• Voluntary exits, especially by multinationals, have impacted the Nigerian Capital Market, raising concerns about its future growth.
  • The current success of the market is mainly driven by the financial services sector, while other sectors like Fast-Moving Consumer Goods (FMCG) face challenges.
  • The NGX should take steps to simplify listing processes, promote sector diversification, and encourage government patronage of listed companies to deepen the market and attract more investments.

If the Nigerian Capital Market were to be considered a fishing pond of enduring wealth and prosperity, then voluntary exits in recent years, particularly by multinationals, have made that pond shallower, and murkier due to telling economic conditions, neglect and, in some cases, uninventiveness.

This thus leaves many to wonder, is there any end in sight to the shrink?’, and others still, like myself, to testily inquire, ‘What plans, if any, does the NGX have, to quickly refill the pond?’

Like most climes, activities of any country’s Capital market, in subtle ways, reflect its economic health.

YTD Returns and Sector Disparities

Thus, with a +30% YTD return in just 9 months, one may be tempted to think all is well with the Nigerian economy until deeper analysis reveals most of its successes have been driven mainly by Financial Services, with banking and insurance sectors contributing YTD returns of 66.7%, and 57.9% respectively by end of trading week 38 (22nd Sept. 2023).

Other News

Oil and Gas has also returned 100%, whereas the FMCG sector has returned a paltry 14.3%, revealing the telling business climate in which most of the companies in this sector currently contend.

If memory serves me right, many of these, now gargantuan, financial institutions were practically forced to seek listing many years ago due to imposed capital requirements.

Many, if not all of them, have been the better for it ever since, much to the delight of even investors.

Voluntary Delisting: A Troubling Trend

In recent years, however, the NGX has been plagued by a number of voluntary delisting, resulting in a decline from nearly 170 listed to below 150. Some of the more known companies which have announced their delisting desires include GSK, PZ, and Union Bank.

Had it been only these, one might have hissed its triviality and gone on with business as usual.

Until we begin to take greater stock of opportunities that have been denied investors, and sourly needed employment prospects, that have slipped our employable youths’ grasps.

Then a troubling statistic begins to unfold; Ardova, NGC, Unic insurance, Capital Hotel, Evans Medical, Continental Re, 7up, NBC, First Aluminum, Dunlop, and P&G. Might we not be so quick to exclude other lost, listable, opportunities; Surest Foam, Framan Industries, Deli Foods, Stone Industries, Nipol Industries, Mr. Price, Virgin Airlines, Tiger Brand, GoKoda, Iberia Airline, United Airlines, Woolworths, to mention a few.

A question we might then ask; for a country needing to pull itself from the doldrums of what strikingly resembles an economic recession, through greater industrial stimulation, how many of these companies can we truly afford to hemorrhage? But I digress…

Opportunities Lost: A List of Companies

Some of these mentioned companies, we have lost to Ghana, whose economic climate and policies despite the challenges they too may face, are friendlier, and, more importantly, the GSE has, recently, pursued a friendlier ecosystem for its participants. However, shall we remain focused on shallowness for now?

Compared to about 150 listed companies and perhaps 60 actively traded on the NGX, more than 3,000 companies compose the NASDAQ exchange.

Research shows that the shares of over 600 of these are exchanged daily, with NASDAQ’s management actively seeking greater additions whilst encouraging the other, less active ones, into greater activity through public offerings, M&As, or FDIs.

Not only does this greatly increase potential income for NASDAQ through fees, thus increasing job opportunities, it deepens and diversifies the investment possibilities inherent within it, whilst also offering greater economies of scale to her fee structure.

NGX vs. International Exchanges

Though only 30 companies compose the Dow Jones Industrial Average Index, its market cap is well over $9Trillion. Yes, Trillion! Compared to the totality of the NGX which stands at around $ 52 billion.

The S&P 500, measures the performance of the 500 largest publicly listed American companies and boasts a cap of over $ 27 trillion.

Needless to say, the American investing public is, at the minimum, spoilt for choice with at least 500 daily options, kudos to their Exchanges policies and protection laws.

One might be hard-pressed to say the same of the NGX who itself has suffered management challenges of her own in recent times.

With around 1,800 companies listed on the London Stock Exchange (LSE) all comprised of companies from over 60 different countries, the LSE is the only exchange with the most internationally listed companies in the world. It is divided into two main boards: the Main Market and the Alternative Investment Market (AIM).

Challenges faced by the NGX

The Main Board is home to a whopping 1,000 corporations. These must meet certain higher listing criteria such as a minimum capitalization of +£700 million.

The AIM, however, about 500 strong, is a much smaller, more entrepreneurial market that is open to start-ups and younger companies which must not meet the same criterion, but adhere still to disclosure and governance standards.

This stack comparison speaks volumes against Africa’s largest economy, also home to the largest pool of entrepreneurs on the continent that has incidentally been one of Africa’s largest beneficiaries of Private Equity, and Venture Capital, Investments.

The question against this backdrop then; is what active steps is the NGX taking to deepen this option pool for Nigerians? Perhaps I might fancy my long, or short termly, stakes with a cheaply listed Kuda MFB, and others of her likeness, if vigorously wooed, than a more expensive Zenith or Access Bank? I may even perhaps fancy a stake in e–markets through Jumia or Konga. These are but Simple examples. However, I digress yet again.

On the Continent, about 290 companies comprise the Johannesburg Stock Exchange (JSE).

Around 22 are listed under Consumer Goods, as compared to 17 for NGX, for which just under 8 can be said to truly enjoy active trade on the NGX. The JSE Consumer Services board enjoys a whopping 46 listings through Shoprite, Mr. Price, Woolworths, Multichoice Group, Spar Group, etc.

Financial services are populated by over 100 listings compared to Nigeria’s 50 (banks, insurance, etc.). Healthcare enjoys 10 listings compared to Nigeria’s 6, now made one less, by GSK’s planned exit.

The technology boasts 22 listings compared to 7 for NGX. Little wonder then the JSE is the largest exchange in Africa and the 20th largest in the world.

Even the EGX, Egypt Stock Exchange, enjoys over 200 listings.

Thus, with the NGX recently set to lose about 0.44% of her value (N284.59bn), and well over 34 billion shares to voluntary delisting, it is time for deeper inflexion and a sleeves roll-up to avoid further haemorrhaging.

But, let us first quickly examine some benefits to a listing, aside from Increased Access to Capital and greater Corporate Governance and Tax Compliances:

  • Protection: Perhaps an unwritten rule. However, one of the perceived advantages of a listing is the heightened level of protection companies are believed to enjoy from economic vagaries through deeper involvement of their respective exchanges in their affairs. Plus, due to stricter corporate governance laws and production standards, are expected to better enjoy concessions and contracts from the government. The recent declaration by Chams Plc. however, that she had lost $100mil while working with FGN on the National ID card scheme, is rather troubling. The company has declared it would cease all collaborations with FGN and her Agencies. This speaks terribly against the NGX. What was her role in all this? Might have greater involvement from management helped soften such a financial blow, or help the company recoup some of its losses? What visible steps is NGX taking to ensure her companies no longer suffer such fates?
  • Better visibility and attraction of foreign investment: Listings make companies more visible to investments, particularly international ones. But with more private companies of late and start-ups, enjoying greater foreign investments compared to their listed peers, much without NGX involvement, are we to blame any company that may question continued participation in our exchange?

The NGX 10-Year, 10-Point Agenda

This list is by no means exhaustive; however, it is becoming clear that the NGX needs to reinvent herself if companies within her purview are to see delisting as inimical to their survival.

So, is there a solution to our current dilemma? I certainly believe there is, and would wish for a first stab at it. Might I call them, ‘The NGX 10year, 10point Agenda’…

  • The NGX must be actively seen at the forefront of Organized Private Sector initiatives that win the confidence of companies outside, and within it, to a point the listed are perceived to be better insulated from certain adversities. This will only lead to greater desires to list.
  • Simplification of Listing processes: In recent times, companies have complained of the NGX’s complicated listing requirements. The exchange must consequently consider a simpler and more transparent 2–to–3–step ‘pre-listing’ approach that encourages greater interest from private enterprises.
  • Greater involvement in national economic policy formulation: With a larger proportion of tax compliances stemming from listed companies, the NGX must be seen to actively bare the interest of her companies to heart. In certain cases, she must even stand against certain government, and even CBN policies, she perceives as hurtful to the government’s tax drive objectives, and the health of companies within her purview.
  • Cheaper listing requirements: True, independently audited financials are an important listing criterion on any exchange. However, few can truly afford the attendant fees of some of Nigeria’s more prominent auditing firms. The NGX must thus begin to nurture smaller, homegrown, firms to register with it as potential service providers to smaller companies. It may even be time to further revise, downwards, paid–up share capital criteria at certain levels and for certain entrants.
  • In addition, All Listing requirements must be explicitly listed: For instance, nowhere on the listing requirement of companies is it written that listing companies must be registered with the Financial Reporting Council (FRC), etc. These are usually added during the process, why?
  • Initiate a ‘10 for 10’ listing campaign: Since before, or even after Geregu Plc’s listing, I believe the last noted IPO on the exchange was more than 5 years ago! Thus, over the next decade, the NGX needs to champion an aggressive yearly listing of up to 10 companies, of varying caps, to deepen the pool.
  • Adopt a ‘2 for 1’ replacement policy: An idea as simple as the name; Try to stop the bleeding, however, if they must go, replace them, quickly!
  • A greater sector diversification drive: With the sheer number of companies listed on the JSE alone, it is clear the NGX is lagging behind on many counts and must play an aggressive catch-up if she is to even mirror these numbers. Particularly with shrinking numbers from Aviation, Industrial, Consumer Goods, and Pharmaceuticals, replacements are now sourly needed. Also, with the Nigerian Tech space becoming quite active recently, wooing that sector, and perhaps others, like Entertainment, may be a welcomed expansion.
  • The attraction of greater Cross Listings: With a 210 million market to draw from, the NGX should consider wooing companies from other, even smaller, African markets.
  • An aggressive Investor Awareness Campaign: Cryptocurrency trading of recent has enjoyed some popularity, particularly amongst Gen Zs and Millennials. It is now being touted, perhaps falsely, as a more viable vehicle, with perceived swifter returns, and greater transparency than equities. The NGX has its work cut out for it in the marketing and sensitization department, particularly to this younger demographic.
  • Greater encouragement of government patronage: While we note the improved recourse of the government to the capital market, untapped areas still remain:
  • Certain types of unnecessarily free palliative sharing are counterproductive to our economy. The NGX could champion a more robust approach through the introduction of Tradable Savings Certificates. This would have twin objectives of promoting financial inclusion whilst further deepening the Exchange.
  • Ensuring at least 20% of the shares of certain privatized companies are sold to the public across the 774 LGAs in a bid to grow the minimum free float of the market.
  • Greater government patronage, driven by the NGX, of listed companies, especially in executing certain big–ticket projects. Listed companies are noted for adherence to strict governance and production standards. Hence, the preponderance of abandoned, or poorly executed projects, may be better resolved.

The need for market growth and diversification

Overall, boasting a greater, diversified, number, of not only listed but actively traded, companies can be of great benefit to a waning Nigerian economy, and will not only increase liquidity, and revenue generation for the Exchange, but also attract FDI, and should therefore be aggressively considered. Other enviable examples to consider:

India: the number of companies listed on its exchange has increased significantly in recent years.

This has helped raise capital for many companies, which has in turn led to significant FDI and consequently faster economic growth.

China: the government has been encouraging more companies to list on its exchange in a bid to improve corporate governance and transparency, and to attract even greater FDI. China is reputed to have the largest foreign reserves globally.