SECURITIES AND EXCHANGE COMMISSION-
PARTNERING WITH GOVERNMENT IN THE ACTUALISATION OF NEEDS

The National Economic, Empowerment and Development Strategy (NEEDS) programme, blue print/plan of the Federal Government is a reform driven agenda geared towards fundamental restructuring of the nation’s economy, away from the mono-product (oil) revenue-based economy that has held Nigeria prostate for a long time. It is also regarded as a new strategic planning approach to effectively utilize Nigeria’s abundant human and material resources with the aim of realizing the country’s full economic potentials. The NEEDS programme and objectives are rooted in a clear long term vision for Nigeria to be the largest and strongest African economy and key player in the world economy”. The key strategies identified and presented in the NEEDS document for attainment of its goals and objectives are tied to Nigeria’s development aspirations under-pinned by its statement of vision.

Some of the laudable features of the NEEDS programme are as follows:

1. Poverty reduction and job creation. This will be pursued through universal basic education, strengthening of preventive and curative primary health care services and development of affordable housing, among other multifaceted institutional and programme vehicles.

2. Ambitious medium term growth targets covering all key sectors. This is based on the assumption that through the reform efforts, every sector will do better in succeeding years after the commencement of its implementation

3. Professionalizing the public service for efficient service delivery and reduction in government’s role in the economy and to reduce waste and improve the efficiency of government through efficient service delivery

4. High growth rates targeted in the primary and secondary sectors, especially in agriculture, manufacturing and solid minerals to diversify the economy away from over dependence on oil

5. Output projection for the initial 4 years of NEEDS at 5% for 2004, 6% for 2005, 6% for 2006 and 7% for 2007 are both desirable and achievable with the commitment of all parties to the implementation of NEEDS

The document is also explicit in specifying the policy thrust and objectives of the NEEDS programme with clearly spelt out strategies for their actualization. The notable objectives include the following:

1. Focus on the private sector as the nucleus of economic growth and development rather than government

2. Sustenance of a high, but broad based non oil GDP growth rate consistent with poverty reduction and employment generation

3. Diversification of the production structure away from oil/mineral resources

4. Ensuring international competitiveness of the productive sector

5. Systematic reduction of the role of government in direct production of goods and strengthening its facilitation and regulatory functions.

The document identifies the following strategies/instruments for the attainment of the foregoing listed objectives:

1. Privatization, de-regulation and liberation

2. Coordinated national sectoral development strategies for agriculture, industry (especially SMES) and services such as tourism.

3. Addressing the problems of financing the real sector and mobilizing long term savings and investment

4. Effective and efficient regulatory regime

5. Targeted programmes to promote private sector growth and development

6. Encouraging public-private sector partnership with government in the provision of basic infrastructure through project financing

OBSERVED STRENGTHS
The prudent implementation of NEEDS is expected to propel the economy from its past stunted or indeed stagnant/underdeveloped state into becoming the leading African economy through aggressive, consistent and systematic tapping of its full potentials. If ardently implemented, it will redress observed weaknesses in the features of the Nigerian economy, brought about by economic mismanagement of the past which have constituted major impediments for the attainment of rapid economic growth and development.

The plan document is very comprehensive. It has clearly quantified targets with matching strategies and agencies identified to facilitate implementation and to be accountable for the results. The key targets set by NEEDS are quite plausible and achievable given Nigeria’s vast national potentials. Targets are set under the medium –term strategy terminating in 2007.

The federal government commitment to the NEEDS programmes has actually led to our foreign creditors (Paris club in particular) to grant a debt relief to the tune of 18 billion dollar to the country. It is expected that the recent development will further enable availability of funds, which would have been used in serving our debt, to be channeled into other sectors of the economy such as Agriculture, Industrial, mining as well as provision of other infrastructure.

ROLE OF SEC/CAPITAL MARKET IN THE PROGRAMME
Given it’s commitment and efforts to support the NEEDS programme, the Securities and Exchange Commission in 2004, set up an in-house Committee with the mandate, among others, to review the NEEDS document with synopsis of key features and to identify strengths and gaps. It was also to examine the role of the capital market in the actualization of the NEEDS goals and objectives.

The Committee concluded that SEC had a pivotal role to play to ensure the successful achievement of the goals and objectives of the NEEDS.

The Role Includes:

Mobilization of Funds
SEC has continuously ensured a sustainable vibrant capital market in Nigeria. This it does with the effective positioning of its regulatory tools of the capital market. It has continuously embarked on market development so as to create awareness of the capital market and the opportunities available for raising funds for developmental projects. Many companies and different tiers of government have raised funds via the market for long term project development.

A vibrant capital market, in conjunction with the appropriate package of incentives and investment climate, will facilitate the inflow of Foreign Investment. The Foreign Investment would be critically welcomed in key areas such as power, water and other

infrastructural development in the implementation of NEEDS objectives. NEEDS envisages an inflow of US $1.5 billion as FDI into manufacturing alone to create a conducive environment. Similarly, the capital market is the most convenient medium for attracting international private equity into the productive sectors of the economy.

Efficient Allocation of Funding Resources
Given the fact that the capital market is the most effective platform for channeling long term funds for both private and public sector growth, the market has important roles to play in both corporate growth and infrastructural development which involve massive capital investments.

Transfer of Ownership of Public Enterprises to the Private Sector
The NEEDS document clearly indicates that the instruments of privatization, deregulation and liberalization will be employed to achieve the NEEDS objectives. Indeed, capital market infrastructure has in the past been effectively utilized for the privatization of public enterprises to the private sector under the supervision of the SEC. The capital market is the most transparent and fair vehicle for accomplishing a credible privatization exercise.

ECONOMIC GROWTH AND DEVELOPMENT AGENT
NEEDS aims at mobilizing long term funds from domestic savings and external sources (which include FDI and overseas development assistance resources) to augment the traditional government revenue sources. Experience of the recent past has shown that the capital market is a viable source of long term funding to governments via the issuance of development loan stocks and bond financing. Also, as a facilitator of economic growth, the capital market provides long term financing for development and expansion required by the real sector, including the industrial and agricultural sectors of the economy. In the agricultural sector, the establishment of commodity exchanges can promote export of cash crops and solid minerals. In the same vein, the capital market can facilitate the funding of SMES through venture capital vehicles.

Banks have continued to explore funding opportunities in the capital market to raise funds, to enable them meet up with the Central Bank of Nigeria (CBN) deadline of December 31, 2005 to recapitalize to the tune of N25 billion as pronounced by the apex bank in July, 2004.

ACHIEVEMENTS OF SEC IN CONTRIBUTING TO THE SUCCESS OF NEEDS

The Nigerian capital market has witnessed unprecedented growth since the commencement of the present democratic dispensation in 1999. In particular, the period under review between May 2003 and now appear to be the high point of this impressive development largely due to conscious decision of government to foster a private sector-led economic growth as enshrined in the “NEEDS Document”. The capital market, as the figures below will show, has contributed greatly to the present economic reforms.

The market has responded effectively during the period under review to new developments in the economy occasioned by the current National Economic Reforms of the Federal Government. In particular, the new minimum capital base requirement of N25 billion set for Banks by the Central Bank of Nigeria (CBN) with a deadline of December 2005, which followed the earlier Insurance Act 2003 requiring a new minimum capital base for the Insurance companies were swiftly responded to by the capital market.

The market also effectively assisted the Federal Government to imbibe fiscal discipline, as the FG moves away from ways and means financing to accessing the capital market for funds. The Capital Market has proved not only its relevance and capacity by meeting the funding requirements of issuers that have accessed the market, but also shows that it has the capacity to supply more investible funds for productive activities in the economy.

CAPITAL MARKET ACTIVITIES

Primary Market
The activities in the Primary Market recorded tremendous growth during the period as shown in Table I below. This development is attributable mainly to reforms in the Banking and Insurance sectors that required the strengthening of the capital base of operators in these sectors.

Table1

SUMMARY OF NEW ISSUES OF PUBLIC COMPANIES BY MODE OF OFFER (MAY 2003 TO APRIL 2005)

April 2005 exchange rate = $132.4

Chart 1

As shown in Table I above, a total sum of about N542.94b ($4.16b) was raised from the market in 89 issues during the period. Of this amount, equities accounted for about N380.59b ($2.87b) (70.13%) while debt took up the balance of N162.35b ($1.23b) (29.87%).

The Banking sector has been the dominant sector in this segment of the market. Out of the 89 issues that came to the market during the period, 41 issues (46% of total) were from this sector (Banking) alone with 156.51 billion ordinary shares valued at N339.76b ($2.57b). Furthermore, of this total amount raised by the Banking sector during the period, about N294.8b ($2.23b) (86.7%) was raised between July 2004 (following the CBN directives on consolidation) and April 2005. The Insurance sector raised about N8.1b ($0.06b). These two sectors therefore accounted for about N347.86b ($2.63b) (91.37 %) of the total value of equities raised in the market during the period.

The Federal Government revenue bond of N150b ($1.13b) issued in 2003 forms the major portion of funds raised in the debt segment of the market.

This performance of the market indeed underscores the role it can play in providing long term financing for the growth and development of the economy.

Secondary Market
Table II below shows that the trading on The Nigerian Stock Exchange also recorded remarkable growth during the period under review. A trading volume of 10.06 billion shares valued at N95.96 billion (0.72b) was recorded between April to December 2003. In 2004, the volume rose significantly to 19.21 billion valued at N225.84 billion ($1.71b). In the first three months of 2005, the market has traded 3.84 b shares worth N41.06b ($0.31b). This performance can be attributed to the effective regulatory oversight on the market by SEC, growing efficiency of market operators, better and rising investment culture of the Nigerian public, as well as the conducive economic environment being nurtured by the present democratic government.

Table 2

TRANSACTIONS ON THE NIGERIAN STOCK EXCHANGE (NSE) (APRIL 2003 TO MARCH 2005)

The exchange rate for December 2003 = $137.2b
The exchange rate for December 2004 = $132.4b
The exchange rate for March 2005 = $132.4b

Chart 2

Market Capitalization
Table III below on market capitalization of listed securities on The Nigerian Stock Exchange shows that as at May 2003, it stood at N894.4 billion ($7.03b). This grew to N2.1 trillion ($0.02tillion) in May 2004 representing a 141.7 per cent increase. However, by April 2005, the value had depreciated by 8.1% to N1.9 trillion ($0.01 trillion). This slight depreciation is simply the adjustment of the market to the flurry of activities in the Primary Market as some investors moved their attention from the Secondary to the Primary market. Market capitalization is expected to rebound as soon as the efforts of banks to recapitalize are concluded.

Table 3

MARKET CAPITALIZATION AND ALL-SHARE INDEX

Exchange rate for May 2003 = ($127.3)
Exchange rate for May 2004 = ($133.2)
Exchange rate for April 2005 = ($132.4)

Chart 3

All Share – Index
The Nigerian Stock Exchange (NSE) All- Share Index at the end of May 2003 stood at 14,086.25 points. It appreciated significantly to 27, 730.84 points by May 30, 2004, representing 96.86 per cent increase. Thereafter, it went down to 21, 961.70 points as at April 29, 2005. The drop was as a result of the fall in prices of some equities and the ongoing banking reforms.

Chart 4

Status of Market Operators
The market experienced the entry of more operators during the period. This is obviously in response to the growing opportunities and popularity of the market. In December 2003, there were 554 operators. This number grew to 691 in March 2005, representing an average monthly increase of 9 operators in the market within this 15-month period.

Mergers and Acquisitions
The Commission, pursuant to the achievement of the goals of National Economic Reforms, and in particular, in contributing to the success of the Bank recapitalization policy of the CBN, set up a task force in 2004 to expedite action on applications of banks seeking consolidation through mergers and acquisition.

Some of the measures the Commission has taken to ensure quick, efficient and successful handling of applications for mergers and acquisitions include its collaborative efforts with CBN in capacity building programmes for staff charged with the responsibility of handling mergers and acquisitions, simplification of the procedures and considerable downward review of charges by 50 per cent.
At the moment, six applications for Bank mergers have been filed with the Commission. These are the applications of merger between United Bank for Africa (UBA) Plc and Standard Trust Bank (STB) Plc into UBA Plc, and that involving Magnum Trust Bank Plc, NBM Bank Ltd, Prudent Bank Plc, Trust Bank of Africa Ltd and EIB International Bank Ltd to form Sterling Bank Plc among others. Both applications are being processed by the Commission.

It is expected, however, that in the second half of the year, many more applications by Banks for mergers or acquisitions will be received by the Commission.

Applications for mergers from companies in other sectors such as Oil and Gas industry, Insurance etc are also at different stages of completion.

Abuja Securities and Commodities Exchange (ASCE)
Within the period of May 2003 to date, the Commission has assiduously worked with the ASCE to ensure the take-off the Commodities Exchange market hopefully, by December 2005. To this end, the Commission facilitated a two year capacity building program which included the hosting of stakeholders to a two-day seminar (3rd-4th Feb, 2005) in Lagos facilitated by experts from the JSE Securities Exchange of South Africa.

Given the extent of progress so far made, it is hoped that the ASCE should come on stream soonest and impact positively on the nation’s new emphasis on agricultural and solid mineral sectors.

Bond Market Reactivation
The committee set up to consider modalities for resuscitating the bond market which had been inactive in the country for close to two decades held consultations with stakeholders such as the DMO, NSE, CBN, and IFC. The outcome of these consultations provided grounds for the revamping of activities in the bond market commencing with the floating of N150b Federal Government bonds in 2003. This is a viable alternative to the former practice of financing of budget deficits through ways and means which had considerable inflationary consequences on the economy.

Code of Good Corporate Governance
The Commission, in collaboration with the Corporate Affairs Commission (CAC) mid-wifed the production of the Code of Best Practices on Corporate Governance for Public Companies in Nigeria which was introduced in October 2003 and later launched by President Olusegun Obasanjo. The document, which is in five parts, provides for the conduct of the affairs of companies with a view to enhancing corporate discipline, transparency and accountability. All public limited companies are expected to disclose their levels of compliance with the provision of the document.

Although compliance is at the moment voluntary, the Commission still considered it necessary to establish a special Department – Office of the Chief Accountant (OCA) to, among other responsibilities, monitor and encourage compliance by companies.

In June 2005, the SEC partnered with the Institute of Director (IOD) to establish the Centre for Corporate Governance in Lagos.

REVIEW AND AMENDMENTS OF MARKET RULES

The Investment and Securities Act (ISA) 1999
The Commission has continued in its efforts to ensure that Capital market legislations adequately meet the ever increasing challenges of market operations in the country as well as Nigeria’s obligations to the International Organization for Securities Commission (IOSCO), Financial Action Task Force (FATF), and other multilateral institutions.

Consequently, in 2004, along with other stakeholders, the Commission jointly sponsored a workshop under the auspices of the House Committee on Capital Market to review the ISA. The recommendations of the workshop included, among others, the urgent need for a technical committee to undertake a comprehensive review of the ISA and adequate empowerment of the SEC to transform it into a stronger and more efficient regulator. The Commission, within the limits of its resources, is taking steps towards the implementation of all recommendations.

The rules and regulations made pursuant to the ISA in order to provide adequate guidelines for market operators and other stakeholders are being updated on a continuous basis. The Rules and Regulations, which were introduced in the year 2000, following the enactment of the ISA were reviewed in 2002, 2003 and proposed amendments are currently being finalized for the year 2005.

NEW PRODUCTS/INSTRUMENTS

Mortgage-Backed-Securities
To complement Federal Government’s efforts at delivering decent and affordable houses to citizens, the Commission set up an in-house committee in 2004 on the development of Mortgaged-Backed Securities. This is in addition to the collaborative efforts of the Commission with the Federal Mortgage Bank of Nigeria in developing regulations for the issuance and trading in these securities. Furthermore the Commission is the Chair of the Presidential Technical Sub-committee on the Development of Mortgage-Backed Securities. The Commission also only recently co-sponsored a workshop on mortgage backed Securities with the Mortgage Banking Association of Nigeria. It has organized two other workshops in the past. It is hoped that before the end of the year, mortgage bonds will be issued in Nigeria.

ISLAMIC CAPITAL MARKET
Plans are also on to introduce Islamic capital market instruments to attract investible funds from Muslim investors by packaging products that suit their sensibilities. It is expected that this initiative will bring a lot of funds into the formal sector of the economy.

Capital Trade Points (CTPs)
The Commission, in its effort to create avenues for small companies to raise long term funding for their operations, has embarked on sensitization of potential promoters of CTPs. As a result, promoters of CTPs in five locations- Kano, Jos, Warri, Ibadan and Uyo have signified their intentions to register and operate such exchanges. The Commission has gone a step further to hold interactive sessions with the promoters in Ibadan, Jos and Benin.

PUBLIC ENLIGHTENMENT
The Commission has embarked on aggressive public enlightenment programmes intended to mobilize the huge idle and/or less-than optimally employed investible funds in the economy. The success of this drive is already contributing to the growth of the market as well as enhancing the success of monetary policies in the country. The various forms of public enlightenment include:

State Visits
The Commission has in recent times visited Bayelsa and Nassarawa States. The visits were used by the Commission to explain to the State Governments and private entrepreneurs the opportunities existing in the market for raising cheaper and long term funds for investments. The visit to these two States brought the number of States so far visited to 26.

Capital Market Studies in Schools
The Commission has already introduced Capital Market Studies at undergraduate level in the Universities. As a further step, approval has already been obtained from the Federal Ministry of Education to introduce a similar course as an examinable subject at the Secondary School (SSCE) level. To this end, the Commission, in conjunction with the National Educational Research and Development Council (NERDC), has developed the syllabus. A draft textbook has also been completed by the Commission for the project.

The Nigerian Capital Market Institute (NCMI)
In order to enhance capacity building for the capital market, the SEC Training School was recently upgraded and transformed to The Nigerian Capital Market Institute (NCMI). The Institute, which has since been registered with the Corporate Affairs Commission, is to train specialist manpower for the market within the country and the West African sub-region. Already, it has offered training to over 1,500 capital market operators.

INTERNATIONAL SCENE

Memoranda Of Understanding (MOU)
In keeping with the trend of globalization and showcasing the Nigerian economy as an investors’ haven, the Commission has been making progress in meeting international best practices. This has resulted in the SEC signing bilateral Memorandum Of Understanding (MOU) with Ghana, South Africa and China. Discussions are also ongoing with Uganda, Jordan, Tanzania and other countries for the signing of MOUs. In addition, the Commission has also made much progress in its efforts to sign the IOSCO multilateral MOU. The SEC’s visible presence at the International Investment Road show in Nashville, Tennessee and Houston, Texas in July 2005, fully underscores its commitment to market development. These are milestone efforts aimed at bringing international visibility and relevance to the Nigerian Capital Market, and thus facilitate inflow of foreign investments into the market.

Conclusion
The Securities and Exchange Commission, has through its regulatory and market development activities, positioned itself and impacted positively on the NEEDS programme.

Its past records in the indigenization and privatization programmes attest to the Commission’s strategic position in the realization of government’s economic reform programmes like NEEDS.

Musa Al-Faki
Director-General
Securities and Exchange Commission
Abuja, Nigeria.
July, 2005.