Nigeria’s stock market, most expensive in Africa – Investigation

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  • Charges, listing requirements counterproductive – Quoted firms

In spite of the Federal Government’s drive to boost foreign and local investment in the Nigerian economy, investigations by The Point have revealed that the Nigerian Stock Exchange is the most expensive in Africa.
Stakeholders in the capital market have also said that the activities of some relevant government agencies are discouraging potential investors. Specifically, economists and capital market experts have carpeted the Securities and Exchange Commission and the Nigerian Stock Exchange over some exorbitant levies and other unrealistic listing and post-listing requirements, which they made mandatory for investors in the market.
The Point’s findings revealed that the listing fees and minimum market capitalisation values requested by the agencies were the most expensive when compared with other developing capital markets across Africa.

Uba Group

This development, analysts said, had either scared scores of companies from listing on the Exchange or made them consider voluntary delisting. To list on the main board of the
Exchange, which is a platform for big companies, the NSE charges an initial listing fee of 0.3 per cent of the total market capitalisation of a potential quoted company, while the Nairobi Stock Exchange, Kenya, the Johannesburg Stock Exchange, South Africa and the Cairo Stock Exchange, Egypt, charge 0.06 per cent, 0.04 per cent and 0.002 per cent respectively.
In Nigeria, the minimum and maximum total market capitalisation for a prospective company on the main board is between 150 per cent and 300 per cent more than what is obtainable in Kenya, South Africa and Egypt.

For instance, while the NSE expects prospective companies to have a minimum and maximum of N1,889,990.06 and N4,200,000.24 as total capitalisation, the NSE, JSE and
CSE expect the Naira equivalent minimum and maximum of N375,967.32 and N2,819,750.16; N20,751.72 and N4,301,216.62, and N262,022 and N1,310,115.46 respectively.

This was just as some operators of Small and Medium Enterprises disclosed that they were either being frustrated out of the Nigerian capital market, or discouraged from their listing ambitions by the same government agencies.
Most of the companies, whose representatives spoke with The Point, lamented what they described as ‘unfair treatment’ on the part of the Federal Government through the activities of the NSE and SEC.

Further findings by our correspondent revealed that, to list on the alternative investment market in Nigeria, a platform on the NSE that hosts the shares of SMEs, a prospective entrepreneur is expected to pay an annual listing fee of N300,000, which represents about 100 per cent increase, compared to what is obtainable in other developing markets.
While Kenya’s Exchange charges N188, 000, Egypt and South Africa charge N262, 000 and N250, 000 respectively. Worse still, for every transaction done on the floor of the NSE, Nigerian stockbrokers pay 1.8555 per cent on the buy side and 2.1855 per cent on the sell side, but in JSE and CSE, market operators pay 0.0055 per cent and 0.0000012 per cent on both the buy and sell sides respectively.
CHARGES COUNTERPRODUCTIVE – QUOTED FIRMS
As expected, top management staff of a number of quoted companies, who spoke with The Point, lamented what they described as the stiff requirements and overwhelming charges, which had already forced some of them to file for delisting.
A director in Resort Savings and Loans Plc, who pleaded anonymity, alleged that the regulators had not made the market attractive enough to encourage more companies to either be listed or remain listed on the floor of the Exchange.
According to him, the listing requirements in the stock market are quite harsh and not considerate, especially as the current economic recession bites harder on the operations of
companies.

He said, “For companies battling to keep their head above water due to recession and unfriendly business environment, meeting those charges and fees remain a mirage.
“It has been very tough, which is part of the reasons we have not paid dividends to our investors in the last few years. I understand that the stock market is not for the embryos, but the management of the market should be considerate, judging by the harshness
of our environment.”
He added, “About 80 companies were delisted from the Exchange as at September, and some of them chose to delist voluntarily, due to unrealistic regulatory instructions.
“If the infrastructure cost is reduced and the cost of doing business in Nigeria is very competitive, I don’t think any company will complain about the fees; we will even invite friends operating in other developing markets to come here.”
The Managing Director, Tunswol Company, Mr. Babatunde Oluwole, however, said listing the shares of his food company on the Exchange had been suspended temporarily, until
there were reversals of some of the regulators’ policies.
He told The Point that no SME could survive under such harsh and frustrating atmosphere without compromise. He also alleged that most of the companies not complaining were either cutting corners, or not complying with some corporate governance rules, especially
with tax remittance.
The Tunswol boss, who is a chartered accountant, attributed the recent loss of over N600 billion in November alone on the stock market to the inability of the regulators to explore the potentials in the sector.
He argued, “Instead of overburdening quoted companies with charges or fees, the management of the Exchange should look inward or it will continue to crawl. The market is designed to create a platform to raise funds by companies for further growth, but if you put the horse before the cart, by enforcing charges or fees, it will not work.
“When you are spending 30 percent of your profit on infrastructure, and then you have the problem of security; all these factors have enormous setback on the development of any economy.”
Also, the Managing Director, Poly Products Nigeria Plc, Mr. Nasir Gwalani, whose company had been delisted from the NSE’s official list for two years, lamented the high cost of retaining the quoted company status. Gwalani said, “When we got debentures, we were asked to pay double.
You pay fees to the governor for consent, for what? “If you want companies to grow, you must help them. The Corporate Affairs Commission is demanding so many charges from the companies. We pay SEC, we pay the NSE, and we pay brokers. Why will you pay stockbrokers three and half percent. Trading on stocks is more expensive in Nigeria than anywhere in the world.”
Gwalani observed that a regulatory body should not be a profitmaking body. He bemoaned the fact that in Nigeria, regulatory and monitory bodies were profit-making bodies and, as such, had moved their loyalty from regulating to milking firms.

BLAME LOSS OF SHARE VALUE NOT REGULATORS – EXPERTS
However, market operators have blamed the development on the fundamental value of the shares on the Exchange and not the management of the regulatory agencies. The Managing Partner of a stockbroking firm, Delsic Investment, Mr. Dele Afolabi, disagreed with the position that the high charges and fees were responsible for the delisting moves of some firms. Rather, he said what was responsible was other postlisting rule requirements.

He said, “I agree that the cost of listing and maintaining listing is quite expensive, compared to major African Exchanges, but the reduction in the fundamental value of quoted companies, which has been worsened by the economic recession, has made remaining listed unattractive for some companies.
“When the market prices are below the net asset value, investors that are holding quoted companies’ shares will suffer losses in their book. This also discourages core investors from
remaining listed, because the value that will be attached to the company will be based on the market valuation.”
“Also, the valuation that will be attached to investors’ wealth will depend on the market condition,” he added. Another stockbroker, Mr. Akinwole Oni, explained that when the valuation of a particular company was below the intrinsic worth or cost of that investment, such investment had lost its collateral value, because the lender would base the valuation on the current value.
He disclosed that a lot of companies had embarked on moves to delist their shares from the Exchange, because of the directive that quoted companies must adopt International Financial Reporting Standard.
“Companies that are not willing to strictly adhere to the transparent requirements of the reporting standard will choose to exit the market, because compliance with IFRS requires a lot of transparency,” he noted.

A top source in the NSE, who preferred anonymity, admitted that there was the need for SEC to reduce the Value Added Tax charged on shares sold and bought on the Exchange.
“The complete elimination of VAT from the Exchange’s transactions will make the market more competitive, as investors buying and selling investment products are not engaging
in government-related transactions,” she said.
She also added that the FG should emulate Kenya, Morocco and Ghana, by providing tax incentives for companies coming to list on the Exchange.

“Such incentives will encourage companies to move their businesses to Nigeria or encourage them to list on the Exchange as a means of fuelling economic growth and giving the NSE competitive advantage over other emerging markets,” she explained.
Meanwhile, efforts to get the responses of the heads, Media and Corporate Affairs, NSE and SEC, Mr. Joseph Kadiri and Mr. Yakubu Olaleye, respectively, proved abortive, as the duo refused to respond to The Point’s telephone calls and messages.