Capital Market As Catalyst For Nigeria’s Economic Growth & Development


Above title is drawn from the theme of recently concluded 25th annual conference of the Chartered Institute of Stockbrokers (CIS). Although the conference has ended, matters arising from it continue to reverberate, generating expert comments and also stimulating further discussions.

This topic remains thought provoking as Nigeria is currently in dire need of a catalyst or magic wand that can accelerate the country through the four stages of industrial revolution. Such catalyst should also remotely have capacity for decelerating Nigeria’s exploding population growth which is breeding rapaciously consuming, unskilled and unproductive human parasites.

Following the inspiring ideas propagated at the conference, there is temptation to stretch the conversation a bit further by asking some pertinent questions. For instance, as the theme suggests, can the Nigerian Capital Market really play the vaunting catalytical role? If so, what can it actually do to catalyze the growth and development of Nigeria’s economy? These are the issues this piece aims to dwell in as adjunct to the fantastic ones presented at the conference.

First, there is need to understand that the word catalyst is a scientific terminology borrowed from chemistry. It is a powerful substance that increases the rate of a chemical reaction or process without being consumed in the process. Catalyst is so important in the chemical industry that its absence can cripple an entire industrial process. Frequent breakdown of the catalytical unit of Nigeria’s crude oil refineries has severally been blamed for their shut down.

Literarily, catalyst means someone or something that hastens progress or change. With these understandings, is the Nigerian Capital Market capable of playing a catalytical role in the transformational change the economy needs to grow intensively? Generally, this is what Capital Markets do for their host economies. Why can’t it be replicated in Nigeria?

It is common knowledge that the Capital Market is a powerful tool in sourcing of development capital that hastens transformational change. When the Capital Market is efficient and market driven, unlike in China where it is largely controlled administratively, its catalytical impact on the economy could be monumental.

History is replete with instances where the Capital Market served as stimulator of unprecedented economic advancement. Most of the pivotal projects that transformed America and Europe economically were financed through the Capital Market. In the U.S, the Capital Market funds over 72% of all economic activities, in terms of equity and debt financing of non financial corporations.

The Nigerian Capital Market demonstrated its financing capacity in 2005 when it supported the banking sector recapitalization program. Unfortunately, that exercise overcapitalised the banks, leading to economy wide misallocation of capital.

Globally, the Capital Market is now the central stage and critical point in the funding of landmark projects that foster economic growth and development. As fallout from globalization, cross border mergers and alliances by several Stock Exchanges, in synergy with the international Capital Market, have massively expanded the financing possibilities available through the Capital Market.

Here in Nigeria, the Capital Market since its formalization in 1960, has contributed immensely to public and private sectors capital formation but unfortunately, it cannot be said to have so far catalyzed transformational economic change. It is yet to assume the much desired status of a critical factor propelling economic growth, in spite of its world class infrastructure and processes.

A reason for this may not be far from the absence of a well defined national strategic economic agenda it should pursue. Such agenda must be set by government, taking a cue from Japan which does so  for each element of the economy, after engaging with relevant stakeholders.

In case of the Nigerian Capital Market, the agenda should be to focus it on a strategic national task of catalytical force that can radically change the economy. Justification for this can be cited from the public interest function of the Capital Market in every economy.

This Capital Market strategic national agenda proposed is different from SEC’s 10 years Capital Market Master Plan. Their focus are not quite the same although, they are mutually reinforcing. This strategic agenda setting may start with sober reflection on the economic failures which the Capital Market is called upon to address financially.

What led to Nigeria’s endemic import dependence, de-industrialization and inability of this agrarian economy to be self sufficient? Government and stakeholders need to know how public policy inconsistencies among other harmful factors may have derailed past development efforts.

The answers can help to shape the agenda and perhaps lead them into knowing that the search for that catalyst in Nigeria’s economic salvation is not new. Indeed, Dr. Yakubu Gowon and his world class economic team that included Chief Obafemi Awolowo had actually uncovered the decisive catalyst for the Nigerian economy in the 1970s when his administration commenced the national integrated Iron & Steel development program.

Fundamental importance of this critical element of the 1st industrial revolution was further reechoed by Professor Gordian Ezekwe, former Minister of Science & Technology when he fingered the absence of an engineering infrastructure as cause of Nigeria’s economic underdevelopment.

When the agricultural development program of the first republic and Gowon’s national integrated Steel development project were embarked upon, the Nigerian Capital Market was still teething so, they were funded through fiscal revenue and oil boom.

Unfortunately, these investments together with numerous others sank into the commanding heights of the economy through public sector capital formation have gone down the drain. Wisdom now dictates that Nigeria should relaunch those failed projects through private sector capital formation where the Capital Market can be catalytical.

One can safely say that unlike in the era of its formative stage, the Nigerian Capital Market is now advanced in terms of world class technology, products offering, processes, skills, international reach and regulatory controls to be able to satisfy the critical needs of the economy.

It is only left for one’s imagination to see what would have been the fate of those landmark agricultural and industrial programs of past years if they were financed with appropriate type of capital from the Capital Market.

If properly focussed, the Nigerian Capital Market has capacity to revisit the abandoned critical elements of the 1st to 4th industrial revolutions through prioritized funding. Let no one deceive himself that Nigeria’s economy can leapfrog from nothing to the 4th industrial revolution.

Nigeria’s Capital Market has for long misdirected its attention to financing the service sector. For a nation with large population and abundant natural resources, the dominant role of the service sector serves no material economic purpose.

Light industrialization, propelled by a functional and efficient heavy industrial base can make the real sector to be productive on sustainable basis. Nigeria is not lacking in the light industrial section of industries but the absence of a heavy industrial base to sustain their productive momentum is the major challenge.

Underdevelopment of Nigeria’s heavy industrial base is a major factor in the country’s de-industrialization and import dependence. Distinguished Senator Smart Adeyemi recently alluded to this calamity when he decried government’s abandonment of the iconic Ajaokuta Steel project which is at the core of Nigeria’s technological takeoff.

Contrary to expectations, President Goodluck Jonathan’s 2014 industrial revolution plan has not catalyzed the economy because it surprisingly treated the heavy industrial sector with kid gloves.

If the Capital Market is to truly serve as an agent of economic change and transformation, this is the time for it to focus attention on the heavy industrial sector. Out of the two foundational infrastructures that constitute the heavy industrial base, Capital Market financing agenda should commence with the engineering infrastructure made up of the Technical Education industry, Mining industry, Metallurgical industry, Tools industry and, Machine and Equipment making industry.

This basic  infrastructure is the game changer and indeed the catalyst that gives rise to secondary infrastructure (Energy industry, Electric Power industry and Chemical industry) and to tertiary infrastructure (Roads, Rail, Ports, Healthcare, General Education, Housing and Security industry).

Without engineering infrastructure, development of secondary and tertiary infrastructures cannot be sustained. Engineering infrastructure will enable Nigeria leverage her natural resources to locally develop the other infrastructures and light industries thus, eliminating need for external finance and inputs.

For the Nigerian economy to be radically transformed, the financial catalyst and the engineering catalyst must meet  but with the former serving as the primary driver. The fundamental importance of engineering infrastructure came to the fore at the CIS conference when several discussants lamented its decrepit state and negative impact on Fintech penetration in Nigeria.

The technological innovations through ICT, Fintech, Artificial Intelligence and Blockchain which we now enjoy are constructed by us on borrowed technology developed by countries with foundational engineering infrastructure. These foreigners can manipulate our destinies through them.

So, why do we always surrender our fate to the whims and caprices of entities beyond our control? Why are we perching on the software end of technology and not putting efforts on the hardware which is the backbone? Engineering infrastructure gives rise to all forms of technology including Fintech.

Nothing sums up the pathetic situation better than in his post conference masterpiece where Sola Oni, a multidimensional Stockbroker, seasoned Financial Journalist and prolific writer, in contrasting the Nigerian situation, cited the exploits of U.S and China in hardware and software productions wherein each country strives to outwit the other and safeguard her market.

The suggestion that the Capital Market should open a special window to finance Fintech or Tech startups in general, is a welcome idea. While decrying the lack of local finance for Tech, there is a global best practice in which such startups follow the route of Venture Capital and Private Equity funding before subsequently undertaking IPOs as exit mechanism for the angel investors.

Startups are generally very fragile with high mortality rate. Non financial handicaps can jeopardize their survival in the same way infrastructure deficit is making MSMEs to be cost ineffective, inefficient in service delivery and largely unviable. These further underscores the critical need for engineering infrastructure to make capital optimally productive and safe.

With the recent launching of the Infrastructure Company of Nigeria (Infraco) as a public funding mechanism for bridging infrastructure deficit, government has started to think in the right direction. However, the N15 trillion ($36 billion) fund being set up for the exercise is a far cry from the $3 trillion Governor Godwin Obaseki asserted that Nigeria requires over the next five years to close infrastructure gap.

For the Nigerian Capital Market to rise to Governor Obaseki’s projection, its international reach must be better facilitated. This may not be possible if the foreign exchange market remains chaotic and bedeviled with multiple exchange rates which Governor Obaseki cited as disincentive to investment.

If retrogressive bottlenecks like the certificate of capital importation  are abolished and the Naira is floated, investors will be more assured about integrity of the currency. Floating the Naira will enable it assume it’s rightful value, eliminate administrative manipulations, allocate money efficiently, make directional movement of the currency more predictable, smoothen supply and demand volatility, eliminate rent and associated corruption, and generate single market determined exchange rate.

For a market based Capital Market to function optimally, monetary management must also be market based. The circle of economic efficiency will become complete when the fiscal economy (Production and Trade) are completely deregulated and market driven.

In order not to dissipate vital energy of the Capital Market in its catalytical agenda, various efforts aimed at infrastructure finance should be coalesced into a national master plan under the auspices of Vice President Yemi Osinbajo who is head of NEC.

The Capital Market should be the focal point for coordination and aggregation of various funds including that of Infraco, United Capital and others in pipeline. Without wasting time, let SEC assemble the Captains of the Capital Market and other relevant stakeholders to engage with the office of Vice President Osinbajo in the process of setting the strategic national agenda for the Capital Market, centered on the development of engineering infrastructure. The agenda should have an action plan with timelines that should challenge the nation building capacity of the Capital Market.


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