Nigeria Stock Exchange Readies For New Chapter Post Demutualisation

By Oscar N. Onyema  —

Capital markets in Nigeria are entering a period of major change, commencing with the demutualisation of the Nigerian Stock Exchange (NSE or The Exchange), which was approved by the nation’s Securities and Exchange Commission and Corporate Affairs Commission in March 2021. The opening up of the ownership of the Exchange is not only a signal of the market’s transformation, but also creates new strategic possibilities, which the Exchange is determined to grasp.  

Demutualisation is widely supported by the financial community and has been greeted with enthusiasm in Nigeria, since our new status as an ambitious commercial entity reflects the entrepreneurial ethos of the country. It will enable us to reach out even further to investors and companies beyond our existing relationships.   

We are ready to be the source of funding for Nigeria’s most promising businesses, including the rapidly developing fintech sector that is leading Africa, through our Growth Board established in 2020, which is now home to five listed companies. We will redouble our efforts to encourage Nigeria’s Small and Medium Enterprises to use the exchange as a platform to generate liquidity and raise capital to meet their strategic business objectives.  

We recognise the importance of broader financial inclusion and will continue to facilitate retail investor participation in the Nigerian capital markets by improving ease of access, effectively broadening Financial Literacy Programmes, and enhancing access to zero cost financial information.  

Until now, the Exchange has depended on local brokers as its members for support and resources. With demutualisation, we are better positioned to provide liquidity to our members, allowing the capital market ecosystem grow at the same pace of the economy. Furthermore, demutualisation of the NSE is pivotal in that it creates new strategic opportunities that will enable the Group realise its vision of becoming Africa’s leading capital market infrastructure provider. It will give rise to a more agile exchange that is better able to support the growth of the capital market and the economy through increased capital market activity, improved investor confidence, as well opportunities for new dynamic relationships, strategic partnerships and capital raising flexibility both locally and internationally.  

This change in our ownership framework has given us the opportunity to rethink and upgrade our vision and our structures. Nigeria’s economy and its businesses need the widest range of financial instruments and investment opportunities. We have already developed the Exchange Traded Fund sector of our market and are moving fast to expand the range of derivative products.   

We are embarking on a comprehensive organisational restructuring. A new overall holding company will be created, the Nigerian Exchange Group Plc (NGX Group). The Group will have three operating subsidiaries: Nigerian Exchange Limited (NGX), the operating exchange; NGX Regulation Limited (NGX RegCo), the independent regulation company; and NGX Real Estate Limited (NGX RelCo), the real estate company.   

In this way we will clearly separate the operating and regulatory activities of the exchange, enabling each entity to focus fully on its responsibilities. I am proud to say that I have been appointed as Group Chief Executive Officer (CEO) of the Nigerian Exchange Group and look forward to working with the newly chosen CEOs of our operating companies – Mr. Temi Popoola, CEO, NGX and Ms. Tinuade Awe, CEO, NGX RegCo. As a truly commercial company with the objective of generating a return for our investors, we will intensify our focus on efficiency and the identification of growth segments.   

Demutualisation is of course a long-term trend across all exchanges worldwide. As a listed company, we will be better equipped to pursue partnerships with other international exchanges and accelerate our integration into the global capital market.   

Nigeria is a leader among emerging economies and is already the largest in Africa. We have plenty of room to grow in our own country, by making sure that the capital market here plays a greater role in supporting the economy, deepening the representation of key sectors on the Exchange. Looking at World Bank data for 2019, we can see that the market capitalisation of domestic listed companies as a proportion of GDP in Nigeria was 9.8%, while in South Africa it was 300.6%.   

Notwithstanding, we are looking ahead to opportunities to work together with others in our region, where investment is so strongly needed and growth businesses are so easily found. Our vision is that the new Group will become the premier exchange hub for Nigerian businesses and for the African economy.  

Clearly, challenges remain. Policy has moved more slowly than we would have wished to liberalise exchange rates and currency movements. We believe this is nevertheless inevitable before too long and will be another step in unlocking the full potential of our markets.  

There is, however, light at the end of the tunnel with respect to the pandemic but the journey still has some way to go. In practice we have seen minimal disruption to the operations of the exchange, thanks to the quality of our systems and the commitment of our people. Our online platforms have proved their effectiveness and our information services are constantly improving. Despite working remotely, our team has impressively progressed the demutualisation and restructuring process to bring us to where we are today.  

Indeed, the Nigerian market has demonstrated huge resilience in these crisis conditions. Among 93 global equity indices tracked by Bloomberg, the NSE All Share Index emerged as the best-performing index in the world in 2020, surpassing the S&P 500 (+16.26%), the Dow Jones Industrial Index (+7.25%) and other global and African market indexes, to post a one-year return of +50.03%. At the close of the year, the NSE’s equity market capitalisation was up by 62.42%, from N12.97 trillion in 2019 to N21.06 trillion in 2020. Capital-raising activities in the fixed income market increased significantly last year and the NSE’s bond market capitalization rose by 35.52% from N12.92 trillion in 2019 to N17.50 trillion.  

The shape of the post-pandemic world is still unclear but it is certain that Africa will require investment to grow and meet the aspirations of its expanding and increasingly prosperous population. It may be that the costs of corporate debt will not remain as low as they have been and we will see renewed attention to equity financing. Whatever the next few years bring, with the new flexibility resulting from demutualisation, the Nigerian Exchange Group is better positioned than ever to help African people and businesses achieve their financial goals.   

–Oscar N. Onyema, OON, is Group Chief Executive Officer, Nigerian Exchange Group. Courtesy:WFE