The capital market is the life-blood of capitalism which fosters development by providing the boost for entrepreneurship, innovation, job creation and economic growth. An efficient capital market does what no government can do by ensuring the best allocation of resources.
The history of the Nigerian capital market dates back to 1959 when the Central Bank of Nigeria (CBN) floated the first Nigerian Development Loan on behalf of the Federal Government of Nigeria. Thereafter, in 1960, the Lagos Stock Exchange which later became the Nigerian Stock Exchange, a non-profit organization, was formed for the purposes of providing facilities for trading in securities and to facilitate the flow of long-term capital into commerce and industry, among other things. The exchange is mutually owned by some private individuals and financial institutions, though not a few people wrongly believe it is owned by the Federal Government.
From its inception the exchange has contributed in mobilising long-term funds through its market mechanism, though the market remains largely detached from the economy because companies and corporations in the commanding heights of the Nigerian economy are not listed on the exchange. Also, for the reason that Nigerian entrepreneurs are averse to listing their companies on the exchange for a number of reasons including ignorance, phobia for public accountability, myopia and egocentrism – a desire to run a one-man show without thinking global.
The role of the capital market in enhancing economic development cannot be over-emphasised. A school of thought has related the rate of economic growth of nations to the growth rate of their capital markets. Nigeria is in need of a big, strong and vibrant capital market to catalyse economic growth more speedily, but this may not be readily attained under the present monopolistic regime of the Nigerian Stock Exchange. And this is with a sense of responsibility, this writer being a capital market operator and analyst with over 22 years of experience and in-depth knowledge of the operations and peculiarities of the Nigerian capital market. The nation needs at least two more independent stock exchanges to break the monopoly and compete with the NSE.
A monopoly is restrictive while healthy competition releases creative energy and engenders innovation, dynamism and synergy. It galvanises rapid economic expansion as is evident in the telecommunications industry. The postulation that a mono stock exchange is good enough for Nigeria because some stock exchanges in developed countries merged is mendacious and is not altruistic. Such mergers were mere survival strategies in the face of global competition and they generated tremendous synergies.
The American Stock Exchange merged with NASDAQ and evolved into an exchange with multi-trillion dollar market capitalisation, offering a deluge of products. The New York Stock Exchange merged with Archipelago, became demutualised and acquired Euronext in 2006 in a grand move to emerge the world’s largest stock exchange. The London Stock Exchange merged with Borsa Italiana and adopted an integrated business model, offering customers a one-stop shop for a variety of products. But for competition, these mergers and the associated synergies would not have been. However, notwithstanding, the USA still boasts of about 18 other independent stock exchanges, Brazil 14, India 22, Germany 11, Japan 11 and London 6. Others are Belgium 6, Canada 5, Switzerland 3, etc.
The abrogation of the Abuja Stock Exchange (ASE) was a deadly blow dealt on the Nigerian capital market. Had it been given a chance, the ASE would have positively influenced the dynamics and growth rates of the Nigerian capital market. But alas, it was consigned to the dustbin of history. Even the Abuja Commodities Exchange which it metamorphosed into has been lying prostrate ever since.
Capital markets grow through deregulation and competition. Competition leads to corporate restructuring, strategic alliances and or demutualisation of stock exchanges for the major purpose of purchasing the latest technologies in order to stay ahead of the competition because technology is the soul of stock market operation. Typically, demutualisation is the offspring of competition. But here in Nigeria, the regulatory authorities want to jump the gun. They want to run without first crawling. They are bandying the concept of demutualisation for the heck of it and because demutualisation is a capital market jargon and a buzzword.
Competition among stock exchanges is encouraged for the best to emerge. That should be the way to go and grow. Monopoly is anathema to growth and expansion. The Federal Ministry of Finance, Central Bank of Nigeria, the Senate and House committees on capital market and any willing and ready individual entrepreneurs and financial institutions with the wherewithal should take this article as food for thought towards conceiving and promoting another stock exchange/s. Nigeria deserves some more life-blood of capitalism for rapid economic growth.