Foreign exchange market imbalance has kept the Nigerian capital market in a depressing state – Expert

Tajudeen Olayinka is an expert in financial engineering, investment banking and securities market. He is also Chairman and CEO of Wyoming Capital & Partners.

In this interview with Nairametrics, he talks about the issues troubling the Nigerian capital market and other challenges facing the national economy.

Enjoy the conversation.

NAIRAMETRICS: How would you rate the performance of the Nigerian economy so far this year?

Tajudeen Olayinka: The Nigerian economy has not performed well since the start of 2022, much to the chagrin of most economic agents. If we evaluate it from four key parameters, the result is negative.

From an output growth perspective, slow GDP growth, averaging about 3% year-to-date, is nothing out of the ordinary, as a badly battered economy and far from the full employment level is not expected to make a single-digit growth rate. This is the reason why a large part of the population is still stuck in absolute poverty, as more and more people find themselves unemployed.

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From a price stability perspective, we have experienced the worst inflationary pressures in recent years, and this is no coincidence, as the current administration of President Muhammadu Buhari has been unable to stem the rising wave of inflation since his arrival. in the office in 2015.

From an unemployment point of view, it is also the worst in recent history, judging by the most recent official statistics. And when we consider the external sector, the result is negative, because the CBN’s exchange rate policy has not contributed to creating a desirable external balance. So based on those four metrics, the economy hasn’t done well.

NAIRAMETRICS: What is your opinion of the investment landscape in the country?

Tajudeen Olayinka: I don’t need to write a new story about the investment landscape. We have seen how investors have had to revalue securities in the markets and instruments, including bank loans and advances on a consistent basis lately.

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This does not bode well for a struggling economy like ours, as it is also responsible for the rising cost of capital in the economy, making it increasingly difficult for real sector companies to raise funds. funds at a lower cost of capital. This could threaten the ability of the economy to increase the level of capital formation.

NAIRAMETRICS: What are the challenges facing investment banks and brokerage firms in Nigeria?

Tajudeen Olayinka: The challenges facing investment banking institutions and stockbroking firms are no different than what other businesses experience when an economy is put to the test the way we have witnessed in recent years.

We have seen so much market pressure in the area of ​​transaction taxes because the government is now relying on market operators to generate revenue, to fund the budget deficit. This upsets the market. Another thing to consider is the state of the market itself.

The market is not quite out of the global financial crisis of 2008/2009 as investor confidence remains fragile. This is why public companies, especially those listed on the NGX Exchange, are finding it increasingly difficult to raise equity capital to fund their growth.

The recent diversion of unclaimed dividends by the government and the new capital gains tax are other areas of concern for market operators and investors.

NAIRAMETRICS: What are some of the prospects for fund management in an emerging economy like Nigeria?

Tajudeen Olayinka: The outlook for fund management in Nigeria is quite high as it provides an additional opportunity to cater to the interests of retail investors and high net worth individuals who are not as savvy in the technicalities of managing profitable portfolios.

This is an important area that the Securities and Exchange Commission (SEC) has vigorously pursued. More and more stockbrokers now have asset management companies as active subsidiaries.

NAIRAMETRICS: Most portfolio managers don’t look at retail investors, but rather target high net worth investors, which gives structure. What are your organization’s plans to encourage retail mutual fund investors?

Tajudeen Olayinka: We do not engage in retail or clear asset management. What we do is a market-wide partnership that serves the long-term interests of the market and the customer. We are more committed to personalized consulting and research services. Our partnership is working.

NAIRAMETRICS: What factors do you think might encourage investors to come into the market or stay in the market?

Tajudeen Olayinka: What will keep investors in the market is the implementation of market-friendly policies that reduce volatility and encourage investment. This means that the government and regulators must be operational.

NAIRAMETRICS: What do you think of the investment landscape in the country amid the run-up to the 2023 elections and interest rate hikes?

Tajudeen Olayinka: The 2023 elections are not a real problem for the market or investments in Nigeria, as the frontline presidential candidates are market-centric and should therefore boost investor confidence. The main challenge is the economy, particularly in the CBN’s response to rising inflation and fiscal mismanagement.

The last three interest rate hikes by the CBN have caused so much disruption in the market, as they are responsible for the prolonged revaluation of securities in the markets and instruments, including bank loans and advances. This is the real problem.

NAIRAMETRICS: Do you think the overseas listing launched by some companies has a direct impact on the Nigerian economy?

Tajudeen Olayinka: Yes, it should have a direct impact on the economy if we have more public companies in good financial statements adopting cross-border listing. This means they can raise foreign currency capital outside the Nigerian market.

It is also a way to internationalize the national capital market, as more securities can derive from an appropriate price in two or more markets. This will enable them to contribute to the development of the economy.

NAIRAMETRICS: What are the challenges people face in getting dividends and why do unclaimed dividends remain high?

Tajudeen Olayinka: Most of the challenges are man-made, and with the adoption of the electronic dividend, it becomes easier for investors to get their dividends early enough to reinvest them in the market or elsewhere.

Another problem concerns non-resident investors who have not updated their accounts before moving abroad. But over time, we will overcome the problem of unclaimed dividends. I believe the SEC is working hard to try to minimize issues with unclaimed dividends.

NAIRAMETRICS: What do you think of the state of imbalance in the foreign exchange market?

Tajudeen Olayinka: The CBN has not adopted a flexible exchange rate system, as we still have a long list of items on the official list of exchange restrictions. This is the reason for the state of imbalance in the foreign exchange market and has kept the Nigerian capital market in a very depressing state as foreign portfolio investors who are not comfortable with the exchange rate regime current are discouraged from bringing in fresh money to participate in the market.

NAIRAMETRICS: On an annual basis, the headline inflation rate accelerated to 21.09% in October. What are your projections for the end of the year and what do you think the authorities will do to bring about its reduction?

Tajudeen Olayinka: Headline inflation of 21.09% in October is a clear signal that the CBN’s demand management tools are beginning to seep into supply side issues, worsening the already bad situation on the supply side.

The multiple rises in the MPR have further reinforced cost inflation. This is the reason why the inflation figure increases from year to year but slows down from month to month. It also explains why it can be difficult to control inflation, which is largely driven by supply factors, using demand management tools.

I think we could continue to see rising inflation for the rest of the year until CBN’s currency redesign program begins to take its toll on holders of illegal money (money between wrong hands). That’s part of the essence of this program.

NAIRAMETRICS: How do you think the current Buhari administration will help revive the domestic financial market, especially on the issue of identity management and other economic drivers?

Tajudeen Olayinka: I think the current administration has done something commendable in the area of ​​reducing the recurring incidence of identity theft, although it is not yet eliminated.

It is also important for market operators to understand the need to know their customers or clients, improving KYC. There are too many dubious people who want to rob the market using a fake identity. Little by little, we will overcome.