One Scandal too many for the Nigerian capital market

As the Director-General of Nigeria’s Securities and Exchange Commission (SEC) sat down that early Tuesday morning in the (un?)hallowed chambers of Nigeria’s National House of Assembly, little did she know that she was in for the biggest embarrassment of her life.

Director-General of Nigeria's Securities and Exchange Commission (SEC)

As she was preparing for the hearing on Monday, putting together her papers to present to the committee on the capital market that Tuesday morning, some rebels in her office were also busy leaking what should have been confidential internal memos to the committee. While she was thinking that this was going to be an inquest into how the Nigerian capital market lost its verve in the last three years, little did she know that this was also going to be payback time for those that have lost out in her bid to restore some credibility to a market bruised to the point of death.

So when the attacks came flying, she was hardly prepared. A N30 million bill on an eight month binge in a luxurious hotel, a N850, 000 bill and an unholy alliance to a bank she should be keeping at an arm’s length were the arrows of accusations that came flying in her direction. The hallowed chambers of the house of assembly must have suddenly looked like a magistrate’s court. Suddenly, from a prosecution witness, which she thought she was going to be at the trial of the capital market miscreants, she was the one in the dock. She had little time to respond to the change of situation before the curtain fell.

Recall, about a year ago, it was the turn of Ndi Okereke-Onyuike. She was the  Director General of the Nigerian Stock Exchange (NSE). She was the woman who you offend at your own peril. But the gods were about removing the veil of invincibility from her face in a very horrible way. The hammer the gods were about to use achieve their devious mission was called Arumah Oteh, a woman of impeccable character and education, a Harvard graduate with distinguished career in Africa’s most prestigious financial institution.

Ndi Okereke-Onyuike Former DG NSE 

Among the accusation against Onyuike-Okereke was the mismanagement and stealing of billions of naira from the NSE, the alleged falsification of her credentials and other sins. Despite her protestation of innocence, she was removed promptly and a new DG of the NSE appointed. With her removal, it was expected that the storm of scandals that has enveloped the market is over. Now the market was ready to fly on a pedestal of transparency and credibility until the latest bombshell.

Oteh’s fight back was a classic case of a woman scorned. On the Thursday, when the house returned to sit for the second session of the probe, the committee chairman thought he had it made. He has stamped his authority on the probe in the last session and made the woman of integrity look like an ordinary crook worse than the crooks she sent out of the capital market.

However, he was in for a shock. Only if he knew what awaited him from the SEC DGs microphone, he would have gladly postponed the day’s sitting. When the accusations started flying from the SEC DG, the palpable discomfort of the committee members and its chairman were obvious. They had asked for N39 million for this sitting and have also asked for N5 million in cash. Interestingly, the chairman had once collected money from SEC for a foreign trip which he never attended. 

As the counter accusations started flying, the committee members realized that they had interesting games on their expensive smart phones. They all suddenly fell in love with the games and started playing with it. The chairman of the committee also suddenly realized he had a long tongue and dry lips as his tongue kept flying over his dry lips.

The damage had however been done. A picture of a capital market enveloped in a dark cloud of corruption was complete. The Nigerian capital market has been painted like a vultures party with everyone feeding on the carcass of investors. A good reason why the market is yet to recover from a loss that has seen mostly retail investors lose more than IUS$ 60 billion in three years. This is more than a quarter of Nigeria’s GDP.

Efforts to revive the capital have been largely futile. There are many reasons why the market remains comatose. Some of the blame rest on the doors of regulators why other reason have to do with the peculiar circumstances of Nigeria as a country.

First, let us look at Nigeria as a country. How many investors will be comfortable investing in a country when bombs are exploding by the minute? Two, with unending threats of break-up of Nigeria, most investors are getting sceptical investing long term considering that capital market investments are long term. Three, with the way three banks were nationalized, with little say from shareholders, how many investors will be willing to invest in shares again not knowing if they will wake up and see their investments nationalized. Most investors still find it difficult to understand why their investment in Bank PHB or Spring Bank or Afribank is no longer worth the paper it is written on again while investments in other banks are now worth one tenth their values. For such investors, the capital market has become a no go zone for generations.

For long, the current regulators in the Nigerian capital market, encouraged by the Central Bank of Nigeria (CBN), have adopted the attitude that retail investors got what they deserved in the massive loss that the market suffered. Yet, as regulators, they stood by and watched the infractions and market manipulations that eventually killed the market. None of the auditors which approved fraudulent annual reports have been charged today for their actions and these auditors still audit the same banks that they audited to death in previous years. Yet, regulators expect investors to trust these same auditors again that once audited the banks to death.

 Nigerian regulators are also yet to show that they have better control of the market? There is no doubt that there has been significant improvement in enforcement of the rules and regulation of the exchange in the last one year. Companies are releasing their results more regularly and the forecasts are also done more consistently. Also capital market operators are also being forced to adhere more closely to the rules of both the Exchange and the SEC.

However, there is much to be done. The quarterly reports of most companies remain unreliably. It is very difficult to understand why a company will issue a third quarter result showing that it has made profit, issue a forecast that it is going to make profit at the end of the year, and a few days to when it is going to release its final results, it hits you with a profit warning and eventually announces a significant loss in its final results. No investor will ever have faith in such a market or company again.

Company quarterly results are still basic. Most companies release very few details in their quarterly results that hardly help investors to make an informed decision about the company. Forecasts are always not backed with assumptions. Investor relations departments are missing from most quoted companies and most of them do not have reliable websites. Getting the published annual report of most quoted companies in Nigeria is like a camel going through the eye of a needle.  Very few companies (mainly banks) bother with analysts presentations and conference calls on their results. 

Finally, regulators seem to think that foreign investors can be relied on to revive the Nigerian capital market. It is usual for them to tout the amount of foreign investors investing in the Nigeria Capital market. However, the truth is that foreign investors are usually short term. It is only local investors that give the market the liquidity it needs to be a viable market.

The depth local investors can bring to the market was shown in the 2006 to 2008 market boom. Retail investors were mainly the drivers of the boom. It can happen again. But local retail investors must first of  be given the respect they deserve once more. It is talking down on them and making them look stupid for putting money in the Nigerian capital market that has partly gotten us to where we are today.

And that reminds me, this was the reason the House Committee on Capital market was supposed to be calling for a public hearing on the Nigerian capital market. To find out why the market is in a bad state. Unfortunately, it became a probe into how SEC is run. Not that how SEC is run is not an issue, it is key, but it should not have been the main purpose of the probe. Putting it first, buried the more important issue of why the market collapsed and has remained in coma.

The capital market committee should have concentrated on the bigger issue of why the market collapsed and let how SEC is managed come in as part of their probe not as the main focus of their probe.  I hope the adhoc committee on the capital market will take a cue.  The Nigerian capital market must be made buoyant again.