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1. Nigerian Capital Market at Crossroads; Working Towards a New Normal

Nigeria’s capital market is like a soccer player out of a youth academy, he or she is full of hunger with fire blazing from his or her eyes as he or she feels a sense of destiny and a connection to his or her heroes and their exploits. He or she is skillful, fast, and motivated. He or she is focused on a journey, and he or she is passionate. However, they lack experience, are impatient, and are full of kinetic energy unschooled by the hard knocks of life. Wait a minute, Is this a fair description of Nigeria’s capital market? Certainly not.

The Nigerian capital market is much older than the post-academy kid and is more like a football player in mid-career preeminence with a mid-life crisis. A few of the pressing issues that are hurting the market include but are not limited to the following challenges:

The Nigerian capital market is at crossroad involving rapidly changing customer journey expectations, disruptive technology evolution, and market-restricting regulatory gaps. The regulators and operators must work swiftly to engage in collaboration to strengthen the ecosystem and make it user-friendly and digitally agile. The writers of the report note that the market must work from imagination rather than memory and that participants including investors and the markets’ self-regulatory organizations (SROs) and SEC must elevate their game to best global practices. Indeed, the art of success would require that they lead value-creating innovation rather than follow the reactive actions of others. 

Proshare analysts concluded that if markets must grow, they must have the capacity and preparedness to stand up to uncomfortable truths. Markets are like humans, what does not kill them makes them stronger. Nigeria’s capital market faces a kaleidoscope of problems that require time, intelligence, and agility.  The report notes that if Nigeria's capital market must move past operational, human, and legal crossroads, it must have the courage to face its demons.  

Section 1 of the report took a broad sweep of the global capital market and highlighted the key developments of 2022 and the emerging opportunities that are based on the new distributed ledger technology (DLT) and other blockchain-enabled applications. The analysts noted that in the brave new world of artificial intelligence and machine learning, (AI/ML) the processing and use of data becomes a competitive delimiter of success and failure, adopters thrive, and non-adopters dive.    

The section contextualizes the state of global markets for long-term capital and points out that both ‘slowbalization’ and ‘fragmentation’ could harm the markets for debt and equity at international, continental, and national levels. Staring down disaster is a tough act of courage, enlightenment, and to some extent hubris. 

Section 2 went into the heart of technological matters as they relate to the capital market. If the Nigerian capital market is to measure up to its global counterparts it must adopt ever-changing technological advancements. Distributed ledger technology (DLT), Open AI’s ChatGPT, and digital regulatory sandboxes must rise to the fore as regulators and market operators take on emerging digital realities. The report analysts insisted that the time has come for a review of market risk, operating risk, legal risk, and counterparty risk that accompany the rising significance of technology in capital market operations

Section 3 interrogated the fixed-income market in a time of rapid public sector change. With widening public sector budget deficits, the federal government has opted increasingly for deficit financing through the Issuance of treasury bills and bonds. In the last eight years, the market for federal debt instruments has ballooned as the debt management office (DMO) tried to keep up with the government's growing appetite for borrowing. The rising public sector debt profile has seen the FMDQ become a bustling market for traded public sector loans. While the analysts noted the growing sophistication and size of the public debt market, they, however, demurred at the country’s rising debt-to-GDP and debt-to-revenue ratios. While debt may not be a bad thing in itself, however, when it rises to a point of gluttony it could lead to a fiscal bellyache. 

Section 4 reviewed alternative asset classes such as mutual funds and the commodities market. The mutual funds market has had a mixed performance. Money market mutual funds have had an impressive upward fizz as tightened monetary policy has pushed interest rates up and supported higher net asset values (NAVs) for money market-based assets. Fixed income mutual assets have also seen upward heft, but with less rigour than their money market counterparts. Equity market mutual funds have punched underweight as higher interest rates nudge equity market sell-offs. 

The commodity markets were volatile in 2022, a trend expected to continue in 2023 as the Russian-Ukrainian conflict continues to disrupt global supply chains and rising Asian demand puts pressure on prices. Higher energy costs and supply chain chokepoints will keep commodity prices relatively high throughout 2023. Analysts see this as both an opportunity and a threat. As an opportunity, investors may opt to hold long positions in primary commodities and strategic metals, while as a threat the slowing down of global output as a result of commodity supply problems could lead to prices bouncing off resistance thresholds in a sharp reversal.

Section 5   took a look at the changing interventions of market brokers who have come under pressure to improve their technical competence, operational efficiency, and client interface agility.  The jury is still out on how well the brokers have done, but what is certain is that if they do not up their game, there will be no game, as technology makes them redundant. A souped-up ChatGPT for investors would effectively wipe out most, if not all, the routine functions of brokers, and like heft and hew in Dr. Johnson’s book ‘who moved my cheese?’, brokers would be asking markets, ‘who took my commissions?’

Section 6 of the report went on a helicopter survey of the legal framework of the capital market, highlighting what will become increasingly important and gaslighting what will become distant history.

Football academies are designed to be windows to the future, a fit-for-purpose factory of talents. Children from the academies are expected to be groomed into a tribe of fearsome footballers of tomorrow; honed and armed with the skills and intelligence to make them exceptional. Unfortunately in the general scheme of things if wishes were horses beggars would ride. Many academy hopefuls burn out; they miss the cut; they find out that they neither have the resilience nor the talent to progress to club first-team football. But this is not bad, the process allows boys and girls to objectively test their mettle against their contemporaries and receive a generally fair assessment of what they can or cannot do. The journey of self-discovery may be just as important as the goal of personal glory. Indeed, some would argue that the latter was more important than the former. A later-day lesson for Nigeria’s middle-aged capital market.