Nigeria’s Coordinating Minister for the Economy & Minister of Finance, Dr. Ngozi Okonjo-Iweala, has outlined measures being taken by the government to resuscitate the country’s capital market.

The former World Bank Managing Director spoke this morning at a forum attended by Directors-General and Managing Directors of parastatals under her ministry held, at the ministry’s Conference Room in the Nigerian capital, Abuja.

The minister acknowledged that “activity on the Nigerian Capital Market, particularly the stock exchange, has been very slow in the aftermath of the global financial meltdown and the Nigerian banking crisis.”

She noted that the Nigerian Stock Exchange (NSE) All Share Index (ASI) plummeted “from a peak of about 66,000 points in March 2008 to less than 22,000 points by January 2009, wiping out over N8 trillion (or around 70 percent) of the total capitalisation of the stock exchange within this period. Since then, activity on the stock market has remained sluggish even though there are some signs of recovery, with the index now at about 26,494 points thanks to the efforts of the NSE and the SEC.”

Okonjo-Iweala said that the strategic importance of the capital market informed her decision some months ago to set up a committee chaired by Dr. Kingsley Moghalu, Deputy Governor of the Central Bank of Nigeria, to recommend measures to resuscitate the capital market.”

She then proceeded to announce two measures aimed at resuscitating the market. The first of these is the forbearance of about N22.6 billion on the margin loans of 84 stock brokers, in accordance with Section 6(5) of the AMCON Act.

“AMCON had purchased these margin loans from banks for about N42.6 billion, but the value of the underlying assets or collateral is worth only N19.96 billion today. In furtherance of AMCON’s cleanup of the banking sector, it is necessary to wipe off the debt overhang in the capital market, as this is dampening market activity,” said the minister. She however warned that “this forbearance will be accompanied with sanctions to discourage excessive borrowing behaviour by capital market operators in the future.” The sanctions include:
• Prohibition from services to AMCON: Brokers benefiting from forbearance will not be allowed to provide any professional services to AMCON for a period not less than 3 years;
• Greater Disclosure: Firms will be required to reveal to the Securities Exchange Commission (SEC), any dealings in any security valued at a minimum of N25 million executed in a single deal or multiple deals on the same day on behalf of their clients;
• Limit on Debt Financing: As part of their net capital requirement, no broker that has received forbearance shall permit his aggregate indebtedness to exceed 100 percent of his net capital;
• Report to Credit Bureaus: details of the firms will be forwarded to the Credit Bureau Agency;
• Use of Custodians: A strict requirement that imposes separation of assets and control for brokerage services and/or future margin facilities through the use of custodians; and finally,
• Trading Restrictions: The brokers will be prohibited from taking proprietary positions or trade on their own account for one year.

“Let me also note that there were some other stock brokers who did not partake in any market infractions, including over-exposure to margin loans, and who managed their stock broking businesses well. The Ministry of Finance and the Central Bank plan to celebrate the good standing of these stock brokers in due course,” Okonjo-Iweala said.

The second measure, as announced by the minister is the elimination of stamp duties and VAT on stock market transaction fees. According to her: “Taxes on stock exchange transactions fees are as high as 12 percent (5 percent in VAT and up to 7 percent in stamp duties) – much higher than in other jurisdictions, and these constitute a major disincentive to invest in the Nigerian capital market.” The minister announced that the federal government has consented to:
• Waive the 0.075 percent stamp duties payable on stock exchange transaction fees; and,
• Exempt from VAT, commissions: (a) earned on traded values of shares, (b) payable to the Securities and Exchange Commission (SEC), and (c) payable to the Nigerian Stock Exchange (NSE) and the Central Securities Clearing System (CSCS); by including these commissions in the list of VAT-exempt goods and services.

She thanked the Moghalu committee for its work and re-emphasised the government’s renewed commitment to making Nigeria’s capital market one of the most vibrant markets in the World.

•Photo: Okonjo-Iweala.