with Andy Nssien
The ebbing investor confidence in the nation’s stock market received a boost last week when one of the factors considered to be a disincentive to investing in the market was eliminated. The abolition of VAT on secondary market business is coming two years after Finance Minister, Ngozi Okonjo-Iweala, had dropped a hint to that effect. The Coordinating Minister for the Economy, while announcing forbearance for stock broking firms in 2012, said government had approved the removal of VAT and stamp duties as well as other measures on stock market transactions as part of the efforts to support the capital market.
The government’s decision was borne out of a realisation that taxes on stock exchange transactions fees are as high as 12 percent, much higher than what obtains in other jurisdictions.
However, while forbearance was implemented almost immediately, other measures promised were left in the cooler to the chagrin of local and international investors who perceived the continued delay as a sign of insincerity on the part of government.
Even so, the latest move by government could be regarded as better-late-than-never efforts which could ginger up confidence in the market. The gesture is coming at a time when billions of naira are going down the drain, which some analysts and financial experts have attributed to official policies. As at last week, the market capitalisation lost N2.6 trillion, representing investors’ money on account of the air of uncertainty pervading the market. As expected, foreign portfolio investors who account for more than 80 per cent of total investments in the stock market are the first to look for the next available flight.
Distraught market operators have no respite as the regulators are turning their screws on their operations and activities. In pursuit of its avowed decision to enforce the new recapitalisation requirement, come December 2014 deadline, officials of The Nigerian Stock Exchange (NSE) have already started calling for the books of the operators to assess the extent of compliance with the new directive, a situation that has engendered more apprehension on the part of operators. This is aside from the zero tolerance stance adopted by the regulators towards default on regular financial obligations by the market operators.
Perhaps, the Securities and Exchange Commission (SEC) should see the need to act fast before the situation in the market gets worse. The market operators are putting the blame of the deteriorating performance of the market on the door step of the Commission which they claim, is insisting on releasing the hammer at the expiration of the recapitalisation deadline. Should this happen, then the market would be the worst for it.
As the presentation of the 2015 budget is at the corner, there is the need for the National Assembly to have re-think to the past posture of allocating zero budget to the commission which has been the case for the past two consecutive years. These have brought immeasurable consequences on the ability of SEC to effectively discharge its developmental functions in the market. With the tenure of the incumbent Chief Executive of the commission petering out, It would soon dawn on the lawmakers that they were trying to kill a fly with the machine gun.
On the part of the Exchange, it should not lose sight of its target of achieving $1trillion market capitalisation, come 2016. There is need for the regulators to devise policies that would reverse the composition of investment which saw Foreign Portfolio Investments (FPI) increased by 31.59 per cent from N89.67 billion in January to N118.00 billion in June 2014. This explains why the market is now stewing in its own juice. During the same period domestic transactions decreased from 50.72 per cent to 48.87 per cent. The situation was not different from the previous year when domestic transactions continued to be on the ebb.
The Nigerians stock market cannot be said to have made genuine recovery if the retail investors, a potent component of the domestic investors, are lagging behind. The imperatives of renewed and sustained education and enlightenment programmes by the regulators and operators, as well as engendering other policy decisions aimed at restoring investor confidence to the retail investors who burnt their fingers during the stock market crash in the country, can no longer be taken for granted.
While the uncompromising stance of SEC towards enforcement of the new capital base requirement for all market operators as a means of strengthening the market bears commendation, the commission should take a second look at a more effective way of handling malpractices and other infractions in the capital market.
Source : Independent