1.1 Why Nigeria’s
Emerging Capital Markets?
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.
|
