(Business in Cameroon) - Managing Director of the Nigerian Stock Exchange (NSE), Oscar Onyema explains how his organisation reached a billion dollars in stock market capital by getting SMEs to join. His vision, which he presented to Ecofin Agency in Abidjan during the Africa Securities Exchange Association summit, could inspire more than a few stock markets.

Ecofin Agency: What did you take from the Africa Securities Exchange Association summit in Abidjan?

Oscar Onyema: African markets still suffer from a lack of liquidity and many stock markets don’t really have a significant number of listed companies. We therefore had the possibility to find answers for all these problems, both from an overall point of view and also for specific issues. I was pleased with the exchanges we had in Abidjan.

AE: Do you think that the new resolutions taken in Abidjan will be enough to address, for example, the lack of stock market and investment culture that is holding Africa back? 

OO: I agree with you perfectly. There’s a lack of awareness about the added value that stock markets can bring to economic growth. This type of meeting enables one to show the possibilities that exist to interest individual or institutional investors more. For example, it was shown that the fact that financial markets allow companies to raise funds and a bigger scale than banks. It also allows investors to benefit more from their placements because the returns on shares over the long-term are better than those of other financial products. It’s up to us to communicate this and make others more aware of these various advantages and this is what we talked about a great deal in Abidjan.

AE: There has also been a lot of talk in Africa about financial market integration, especially in West Africa, but in this zone, Nigeria is pulling away…

OO: A lot of effort has been invested in financial market integration in Africa. A council (West Africa Capital Market Integretion Council – WACMIC) has been implemented for this purpose. Within this framework, we are in the process of defining the norms and common documents to be used in the development of shared communication channels. Our objective is that all listed companies on the West African market will more easily raise capital in the region. This will ensure that a broker can be registered in a given country and negotiate securities on all the region’s markets. We believe that this level should provide the various sub-regional financial centres or even Africa as a whole with greater value.

For business, the advantage will be greater still because they will have the possibility of seeking financing from a potential pool of 290 million persons – the approximate population of West Africa. On the other hand, those who wish to invest will have the opportunity to do so with a larger number of listings. We’re working hard on it. We think we can reach a decisive stage by next year (2014), while we conclude the deal on the access initiative to financial markets which will enable intermediaries registered to the BRVM to negotiate securities on the Lagos Stock Exchange through their counterparts registered with the NSE. In the second phase, common stock market passports would need to be established. At the same time, we will work to standardise the conditions for entering the stock market and we hope that once these first two steps have been achieved, the third for integration will be only a formality.

AE: One of the challenges with integration will indeed be the standardisation of regulations on mandatory reporting by companies, an area in which the Lagos Stock Exchange has made some headway compared to the other two structures in the sub-region. What are the challenges associated with this disparity and how can they be overcome?

OO: It’s a relevant question and indeed one of the issues preventing integration. This is why we need to standardise regulations. For this reason, we have a technical committee that is working on these questions. For example, on the specific point you raised, the said committee is looking into how to implement the International Financial Reporting Standard (IFRS). That will allow a collective understanding of financial data. We are working on it, but there’s already a minimum standard that companies will meet through market integration.

AE: Since 2011, the NSE has been aiming to reach a trillion dollars in stock market capitalisation. How close are you to achieving that goal?

OO: We are diligently working on it. It’s a question of attracting more initial public offerings with an increased number of products on our financial market, because we hope to reach the objective you mentioned by using a number of products: shares and fixed revived revenue. We have understood that the main catalyst to reach our objective is to have a maximum number of initial public offerings with solid companies.  This depends not only on the financial market’s capacities, but also on the entire economic ecosystem to work on this issue. When we made this projection, we thought that it would have involved everyone. The government should for its part create the right fiscal environment by eliminating, for example, the VAT on stock market transactions and by adopting tax incentives for companies wishing to enter the stock market. The intermediaries, for their part, have to be strong – developing more transactions on the secondary market which would be attractive for companies entering the stock market. Our stock exchange itself has to be a credible organisation with appropriate operational rules and guidelines. We’ve started our share of the work and encourage others to play their part. We continue to urge them in this direction and work with them so that we can all move forward together.

AE: The NSE has begun a major campaign to encourage SMEs to enter the stock market. How is that going? Why does there seem to be some reluctance?

OO: The project is advancing. We reconfigured our SME approach seven months ago and have made a number of changes such as putting in place a council of stock market intermediaries with whom interested SMEs can speak and receive support throughout their tenure on the stock exchange. We reduced the listing costs and established introduction norms to make the process more accessible. Today, our councillors (around 14) are on the ground to talk with these companies about the advantages and disadvantages of being on the stock market.  However, before you enter the stock market, you need to be ready. What we’ve noticed is that most of our SMEs are not structured. For example, among the services available on the financial market is structural evaluation. It allows one to determine if a company is financially credible and competent. What we have unfortunately been finding is that the SME’s promoter is also the financial and administrative head and this doesn’t reassure investors in terms of how safe the company is for investment. Another thing that we are seeing concerns financial performance. In most cases, the SMEs don’t necessarily have an accounting system that meets industry norms and standards. Today, we already have 10 SMEs and our objectives are still more ambitious. It’s a complex challenge, but we’re working on it.

AE: If you were to make a general appeal, what would you say?

OO: I think we met in Abidjan to talk about how money in Africa can go from those who have it to those who need it to finance public and private initiatives. We want to support government efforts to meet the government development goals. The capital market has shown that it can play this role.