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1.0 ARGUING FOR NIGERIA’S EMERGING CAPITAL MARKETS


1.1 Why Nigeria’s Emerging Capital Markets?

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Nigeria’s emerging capital markets offer very attractive opportunities for market operators and astute investors. For decades, the markets had been closed to foreign investors and functioned only as a government auction/trading post for Treasury securities and equity shares of statutory corporations and foreign subsidiary companies.

After decades of military dictatorship, the country returned to democratic rule in 1999. The civilian legislature has eliminated antiquated regulations and military dictatorship decrees that limited foreign investments. The new civilian government has allowed free market institutions to flourish and has enacted reforms that have opened the emerging capital markets to investors all over the world. These developments have created a capital market boom that has never been seen before in any sub-Saharan African country.

The sky-rocketing crude oil prices in the past 2 years have squarely brought huge attention to Nigeria’s emerging capital markets. Nigeria is the 5th largest exporter of crude oil to the United States of America. Nigeria’s wealth is controlled by the top ten percent of the population. This segment of the population has become wealthier as a small, but a strong middle class has also emerged out of the Southwest and Southeast where manufacturing and light industries predominate.

In addition, the Nigerian economy has grown at an average annual rate of 8% in the past five consecutive years as crude oil exports has surged and foreign investments, especially from the USA has poured in. The USA is Nigeria’s largest foreign investor, but most of the investment goes into the oil sector of the economy. The International Monetary Fund (IMF) projects a 9% and 8.3% growth rate in 2008 and 2009 respectively. The oil wealth has created a huge Federal government budget surplus and economic activity has increased so much that the Gross Domestic Product (GDP) growth rate has almost doubled in two years, from $172 billion to nearly $300 billion in 2007. Nigeria has the 7th largest trade surplus with the USA. These and other leading economic indicators have placed Nigeria in the category of the “eleven economies” to watch in the next decade. This is the best time to invest in Nigeria, especially in the financial services industry as an engine of wealth creation. Several foreign companies have lucratively partnered with young and inexperienced broker/ dealers to set up boutique shops to trade in equities and government bonds.


1.2 Real Profit Opportunities

The shake up that has taken place in advanced capital markets of the USA, Europe, and Asia has generated compelling arguments for venture capitalists’ participation in emerging capital markets. The meltdown of world’s leading free market economies has further bolstered the argument that asset diversification to Africa’s emerging capital markets and economies offer investors exceptional profit-making opportunities. As the world turns, there must be recognition of vast and real profit-making opportunities in Africa.

In the age of globalization, international borders are only imaginary as capital flows freely to markets where there exist exceptional profit-making opportunities. It’s truer today than at any time in history, that investors seeking for above average returns on their money must look beyond the shores of America and Europe. The real profit-making opportunities are in the sub-Saharan Africa and in particular, Nigeria. Investment opportunities are not in exotic derivatives, but in the real sectors of the economy such as power, housing, agriculture, transportation, and tourism. The slowdown in GDP growth rate in the first quarter of 2009 should not be a concern for investors with a long-term outlook. The opportunities are real and the market potential is huge.

As a former British colony, Nigeria’s cultural affiliation to the West offer increasingly attractive investment opportunities. The emerging capital markets present ground floor opportunities for potentially explosive profit-making deals. The capital markets are currently with out depth and breadth. A market operator that aggressively provides leadership in syndication, new product creation, market making, and investment banking initiatives will corner the market for huge profit-making deals. The government’s recent move to strengthen property rights is a clear indication of its attempts to lure foreign investors in the economy.

A strongly capitalized operator can easily positioned itself as the bellwether of this capital market by the end of the decade. The government’s privatization initiative is another area that presents underwriting/ syndication opportunities with enormous profit-making potential.

1.3 Nigeria’s Hidden Opportunities

Nigeria’s economy has been growing at an average annual rate of 8% in the past five years. The IMF and World Bank have declared the economy as one of eleven economies to watch in the next decade. With an estimated population of 148 million people, Nigeria claims one-in-four Africans. In 2006, the NSE reported that only about 4 million Nigerians were investing in the capital markets. It doesn’t take a rocket scientist to figure out that there exist a tremendous opportunity to boost this number. According to the World Bank, the country’s 60% literacy rate has been steadily increasing as per capita income also increases due to the expanding economy. A full-service broker-dealer that takes advantage of this explosive trend and expands retail offices to carter for the emerging middle class, the elite and high net-worth clients/ institutions that control assets and foreign reserves will reap in huge returns on investments because this clientele
accounts for more than 80% of the liquidity available for investment in the oil-rich economy.

Nigeria’s budget surpluses in the past 5 years have produced huge external reserves that have fueled a massive economic expansion which is the envy of other nations on the continent. What’s more, the emerging stable democratic institutions have given the country a pass grade by Freedom House, a Washington, DC based non-partisan, non-profit organization, as a country that is on the verge of achieving full freedom for its citizens. The middle class and the wealthy have accumulated savings that is looking for investment opportunities at home and abroad.

-by Tavershima Adyorough, Investment Representative & Branch Manager for Edward D. Jones 2006 – 2008. He has recently relocated to Lagos, Nigeria as an independent consultant. Previously, he worked for Gruntal & Company, the third oldest member of the New York Stock Exchange and F. N. Wolf & Company, a USA National Association of Securities Dealers member firm. At Gruntal, he led a syndicated team that sold over $80 million in USA government sponsored debt securities/ bonds of developing countries such as Nigeria, Mexico, Brazil et al. His claim of fame has been in evaluating and recommending emerging growth companies that trade as Over The Counter (OTC) securities that are listed on the National Association of Securities Dealers Automated Quotations (NASDAQ) National Market Systems (NMS) and Small Capitalization Market (SCM). Mr. Adyorough has held management positions at Fortune 500 companies such as Best Buy Company, the largest world electronic specialty retailer and The Home Depot, the world’s largest home improvement retailer, where he created new programs and provided management with new tools to measure inventory turnover rate. Mr. Adyorough holds an M.B.A. from the Southeastern University, M.A. Economics (Macroeconomics) at George Mason University, and a B.S. in Agricultural Mechanization from the University of Missouri. He has the National Association of Securities Dealers (NASD) series 7 and 63 licenses in the USA.


 


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