Gwarzo: Good Corporate Governance will Engender Sustainable Economic Devt


The Director General of Securities and Exchange, Mounir Gwarzo spoke to Goddy Egene on the implication of the Nigerian Capital Market Master Plan initiatives on economic growth and the budget seminar organised by the commission, among other issues. Excerpts:

SEC recently organised a seminar on the theme: Nigerian Capital Market and 2017 Budget: Lessons for 2018. Can you briefly give us the background to this event?

Our capital market master plan has the vision to make the capital market the most developed in Africa by 2025. The commission has pursued, without waver, this dream, introducing a host of measures to develop and deepen the market. We therefore, complement government action aimed at growing the Nigerian economy by making the capital market better able to contribute its role of raising capital for long-term investment and growth. In addition to numerous measures too many to discuss  here, investor education is a principal tool of developing the market and making it better able to raise funds for infrastructure and other facets of the Nigerian economy.

Since its inception in 1978, the SEC introduced for the first time early this year, a budget seminar, as part of its investor programme. We believe that by bringing together experts from various areas of the capital market and the financial system at large, we will be able to contribute more meaningfully in shaping measures to facilitate a speedy implementation of the budget by providing alternative sources of funding for infrastructure and related sectors. Funds raised through the capital market tend to be less costly, helping to reduce inflation while promoting growth.  The event was the second of its kind. Our guest of honour was Dr. Shamsudeen Usman, former Deputy Governor of the Central Bank of Nigeria (CBN) and former Minister of the Federal Republic. The lead speaker was Dr. Afolabi Olowookere, who is Head of Economic Research and Policy Management, SEC. The paper provided an assessment of the capital market perspectives of the achievements of the 2017 budget and then went further to explain the lessons emerging from that experience for the purpose of the 2018 budget.

A panel of discussants was on hand to provide various perspectives. The team comprised notable economists such as Prof. Ifeanyi Nwokoma from University of Lagos; Mr. Bismarck Rewane of  Financial Derivatives Company Limited and Mr. Muda Yussuff of Lagos Chambers of Commerce and Industry. At the end of the seminar, a communiqué was drawn based on consensus for communication to all stakeholders in the polity.


What specific lessons, if any,  has the capital market gained from the 2017 budget that in your view are worthy of note for possible incorporation into the 2018 budget?

You will agree with me that alternative sources of funding the budget such as Sukuk have become important, giving the capital market more prominence in efforts to lay the foundations for economic growth and inclusive development.

 The federal government issued a N100 billion Sovereign Sukuk in 2017, and has released proceeds to 25 Road Projects. What role did SEC play in the issuance process? Will this and future issuances promote the development of infrastructure and the Nigerian economy?

 The commission played a big role in facilitating the sovereign Sukuk issuance with high level engagement with the Debt Management Office (DMO), in seeking the guidelines granting liquid status to Sukuk by the CBN,  and the setting up of technical committee which designed the concept note for the sovereign Sukuk and conducting both technical and financial evaluation of the parties. We are glad to note that the issuance was oversubscribed by six  and we anticipate more issuances of this nature by both government and corporates in due course.

Sukuk issuances could greatly promote the development of infrastructure in the Nigerian economy especially project-tied capital raising. By providing funds for infrastructure development, the Sukuk issuance engenders economic activity and societal well-being. For instance, when rural roads are built from the funds, access to market by farmers improves, and rural poverty is alleviated. Also, the development of major highways and railways will, in the same vein, considerably stimulate economic activities.

The Nigerian capital market has not achieved the scale, sophistication and relevance to influence the development of our national economy. What are the key issues and challenges of the Nigerian capital market that the masterplan aims to address in terms of improving its contribution to the economy? 

 There are a number of challenges such as the limited size, depth, reach and sophistication of the capital market. In addition to liquidity constraints, structural challenges and regulatory constraints limiting access to pension funds that contribute significant portion of long term investable funds in the economy. The absence of any national strategy (regulation and incentives) for long term savings and investments and uncompetitive pricing (transaction costs and cost of funds) and processing time have inhibited the capital market in performing its role. A 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. The Master Plan is an output of the entire market community, having identified the challenges and opportunities in the Nigerian capital market. The Nigeria’s first 10-year capital market is expected to transform the Nigerian market, make it competitive to contribute its quota of developing the nation. Nigeria urgently needs a modern capital market capable of addressing the challenges. For such a market to emerge in Nigeria we believe faithful ownership and implementation of the capital market master plan is critical.


 What is your assessment of the implementation of the masterplan thus far?

The implementation started in January 2015. The Masterplan has been divided into initiatives. Each year we identify key initiatives that will be prioritised for the year. There are a total of 97 initiatives and we have so far implemented around 42 initiatives.  For example, the main initiatives implemented in 2015, include the dematerialisation of share certificates, recapitalising capital market operators and implementing a Corporate Governance Scorecard. In addition, in the same year, we launched the National Investor Protection Fund, increased robust public enlightenment and promoted non-interest products. This was in addition to implementing the e-Dividend Management System, Complaints Management Framework, and demutualisation framework. Furthermore, we started  transaction cost reduction, improved our improved rulemaking process, defined minimum professional standards and compliance with market rules as well as rolled out our whistle blowing mechanism.

For 2016, we intensified the Capital Market Implementation Council (CAMMIC) advocacy, promoted Minimum Technology Standards, strengthened capacity at the SEC and initiated review of major laws. In addition to promoting national financial literacy, developing a document on National Savings Strategy, promoting new listings, establishment of West African Securities Regulators Association (WASRA), Establish Risk management principles for capital market operators and pushed for a dual License. Also,   we promoted access to alternative investment (special funds, Sukuk etc), simplified process for capital raising, strengthened the Capital Market Institute, aligned reporting standard between SEC and NSE, reduced cost of listing, establish school based curriculum and published the Nigerian Journal of Securities Market.

In 2017 we are pursuing outstanding initiatives from 2016 and new ones will also be the focus of 2017 such as enhancing market liquidity and facilitating the establishment of Credit Enhancement mechanism. In addition we are enhancing the commodity trading ecosystem and establishing an Unclaimed Dividend Trust Fund.

We recently witnessed the establishment of the Nigerian Capital Market Development Fund (NCMDF).  What are the objectives of the fund?

The launching of the NCMDF Board is expected to contribute greatly towards the developmental efforts of the SEC to grow the market, enhance financial inclusion and regulatory visibility. The primary focus of establishing the NCMDF is to fund relevant market development initiatives that will spur growth of the market and the Nigerian economy.  Equally, the fund will facilitate the introduction of proper understanding of new products to deepen the market, provide capacity building to tackle emerging challenges and create an industry wide synergy through partnership with government and non-governmental agencies and corporate bodies with similar objectives.

Who are the members of the Board of the fund?

The Board is chaired by the DG of SEC, and an Executive Commissioner of SEC as a member. Others include: the  Director Home Finance (Federal ministry of Finance), Mrs. Olubunmi Siyanbola; Chairmen, Association for the Advancement of the Rights of Nigerian Shareholders, Dr. Faruk Umar and Independent Shareholders Association of Nigeria, Mr. Sunny Nwosu; Others President/Chairman, Institute of Capital Market Registrars, Mr. Bayo Olugbemi; Ify Ajezie of Association of Stockbroking Houses of Nigeria and CEO, Afex Commodities Exchanges/Association of Securities Exchanges, Ayodeji Balogun.

What is the target size for the capital market development fund over time, how will the money be raised and deployed?

Presently it has a seed capital N5billion fully funded by SEC. The commission has provided the initial takeoff grant for the fund but going forward the entire capital market community should come together to discuss details of how we can all contribute to the continued funding for this critical market vehicle.

SEC commenced the implementation of Corporate Governance Scorecard for public companies in January 2017 as one of the capital market master plan initiatives. What is the objective of the score card and what is the implication for the capital market and economy?

 The Scorecard will enforce better public disclosure and will assess the level of compliance with the SEC’s code of corporate governance by Nigeria’s public companies on an annual basis. The SEC has the widest coverage when it comes to corporate governance covering all publicly listed companies unquoted companies and capital market operators. Ultimately, good corporate governance will contribute to sustainable economic development in Nigeria by enhancing the performance of companies and increasing their access to global capital. Good corporate governance will enhance investor trust, attract foreign portfolio investment, and demonstrate Nigeria’s commitment to observing international standards. The integrity of businesses is central to the vitality and stability of the Nigerian economy. Businesses must foster a corporate governance framework that promotes market integrity, the independence of the board from management, transparency, an effective risk management system, and a system of accountability.  Promoting good corporate governance can improve corporate financial performance and economic growth. Accountability and transparency, which the capital market demands from issuers reduce false financial reporting, showing the true state of affairs of listed entities. Timely and accurate disclosures engender confidence in the capital market and bolster participation which can propel growth.

 The current level of retail investor participation in the Nigerian  market is very low with an estimated two per cent of Nigerians invest in the capital market against 46 per cent of Americans, 33 per cent in the United Kingdom, 15 per cent  in South Africa and nine per cent  in Malaysia. What initiatives are being implemented to increase the level of retail investors?


 We have implemented a number of the initiatives that will boost confidence and subsequently improve investor participation. These initiatives include the e-Dividend system, the National Investor Protection Fund , the Direct Cash Settlement, Dematerialisation as well as the recapitalisation of capital market operators. This is in addition to SECs zero tolerance to market infractions, promoting the corporate governance scorecard and our robust public enlightenment on all these initiatives amongst others. All these initiatives jointly will increase participation from retail investors.

It is anticipated that these measures will bring back the retail investors who exited the market after the 2008 financial crisis and also attract millions more to invest in the market ultimately boosting financial inclusion in the Nigerian economy. Retail investors hold the key to building a sophisticated domestic investor base in Nigeria and will form a critical mass of stakeholders in moving the Nigerian economy forward. Retail and institutional investors both play a role in funneling the savings of Nigerians into “real” investment opportunities that form the backbone of the economy. Remember retail investors are the unsung heroes of the highly successful banking sector recapitalisation exercises of the last decade. They are therefore very important.

Can you shed light on the dematerialisation and e-dividend initiatives. How critical are they to improving liquidity of the market and how will they impact on the Nigerian economy?

 Dematerialisation refers to the conversion of share certificates (physical paper‐form/certificates or documents of title representing ownership of securities) to an electronic form which is domiciled directly with the CSCS. Once done, it invalidates any certificate(s) in the possession of the investor. Dematerialised shares are safe from fraud, theft and loss. In addition, shares cannot be sold unless they have been dematerialised. Dematerialisation and e-dividend are critical initiatives that will boost market security, efficiency and liquidity. We have collaborated closely with CBN and NIBSS as well as with the Registrars to ensure share certificates are dematerialised and investor register in the e-Dividend scheme.

A liquid equity market allows savers to sell their shares easily, thereby permitting firms to raise equity capital on favorable terms. By facilitating longer term, more profitable investments, a liquid market improves the allocation of capital and enhances prospects for long term economic growth. The fact that investors can easily sell their securities when they wish to encourages them to buy new issues of securities or existing ones. By buying new issues of securities, they provide funds to corporate for expansion and to government for developmental projects. Even issuers are encouraged to issue new securities for funds when the market is liquid. A liquid market in essence fosters capital formation and economic development.

Improving market liquidity will promote economic growth in Nigeria because without a liquid stock market, many profitable long term investments would not be undertaken as investors would be reluctant to tie up their investments for long periods of time.

As part of the Capital masterplan initiatives, the Commission in 2016 signed an MOU with the Nigerian Educational Research and Development Council (NERDC) on  introducing Capital Market Studies (CMS) into the curriculums at all levels of education how will that impact the economy?

Nigeria will derive a lot of advantages from improvement of financial literacy because financial skills promote economic growth. An improvement of financial skills is associated with economic growth or decreases in income inequality. Financial literate investors can create economic activities. They make better financial decisions for themselves; they understand investment vehicles and can process economic information better. They make informed decisions and are knowledgeable on opportunities of our capital market.  They will promote economic development.  Thus, being financially literate is not only important to the individual household and family, it’s also important to the economy.

The Nigerian Commodity Exchange (NCX) founded in 1998 is operating sub optimally but the Ethiopian ECX established in 2008 and has today revolutionised Ethiopian agriculture through a dynamic, efficient, and orderly marketing system that serves all. As a regulator what have you done to improve the NCX?

As a regulator, we have provided the enabling environment. We have been very supportive of the Nigeria Commodities Exchange (NCX). A committee was set up at a point to review the whole ecosystem of the commodities exchange. We also encouraged and registered private commodities exchange, AFEX, so that they will be able to compete with NCX. A major game changer is the warehouse bill, which when it comes into force will be a major catalyst. We have shown commitment to the warehouse bill because we see that it will serve as an enabler to the success of the commodities exchange.  A virile commodities exchange system is a practical solution to the heavy post-harvest losses associated with poor warehousing and the absence of a ready market for the disposal of farm produce at realistic prices. One of the main planks of the government’s economic diversification agenda is agriculture and we know the importance of a virile commodities exchange to commercial agriculture. Reviving the commodities eco system will revolutionise Nigerian agriculture through a dynamic, efficient, and orderly marketing system that serves all. The development of commodities exchanges is very vital to the development of the agriculture and solid mineral sectors which are important to the economic diversification objectives of the government.  An efficient commodities exchange system is a practical solution to the heavy post-harvest losses associated with poor warehousing and the absence of a ready market for the disposal of farm produce at realistic prices in Nigeria.


Why is SEC determined to demutualise the Nigerian Stock Exchange and what are the benefits  of a demutualised NSE and will the exercise promote development of the capital market and economy?

 As you are aware, the Commission released the demutualisation guidelines in 2015 and we have anticipated the process for full demutualisation of the exchange to materialise since. The exercise which was formally initiated by the NSE Board will achieve the necessary benefits for the entire market. The process is expected to provide the exchange with many benefits, in particular, corporate governance and increased efficiencies. With demutualisation, the NSE should be exposed to robust corporate governance, enhanced efficiency and transparency associated with publicly quoted companies.

The demutualisation of the NSE will be a significant milestone for our market and improve the confidence of both local and international investors in the Nigerian capital market. We anticipate the positive effects in general for the economy as the capital market will seek to play a more important role improving the market capitalisation  to GDP ratio in Nigeria

 What was the focus of the last Capital Market Committee (CMC) meeting?

The essence of the meeting is to make all stakeholders in the capital market come together to review the performance of the market, first review the performance of the economy, then to review the performance of the capital market. SEC normally gives an overview of the Nigerian capital market and we also receive an update from the various stakeholders – the Nigerian Stock Exchange, the FMDQ, the NASD, Afex, NCX and Investment Securities Tribunal, all stakeholders in the capital market including CBN, PENCOM,FSS2020,FMAN,ASHON,AIHN etc. Secondly, several committees set up to drive a particular initiatives in the market had opportunities to  brief the house on what they have done such as the Committee on Market Liquidity, credit enhancement and roadmap on Commodities exchanges. It was a very fruitful meeting.

We also agreed on financial contributions and timelines towards the Financial Literacy Initiative. We reached an agreement on SEC s contribution, the SROs and trade groups. And very importantly, we agreed there is no going back on the Commission’s decision to stop physical dividend warrants by December 31, 2017, notwithstanding the slow pace in the implementation of the e-dividend policy.


 How many Nigerians have keyed in to the Electronic Dividend mandate System?


 There are about 2.1 million Nigerians who have keyed into it. But in the last three or four months, there has not been appreciable increase in terms of number of enrolment, that is why had a conversation with the registrars and bankers. We expect in the next two months to see a significant improvement in terms of enrolment. SEC has been underwriting the cost but the free registration window is ending December 31, 2017

 The 31 December deadline for stoppage of issuance of physical dividend warrants in the nation’s capital market remains unchanged. December 31 deadline for e- Dividend is Sacrosanct. There is no going back on the commission’s decision to stop issuance of physical dividend warrants. And by the deadline, any Nigerian that does not register for e-dividend will now have to pay N150 for registration.