Transcript Slide 1 - The Securities and Exchange Commission, Nigeria

ADDRESSING EMERGING RISKS IN THE NIGERIAN
CAPITAL MARKET
Mr. Mounir Gwarzo,
Director General
Securities & Exchange Commission
Sunday,
8th May, 2016
Outline
1
Overview
2
Emerging Risks Across AMERC
3
Nigeria’s Emerging Risks
4
Addressing the Emerging Risks
5
Conclusion
2
2016 so far defined by high volatility
۞
Volatility is a natural part of the
market cycle over the short term
۞
2016 has been defined by very high
volatility across the global financial
markets
۞
The major identified factors behind
this high global volatility include:
Liquidity
US Fed Policy
China
Oil
۞
۞
Volatility of the global oil and
commodities markets
۞
Slower growth from China
and other major emerging
economies
۞
US Federal Reserve interest
rate policy (time-frame for
rate hike still unknown)
۞
Liquidity concerns as global
Central
Banks
consider
reducing
monetary
accommodation
The volatility has led to massive selloffs with most of the major market
indices across developed, emerging
and frontier markets in negative
territory
3
Emerging Risks in the AMERC Markets
Falling
Oil/Commodities
Prices
Slower Growth
Global Headwinds
US Fed Policy
Low Liquidity
۞
Our markets continue to face unique challenges both as frontier and emerging markets
۞
The number one driving force behind this year’s challenges has been the volatility of global oil
prices
۞
Similarly, slowdown from China and major emerging economies is adding to the narrative about
the state of the global economy
۞
۞
Growth has slowed significantly in our domestic economies
Liquidity is a big concern, policies of central banks around the world towards tightening already
impacting liquidity
4
The macroeconomic environment in Nigeria
Nigeria’s economy is facing very challenging times
Following over a decade of impressive above 7% growth
rate, the economy has significantly slowed to only 2.82% in
2015 , roughly equaling population growth rate
The current economic environment is characterized by
factors including:
Decline in prices of crude oil in global markets
Exchange rate instability
Inflationary pressures
Energy shortages (power and fuel)
Exit of foreign investors
External headwinds, including slower global growth
Security challenges
Sources: NBS, World Bank
Macroeconomic Indicators
Real GDP growth (est. Q1, 2016)
3.3%
Real GDP per capita growth
0.3%
CPI inflation
11.4%
Fiscal deficit as % GDP (2015)
-3.7
Key interest rate (MPR)
12%
Naira exchange rate/USD
199
Sources: CBN, NBS, IMF
۞
The general sense of uncertainty in
the economy is a major concern for
government and a major risk for the
Nigerian capital market
۞
The fiscal focus of the current
administration
is
massive
investment in infrastructure and
pursuing diversification of the
economy
5
How emerging risks are impacting the Nigerian capital market‘s performance
While maintaining its sound fundamentals, the Nigerian capital market is currently
reflecting the sentiment in the broader economy
The NSE ASI since 2014
The FMDQ 2014/2015 Turnover
۞
Within the context of the
current economic environment,
both the fixed income and
equities segments of the capital
market have witnessed dips in
activity
۞
In the last 3 months of 2015
alone, transaction volumes on
the FMDQ OTC platform (which
reflects the state of the fixed
income market) declined by
about 50% from N14.54 trillion
in October 2015 to N7.43 trillion
by the end of that year. This
drop in liquidity has continued
into the early parts of 2016
۞
The stock market has also
endured
similar
declines.
Major NSE indices lost 17% in
2015 while transaction volumes
fell by over 40% within the
year. 2016 ytd performance is
currently
at
-10%,
an
improvement from the steep
declines in the early parts of
the year
Sources: NSE, FMDQ and Bloomberg
Major Factors Impacting Performance
۞
۞
۞
۞
The oil price shock
۞
Exit of foreign portfolio investors, etc
The declining foreign reserves
Foreign exchange volatility
The delisting of FGN bonds from major emerging market indices
by JP Morgan and Barclay’s
6
Addressing the emerging risks through diversification, greater liquidity and
enhanced capacity
Greater sophistication, improved liquidity, enhanced capacity and
diversification will be critical to addressing identified emerging risks
Diversification of Trading Platforms
۞
We have ensured reduced
systemic importance of any
single trading platform by
licensing alternative trading
platforms. Nigeria now has
multiple platforms:
The Nigerian Stock
Exchange (NSE) for
trading
listed
securities
The NASD Platform
for trading in unlisted
securities of public
companies
FMDQ is the OTC
platform for trading
fixed
income
securities
In addition to these platforms we
have two commodities exchanges
(NCX and AFEX) while a capital
trading point will soon be
licensed
۞
Diversification of Products
Diversification of Liquidity Sources
Product diversification is
very critical for frontier
markets
like
ours.
In
addition to conventional
products like equities and
bonds we are have reviewed
our regulations to allow
product innovation for new
products like:
۞
As foreign investors have
exited
frontier
markets,
efforts must be aimed at
developing
a
domestic
investor base capable of
filling in the gap
۞
Pension Funds: We are
actively
engaging
the
National
Pensions
Commission
(PenCom)
whose expected guidelines
will
see
greater
participation
of
pension
funds
۞
Unified
Licensing:
This
innovative scheme will grant
access to central bank’s
discount
window
to
broker/dealers and market
makers
۞
۞
Securitization:
۞
Sukuk
Infrastructure funds/bonds
Note: We are supporting Nigeria’s
Federal
Government
to
finance budget deficits by
issuing infrastructure bonds
The Government is also
working
on
issuing
a
sovereign sukuk to serve as
benchmark for other issuers
7
Implementing the Nigerian Capital Market Master Plan as Longterm Strategy for
addressing emerging risks
Major Master Plan Initiatives we have implemented
Strengthening the SEC’s Capacity
1
Corporate Governance Scorecard
8
2
National Investor Protection Fund
۞
Our implementation approach is to identify
initiatives within the Master Plan at the beginning of
the year and to focus on faithfully implementing them
3
Dematerialization
۞
4
E-Dividend
In 2015, being the first implementation year, we
selected low-hanging fruits which we are delighted to
have fully implemented
۞
A lot of these initiatives had been identified for
decades without any meaningful progress in their
implementation
۞
Thanks to the Master Plan, there is a renewed focus
on ensuring such initiatives are prioritized and
religiously implemented
5
Direct Cash Settlement
6
Recapitalization
7
Robust Public Enlightenment
8
The Master Plan Implementation so far… Second Year (2016)
Major Master Plan Initiatives for 2016
1
Attracting More Listings
2
Establishing a National Savings Strategy
3
4
Similarly, in 2016 we shall focus on
key areas of the Master Plan ,
especially prioritizing initiatives that
will deepen the market while
boosting its attractiveness and
competitiveness
۞
We will focus on getting major
companies in strategic sectors of the
economy to get listed on any of the
SEC-licensed platforms
۞
A
National
savings
strategy
document will be developed to
improve our savings culture and
accelerate the development of a
domestic investor base
۞
The technology infrastructure across
the market will be given prime
attention
to
increase
market
efficiency
۞
Our cost structure will be reviewed to
make the market more competitive
۞
Product
innovation
will
be
prioritized, especially derivatives
that can help economic agents
manage their risk
Deepening the Non-Interest Products Segment
Building Industry-wide ICT Infrastructure
5
Capital Market Literacy
6
Reduction of Transaction Costs
7
۞
A Framework for Derivatives
9
Conclusion
۞ The
risks our markets face present
their own unique opportunities to
refocus our market development
objectives
۞ We
must seize the opportunity to
further deepen financial literacy in
our markets, take measures that
enhance
depth,
breadth
and
liquidity as well as firm regulation
۞ Our
competitive edge should be
continual
adherence
to
best
regulatory practice
10
Thank
you!
Mr. Mounir Gwarzo,
Director General
Securities & Exchange Commission
Tuesday, 12th April, 2016
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