Philip Smith, journalist

As chair of the newly formed Nigerian Exchange Group, which demutualised earlier this year, Abimbola Ogunbanjo is clear in his ambitions for his country’s stock exchange. ‘A decade ago, we set out with the aspiration to be the premier capital market in Africa, commensurate with our status as the largest economy on the continent,’ he says.

Demutualisation – the process that transformed the 60-year-old Lagos-based stock exchange from a member-owned organisation into a for-profit group – is seen as a major plank in the development of capital markets in the region, and in Nigeria in particular.

‘We need to reduce the number of adult Nigerians who are excluded financially, and give them the ability to make well-informed financial decisions’

The move will, it is hoped, attract greater flows of foreign and domestic investment, with renewed emphasis on corporate governance and the ability to expand into other markets and sectors. Under its previous structure as a members-owned organisation, such moves would not have been possible.

Structural change

NGX, as the new group is branded, consists of a holding company and three subsidiaries that cover the operations of the Nigerian Stock Exchange (NSE), its regulation and its real estate. This new structure will allow the group to develop in ways similar to those of other international market groups such as the London, New York and Johannesburg stock exchange groups, which have all experienced recent growth.

Ogunbanjo, who is also managing partner of his family’s long-established commercial law firm, Chris Ogunbanjo LP, first became involved with the exchange when he began attending meetings as a proxy for his father, whose firm acted for the World Bank during Nigeria's indigenisation era and notably incorporated and launched the Lagos Stock Exchange in 1961. Ogunbanjo was appointed to the NSE Council in 2010 to represent the interests of ordinary members of the exchange following regulatory intervention.

Ups and downs

However, there will be challenges on the way. The Nigerian economy was hit hard in 2019–20 as oil prices tumbled, first as a result of the price war between the US, Russia and the Middle East, and then by the fall in demand caused by the Covid-19 pandemic.

‘The economy has suffered,’ Ogunbanjo says, ‘but GDP will return to growth. We were locked down last year for three to four months, but business activity has rebounded and we are seeing some astonishing results.'

While there were no initial public offerings (IPOs) on the Nigerian stock exchange last year, there has been one in 2021: telecoms company Briclinks Africa. Briclinks joins McNichols, Living Trust Mortgage Bank, Chellarams and The Initiates on NSE’s growth board, which was launched at the start of 2020 to encourage companies with high growth potential to seize the opportunity to raise long-term capital and promote liquidity in the trading of their shares.

Ogunbanjo has good reason for optimism as trading volumes are beginning to rise on all the exchange’s indices. ‘ICT is showing big growth, followed by natural resources and industrial goods,’ Ogunbanjo says, ‘and we are seeing a return to normal economic activity.’

Broader offering

NGX is classed as a multi-asset exchange. It not only hosts 161 listed enterprises through its premium, main and growth boards, but is also home to diverse fixed-income securities, exchange-traded products, mutual and other investment funds. In a sign of its growing maturity, NGX recently launched a series of exchange-traded derivatives, a move that is expected to enhance liquidity in the marketplace.

As of 31 March 2021, the total market capitalisation of all NGX’s traded equities, bonds and other funds in Q1 was NGN39.5 trillion (US$96.4bn). The NGX exchange-traded funds market recently hit NGN20.32bn (US$49.4m).

The exchange recently launched its brand campaign, The Stock Africa is Made Of, to highlight the growth potential of the continent to a global audience. At the launch, Nigeria’s President Muhammadu Buhari spoke of how the exchange continues to play its part in nation-building by stimulating economic growth and providing a platform for businesses and individuals to save and raise capital.

‘We are supporting African companies that can contribute real economic growth, from high-growth pioneer companies to state-owned enterprises’

NGX in numbers

NGN38.6 trillion (US$93.7bn)
Total NSE market capitalisation at 17 January 2021

Increase in NSE total market capitalisation in 2020 – Johannesburg Stock Exchange grew by only 4% in the same period

Number of equities listed on NSE

NGN100m (US$250,000)
Amount NSE has committed to the fight against Covid-19, including NGN40m (US$100,000) for the Masks For All Nigerians campaign

Editions of StockTown, NGX’s comic book aimed at promoting financial literacy in Nigeria

Source: NGX annual market report

‘We are supporting African companies that can contribute real economic growth,’ says Ogunbanjo, ‘ranging from high-growth pioneer companies through to state-owned enterprises.’

One of the challenges the exchange currently faces is the ageing demographic of investors. It is also an issue recognised by Nigeria’s Securities and Exchange Commission. Last year director general Lamido Yuguda called the estimated 400,000 share accounts in a population of over 200 million ‘abysmally low’ and described the 50-year average age of investors as ‘a disaster waiting to happen’.

Alongside strict enforcement of rules and regulations, Ogunbanjo believes that encouraging the younger generation to participate in the investment market is all about financial inclusion. ‘We need to reduce the number of adult Nigerians who are excluded and give them the ability to make well-informed financial decisions.’

Investor development

One such initiative is NGX’s X-Academy, a specialised learning centre that offers a wide range of courses geared towards bridging the gap between capital market professionals, investors and the general public.

Financial literacy and inclusion is a core part of these programmes. Ogunbanjo also points to initiatives such as a national essay-writing competition and other campaigns that promote smarter investing. ‘We are aiming to implement initiatives that encourage wider sustainable investment habits,’ he says.

However, despite Nigeria being the largest economy in Africa, Ogunbanjo admits that the country is still seen as an emerging investment market. This could, however, present opportunities.

He explains: ‘The Johannesburg Stock Exchange is still seen as the flagship stock exchange. The South African economy is the most industrialised and Nigeria is still considered to be a frontier economy, but the market cap to GDP ratio is at 371% in South Africa, while in Nigeria it is just above 13% [listed companies, 2020]. Could it be that the JSE is overvalued?’

But he acknowledges that NGX's fortunes are closely aligned with the wider economy. ‘We can’t operate in a silo,’ he says. ‘When the economy grows, we grow.’

Integrated approach

Another avenue towards growth comes in the form of a possible single capital market for West Africa. ‘Capital market integration could make the markets more cost-efficient and transparent, but a single West African stock market will require strong political determination,’ he says, adding that there will be a need for all exchanges in the area, whatever their stage of development, to adhere to strong global standards.

‘We need to have all the pillars in place,’ he says. ‘The pandemic has had a consequential effect, but significant progress towards a single market is also being made.’

Ogunbanjo also sees opportunities within the African Continental Free Trade Area. ‘The financial services sector must begin to think continentally. Crossborder listings will ensure that our market can fulfil the role of long-term capital formation, and free movement of capital, as well as people, should enhance our competitiveness.’

Finally, with many eyes looking at the forthcoming COP26 conference in Glasgow, UK, in November, there has been increasing interest in sustainability reporting. ‘NGX has already produced guidelines for sustainability reporting,’ Ogunbanjo says, ‘which are mandatory for premium board-listed companies.

'There is a strong demand for these types of reporting from foreign investors, and executive management is working with pension funds to incorporate sustainability reporting. We are building capacity to foster long-term sustainability.’