Nigeria’s Stock Exchange Could Grow 100x…But What Is Holding It Back?
The Nigerian Stock Exchange (NSE), is the second-largest stock exchange in Africa, right behind South Africa’s Johannesburg Stock Exchange (JSE). South Africa, home to 49 million people, has a GDP of $349.4 billion (2017) and its exchange a market capitalisation of $977 billion; Nigeria, with 180 million people, has a GDP of $375.8 billion and its exchange a market capitalisation of just $38 billion. Though Nigeria has a bigger economy and population, South Africa’s exchange is still over 25 times bigger. There is no way this makes any sense, yet the figures are real.
The NSE has been in existence since 1960 and has been thriving up till this date. It currently has over 169 companies’ shares trading alongside government bonds. But in comparison with its peers, the stock exchange certainly has lots of room for growth.
Here’s a hint, the average Nigerian is more conversant with the New York Stock Exchange (NYSE) and NASDAQ than the NSE. Also, access to information and data on the Nigerian stock exchange is not real-time, which discourages trading activities. But it’s traders who provide liquidity for a stock market.
What Could Be Wrong?
1. Paucity to data and information
The NSE is plagued with a number of things and the major one is the transparency of listed companies and their unwillingness to participate in the game. I trade and sometimes do some short-term investment in stocks and commodity because I have CNBC, Bloomberg, The Wall Street Journal and much more to update me on gossips, news and official announcements about companies, which usually affect share prices. But here, information reaching you is usually late and that doesn't help traders.
Currently, to get the historical market data on NSE you have to purchase a Factbook that cost about N30, 000. REALLY?! So I’m interested in investing - step one, research the companies and their performances over the years on the NSE and boom! N30,000 is gone. These things ought to be easily accessible by anybody. Would you expect a foreign investor to part with almost a $100 just to make market research whilst that data is free in his own country?
2. Stifling regulations
The way I see it, NSE regulations need to be reviewed — most especially the listing requirements. The listing requirements need to be relaxed.
Presently, a company seeking to list on the main board of the NSE must provide cumulative pre-tax profits from continuing operations of not less than NGN300million over the last 3 years, with at least NGN100 million pre-tax profit in 2 of those years. That deters lots of businesses as the current market size isn’t large enough to provide that much margin.
3. Little awareness
The current generation of youth are either unaware of the potentials of investing in stocks or they simply don’t care about it, since they don’t understand it. One reason for that is investing on the NSE is an extreme sport. Even cryptocurrency, a high-risk investment, is considered more attractive.
The NSE has to put in some work on raising awareness and providing active engagement platforms. They can start from having active social media handles that can interact casually with the youths and have programs at campuses all over the country in a bid to educate them on the opportunities of working and investing in the stock market.
The NSE has a lot of work to do, and if they don’t get it done, the competition will go ahead and take the market from them. NASDAQ went up 225% in the 20 months leading to the dotcom peak because they provided an alternative via lower requirements than the NYSE. Guess which stock exchange has the only 3 companies that reached the $1 trillion market capitalisation? yep! NASDAQ. Now guess who reviewed their requirements after the dotcom boom - NYSE.
If the NSE can significantly improve in terms of real-time data and relaxed regulations in the next few years, it could onboard the next set of million-dollar tech companies in the country unto the exchange.
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