With ‘Growth Board’ Comes Good Deals for SMEs

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Recently, the Nigerian Stock Exchange, launched ‘Growth Board’, an initiative targeted at providing support for fast-growing companies listed on the exchange. The inventiveness of the bourse is expected to deepen the Nigerian capital market and boost economic growth. Bamidele Famoofo reports

The growth board, a new creation of the Nigerian Stock Exchange (NSE), aims to encourage small and medium-sized enterprises in their growth phase to seize the opportunity of raising long-term capital and leveraging the exchange’s varied products and services to achieve their long-term business objectives.

“SMEs have contributed about 48 per cent of the national gross domestic product (GDP) in the last five years, according to the Nigeria Bureau of Statistics. This segment of the economy also accounts for 96 per cent of operational businesses and 84 per cent of employment. Despite these significant contributions, SMEs face significant challenges, including lack of right-sized and right-priced financing,” NSE’s Chief Executive Officer, Mr. Oscar Onyema, said of the Growth Board on the occasion of its launch.

Onyema noted that with the launch of the initiative, issuers will be offered relaxed entry criteria as well as less stringent on-going listing requirements to allow for greater accessibility to finance, global visibility and credibility through corporate disclosures.

“In delivering real value to the SME sector, the growth board restructures current market segments along a company’s entire lifecycle, i.e. it offers issuers the opportunity to either list on the entry segment for companies with a market capitalisation from N50million, or the Standard Market – for institutions with a market capitalisation from N500million. Furthermore, the segmentation of the boards provides alternative options for interested investors to participate in each company’s growth journey,” Onyema explained.

To achieve the listed company’s growth strategy and listing objective, the exchange will also be collaborating with various strategic business partners and value-added service providers.

According to the chief executive, “We have partnered with relevant stakeholders to design a suite of cost-effective services to give listed companies a competitive edge within their respective industries while stimulating investors’ interest through enhanced information delivery.

These services include pre-listing diagnostics; Institutional Services (including audit services, financial advisory, legal advisory, corporate strategic advisory); investor relations; analyst coverage, corporate access and corporate governance.”

Onyema then beckoned at growth companies represented at the launch alongside 97 companies featured in 2019 Companies to Inspire Africa (CTIA) jointly produced by the London Stock Exchange and PWC Africa, to join the NSE Growth Board ecosystem and use the platform to achieve their strategic business objectives.

Making a Case

Onyema argued that the platform was pivotal to the NSE efforts in catering to a segment of the economy that hitherto was neglected and perceived as a high risk and low reward venture by most service providers especially in relation to access to capital from financial institutions.

“The traditional role of the exchange as an enabler of capital flow from areas of surplus to deficit holds good promise for its capability to support SMEs, as access to capital is the prime challenge faced by companies that are active in the SME sector,” he said.

The NSE boss regretted that despite the significant contributions of SMEs to the Nigerian economy, the reality and headwinds faced by operators in the segment remained quite daunting. “The economic landscape in recent years has been quite challenging for corporates with small and medium scale enterprises experiencing some of the difficulties observed in the Nigerian macro landscape. These companies have seen declining productivity rates largely caused by deficiencies in power supply; substandard trade facilitation infrastructure; lack of right-sized and right-priced financing, multiplicity of taxes/levies/fees; lack of innovation; and limited availability of requisite talent. This is further compounded with an absence of needed corporate governance to ensure maximised capacity utilisation and profitability for the companies.’’

Not All Woes

In spite of the challenges faced by operators in the SME space, this segment of the economy continues to show progress and innovation. “It is noteworthy to mention that the African tech space has seen a significant increase in the funding of start-ups in recent years. In 2019, the number of investors, largely institutional, increased from the previous year by 61% to 261 and funding rose by 47% to $491.6 million, which was received by 311 companies. Nigeria remains one of the lead markets in terms of total funding, securing $122 million,” Onyema revealed.

The sector has also witnessed increased support from multilateral organisations and government agencies. For instance, to promote funding for African SMEs, The African Export-Import Bank (Afreximbank) signed an agreement with the African Guarantee Fund (AGF) for a $30 million re-guarantee facility to support African Small and Medium Enterprises (SMEs) in December 2018. Additionally, The Central Bank of Nigeria in collaboration with the Bankers’ Committee also commenced the disbursement of N26 billion to MSMEs under the Agribusiness Small and Medium Enterprise Investment Scheme (AGMEIS) in 2018.

From a growth perspective, Nigeria also had the single largest representation with 97 companies featured in the 2019 Companies to Inspire Africa (CTIA) report jointly produced by the London Stock Exchange and PWC Africa. This report featured 360 growth companies across 32 countries in Africa with seven major sectors represented. The high representation by Nigerian growth companies clearly emphasises the enormous opportunities present in the segment and the nation at large.

Strategy for Delivery

To successfully achieve its listed company’s growth strategy and listing objective, the NSE will be collaborating with various strategic business partners and value added service providers to offer cost effective services designed to create a competitive edge for listed companies within their respective industries while stimulating investors’ interest through enhanced information delivery.

Services such as pre-listing diagnostics; Institutional Services (including audit services, financial advisory, legal advisory, corporate strategic advisory); investor relations; analyst coverage, corporate access and corporate governance would be rendered to participating members by the NSE. The exchange said it will also provide tailored trainings on its learning and development platform “X-Academy” for capacity development and to promote increased corporate governance for board and employees of companies on the Growth Board.

More Efficient Exchange

Meanwhile, with the plan to demutualise the exchange, which is almost sailing through, the quest towards achieving a more robust and liberalised stock market where better corporate governance and accountability will thrive is now more feasible.

Onyema said the demutualisation of the NSE will generate substantial motivation for the development of an agile exchange, thereby consolidating its innovativeness and strengthening its leadership both at local and international levels, whilst also adding value to its stakeholders. As a demutualised entity that is profit-seeking, the NSE will be in a better stead to capitalise on new income opportunities, free from any limitations arising from conflicting member interests and existing laws and more importantly be able to better support the economic growth of Nigeria.”

Onyema enthused that the no objection from SEC, the exchange having met the necessary requirements of the SEC, will enable it to proceed to the final stages of the demutualisation process. ‘’ We have also sensitised our stakeholders on the process of demutualisation and its effects and will continue to engage with them during this process,” Onyema said.

Apart from the special dispensation granted to the NSE as a result of the passage of this bill, the bill also exempts the NSE from any tax liability that may arise in connection with, or as a result of its conversion to a PLC. However, the NSE will be liable to pay tax on subsequent profits it earns after the conversion. In addition, the bill provides that upon the conversion and re-registration, all income, assets, property and liability of the NSE shall continue to be the income, assets, property and liabilities of the NSE as a PLC.