Nigerian Financial Market: Questions Today; Answers Now


A good number of times in life, the most complex questions are answered with simple analogies. This is because a lot of problems have one applicable solution.

We have put together a bunch of random musings in the form of questions to shed light on where we are today and where we will likely be tomorrow given our commissions and omissions today.

We are omitting actual names in this article so that our message below is not lost in the distraction. The day for names will come in its own package…

Why is our business environment structured in a way that pays little or no attention to serious matters arising because of the parties involved and the interests they serve and protect? Examples are as follows:

Sanctioned and reprimanded banks’ auditors being left alone to continue business as usual. Arthur Andersen went down for something similar. Some of them are even involved in the advisory process for the sale of the sanctioned banks as consultants. This is one of the examples we will put forth of bad deeds getting positive reinforcement in the Nigerian business environment. It has come to our knowledge that a class action lawsuit is in the works to call the auditors to order. For those interested in the email address of the law firm kindly send an email to [email protected]

Newspapers rarely stating names of companies and people involved in unpalatable acts while stating names boldly when adulation time comes around. It is no surprise that the pages of newspapers have become a “pen for hire” rather than the voice of the commonman who apparently matters less because he has little money. I should have stated little money or influence; in Nigeria when money comes, influence tags right behind it and vice versa. Radio stations pandering to the dictates of programmes sponsors while forgetting why the programme was created in the first place and in whose interest.

The majority (in excess of half) of listed companies have still refused to put their most recently published annual financial statements on their websites despite the Securities and Exchange Commission giving them seven days to do so as of June 6th, 2011. Why do simple things become so difficult in our environment? What are the companies hiding? Who will bell the cat?

`Some stockbrokers are charging fees on customer accounts that are not the agreed fee with the customer or that is unknown to the customer. Investors’ monies continue to be pilfered as the DOG EAT DOG mentality continues to reign supreme. In addition, a good number try to execute purchase orders at the high for the day to generate more revenue when the order could have been executed at a lower price. Who will bell the cat?

An investment bank in 2009 publicly vouched for the sanctity of the books of Intercontinental Bank; a few months later the hammer fell and the rest is history. This public affirmation likely influenced some of the investing public in their investment decision making while the company continues smiling to the bank. Who will bell the cat?

Registrars rarely ever have annual reports of the companies they manage, they keep relying on a public mail system that is often forgotten instead of remembered. Dividend payments are abandoned by shareholders because the hurdles put forth to get paid will cost you more than the dividend you seek in a good number of cases. Who will bell the cat?

Some executive directors of companies (Managing Directors inclusive) continue to sit on the Audit Committees of their respective companies. While we acknowledge that books can still be cooked without being in the kitchen, at least humor us a bit by taking off the impunity tag. Who will bell the cat?

More than enough listed companies under the guise of unaudited quarterly results, continue to take us down the knowingly wrong road for nine months and supposedly come clean three months later when the full year results are audited by releasing results that imply a tsunami hit them in the last ninety days over the year. While this is plausible, it is in our opinion more often than not, not the case. Who will bell the cat?

In 2010, deposit rates were brought down almost in one fell swoop and lending rates remained high thereby giving banks more profitability on their investments. Net interest margin of 7% used to be the exception. In 2010 it became the norm. This definitely helped banks to boost their bottom-lines in their FY 2010 financials. In comes 2011 and the exchange rate (already poor, more so for an import-dependent economy) on the official end and the parallel market begins to widen giving the banks another awesome opportunity to boost their bottom-line through round-tripping. Look out for banks’ foreign exchange earnings for the half-year 2011 and going forward. One important thing here is none of these acts benefit the commonman. It benefits those who do not care for or who will rather take from rather than give to the commonman. Why are the banks whose impact for the most part (by action and not by mandate) remains superficial continually aided to boost their bottom-lines through deft maneuvers orchestrated by their regulator? God bless the author of the saying: All men for themselves, God for us all. Our business environment should be the mascot of this saying.

Why is the bond market still kept far away from the retail investor? Which financial market in the world can really thrive without retail participation? Why can’t we have a centralized quote system that is publicly accessible to the general populace? Rocket science? I think not. When have the banks (who are the bond dealers) in all sincerity collectively done something (not philanthropy) to benefit those with less financial clout? You do not have influence which emanates from wealth, you do not get noticed or you are not given attention in our financial marketplace. In the best of scenarios, the retail investor is just a means to an end.

$1.00 = 5.95 Egyptian pounds, $1.00 = 6.50 Pula (Botswana), $1.00 = 90.70 Kenyan shillings, $1.00 = 6.70 Rand, $1.00 = 17.00 Birr (Ethiopia) and $1.00 = 7.80 Dirham (Morocco). All these countries have better numerical exchange rates with the United States dollar than Nigeria. Why will an import dependent country like Nigeria work over the years towards an exchange rate that makes its currency weaker (while aggressively threatening to get weaker) when its people (unfortunate as it is) are dependent on imports for survival? Our answer is…

We export oil and receive dollars which when converted into naira provides more local currency the more the currency depreciates or is devalued. A weaker currency benefits those who export oil as they get richer in local terms when the naira weakens. Meanwhile, the commonman is hit with hyper-inflation (do not get excited with the rates being bandied around; go to the streets and find out first-hand) as a result of the weakening currency. Botswana a landlocked country has a single digit exchange rate with the US dollar. We keep on hyping our population as officials skirt around the world proclaiming Nigeria as the new N in the future BRINCS (BRIC became BRICS and then…). Is this population being catered for or exploited? How many live on a less than $5 a day? It is better to be wise and small than be big and foolish. The large population that is supposed to be a great asset is metamorphosing into a liability as the few take away from the many. Eighteen thousand naira per month has suddenly been made to feel like one hundred and eighty thousand naira per month. Go figure…

Why does our financial market sneeze when the banks blink? Our bourse should not be the banks and the banks should not be our bourse. Four of the top ten most capitalized stocks (non-banks) as of June 30th have achieved a price performance of at least 17% as of July 25th, 2011. The fifth (non-bank) and most influential has declined less than half a percent year-to-date and despite the foregoing, the market is still negative 2.92% for the year as of July 25th, 2011. This is because despite the smaller market capitalization influence of the banks, their overall influence over the market has not diminished through inter-related activities. Three of the five most- capitalized banks will keep their brokerage arms even in the new banking dispensation. Do not expect the banks’ hold over the stock market to end anytime soon despite the numbers implying so.

Instinctively people do not run when they have nothing to hide. This goes back to the days of Adam and Ave as the story was told. A lot of listed companies deny access to their annual reports through their head offices, websites and registrars. Some even went ahead to complain that it is being used against them as if the report was falsified by the public, reprinted and recirculated. This will be dealt with later exclusively and then names will drop. Once again, who will bell the cat?

If you do not stand for something, then you stand for nothing. If you do not tag then, you get tagged. The problems we have in our financial market and beyond are because we continually make decisions and take actions to benefit ourselves and our cronies most times, to the detriment of everyone else. If we do not change, we will continue to talk a lot and do little to move our market and the country forward while making our bank accounts fatter through protecting and serving the interests of those that do not mean well in the grand scheme of things.

Meanwhile, another weekend will be soon be here and places of worship will be filled up with people who remember what is right and then forget when the work week starts. If we refuse to help ourselves, then no one from the outside is going to help us. All they will come and do is milk us for all we have under the guise of helping. You really cannot blame them. Charity begins at home. Ever heard of act like you want it?

Every day is a new day and what it brings forth may leave you exposed. Energy should be expended setting things right for all and sundry and not expended chasing proponents of what is right. You cannot win even in an environment that thrives on malfeasance, sycophancy, corruption and falsehood.

Once the good of the majority supersedes the selfish interest of a few in our financial system, our market will become developed in the near future because the right, practical and selfless decisions will be taken. Those at the top should ensure they focus on what is below them and not what or who is above them. It is easier to come down than to go up. Posterity is never prejudiced.

This is once again dedicated to the little guy out there whose voice is being drowned out by the vociferous and exploitative few. Your voice is being heard (even if faintly) and it will get to the top. When it finally gets there, it will not leave until a new dawn is born and your voice seizes the daylight. Light will always overcome darkness by the time the fat lady sings.

We are in interesting times. Stay tuned…

•Jude Fejokwu is Principal Analyst, Thaddeus Investment Advisors & Research Ltd.