards sustainable growth of the Nigerian economy. We had various speakers during the conference.They spoke in-depth about how vital it is for Nigeria as a nation to develop a more private-sector driven and diversified economy in order to attain real and sustainable economic growth and development. Proper alignment of fiscal and monetary policies is equally very important. We can see that there is still potential for the Nigerian capital market and the economy regardless of the near-term weak macro-economic outlook.
Last year’s conference as well as previous editions of the conference focused on sustainable economic growth and development. Would you say that your objectives for organising the annual conference are being met?
Absolutely! Foreign inflows whether as FDIs or FPIs are critical sources of capital that ignites growth in any country. However, these flows would not be available if investor confidence in the country is lacking and that has always been one of our goals for the conference every year; to expose foreign and domestic investors to the numerous opportunities that abound in the country.
Although the prevailing macro-economic situation in Nigeria has affected investors’ confidence in the market, we will continue to show opportunities that make Nigeria a critical economy in the frontier market. We have been doing that over the years and we will continue to do so. Therefore we are proud to affirm that the objectives of the conference are being met.
We will continue to encourage the corporates on the importance of senior management representations and continuous engagement with the investors during the conference. We see our conference as a unique platform for a two way feedback mechanism between the investors and the corporates. We will also incorporate the feedbacks received from attendees to make the conference better.
What compelling argument will you offer to make anybody invest in Nigeria’s economy?
Nigeria being the biggest economy in Africa, in GDP terms offers a compelling reason for investors to consider investing in the market and the economy as a whole. With the new Government in place we expect to see some positive changes though it might be gradual and we expect long term funds to look at the potential returns on a risk-reward basis which we believe will justify investing in Nigeria. Currently, there are investment opportunities in infrastructure, agriculture, manufacturing and real estate.
We frequently hear about Nigeria’s potential and limitless opportunities for investment. Given the current situation, and perhaps with the long-term in mind, what specific areas of the economy would you advise investors to tap into?
We think asset classes exposed to Nigeria’s infrastructure and agriculture sectors offers good investment potential. Nigeria’s high infrastructural deficit and the underutilised capacity in agriculture is a supportive catalyst that could underpin growth in the medium term. We believe that with the 28per cent of the N7.29 trillion 2017 budget that is billed for capital projects which infrastructure forms a major part of, the state of infrastructure should start improving moderately.
Nevertheless, we acknowledge the poor level of execution of capital budgets in the past and the low capacity to execute. That is the reason why the engagement of the government with the private sector is welcome and encouraging and could result in a faster pace of closing the infrastructural gap. The development of infrastructure such as electricity, railway transport and more road networks should unlock opportunities in sectors such as agriculture and manufacturing. Given our population, the country is a ready market for a number of the finished goods so the export market should not be an immediate concern.
The listing of major companies, particularly in the oil and gas, power and telecoms sectors, on the Nigerian Stock Exchange has remained a matter of intractable debate, with both sides offering strong arguments that ended in deadlock. What role can market operators like you play to break the deadlock and possibly encourage the targeted companies to quote on the local bourse?
The market can support the government’s financing efforts by raising capital for infrastructural projects through primary issues and public offerings. The major point here is capital. Whether for expansion or for diversification or even taking on new projects- that is what the Stock market provides.
Companies that have a good business model and a good track record of profitability over the years, investors will want to be part of such businesses. The challenge we now have to take on as market operators is identifying those companies, engage them and intimate them of how the Nigerian stock market can both create more liquidity and value for their business.
I must mention that although the operating environment is quite challenging at the moment for most businesses in those sectors. There has to be a really compelling story for the companies wishing to list on the exchange to get their desired level of liquidity.
Raising funds via the local capital market went down year-on-year in 2015, a trend that persisted in 2016, threatening the survival of businesses as well as returns to shareholders. Stanbic IBTC is a dominant player in Nigeria’s capital market; how has stock market volatility and the weak performance of recent public offerings affected your overall performance in the last one year?
Investor apathy towards Nigerian equities at the moment cannot be over-emphasized and all due to a number of reasons; weak outlook of the Nigerian economy following the crash in crude oil prices, reduced FX liquidity, weaker company-specific fundamentals amongst others. The impact has been felt on the entire bourse with the Nigerian All share index declining by about 16.14per cent, 17.36per cent and 6.17per cent in 2014, 2015 and 2016 respectively. This is significant as investors are not keen on taking positions at the current price level because of the fear of further diminution. Although there is still liquidity in the system as a whole, we will continue to engage investors to look at sound investment. We remain and would continue to work towards being the number one stockbroking firm in Nigeria.
It is said that the future that comes to fruition does not just happen; it is accomplished by human effort. Stanbic IBTC Stockbrokers Ltd is already Nigeria’s largest stockbroking firm; what goals have you set for the firm in the next four years?
Yes we have consistently been the market leader in the Stockbroking space over the last couple of years. Just like the brand we represent, we aspire to continue to be the market leader. In addition, we look forward to partnering with the capital market regulators to introduce and champion progressive initiative relating to investment vehicle and education.
The Stanbic IBTC Stockbrokers Limited was appointed by the Nigerian Stock Exchange as one of a 10-member list of market makers. To what extent has this assignment helped in stabilizing the capital market?
Our role as a market maker is to correct price imbalances whenever the need arises as well as provide liquidity in stocks which will ultimately help the capital market. We also think that the introduction of Securities Lending product will aid Market Makers in performing their role effectively.