THE NIGERIAN CAPITAL MARKET MASTER PLAN: 2015 – 2025 The Challenges of the Investments and Securities Act (2007) and other Laws guiding Capital Market Activities Mr. Mounir Gwarzo, Director General Securities & Exchange Commission MONDAY, 6 TH JUNE, 2016 1
Outline Why and How the Master Plan was 1 Developed What the Master Plan aims to 2 Achieve 3 Major Initiatives in the Master Plan Legal Impediments to the 4 Actualization of Master Plan Goals Setting the Legislative Agenda for a 5 Capital Market that Supports Government’s Economic Priorities
History of the Nigerian capital market 3
Brief history of the Nigerian capital market • Banking and Insurance · The Central Bank of sectors recapitalization · SEC joins the · The Lagos Stock Exchange Nigeria Decree 1991 was from 2005 to 2007 IOSCO in 1985 was incorporated as a promulgated to expand • Current ISA amended in private limited liability The Second-tier the functions of CBN. 2008 company in 1960. Securities Market (SSM) of the · In 1992, The first Record levels of · The National Provident Nigerian Stock Municipal bond in the participation in the capital Fund was established as a Exchange was Nigerian Capital market market and boom compulsory contributory established in was floated by the Lagos between 2003 and 2008 savings scheme in 1961 1985. Island Local Government · Colonial § In March 2008, the Stock • The Trustees Investment Act Government · The function of · The Odife Panel on the market witnessed was enacted in 1961 issued Nigeria’s the Securities and significant correction · The Lagos Stock Exchange review of the Nigerian first loan stock in Exchange was renamed The Nigerian 1946. Capital Market was set Commission were § Dotun Suleiman Stock Exchange in 1977 up in 1996 further expanded Committee was set up to · The by Decree 29 in review the structure and · The Capital Issues Government and · The Automated Trading 1988. processes of the Nigerian Committee was set up in other Securities System was introduced in capital market 1962 ; transited into Capital Acts was · The Companies the Nigerian Stock Issues Commission in 1978 enacted in and Allied Matters Market to replace Call- § In 2013 SEC registered 1957. Act (CAMA) was Over system in 1999. the FMDQ and NASD as · The Adeosun Panel ( 1975) re-enacted to alternative trading recommended the · Central Bank of regulate the · DMO was established in platforms establishment of stock Nigeria (CBN) incorporation of all 2000 to centrally exchange branches was established bodies in Nigeria in § In 2014 SEC under Ms. coordinate the in 1958. 1990. Arunma Oteh set up the 3 · SEC was established in 1978 management of Committees that as apex regulator · First Treasury bill Nigeria's sovereign debt. produced Nigeria’s first issued by CBN in capital market master 1960. · In 2000, the Mobolurin plan Committee on the reform of the Nigerian bond market was set up. 1940-1960 1960-1980 1981-1990 1991-2000 Post 2000 4
The Journey … 2003 - 2008 5
Where we are coming from… 2003 to Crisis in 2008 What Happened?... Unprecedented stock market boom and crash ü Growth was rapid and regulator-induced ü Between 2003 and 2007, market capitalization (Ntrn) increased by over 66% CAGR from N1.4 trillion to N10.2 trillion ü In March 2008, market capitalization reached a then all time high of N12.6 trillion ü 2005/2007, recapitalizing banks and insurance companies raised over $10 billion from the capital market ü The All-Share Index (ASI) dropped 52.6% by December 31, 2008 from the high in early 2008 ü Average daily trading volume also dropped to about 77% of high levels ü The Nigerian stock market between March 5 and December 31 2008 lost about N5.7 trillion, or 45.1% in Closer look at crash during the months of 2008 value. Why it Happened ü Market was highly concentrated, dominated by the banking sector which made up 60% of the market as at then. 15 of the 20 most capitalized companies were banks ü Risk management and corporate governance did not evolve commensurately to support the fast growth leading to inappropriate market behavior and abuse of margin lending “Naturally, confidence was lost and domestic investors have since then not fully returned to the market” Sources: SEC, NSE 6
2008 – 2014
What we did from 2008 to 2014 Growing bond market reduces equities dominance… Bond market is now attractive... Equities Bonds ü We streamlined the bond issuance process, introduced shelf registration and bookbuilding, and reduced issuance costs 55% ü The bond market is now attractive for all categories of 2014 issuers including corporates, state governments and 45% multilateral institutions 67% ü FMDQ was registered to revolutionize fixed income 2008 securities trading 33% Collective investment schemes initiatives and New …Collective investment schemes are growing… Products ü Number of registered funds grew from 38 to 54 and their NAV of Collective Investment Schemes in ₦ billion NAV tripled 180 ü Reviewed the regulatory framework to support product innovation, so far ETFs, REITs and sukuk have been introduced 63 General Initiatives by SEC ü Intervened to replace management of the NSE 2008 2014 ü Reviewed market structure and reduced transaction costs ü Registered new platforms like NASD and FMDQ …New products introduced ü Introduced new rules and amended existing ones to strengthen regulatory framework “Between 2008 and 2014, SEC had focused on leading the market to recovery while working on the strategy document that would guide market development for the next 10 years”. 8 8
THE MASTER PLAN... 9
What is a Master Plan? 10
How we fare compared to peer markets… The Need for a Master Plan... Mutual fund Market Cap- Debt-to- assets-to-GDP to-GDP (%) GDP (%) (%) 16 13 0.2 Nigeria 207 46.1 30.61 South Africa 112 56.58 46.47 Brazil 247 54.8 28.31 Malaysia 107 101.58 77.59 United States United 191 90.6 33.61 Kingdom 40 13.41 0.16 Russia 47 67.72 4.61 India Size: Total Market Capitalization ($billions) Review of our market in 2014 revealed that, compared to our peers, we were significantly lagging behind in terms of size, liquidity, depth, breadth and sophistication Sources: World Bank, IMF, NBS, WFE, SEC 11
The Malaysian Example We discovered that many emerging and developed markets had implemented master plans for their respective markets at different times leading to appreciable progress. A good example is Malaysia Results of Malaysia’s first Master plan implementation ü Market size almost tripled from $186 billion in 2000 Malaysia developed and to $517 billion by 2010 launched its first 10-year The Malaysian capital market ü Deepened Islamic finance making Malaysia one of capital market master plan in master plan was adopted as a the major Islamic finance centers in the world 2001 for implementation. National project with support ü Became the largest sukuk market and the 3rd By then their market was from the highest levels of largest local currency bond market in Asia shallow, concentrated and government. The Prime Minister lacking in product offering championed its implementation ***Plan was so successful a second master plan was launched currently being implemented till 2020 Malaysian Capital Market: Before and After Implementation of Master Plan Market Segments 2000 ($Bil) 2010 ($Bil) CAGR % Equities market capitalisation 114.86 329.62 11.1 Debt securitiesoutstanding 70.59 196.20 10.8 Derivatives(notional value traded) 21.71 132.45 19.8 Assets under management 14.27 97.61 21.2 Islamic capital market 75.91 271.65 13.6 Source: Malaysian Capital Market Master Plan (2010 – 2020) 12
Our Master Plan 2015 – 2025 13
Introducing the Nigerian Capital Market Master Plan (2015 – 2025)... The Master Plan is an output of the entire market community OUR VISION: ü Having identified the Become one of the largest, most liquid and diversified emerging markets challenges and opportunities in the Nigerian capital Capital Market Capital Market Non-Interest Capital market, the SEC Master Plan Literacy Master Plan Market Master Plan Management under Ms. Arunma Oteh inaugurated 3 market-wide Committees to Contribution to Market Regulation and develop 10-year blueprints National Competitiveness for market growth covering: Structure Oversight Economy ü The Entire Market ü Market Literacy; and ü Non-Interest Lessons from other jurisdictions In-depth review of our market Products ü Lessons from other SEC inaugurates 3 Committees to develop 10-year blueprints jurisdictions and our domestic environment were Economic Liquidity Governance Corporate taken into account in Breadth Growth Market Robustness Financial Inclusion developing the master plan Product Offering Market Depth which has 4 strategic Sound Legal Framework themes: ü Contribution to National Economy Sophistication Non-Interest ü Competitiveness Listings Products Size ü Market Structure ü Regulation and Oversight 14
Master Plan Implementation Architecture 15
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