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Recent Developments in African Capital
Markets – The Nigerian Case
Discussion Notes By:
Godwin Obaseki
October 29, 2007
Recent Development In African Capital Markets
FDI & Portfolio Inflows
Across Africa,
recent evidence
suggests that
achieving
substantially
increased levels
of FDI and
portfolio inflows is
possible, given
the right domestic
environment.
Page 2
Ingredients for Success:
• Improved international credit ratings, as has been
the case in Nigeria
• Commitment to reforms, liberalization and private
sector participation; as has been the case in
Egypt
• Stability in macro-economic and political affairs,
as has been the case in South Africa and Nigeria
• Robust external indicators, including high external
liquidity and declining public external debt, as we
have seen in Morocco and Nigeria
Recent Development In African Capital Markets
GDP Growth 2001- 2007 in Nigeria
Robust macroeconomic growth
continues to be a
key driver of stock
market
performance
National GDP
growth (2006 GDP:
US$117m) at over
5.0% since 2003,
forecast at 7.9% in
20072;
New Goal is to
achieve 13.5% GDP
growth rate
between 2007 2020
2Central
Page 3
Bank of Nigeria (CBN) forecasts
Recent Development In African Capital Markets
Non Oil Sectors Leads GDP Growth
•Non-oil sector
growth far outstrips
the troubled oil
sector with
estimates at over
10% growth in
2006, albeit from a
small base
•Local interest rates
have continued
their downward
trend, with inflation
now estimated at
8.0%, as exchange
rates remain stable
Page 4
Recent Development In African Capital Markets
External Debt Plunges
•High oil prices and
fiscal discipline
basis for
restructuring of the
nation’s balance
sheet
•Nigeria’s new status
as an almost debt
free nation, currently
rated BB- by Fitch
and S&P is helping
drive growth
•Total external debt
now comes to about
US$3bn, in a country
with external
reserves of over
US$43bn (as at April
2007)
Page 5
Recent Development In African Capital Markets
FX Rates Stabilizes
•Some of the FX
stability may be
attributed to high
global oil and
commodity prices,
and the recent slide
in the value of the
dollar
•Much of this forex
stability can however
be put down to
consistent macroeconomic
management by the
Central Bank of
Nigeria
Page 6
F o r eig n Exchang e R at e ( N / $ )
N
134.0
132.0
130.0
128.0
126.0
124.0
122.0
120.0
118.0
116.0
114.0
2002
2003
2004
2005
2006b 2007c 2008c
Recent Development In African Capital Markets
Increasing Market Capitalization
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70
60
50
40
C AGR :
46%
30
20
10
2007
2006
2005
2004
2003
2002
2001
2000
1999
0
1998
•Over that same
period, the number
of listed companies
has increased by
only 12%, from 186
to 208 companies.
Market Capitalisation (1998-2007)
Mkt Cap (US$ bn)
•Since 1998, market
capitalization has
grown at a
compound annual
growth rate (CAGR)
of 46%, from about
US$2bn to over
US$62bn as at
August 2007
Recent Development In African Capital Markets
Improved Liquidity
4,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
3,500
3,000
2,500
2,000
2,000,000
1,500,000
1,000,000
500,000
(500,000)
1,500
1,000
500
-
Years
Annual Value
Page 8
Annual Volume
Annual Values Traded
(US$ Millions)
Annual Trading Values / Volumes (1998 - 2007)
Annual Volumes
Traded
(US$ Million)
The total value
of trades
executed on the
Nigeria Stock
Exchange (NSE)
has grown at a
CAGR of 50%
since 1998- to
about US$3.7bn
in 2006 and
US$2.9bn as at
April 2007.
Recent Development In African Capital Markets
An Impressive 10 year Bull Run
31-Dec96
31-Dec-01
% chg
1996 2001
31-Aug-07
6,992.10
10,963.11
57
50,291.09
359
Market Cap (Nbn)
26.04
648.44
149
7,819.72
1106
Ann. Market Turnover (Nbn)
5.82
56.97
879
1,996.61*
3405
Market PE ratio (x)
10.08
13.35
33
25.67
92
Market Div.Yield (%)
5.28
4.73
(11)
2.0
(58)
Number of Listed Companies
183
194
6
208
7
CBN EX Rate (N/$)
80
113
42
127
12
NSE All Share Index
Page 9
%chg
20012007
Recent Development In African Capital Markets
A sizable bond market emerges
Nigeria Sovereign Bonds Yield Curve - 11th Sept. 2007
10
9
8
7
Yield (%)
In a very short
period, over US$
6.3bn in
sovereign bonds
of varying
maturities have
been issued,
leading to an
emerging yield
curve.
6
5
4
3
2
1
0
3 Mths
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6 Mths
1 Yr
2 Yr
3 Yr
Bond Tenor
5 Yr
7 Yr
10 Yr
Recent Development In African Capital Markets
Summary
Reduction in trading
costs and extended
trading hours
Improving reporting
and disclosure
standards
More stringent
requirements for
operators
Wider issuer and
investor base/
Regional expansion
Increasing market
liquidity and
improving trading
infrastructure
Increased listings,
including crossboarder e.g GDRs
Nigeria Capital Markets
Page 11
Recent Development In African Capital Markets
But what can slow down progress?
However, various
obstacles to
growth continue to
exist in both Lion
and Cub countries.
Page 12
• Uncertainty in political affairs, crime, poverty and
corruption; as we have seen in South Africa and
Nigeria
• Low per capita output and large poor populations,
as is the case in Nigeria, Kenya and Senegal
• Government and regulatory restrictions on private
capital flows, increasingly less so across the
continent
• Low levels of infrastructural development, as is
still the case across much of sub-Saharan Africa