Olusola Adeniyi presides over Bestworth Assets and Trust Limited, a financial services solution firm and retail stock broking company in Lagos, as Managing Director and Chief Executive Officer (CEO).
The stockbroker and assets manager, who plies his trade on the Nigerian Stock Exchange (NSE), wants new Central Bank of Nigeria (CBN), Governor Godwin Emefiele, to carve a niche for himself.
In this exclusive interview with Assistant Business Editor, KELECHI MGBOJI, Adeniyi urged Emefiele to stimulate the economy to create jobs and improve living conditions, instead of emulating his predecessor, Lamido Sanusi.
Below are more excerpts:
What time do stockbrokers consider best for recapitalisation?
Olusola AdeniyiThe market is just recovering from a rather long drawn crash. There had been capital market crashes in the past in Nigeria just like in any other country. But what we have experienced this time around is a prolonged crash which refused to abate almost for seven years.
Because a lot of companies are trying to overcome initial losses, they think that the regulatory authorities should give them time to properly get their businesses back on track. Regulators the world over have powers to tell the industry they regulate either to recapitalise or do certain things they feel will make the industry operate efficiently and protect investors’ interest.
What operators are basically doing is appeal to regulators, considering the economy itself.
Most times what our policy makers do is benchmark Nigeria with America and some other developed countries, which in itself is not bad, because if you want to do well in life in any endeavour, you must benchmark yourself with others.
So, if the regulators benchmark Nigeria with America that is a good ambition. But if you compare Nigeria’s economy with that of America, they are years apart. If the American economy is by far bigger than Nigeria’s it follows also that you would not expect stockbrokers in Nigeria to operate with a bigger capital base than their American counterparts.
The share capital base for an average stockbroker in America is about $1 million, which is equivalent to about N150 million. So, we found it somehow odd that our capital base in Nigeria should be two times that of America whereas we have a smaller economy compared to America.
So we are proposing between N100 million and N150 million for a stockbroker. Even if you want to be at the level of America, we should be talking of N150 million, not N300 million.
Secondly, some of us feel uncomfortable that every time we talk of reform in this country, it seems the definition is to drive some people away from a particular industry. If you want to reform the banking sector, you reduce the number of banks from 50 to 25.
If you want to reform the insurance industry, you reduce the number of companies from about 200 to 50. Then if you want to reform the capital market, let’s drive away 90 per cent of operators. But that is not necessarily a reform.
I read in the dailies that the Director General of Securities and Exchange Commission (SEC), Arunma Oteh, said that Nigeria targets 10 million investors by 2025, implying that we currently have fewer than 10 million investors.
With the population of Nigeria about 170 million, that means we have less than 1 per cent of the population, because 1 per cent should be about 1.7 million. But we have less than 10 per cent of the population as investors in the capital market.
This is the logic: If you have less than 10 per cent today who are investors, and your aim is to increase that percentage to 20 or 30 per cent, do you need more hands on deck or fewer? Obviously you need more hands.
Reforming the market should be about empowering stockbrokers to reach more people, not how to drive everybody away through bogus and unrealistic share capital or standards that stockbrokers cannot meet.
How should operators be empowered for reform?
The SEC is already doing that, but it can do much more. Let there be more public enlightenment. The SEC organises essay competition for young people in school, to interest them in the capital market. By the time they grow up they are already familiar with investing in equities.
But the work of the stockbroker is matching a buyer with a seller. Since we don’t keep investors’ money, the issue of capital base is not quite relevant. Where you will need much capital is assuming that a seller comes to me, I pay him off before trading the stock on the capital market. If it were to be so, then I should be expected to have a large pool of funds to enable me pay off deals before I trade the stocks.
The law regulating the market does not allow us to do that. The law expects us to actually trade in the stock at a particular price before you pay. So, what you are paying is the stock you have sold. The money is already in your account. The issue of having a large capital does not apply to our business. The amount of capital you have does not really determine how much stock you can trade on the floor.
Capital is relevant where one has to underwrite. If you are an underwriter, in which case somebody wants to bring an issue in the market, you need to take in those shares and pay the company off before you start to sell. That is the work of an underwriter. Those are the operator categories that need such a large volume of money.
For instance, a company says it wants to come to the market and raise about N5 billion. As an underwriter, you take in those shares, warehouse them, and give the funds to the company to do business. Then the underwriter will begin to look for how to offload the stocks at a better price.
Most times, the underwriter buys the stocks at a discount to make his profit and margin. So, underwriters need that kind of capital. May be issuing houses need it too. But for stockbrokers, who matches a buyer with a seller, he does not need such a large capital base.
Infrastructure is another area. To reach more people, the stockbroker needs to have an office in Lagos for people to do transaction with him from any part of the country. We need to have the technology to make this happen. It is not that the average stockbroker cannot deploy such technology, the problem is a lack of security to guard against fraud.
For instance, if somebody in Benin defrauds you, can you find him and track him down?
We don’t have the facility, training and expertise to do those things. Most of the cases of fraud in the capital market involve clients being defrauded mainly in branch offices. Head offices are not able to monitor everything online and electronically.
Recent listings on the NSE are companies on the main board, companies in the ASEM category are not being listed, why?
When many Nigerians start businesses, especially small firms, one of the problems they face is that they are one man businesses. They do not have proper records ab initio.
They need to keep records, set up an accounting system, get corporate governance, and all that. And they need to do all these before they can come to the capital market.
Sometimes the person operating the business dips his hands in his pocket and brings out money that is not accounted for properly. Sometimes he also takes money from the business which is not also accounted for properly.
They know that when they come to the market they cannot do any of those things anymore; so most of them are reluctant to come to the market, especially when the business is doing well and they are making money. They will not want to be subjected to the scrutiny that goes with listing on the capital market.
The second aspect is culture. In this part of the world, most people take pride in sole proprietorship. They want to own the company and their success entirely. Many businessmen here have not developed the large heart that makes them feel good sharing their success with other people.
Most companies come to the market because they realise they cannot grow beyond a level unless they get funds from the public or run into challenges which they believe the only way out of is to go to the capital market.
How do you want Emefiele to improve the financial market?
When he went for screening and approval in the Senate, he basically said he would continue on the path of his predecessor, Lamido Sanusi. But Sanusi more or less narrowed CBN functions down to regulating the banking industry.
The work of a Central Bank and its governor goes beyond just regulating banks. It also involves using monetary policy to grow the economy. Interest rate and liquidity ratio in the system and all of that can help determine a lot of things.
For instance, when there is high interest rate many people tend to put more money in banks and go for fixed instruments. Banks will have more funds to give as loans. And when the interest rate is low, investors look for other investment instruments like stocks and equities. These are instruments that determine the direction of the economy.
So, the question is what does the CBN want? Does it want to stimulate growth and encourage investment, help banks to lend more? These are some of the things that we should concentrate attention on.
Why are the banks not lending as they should to the manufacturing sector? If they have certain fears or challenges, how can we mitigate these? What do we need to put in place to encourage banks to lend more to manufacturers and there will be real production and jobs will be created and the cycle continues?
Does Emefiele need to revisit the past?
The past can be revisited if necessary. If there are past decisions taken by Lamido and they are now found to be absolutely wrong, yes there is room to make corrections. But you do not need to reverse everything your predecessor did.
Is the $1 trillion target of the NSE by 2016 achievable?
It is feasible if we have the courage to do some of the things. China does not allow you to come to its economy and do what you like. Nigeria should think along that line.
There is nothing wrong if we set a condition that companies coming to do business in Nigeria must be listed on the NSE and the government will provide the enabling environment.
By doing this, MTN, Etisalat, Airtel and the like, including oil companies, will be listed.
The National Assembly has to legislate the conditions for coming to invest in Nigeria to make it easy to get to the $1 trillion mark. The capital market is the barometer for measuring the economy and the more of these organisations we get to list on the NSE the better.
What we have had so far is that these companies, especially telecoms, come here, do business and repatriate all their profits back to their home country, even as Nigerians are part of these businesses.
By way of dividends, profits, and bonuses, some of those profits should be retained in Nigeria to develop it.