dennis odife panel report on the review of the ncm by mof sept 1996 - abridged

8/7/2019 Dennis Odife Panel Report on the Review of the NCM by MoF Sept 1996 - Abridged

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The DENNIS ODIFE Panel Report on the REVIEW OF THE NIGERIAN CAPITAL MARKET, 1996

www.proshareng.com 1

PANEL ON THE REVIEW OF THE NIGERIAN CAPITAL MARKETFEDERAL MINISTRY OF FINANCE

FEDERAL SECRETARIAT COMPLEX. PHASE I. ROOM 116IKOYI- LAGOS.

Ref: Date:.... .......................... 19 ........... ..............

For the Attention of Chief A. A. Ani (M.O.N.)

The Honourable Minister of Finance, Office of the Honourable Minister, Federal Ministry of Finance

Abuja.

Honourable Minister,

FINAL REPORT ON THE REVIEW OF THE NIGERIAN CAPITAL MARKET

On March 22nd 1996, The Panel On The Review Of The Nigerian Capital Market ("The Panel") was

inaugurated to review the Nigerian C.apital Market in the context of fourteen elaborate Terms of

Reference. The Panel has completed its task, 3fld hereby submits its Report, entitled "THE FINALREPORT OF THE PANEL ON THE REVIEW OF THE NIGERIAN CAPITAL MARKET" for your

consideration.

The Panel carried out its work in a consultative manner, inviting contributions not only from the

public at large in the form of Memoranda, but also from knowledgeable individuals and

Organisations in both the public and private sectors of the Nigerian economy. Working as a

Committee of all of its Members and its Secretaries, The Panel met with distinguished resource

persons, as well as the Chief Executives of the Securities and Exchange Commission, The Nigerian

Stock Exchange as well as the representatives of The Central Bank of Nigeria, The National

Association of Chambers of Commerce, Industry, Mines and Agriculture, The Issuing Houses

15281 24th September, 96


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Association of Nigeria, The Manufacturers Association of Nigeria, and some Financial

Correspondents of Nigerian Newspapers, amongst others.

The foregoing were supplemented by Open Public Sessions in seven key cities in Nigeria. Each

Public Session was advertised well in advance, and representatives of the public as well as the

private sectors, and the universities were invited to attend and participate, and they did. In

addition, The Panel undertook an Overseas Study Tour of 9 cities in 6 countries and held 56

meetings with leading Capital Market Institutions and Regulators as well as Self-Regulatory

Organisations, including Central Monetary Authorities, and Stock Exchanges. Detailed studies were

commissioned at the instance of The Panel on aspects of its assignment as was thought

appropriate.

The Final Report comprises 2 Volumes and 5Appendices. Volume I embodies the Panel's Findings

and Recommendations which also includes an Economic Vision for Nigeria in the 21st Century; that

is "PROSPERITY WITH TRANSPARENCY" as well as an Implementation Plan. The Second

Volume is the proposed Draft Legislation to give effect to the Panel's Findings and

Recommendations. Appendices 1 to 5 .are respectively Minutes of Meetings of Panel Members;

Transactions at Seven Public Sessions~ Collection of Working Papers, Sponsored Research and

Report of the Overseas Study Tour; Compilation of Memoranda submitted as well as the Panel's

Interim Report dated 21st June 1996, The Members of the Panel have found the task of reviewing.and charting a new course for the future of Nigeria's Capital Market to be a most stimulating and

rewarding exercise and wish to thank you for the privilege and opportunity given to us to

participate in this endeavour.

Yours sincerely,

CHIEF DENNIS ODIFE

(CHAIRMAN)

OTUNBA A.O. OGUNDE DR. AHMED ABDULAI

(MEMBER) (MEMBER)

PRINCE LEKAN FADINA ALHAJI AMINU BADA DANBAPPA

(MEMBER) (MEMBER)

MRS. M.A LASHMANN MR. O.G. ABIOSE(SECRETARY) (SECRETARY)


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CHAPTER ONE

THE CAPITAL MARKET AND ITS RELEVANCE

TO A MODERN ECONOMY

1.01 Introduction ----------------------------- ------------------------------------ 19

1.04 Terms of Reference-------------------------------------------- -------------- 21

1.06 The Capital Market and its

1.07 Financial Markets ----------------------------------------------------------- 24

1.09 The Money Market ----------------------------------------------------------- 25

1.10 The Capital Market - - - - - - ----------------------------------- 25

1.13 The Trading Markets ----------------------------------- - - - - - 26

1.14 The Stock Exchanges --------------------------------------------------------- 27

1.16 Market Participants----------------------------------------------------------- 27

1.17 The Issuers --------------------------- --------------------------------------- 271.18 The Intermediaries ------------------------- --------------------- 27

1.19 Investors---------------------------------------------------------------------- 27

1.20 The Regulators ---------------------------------------------------------------- 28

1.22 Integrated View -------------------------------------------------------------- 28

CHAPTER TWO

- PROSPERITY WITH TRANSPARENCY

A 21ST CENTURY VISION FOR THE NIGERIAN

ECONOMY AND THE CAPITAL MARKET

2.01 Introduction------------------------------------------------------------------ 30

2.03 The Land And People of Nigeria------------------------------------- 30

2.10 The Future ---------------------------------------------------------------- ----- - 38

2.17 Evolution of a Nigerian Culture and Vision ----------------------- 41

2.26 "Prosperity with Transparency" - A 21st Century Vision---------- 43

2.28 The Economy and the Capital Market ------------------------------ 44

A. Nigeria As the Most Important Financial Centre in Africa,

Comparable With The Best In the World ---------------- 44

B. As An Engine of National Economic Growth And Development 45

2. Findings and Recommendations ------------------------------------ 45


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CHAPTER THREE

HISTORY AND OBJECTIVES OF THENIGERIAN CAPITAL MARKET

3.01 Introduction -------------------------------------------------------------------- 47

3.02 The History of the Nigerian Capital Market- - - - - - - - - - - -------- 47

3.03 Date Landmark Events/ Developments- - - - - - - - - - - - --------------- 47

3.04 Objectives for the Establishment of The Nigerian Capital Market- - - - 51

3.06 Objectives for the Establishment of The Nigerian Stock Market - - - - 52

3.14 Objectives for the Establishment of the Securities and

Exchange Commission--------------------------------------------------------- 55

3.15 Findings and Recommendations -- - - - - - - - - - - - - -- - - - - - - - - - - - 56

CHAPTER FOUR

STRUCTURE, CONDUCT, AND PERFORMANCE

OF NIGERIAN CAPITAL MARKET

4.01 Introduction----------------------------------------------------------------- 57

4.02 Market Structure------------------------------------------------------------ 57

4.04 Securities-------------------------------------------------------------------- 58

4.07 Transactions Costs---------------------------------------------------------- 58

4.10 Ownership Structure-------------------------------------------------------- 714.11 Market Segments ----------------------------------------------------------- 71

4.12 The Government Stock Market--------------------------------------------- 71

4.15 Staff Bonds---------------------------------------------,-------------------- 72

4.20 Second Tier Securities Market - - - - - - - - - - - - - - - - 73

4.21 Market Conduct.........., ---------------------------------------------------- 73

4.22 Buying And Selling Securities - - - - - - - - - - - - - - - -- - - - - - - - - - 73

4.23 Settlement And Delivery System _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 76

4.24 New Issues------------------------------------------------------------------ 78

4.25 Pricing On The Secondary Market - - - - - - - - - - - - - -- - - - - - - - - 80

4.26 Mechanism For Price Making- - - - - - - - - - - - - - - - -- - - - - - - - __ 814.27 Mergers And Acquisitions - - - - - - - - - - - - - - - - -- - - - - - - - - - - 81

4.28 Indigenisation and Privatisation - - - - - - - - - -- - - - - - -- - - - - - - - 82

4.29 Privatisation - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - 82

4.31 Supply of Information Regarding The Market- - - - -- - - - - - - - - - - 83

4.32 Performance and Economic Contribution - - - - - - - -- - - - - - - - - - 82

CHAPTER FIVE

REGULATORY AND SUPERVISORY STRUCTURE

OF THE NIGERIAN CAPITAL MARKET

5.01 Introduction - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - 92


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5.02 Issues - - - - - - -- - - - -- - - - - - - .- - - - -- - - - - - - - - - - - - -- - 92

5.06 Other Agencies within Regulatory Roles in the Capital

Market Are As Follows - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --- - 75

1. The Corporate Affairs Commission ("CAC") - - - - - - - - - - - - 752. The Central Bank of Nigeria ("CBN")_ - - - - - - - - - - - - -- - - 75

3. The Ministry of Commerce and Tourism_- - - - - - - - - - -- - - - - - - - 75

4. The National Insurance Supervisory Board ("NISB")- - - - - - - -- - - - 75

5. The Issuing Houses Association of Nigeria - - - - - - -- - - - - - - - - - 75

6. The Federal High Court- - - - - - - - - - - - - - -- - - - - - - - - -- - 96

5.07 Background to Capital Market Regulation Generally - - - - - - - - - - - - - - - - 96

5.13 Capital Market Regulation in Nigeria for the Future - - - - - - - - - - - - - - - - 97

5.17 The Role and Responsibilities of the Federal Ministry of Finance ("FMF")- - - 98

5.21 The Securities and Exchange Commission ("SEC") - - - - - -- - - - - - - - - - - - 99

Governing Law- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - 99

Board of the Commission - - - - - - - - - - - - - - - - - - - - - - 99

5.23 Quorum for Meetings - - - - - - - - - - - - - - - -- - - - - - - - - --- - - - - - -- 100

5.24 Director-General/Chief Executive - - - - - - - - - - - - - - - - - - - - - - - 100

5.25 Company Secretary - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - ------ 100

5.26 Functions Of The Commission - - - -- - -- - -- - - - - - - - - - - - - - -- - 100

5.27 Powers of the Commission- - - - - - - - -- - - - -- - - - - - -- - - - --- - -- - - 101

5.29 Funding and Accounts - - - - - - - -- -- - - - - - - - - - - - -- - - - -- -- - - - - 101

5.31 Findings and Recommendations- - - - - - - - - - - - - - - - - - - - - - - - 102

CHAPTER SIX

THE NIGERIAN STOCK EXCHANGE

Introduction - - - - - - - - - - - - - - - - - - ---- - - - - - - - -- - - - - - - - - - - - - - - 104

Landmark Events - - - - - - - - - - - - - -- - - - - - - -- - - - - - - - - - --- - 104

Origins of the Nigerian Stock Exchange ("NSE")- - - - - - - - - - - - - - - - - - -- 105

Early History - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - -- -- - - - - - - - - 106

Membership of Nigerian Stock Exchange- - - - - - - - - - - -- - - - - - - - - - - - 106

Governance of the NSE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 108

Governing Council - - - - - - - - - - - - - - - - - - - - - - - - - - - - -. - - - 109Management of the NSE - - - - - - - - - - - - - - - - ,- - - - - - - - - - - - 110

Departments and Committees- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - 110

Committees- - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - -- 111

Investor Protection - - - - - - - - - - - - - - - - - - - - - - - --- - - - - - -- - - - - - -- - - -

111

Subsidiaries and Affiliated Companies - - - - - - - - --- -- - - - - -- - - - - - - - - - -- -112

The Central Securities Clearing System Limited- - - -- - - - -- - - - - - - - - - - - -----113

Trading, Clearing and Settlement Systems- - - - - - - - - - - - - - - - - - - - - - - - - -114

Quality of Stock broking - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -116

Finance and Accounts - - - - - - - - - - - -. - - - - - - - - - - - - - - - - - - -- - - -- 116

Findings and Recommendations - - - - - - - - - - - - - - - --- - - - - - - - - - - - - - 116


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CHAPTER SEVEN

ADEQUACY OF CAPITAL MARKET LAWS AND REGULATIONS

7.01 Terms of Reference 6, 7and8- - - - - - - - - -- - - - - - - - - - - - - - -1187.02 Applicable Laws and Regulations Identified - - - - - - - - - - 118

7.03 Regulations, Bye-Laws Guidelines, Subsidiary Legislation, etc. - - 119

7.06 Adequacy or Otherwise of Existing Legislation - - - - - - - - - 120

7.30 Securities and Exchange Commission Act, 1990 Present and Future Adequacy - - - - -

- - - - - - - - - - - - - - - 127

7.34 The Proposed Securities and Exchange Commission

Decree-Comments -----------------------------------------------------------128

7.35 Funding-----------------------------------------------------------------------129

7.36 Functions of SEC-------------------------------------------------------------129

7.38 Right of Appeal--------------------------------------------------------- ~--- 129

7.44 Annual Reports And Accounts131

7.46 Annual Accounts And Audit Off SEC - - - - - - - - - - - - - - 132

7.4 7 Dispute Resolution Within The Capital Market Generally - - - - - 132

7.50 Special Powers of SEC-------------------------------------------------------133

7.56 Part XVII of the Companies And Allied Matters Act

Administered by SEC --------------------------------------------------------134

7.59 Trustee Investments Act 1990 - - - - - - - - - - - - - - - - 135

A. Historical Background to Legislation - - - - - -:- - - - - -- 135

7.63 B. Analysis of Provisions - - - -- - - - - - - - - - - - - 137

7.67 C. Observations by the Panel ------------------------------------------138

7.68 Permitted Investments of lnsurance Companies - - - - - - - - - - 1387.72 Nigerian Investment Promotion Commission Decree "NIPC", 1995 -- 139

7.74 Foreign Exchange (Monitoring And Miscellaneous Provisions

Decree 1995 - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 140

7.76 Codification of Certain Laws and Regulations Pertaining to

The Capital Market - - - - - - - - - - -'-- - - - - - - - - - 140

7.77 Adequacy of Certain Other Legislation - - - - - - - - -- - - - - 141 7.78

Findings and Recommendations - - - - - - - - - - - - - - - - 141 7.79 Laws

and Regulations-Action Recommended - - - - - - - - - -- 142

CHAPTER EIGHT

DISPUTE RESOLUTION IN THE NIGERIAN CAPITAL MARKET

8.01 Introduction---------------------------------------------------------------- 144

8.05 Pattern of Disputes in the Nigerian Capital Market.------------- 145

A. Securities And Exchange Commission ("SEC") ------------- 145

B. SEC and Market Operators-------------------------------------- 145

C. NSE and Market Operators Users-Quoted Companies


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D. Operators and embers of Public - - - - - - - - - -- - - - - - - - - - 146

8.06 The Exchange's Judicial Forum---------------------------------------------146

8.08 The SEC Administrative Hearing Committee - - - - - -- - - - - - 146

A. Jurisdiction And Scope of Functions - - - - - - - - - - - 146

8.13 B. Panel Findings About The AHC -------------------------------------148

8.14 Financial Services Regulation Co-Ordination Committee (''FSRSS")- - 149

8 .16 ISC Investigation of Suspected Investment Business Malpractices

Etc. And Its Enforcement Action - - - - - - - - - - - - - - - 150

8.17 Fraud and Other Criminal Activities - - - - -- - -- - - - - - - - 150

8.19 Findings and Recommendations ---------------------- , ----------------- 151

CHAPTER NINE

THE APPROPRIATE CAPITAL MARKET FOR NIGERIA

9.01 Introduction----------------------------------------------------------------- 152

9.02 Evaluation of the Capital Market - - - - - - - - - - - - - - - 152

9.09 Noteworthy Issues/Developments In The Reform of the

Nigerian Capital Market - - - - - - - - - - - - - - - - - - 154

9.16 Proposed Capital Market Structure- - - - - - - - - - - - - -- -- - - 157

9.17 The Lead Regulator--------------------------------------------------------- 158

9.18 Governing Law-------------------------------------------------------------- 158

9.19 Reporting Relationships ---------------------------------------------------- 158

9.20 Governance --------------------------------- ------------------------------- 158

9.22 Second Level Regulators ------------------------------------- ------------- 1609.23 Role of ISC ln The Trading System ---------------------------------------- 160

9.27 Role of ISC In Delivery And Settlement -..,... - - - - - - - - - - - 161

9.30 Role of ISC In Dispute Resolution Within The

Capital Market -------------------------------------------------------------- 161

9.32 Role of ISC In Training - - - - - - - - - - - - - - - - - - - 162

9.34 Calls For Independent Stock Exchanges - - - - - - - - - - - - - 162

9.39 The Stock Exchange of Nigeria Limited -. - - .,- - - ,- - - - - - - 164

9.45 The Future of the Nigerian Stock Exchange - - - - - - - - - - - - 165

9.48 Capital Trade Points or Exchanges- - -..,... - - - - - - -- - - - 166

9.57 The Derivatives And Other Exchanges- - - - - - - ------ - - - -- 168

9.59 Commodities Exchanges --------------------------------------------------- 1689.60 Central Depository Corporation - - - - - - - - --- - - - - - - - 168

9.62 Other Capital Market Institutions -.- - - - - - ---- - - - - - - 169

9.65 Capital Market Trade Associations - - -- - - - - - -- - - - - 170

9.68 Promoting Active Bond Market In Nigeria - - - - - - - - - - - - - 170

9.69 An Appropriate Informal Judicial Forum For

The Nigerian Capital Market. .- - - - - - - - - - - - -- - - - - - - -- - ------ 171

9.70 A. What Type of Institution Is Required?- -.- - - - - - - - - - - - -171

9.71 B. Membership Of IST And Quorum - -------------------------------- 172

9.72 C. Jurisdiction-------------------------------- ------------------------- 172

9.73 D. Appeals ----------------------------------------------------------- - 1729.74 Findings and Recommendations ------------------------------------------- 173


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CHAPTER TEN

INCENTITIVE FOR THE CAPITAL MARKET

10.01 Introduction - - - - - - - - - - - -- - - -- - -- - - - - - - - - - - - - - - - - - - --- 176

PART A

A. Tax Issues and the capital market -- - - -- - -- - - - - - - - 176

10.06 B. The need for minimal or Low Rate Taxes on Capital

Market Transaction -- - - -- - -- - - - - - - - - - - - - - - - - 177

10.08 C. Companies Income Tax -- - - -- - -- - - - - - - - - - - - - - - 177

10.10 D. Withholding Tax -- - - -- - -- - - - - - - - - - - - - - - - - 178

(i) Dividends -- - - -- - -- - - - - - - - - - - - - - - - - 178

10.12 (ii) Interest -- - - -- - -- - - - - - - - - - - - - - - - - - 178

10.16 E. Capital Gains Taxation -- - - -- - -- - - - - - - - - - - - - - 180

10.28 F. Taxation of Unit Trust Schemes -- - - -- - -- - - - - - - 183

10.30 G. Taxation of Investment Trust Companies -- - - -- - -- - 183

10.34 H. Stamp Duties -- - - -- - -- - - - - - - - - - - - - - - - - - - 184

10.37 I. Insurance Premium Relief And Permitted Investment

Of Insurance Companies -- - - -- - -- - - - - - - - - - - - 185

10.38 J. Venture Capital (Incentives) Decree, 1993 -- - - -- - 186

PART B

10.39 Other Appropriate Incentives For the Capital Market -- - 186

CHAPTER ELEVEN

ENHANCING THE RESPONSIVENESS OF THECAPITAL MARKET IN NIGERIA

PUBLIC ENLIGHTENMENT, EDUCATION AND TRAINING

11.01 Introduction -- - - -- - -- - - - - - - - - - - - - - - - - 18911.02 Public Enlightenment and Education -- - - -- - -- 18911.08 Assessment of Current Educational and Training

Programme Available Within The Capital Market -- - - - 19111.15 Panels Observation -- - - -- - -- - - - - - - - - - - - - - - - - 193

11.18 The Institute of Investment and Capital Market

Studies (IIMCS or the INSTITUTE) -- - - -- - -- - - - 194

A. Type of Institution -- - - -- - -- - - - - - - - - - - - - - - - - 19411.19 B. The Development And Recognition of Capital

Market Professionals -- - - -- - -- - - - - - - - - - - 195

11.20 C. Regulators and Oversight Personnel That Require

Capital Market Training -- - - -- - -- - - - - - - - - - - 19511.22 Research -- - - -- - -- - - - - - - - - - - - - - - - -- - - - - - - - - - 19611.23 Continuing Professional Education (CPE) -- - - -- - -- - - - 196


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11.24 Funding -- - - -- - -- - - - - - - - - - - - - - - - -- - - - - - - - - - 197

11.27 Governance -- - - -- - -- - - - - - - - - - - - - - - - - - - - - - - - 19711.28 Findings and Recommendations -- - - -- - -- - - - - - - - - - 198


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CHAPTER TWELVE

THE NEW AGENDA

12.01 Introduction - - - - - - -. - - - - - - - - - - - - - - - - - - - - - - - -200

PART A

12.02 Unfinished Capital Market Business - - - - - - - - - - -- - - - - - 200

12.03 Unclaimed Dividends - - - - - - - - - - - - - - - - - - - - - - - - - - 201

12.06 Unclaimed Share Certificates - - - - - - - - - - - - - - - - - - 201

12.07 Dividend Warrants Not Accepted By Some Banks - - - - - - - - 202

12.09 Delay In the Issuance Of Share Certificates By Companies

And Transfer Agents- - - - - - - - - - - - - - - - - - - - 202

12.10 Delays In The Sale Of Shares By Brokers- - - - - - - - - - - - - 202

12.11 Further Privatisation - - - - - - - - - - - - - - - - - - - - - - - - - - - - 202

12.15 Housing And Infrastructure Bonds - - - - - - - - - - - - --- - - - - 20312.18 Ensuring An Adequate Conceptualisation Of Inflation In Nigeria 204

12.21 Equity Ownership And Mis-Use Of Local Credit - - - - - -- - _ 204

12.25 National Income Accounting - - - - - - - - - - - - - - - - - - - - - 205

12.26 Nurturing Purely Nigerian Companies- - - - - - - - - - - - - -- 206

12.27 Small Business Administration- - - - - - - - - - - - - - - - - - -- 206

12.28 Ensuring A Culture Of Succession - - - - - - - - - - - - - - - - 207 12.20

Encouraging Foreign Institutional Investment (FII)- - - - - - 207

12.31 The Role of Commercial And Merchant Banks In

The Capital Market - - - - - - - - - - - - - - - - - - - - - - - - - 207

12.40 Recent Developments In The Nigerian Capital Market- -- - 209

12.41 A. Reforms Introduced by the SEC- - - - - - - - - - - - - - - - - - 209

12.42 Secondary Market Pricing - - -- - - - - -- - - - - - - - - - - - 210 12.41 B.

Reforms Introduced By The Nigerian Stock Exchange - - - 211

1. Central Clearing System - - - - - - - - - - -- - - - - - -- - 211

2. Reduction in Fees of Exchange and Brokers - - - - - 211

12.44 Panel's Conclusions - - - - - - - - - - _ - - - - - - - - - - - - - - - 211

PART B

12.45 Technical Issues

Information Technology For Nigerian Capital Market- - - - - 213

PART C

12.50 Implementation Programme - - - - - - - - - - - 217 12.51

Phased Implementation - - -- - .- - - - - - 217

PART D - The Way Forward - .

12.53 Entrepreneurship: Key To Prosperity With Transparency - - 218

12.63 Findings and Recommendations- - - - - - - - - - - - 221

,

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LIST OF TABLES/CHARTS

1.1 Most Populous Nations of the World - - - - - - - - - - - 311.2 Most Populous Nations of Africa- -- - - - - - - - - - - - 311.3 Demographic Trends Within Nigeria - - - - - - - - - - - - - 331.4 Basic Statistical Indicators - - - - - - - - - - - - - -- - - - 331.5 Key Economic Indicators - - - - - - - - - - - - - - - - - - 341.6 Federally Collected Revenue - - - - - - - - - - - - -- - -- 351.7 Average Growth Rate of Nigerian Population. - - - - - 321.8 Projection of Nigerian Population to 2025 AD.-- - - - - 322.1 &2.2 Number listed securities and Dealings Memberscompared with total Membership 1987-1995 - -- - - - 59

Growth of Securities on the Nigerian Stock Exchange 1985 1994*. 59

2.3b The Nigerian Capital Market. - - - - - - - - - -- - - - - 64

2.1 Structure of the Nigerian Financial System* .- - - - - -......... 59

2.2 Growth in the Number Of Securities listed 1973 -1994* - - 59

2.2b. Size of the Nigeria Issue Market Industrial Securities Issued - 62

2.3 Net New issues as percent of~1arket Capitalisation, 1980-1995- - 63

2.4. Scale of Listing Fees on the NSE,-- - - - - - - - - -- -- -- -- - - 65

2.4a. Nigerian Stock Exchange Index*- - - - - - - - - - - - - --- - - - - - - - 86

2.4. NSE all Share Index Value*- -- - - - - - - - - - - - -- - - - - -- - - - - 87

2.5 Scale of Capital Market Fees approved by SEC - - - - - - - - - - - 67

Summary of Market Capitalisation on the Nigerian Stock Exchange1994 - '1995- - - - - - - - - - - - - - -- 67

2.8. Pattern of Ownership of Quoted Companies - - - - - - - - -- - - - 69

2.9 Nigerian Capital Market Settlement and Delivery System - - - -- - 70

2.10 List of SEBI Guideline Booklets - - - - - - - - - - - - - - - - - - - - - 77

2.11 Ratio of Market Capitalisation to GPD - - - - - - - - - - - - - - - - - 84

2.12 Performance of the NSE All-Share index, 1991-1995 - - - - - - 85

2.13 Comparative Performance of Emergent Capital Markets - - - - 88

2.14 Comparative Ranking of the Performance of Emergent

Capital Markets - - - - - - - - - --- - - - - - -- - - - - - - - - - - - - - - 89

Summary of completed questionnaires submitted by Stockbrokers - 91


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LIST OF DIAGRAMS

The Nigerian Financial System

ACKNOWLEDGEMENT

ANNEXURES

I. Summary Of New Issues In the Nigerian Stock Market 197601994II. References And Bibliography

Executive summary


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Report of the Panel on the Review of the Nigerian Capital Market

EXECUTIVE SUMMARY

CHAPTER ONE

INTRODUCTION TERMS OF REFERENCE AND CONTEXT O

REVIEW

1.01 INTRODUCTIONThe Head of State and Commander in Chief of the Armed Forces of the Federal R

Nigeria, General Sanni Abacha, announced in his 1996 Budget Speech that a Pa

be set up to review the Nigerian Capital Market. The Honourable Federal M

Finance, Chief A.A. Ani gave further details in his own Budget Briefing and on th

of the inauguration of the Panel on Friday 22nd March 1996, at Abuja.

The Panel comprises the following:

Chief Dennis O. Odife

Otunba A:O. Ogunde

Dr. AhmedtAbdulai

Alhaji Aminu Baba Danbappa Prince Lekan Fadina

Mr. O.G. Abiose

Mrs. M.A. Lashmann

Chairman

Member

Member M

Secretary

1.02 STRUCTURE OF THE REPORT

The Final Report comprises 12 Chapters each of which examines the Terms of

listed alongside it. The Second Volume is the Draft Legislation specifically pr

embody all the Suggestions and Recommendations of the Panel including the mo

adaptation and codification of most of the laws and regulations governing activit

the Capital Market.

1.02 Five Appendices comprising Minutes, Memoranda, Report of Overseas StWorking Papers etc. which may be read in conjunction with the Main Report h

compiled and documented as follows:-

- Minutes of the Meetings of the Panel- Proceedings At seven Public Sessions- Working Papers And Sponsored Research- Memoranda Submitted To The Panel- Overseas Study Tour And References.


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1.04 Chapter One of the Final Report is the Introduction, while Chapter Two determines the

VISION for the future. Chapters Three to Seven are the expository Chapters, and they examine

the current situation of the Capital Market, from a financial, organisational and legal points of

view. Chapter Eight examines the pattern of disputes and the mechanism for dispute resolution

in the Market making appropriate recommendations.

Chapters Nine to Twelve are the recommendatory Chapters; they prescribe solutions to the

problem highlighted in the expository Chapters and in the context of the VISION. Chapter

Twelve embodies a framework for the Implementation of the Report and in addition points the

way forward towards the realisation of the VISION, "PROSPERITY WITH TRANSPARENCY"


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CHAPTER TWO

- PROSPERITY WITH TRANSPARENCY

A 21ST CENTURY VISION FOR THE NIGERIAN

ECONOMY AND THE CAPITAL MARKET

2.01. INTRODUCION

The Panel's Third Term of Reference requires it:

"To anticipate the likely direction of evolution of the Nigerian economy in the next century and project

how the Capital Market should develop to respond adequately to the needs of the economy."

2.02. After very careful consideration, the Panel found that its Report would be more coherent and its

recommendations more relevant, if it first determined the sort of economy for which such

recommendations are to be made and applied, before deliberating on some of the other Terms of

Reference, such as Terms of Reference 2,5,8 and 11 and reaching any conclusions. The Panel thus

found that it was most appropriate for it to commence its review of the Nigerian Capital Market with the

third Term of Reference.

2.03 THE LAND AND PEOPLE OF NIGERIAThe Federal Republic of Nigeria has a total land area of923,768 square kilometres. It is a vast country,

even though the whole of it is within one time zone. In terms of distance, the country Is approximately

1,500 kilometres from east to west, about 1,400 kilometres from south to north~ and about 1 ,500

kilometres from the south-w~st comer to the furthest point in the north-east. By air, it takes about two

hours at the most to fly from one end of the country to the other. Countries such as Ivory Coast are

nearer to Lagos than places such as Calabar in the south-east, Maiduguri, in the North-east or Sokoto in

the north-west. The new Federal Capital Territory at Abuja is, however, nearly equidistant from the four

extremities of the country. It is centrally located, and has abundant space for future development.

2.04. Administratively, the nation has a Federal Government, which is now based in Abuja. The country

is subdivided into States and


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Local Government areas. Every village or town, therefore, belongs to one local government area or the

other. Some of the other major cities, which are mostly State Capitals~ include Kano, Kaduna, Port

Harcourt, Warri, Ijebu-Ode, Abeokuta, Sagamu, llorin, Minna,

Ibadan, Lokoja, Ogbomosho, Katsina, Yola, Sokoto, Jos, Enugu,Maiduguri, Bauchi, Makurdi, Benin~

Badagry, Asaba, Onitsha, Aba, Umuahia, Calabar, Uyo.

2.05. The population of Nigeria in 1991 was estimated at approximately 88.5 million. According to

World Bank sources the population of the country had risen to approximately 108 million by mid-1994.

This is clearly inconsistent with the Central Bank of Nigeria's estimate that the population of the country

was approximately 91.3 million by 1992. [see page 22, table 9, in the Perspectives of Economic Policy

Reforms in Nigeria, published in 1993 by the Research Department of the CBN] or table 14 of page 43 of

the ANNUAL ABSTRACT OF STATISTICS published by the Federal Office of Statistics, [FOS] 1995 edition,

which places the 1994 population of Nigeria, from FOS and National Population Commission sources~ at

96~244,000. Using the 1991 population of 88,500;000 however still ranks Nigeria as the 11th most

populous nation on earth~ just larger than Mexico which however has over twice the land area of

Nigeria. (Table 1. 1) Within Africa, Nigeria is easily the most populous nation, with one in every four or

five Africans being a Nigerian. (Table1.2).

2.06 Nigeria's population has grown on average over the past 21 years at stable rates of not less than

2% and not more than 2.5% compounded annually. This contrasts with the rate of 3% (or even 3.2%)which is applied in international publications for low income countries such as Nigeria. [Chart 1.1] On

the assumption that the population will continue to grow at the same average rates until 2021

A.D, or at the rate of3% projected by the World Bank, there will be either in excess of200 million

Nigerians at the end of the next twenty five years, [Chart 1.2] or at the very least, the population of the

country will have doubled. It is also noteworthy that Nigeria has more young than old people in its

population, only a quarter or so of which has to undertake the bulk of economic production. [Table 1.3]

There are approximately as many females as males, and the female population represents a latent

industrial and entrepreneurial energy waiting to be tapped if the experiences of the emergent Asian

nations is anything to go by.

2.07 Nigeria is a multi-ethnic, multi-religious and multi-lingual


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society with a long history of living together, of inter-marriages and also of internal trade as well as

trade with the rest of West Africa and North Africa. Nigeria was a British colony until it attainedindependence in 1960. It became a Republic in 1963. Naturally, therefore, most of its laws and

institutions, including its Capital Market, were to some extent patterned after those of Britain. Most of

Nigeria's initial external trade was also with Britain, and then with Europe and subsequently the

America's. Trade with Europe, Asia and the America's is a more recent phenomenon than trade with

West Africa and North Africa, but is far better documented. Such documentation as is available, may be

obtained primarily from the Federal Office of Statistics, and also from the Central Bank of Nigeria.

2.08. Nigeria's recent economic performance up to 1995 has been anything but impressive. Tables 1.4

and 1.5, show Basic Statistical Indicators and Key Economic Indicators for The Federal Republic of

Nigeria during the past three to five years, side by side with average growth rates from 1975-84, 1985-

89 and 1990-95. The Statistics on Nigeria contained in World Bank documents, and referred to above,

are interesting for several reasons;

First, is that the foreign investors will have easier access to them and place more reliance on them than

on data from Nigeria sources. For example, they indicate that our average life expectancy is still very

short, at 51, and that our per capita income is less than US $300, or approximately N24,000.00. They

also indicate that our terms of trade are getting worse, agriculture and industry are declining,

investment is falling, and that little or no help may be expected from outside sources.

2.09. What is not indicated however in the statistics, but which remains the mainstay of the Nigerian

economy are the vast oil and gas reserves, which are being exploited to yield nearly 80% of the national

income. Nigeria's large land mass is a potential strength for agriculture, but it is scarcely and poorly

exploited. Nigeria is reported to have substantial solid mineral, resources, but the likelihood for their

exploitation to boost the income of the nation in the short run is remote. Nigeria has a large population,

and a relatively well skilled labour force. Managerial talent is still scarce however, and purchasing power

is low. Nevertheless, Nigeria remains the single largest market in West Africa and even black Africa.


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2.10. THE FUTURE

The foregoing scenarios signify great pressures in the immediate future for Administrations at all tiers of

Government, as well as the private sector. While these pressures will need to be addressed

immediately, it g-is important to identify and to recognise some of their principal manifestations, which

may be as follows:

Education: Pressure for more classrooms,' teachers and recreational facilities

Health: Pressure for more hospitals beds, drugs and personnel

Housing and Welfare: Pressure for more housing, utilities, towns and cities

Labour: Pressure for more employment opportunities, factories and the establishment of new

businesses or the expansion of existing ones.

Infrastructure: Pressure on existing infrastructure in the form of roads, power, water, and

telephones.

Government Finance: Pressure on the finances of the Federal and State Governments and the

various administrative units.

Security: Pressure on the law enforcement Agencies

Judiciary/Justice: Pressure on the judiciary

Women and Minorities: Pressures from minorities including the youth and women for more

participation in governance and in the economy.

Resource Allocation: Pressure from various areas, especially the rural areas for more equitable

and better allocation of scarce resources.

Information Technology: Pressure on Nigerian entitles to join the global revolution in Information

Technology.

External Trade Imbalance: Pressure to create a new economic framework which encourages

entrepreneurship ~d mass participation in economic development.


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Environment: Pressures to meet international environmental standards, especially environmental

impact assessment.

2.11. On the external front, there are also a number of threats which may not be ignored:Ecowas: The French speaking countries of West Africa have concluded plans to establish their own

single Capital Market with a unified Settlement and Clearing System. The Market is expected to be

operational by 1997, and 16 stock-broking companies are to be licensed to invest in the Exchange and

to operate on it. Nationals of ECOW AS nations are defined as "Nigerian Citizens" under Nigerian lawsfor purposes of investing in the Capital Market.

European Union: By the end of 1998, all the currencies of Members of the European Union will be

replaced by one Currency to be known as the EURO. From January, 1996, investment bankers from

Member nations of the European Union are permitted to undertake the full range of investment banking

business in all member nations without first seeking a local license.

Developments in Asia: Developments in Asia, especially the recent advances made by the South

East Asian countries together with India, represent an example to be emulated and a challenge to be

surpassed.

2.12. From the Central Bank of Nigeria, ANNUAL REPORT AND ACCOUNTS, 1994 the Panel discovered

that Nigeria has earned over US $200 billion from oil and other sources in the past twenty years,

representing over $11 billion per annum. (Table 1.6). This income which is very substantial appears to

have had very little impact on the development -of the country. This situation is disturbing considering

that there are countries which have earned much less than this, and which may not be as well endowed

as Nigeria but which have nonetheless achieved more substantial economic growth and development

than: Nigeria has thus far achieved.

2.13. The Panel noted and was puzzled by the widely divergent paths of historical change evident in

the development of societies. It recalled its experiences in the countries it visited some of which share

similar colonial and historical experiences as Nigeria, but which as at today have performed much better

economically


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especially in recent times. A relevant question therefore, why is it that some nations prosper while

others stagnate and decline?

2.14. As far as the Panel could determine, every system or society, and this includes organisations,

economic, social or political, have three broad components which interact to determine performance.

These are:

1. The Framework of laws, regulations, norms and practices which prescribe choice and decision

making in the field. These become the Rules of the Game.

2. The Organisations set up by the State or by individuals to achieve particular objectives. They are

manned by teams or people who have a common objective. In striving to achieve their goals, the

Organisations may deliberately or accidentally alter the institutional framework.

3. The Feed-Back Mechanism through which the system monitors the performance of the first two

components and responds to the changes which have occurred in the Framework to keep it performing

as required. For the system to function optimally, the process should be continuous. The rules of the

game are important, because, if they are fair, they make it easier for all participants to compete

equitably. If they are not fair, then they change the pattern of competition, or how Organisations go

about achieving their objectives.

The Rules of the Game, therefore, determine what the transaction "cost" will be. Where transactions

costs are material, then not everyone can participate, and the performance of the system will be

different from a situation in which the transaction costs are minimal and more people can participate.

The rules of the game therefore make quite a big difference in each society.

2.15. From the foregoing, it is quite clear that the challenge of leadership in the next century

will be to build a sound institutional Framework of laws, regulations, rules, norms and

practices, as well as Organisations, which will, under the management of competent

leadership serve as a feed back mechanism, deal with the above mentioned pressures and

transform them into energies to propel Nigeria from relative underdevelopment to a

developed and modern nation in the

I shortest possible time, by expanding its markets, unlocking its


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resources and widening the participation in value added economic activities by the entire

citizenry of the country.

2.16. The challenge is made more daunting by the fact that the other economies are not standing still

but are trying on their own to further improve the lots of their peoples, to increase the edge which they

have over us, and thus render us less competitive. It is, therefore, to all intents and purposes very

much like fighting a war, only that this is a war with no clear borders, a war in which there may be

enemies and friends at home and enemies and friends abroad. It is complicated further by the fact that

the roles keep changing, and that friends in one cause may be foes in another.

2.17 EVOLUTION OF A NIGERIAN CULTURE

AND VISION

Members of the Panel have also interpreted the search for a 21st Century VISION for Nigeria not as an

invitation to foist their individual or collective visions on the nation, but to determine as far as is

practicable what the true VISION for the country should be judging from the words and actions of the

past and present leadership, and the yearnings and aspirations of the generality of the people.

2.18. It is recalled that Nigeria became independent in 1960, and that the major events of our time,

for example, the civil war, indigenisation, privatisation, and SAP, all of the major laws and institutions,

outside perhaps of a few institutions like the Central Bank and the Stock Exchange, were created by the

Military. The impact of military rule on civil society and vice versa may not therefore ever be adequately

assessed, but it should in any event, not be under-estimated. The Panel has noted also that for the

entire period that the military was in power, there were large numbers of civilians at all cadres of

Government making effective contributions. Such active participation by civilians, which does notappear

to be adequately recognised and understood by the outside world, has contributed to the evolution of a

culture which is uniquely Nigerian, and which cuts across a broad spectrum of society.

2.19. Moreover, the VISION of the future which is presented below, is drawn largely from the

statements made from time to time by various leaders, civilian as well as military, and by key

functionaries of all past Administrations, including the current one. The VISION is neither new nor is it

original; but it is uniquely Nigerian. It is uniquely Nigerian because it is a VISION which is


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indigenous to our people and it has manifested in every regime so far since independence. It is,

therefore, likely to be easily internalised by the new civilian leadership. The success of the VISION will

also be dependent on the extent that economic, social and political structures are in place to foster

competent leadership and sound institutions.

2.20. Traditional Nigerian communities organised production through group co-operative syndicates

work, age grade societies and trade guilds which operated peacefully together to ensure the prosperity

of individuals and of the community. Savings were mobilised through the "adashi" or "esusu" system,

whereby capital was accumulated and on-lent to the most needy on a rotational basis. The discovery of

oil soon after independence, and the abundance of the post-war years may have created and sustained

the illusion of affluence, leading directly to the pervasive mismanagement of our national wealth which

continued until recent times, and almost became a culture of its own.

2.21. There is evidence, however, that a Nigerian VISION has always existed even in our darkest days,

and from time to time, has indeed manifested itself in such Programmes as:

1975 -1979 "LowProfile",and "Operation Feed the Nation",

1979 - 1983 "Ethical Revolution", and "Green Revolution"

1984 - 19R5 "War Against Indiscipline"

1985 - 1993 SAP, MAMSER, DFFRI, "Better Life for. Rural Women"

1993 to-date "War Against Indiscipline and Corruption",

"Family Support Programme"

2.22. Even though the above mentioned Programmes were popular with Nigerians generally, they

however achieved varying degrees of success in concrete terms. It was however not until the current

Administration introduced certain measures that were outlined in the

1996 Federal Budget that the national VISION for Nigeria can be said to have manifested itself: that is:

PROSPERITY WITH TRANSPARENCY. Some of the bold measures already introduced or proposed include

reforms of the following: Reform of the Ports, the Petroleum Sector, the Financial Institutions including

the Central Bank of Nigeria, the promulgation of the Failed Banks And Other Financial Institutions

Decree to be followed by a Failed Parastatals And Contracts Decree.

2.23. It has been shown that the Nigerian VISION has been with us


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all along, but it is to the credit of the current Administration that this VISION is now well articulated,

leading to the current efforts to build sound institutions to ensure a smooth succession during and after

the transition to civil rule.

2.24. On the basis of the efforts of the present Administration at cleaning up the country, and from the

evidence so far made public, there is little doubt that major institutions within the public and private

sectors have been unsound. For example, in a statement at the foundation laying ceremony of the new

Federal Secretariat for Delta State, at Asaba in July 1996, the Head of State and Commander-in-Chief of

the Armed Forces of the Federal Republic of Nigeria, General Sanni Abacha, confirmed this view while

contemplating the spectre of abandoned projects all over the country. He stated that the abandoned

projects were products of

"faul conceptualization, poor planning and 1mproper implementation"

2.25. If this has been the pattern since independence, then one can conclude that thirty-six years of

poor conceptualisation, poor planning and improper implementation, are core problems that require

urgent solutions. The nation's foremost aspiration must, therefore be to get away as quickly as possible

from its current predicament and strive to achieve prosperity within the shortest possible time.

2.26. "PROSPERITY WITH TRANSPARENCY" -A 21ST

CENTURY VISION

1. PROSPERITY WITH TRANSPARENCY may be interpreted in this context to comprise the following:

Prosperity Re: Wealth, influence, Abundance

- F or the nation as a whole- For the component parts such as the States .and Local Governments- For Organisations, Companies and groups.- For the individuals, male and female alike.Transparency i.e. Clear, Open, No Concealment, No Disguise, No

Mask.

- Open And Honest Government- Precise Legislation, Rules And Procedures,- Zero or Minimal corruption and absence of similar antisocial conduct.


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- Low transaction costs because the Laws, Rules etc. are clear and known to all.2.27. The adoption of the foregoing VISION has clear implications as to how society is governed, its

politics, the economy and how its Capital Market, is to be organised. It will be found on closer

examination that TRANSPARENCY alone will not do, just as PROSPERITY alone also will not do.

PROSPERITY WITHOUT TRANSPARENCY will mean that corruption will be rife, and hence, there would be

no assurance that such PROSPERITY can be achieved or that having been achieved, that it can be

sustained. TRANSPARENCY WITIIOUT PROSPERITY will mean mass poverty and hence a state of civil

strife and unrest.

PROSPERITY is essential if Nigeria is to withstand the population pressures which are now knocking at

her doors. TRANSPARENCY will mobilise all the people to work harder and together with the leadership,

democratically, to reinforce the PROSPERITY of the individual, the community, the society, the

organisation, and hence of the nation.

The VISION PROSPERITY WITH TRANSPARENCY is therefore one which unites all Nigerians under their

leadership, to move the country forward into the next century so that the nation and its people may

occupy their rightful place under the sun.

Recent progr~mes by the present Administration affirm the foregoing VISION, just as public acceptance

of such policies affirm their approval and support. The Panel, has consistent with its Terms of Reference,

restricted itself to the implications of the foregoing VISION for the economy -and the Nigerian Capital

Market.

2.28. THE ECONOMY AND THE CAPITAL MARKET

The Panel believes that in the 21st Century, and even before it, the Nigerian Capital Market should

strive to become the most important financial centre in Africa, comparable with 'the leading

Capital Markets of the world, and that it should also be the engine of growth and development for the

country.

A. Nigeria As The Most Important Financial Centrein Africa. Comparable With The Best In The World

For Nigeria to become the most important financial centre in Africa comparable with the

best in the world, the following steps/ actions and events must occur or be taken; that is:


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5. That Findings of the Panel is that Nigerian people as well as successive leaderships

have been in search of a VISION, which is shared by all Nigerians, and which will lead them

to a better society. The programmes of the current leadership have made the VISION to

manifest very clearly, as PROSPERITY WITH TRANSPARENCY.

6. That the Vision of PROSPERITY WITH 1RANSPARENCY, implies and requires that the

economy be opened up, developed, deregulated, and democratised in order for it to achieve

its full potential and unlock the wealth of the nation in both resources and in talents.

7. The VISION requires that the Nigerian Capital Market becomes the leading capital market

in Africa, comparable to the best in the world, and the engine of national economic growth

and development.


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CHAPTER THREE

HISTORY AND OBJECTIVES OF THE

NIGERIAN CAPITAL MARKET

3.01 INTRODUCTION

This Chapter deals with the 1st and 2nd of the Panel's Terms of

Reference which require it:

1. " to review the history, structure, conduct and performance of the Nigerian Capital Market and

its contributions to Nigeria's economic development..."

2. "... to examine the objectives for the establishment of the Nigerian Capital Market and their

continued relevance to Nigeria's contemporary and .prospective needs and aspirations and to make

appropriate recommendations..."

Whilst this Chapter reviews the history as welt as the objectives for the establishment of the Capital

Market and makes appropriate recommendations, matters that relate to the structure of the market as

well as its conduct and performance are dealt with subsequently in Chapter Four.

3.02 THE HISTORY OF THE NIGERIAN CAPITAL

MARKET

The history of the Nigerian Capital Market is presented below in chronicological order an in

terms of the landmark events developments which created and influenced it.

3.03 DATE LANDMARK EVENTS/DEVELOPMENTS

1946 * Promulgation of the 10 year plan Local Loan Ordinance providing for the floatation of Pound

Sterling 300,000 3% 1st Government Stock 1960/1961.

1951 * Creation of a Loan Fund for financing some public utilities.

1957 * Government and Other Securities (Local Trustees Powers) Act.

1958 * Establishment of the Central Bank of Nigeria (CBN)


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1957 * Appointment of a Committee under Professor Barback to examine ways and means of

fostering a shares market in Nigeria.

1957 *General Loan and Stock Act, 1990

1957 *Local Loans (Registered Stock and Securities) Act, 1990

1959 *CBN in pursuance of its role in respect to the development of the Capital Market floated the 1st

Federation of Nigeria Development loan of =N=4 million.

1959 * The Lagos Stock Exchange operating as a Private Company Limited by Guarantee and having

Share Capital was formed as a result of the Report of the Barback Committee.

1959 * Statutory Corporations (Guarantee of Loans) Act, 1990.

1960 *The incorporation of the Lagos Stock Exchange took place through the collaborative efforts of

the CBN, the business community and the NIDB (then known as The Investment Company of Nigeria

"ICON"). The original subscribers to the Memorandum and Aricles of Association were:

1. Alhaji Shehu Bukar

2. Chief Theophilus Adebayo Doherty

3. Sir Odumegwu Ojukwu

4. Mr. Akintola Williams

5. C.T. Bowring & Co.

6. The Investment Company of Nigeria ("ICPN")

7. John Holt Nigeria Limited.

1960 *The promulgation of the Lagos Stock Exchange Act 1990 which permitted only licenced

Stockbrokers Issuing Houses to engage in the business of buying and selling of shares.

1961 *The Lagos Stock Exchange commenced operation on the


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5th of June, 1961.

1961 * Income Tax Management Act, 1990

1962 *Exchange Control Act, 1990.

1962 *Trustee Investments Act, 1990

1962 *Capital Issues Committee of the Central Bank of Nigeria

1962 * Directive recalling Nigerian Investments Overseas back into the country. .

1962 * Savings Bonds and Certificates Act, 1990

1966 *Borrowing by Public Bodies Act. 1990

1967 *Capital Gains Tax Act. 1990

1968 *Companies Decree, 1968

1969 * Banking Act, 1990

1972 *Nigerian Enterprises Promotion Act, 1972 since Repealed

1973 *Capital Issues Commission Act. 1973 since Repealed

1974 *National Provident FundAct: 1990.;

1975 * Industrial Enterprises Panel (Wole Adeosun)

1976 *Financial System Review Panel (Dr.pius Okigbo) set up in April to study the structure andoperations of the Nation's financial system and to make recommendations for improvement.

1976 *Pension Act, 1990

1977 *Lagos Stock Exchange transformed to The Nigerian Stock Exchange ("NSE") on 2nd December

following the Government White Paper on the Okigb6 Report.

1977 *Nigerian Enterprises Promotion Act (Phase 2) 1977, since Repealed.


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1978 * Securities and Exchange Commission ("SEC") Act,. 1979 since Repealed. SEC is a Regulator or

Government Agency that is empowered to conduct surveillance in securities dealings, promotedevelopment and the protection of investors.

1985 * Second-Tier Market of the Stock Exchange launched to attract small and medium sized

business to the Stock Market.

1985 * Second-Tier Foreign Exchange Market Act, 1990 since repealed.

1986 *Marketing Boards scrapped

1986 * First Issue of Federal Government of Nigeria Stock to be over subscribed.

1988 *Re-enactment of the Securities and Exchange Commission Decree, 1988.

1988 *Privatisation and Commercialisation Decree 25 of 1990 designed to re-orientate the enterprises

for privatisation and commercialisation towards a new horizon of performance improvement, viability

and overall efficiency.

1988 *Industrial Development Co-ordination Act, 1990 since repealed.

1989 *Repeal and enactment of the Nigerian Enterprises Promotion Commission Decree 9 of 1989.

1989 *Privatisation and Commercialisation of numerous public enterprises

1989 *First Unit Trust launched in December.

1990 *Companies and Allied Matters Act, 1990

1991 *Banks and Other Financial Institutions Decree 25 of 1991

1993 * Venture Capital (Incentives) Decree 1993

1994 * Privatisation of Banks


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1995 *Repeal of the Nigerian Enterprises Promotion Commission Decree 1989 by Decree 16 of 1995

paving way for direct. foreign participation in the market.

1995 *Formation of (FSRCC) Financial Services Regulation Coordination Committee by The Central

Bank of Nigeria to provide a platform to resolve regulatory disputes between SEC, The Stock Exchange

and NDIC.

1995 * Promulgation of the Nigerian Investment Promotion Decree 16 of 1995.

1996 *Ogunlana's Panel on the Insurance Industry

1996 *Panel on the Review of the Nigeria Capital Market appointed.

3.04. OBJECTIVES FOR THE ESTABLISHMENT OF THE NIGERIAN CAPITAL MARKET

The objectives for the establishment of a Capital Market in Nigeria are examined from the following

perspectives:

- long term development planning before the advent of the organised Stock Market.

- the establishment of the Stock Market, including the Second Tier Securities Market.- the establishment of the SEC.

- the consistency of the above objectives and their relevance and continued relevance.

- the fidelity of the Agencies established for the above mentioned purposes.

The birth of a Capital Market in Nigeria may be traced back to the country's Colonial Administration

which in 1946 established a 10-year Development Plan for Nigeria, under which long-term funds were

raised in the United Kingdom and Nigeria for financing small community improvement projects

educational research and educational infrastructure, and to induce private sector industrial and

agricultural development. .

3.05. A Local Loans Board was set up in.1946, and Regional Loans Boards followed in 1949.

Thereafter, development planning was by five year Federal and Regional plans, and savings were

mobilised through the Regional Marketing Boards as well as non-bank finan9ial intermediaries such as

the Lagos Building Society and the Post Office Savings Bonds Scheme.


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The Central Bank of Nigeria was created in 1958, to issue currency and to co-ordinate the financial

system, amongst other functions.

Popular thinking at the time was that political independence was incomplete without economic self-

determination and the institutions associated with it.

3.06. OBJECTIVES FOR THE ESTABLISHMENT OF

THE NIGERIAN, STOCK MARKET

The Panel was informed by the Securities and Exchange Commission, in its Memorandum to the Panel

that the objectives for the establishment of the Nigerian Capital Market are the same as the objectives

for the establishment of Capital Markets everywhere else in the world. The Memorandum stated the

following as the objectives:

- the mobilisation of savings from surplus economic units for on-lending to deficit units to ensureefficient and effective allocation of scarce financial resources.

- to create an avenue for the populace to participate in the economy- to reduce over-reliance on the money market for industrial financing- to provide seed money for venture capital development- to promote solvency, efficiency and a competitive financial sector- to encourage corporate financial discipline and accountability- to provide long term financial sector requirements without increasing the' tax burden on thecitizens.- to promote a Stock Market culture.3. 07. The Panel examined the above objectives in the context of the history of the Market and found

evidence from the CBN Publication. .TWENTY YEARS OF CENTRAL BANKING IN NIGERIA, that

at the time the Lagos Stock Exchange was setup, Nigerian citizens and associations who had surpluses

invested. the same abroad in London. One of the objectives for the establishment of the Stock

Market was therefore to provide avenu.es for such investors with surplus funds to invest locally. i~

3.08. Another objective which was confirmed by the Panel is that of providing an avenue for

participation by Nigerians in their economy. This was clearly the philosophy behind the indigenisation

and privatisation programmes of the 19708 and 1980s.


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Report of .the Panel on the Review of the Nigerian Capital Market

3.09. Next, the Panel examined the issue of raising of money by Governments as one of the objectives

for the establishment of the Capital Market in Nigeria, and finds it to be a plausible one. However, the

Panel also found that even though in terms of value, the bulk of listed securities on the Nigerian Stock

Exchange ("NSE") were for a while Federal and State Government stocks, previous Governments do not

appear to have made as much use of the Capital Market as was possible. For example:

1. The first Federal Government Stock was floated in London long before the establishment of the

Lagos Stock Exchange.

2. The Central Bank of Nigeria was empowered by the Lagos Stock Exchange Act to issue and trade

in Federal Government Stocks, whether or not it is a member of the Exchange. The market in

Government Stocks does not therefore need the Stock Market.

3. The Borrowing By Public Bodies Act did not apply to the local Capital Market.

4. The Government and Other Securities (Local Trustee Powers) Ordinance was promulgated in

1957, well before the Lagos Stock Exchange was formed, allowing Trustees to invest in the securities of

public bodies such as The Ports Authority, The Coal Corporation, The Railway Corporation and the

Electricity Corporation. None of these Bodies has raised funds from the Capital Market locally.

5. For many years the Federal Government sold its Stocks on the Stock Market and they were

usually under-subscribed. Only one Issue has so far been fully subscribed, and that was in 1986. The

Federal Government has not offered any new stocks since then.

3.10. From the foregoing, the Panel is of the view that even though the objectives for establishing

Capital Markets as adduced by SEC may be of universal application, they were not necessarily the

objectives which the Nigerian Government had in mind when it laid the foundations for the

establishment of the Nigerian Stock Market.

3.11. Apart from SEC's views, the Panel has also noted the objectives for the establishment of the

Nigerian Capital Market as


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described at the inception of the Lagos Stock Exchange by the managing director of Nigeria's premier

development bank, The Nigerian Industrial Development Bank Limited, (NIDB) which was one of the

promoters and a Member of the foundation Council of the Exchange, as follows:

- The mobilisation of savings for economic growth Diversion of capital from less productive sectorslike real estate to more productive sectors such as industries.

- To augment the banking system and reduce the dependence of Government on taxation foreconomic development.

- To decentralise the ownership of assets and create a healthy private sector.- Avoidance of excessive concentration of economic power in the hands of Government.- Avoidance of excessive concentration of economic power in the hands of a small private group.- To encourage more even distribution of wealth.- To facilitate co-operation between indigenes and aliens in fostering economic development.

3.12. These objectives which were articulated at the time of the establishment of the Stock Market

appear plausible. In fact, the Panel found that the objectives are still very relevant considering the fact

that in spite of the progress made and the extent of success achieved, some of the problems that were

meant to be dealt with at that time still remain, viz:

- Scarce financial resources are still flowing into properties Economic power is stillconcentrated in the hands of Government

- There is still over-dependence on the banking sector- The private sector is still not healthy- Nigeria is not attracting enough foreign investment- There are still problems of distribution and concentration of wealth. .

3.13. In addition to the above sources, the Panel also found that the objectives for the establishmentof a market for trading. in stocks and shares in Nigeria are contained in the Objects clause of the

Memorandum and Articles of Association of NSE. " Some of these objectives were:

"(a) To provide facilities to THE PUBLIC, IN NIGERIA for the purchase and sale of funds, stocks and


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shares of any kind and for the investment of money...

(e) To correlate the stock-braking activities of its members and FACILITATE THE EX

CHANGE OF INFORMATION for their mutual advantage and for the benefit of their clients and to OFFER

FACILITIES WHEREBY THE PUBLIC CAN BE INFORMED of prices dealt in by members.

(f) To co-operate with the Association of Stockbrokers and Stock Exchanges in other countries and

to obtain and make available to Members information and facilities likely to be of advantage to them or

to their Clients "

3.14. OBJECTIVES FOR THE ESTABLISHMENT OFTHE SECURITIES AND EXCHANGE

COMMISSION

As part of its findings, the Panel noted that Government

appears to have had a different set of objectives for setting up the Securities and Exchange Commission

("SEC") as distinct from its objectives for setting up the Stock Market, Government's objectives include

the following:

1. In 1962, just one year after the commencement of trading on the Lagos Stock Exchange, The

Federal Government, through the CBN established the Capital Issues Committee ("CIC") to monitor theStock Exchange, and the rest of the Capital Market, and to reach decisions on the "timing price and

amounts of all Issues by public companies". The Exchange was a member of the Committee which

remained in operation until 1973.

2. The main objective of the CIC was "...to keep the absorptive capacity of the infant Capital Marketin check..." as per (SEC Memorandum to the Panel).

3. In 1973, the Committee was upgraded to a Commission with its own enabling decree, but with

the same functions.

4. These functions were enlarged by the Nigerian Enterprises

Promotions Decree of.1972 and 1974, and the focus was on


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Report of the Panel Oil the Review of the Nigerian Capital Market

controlling the dominance of the economy by aliens rather than in encouraging new

investments by Nigerians and aliens into the Capital Market.

5. The Commission was again upgraded to the Securities and Exchange

Commission in 1978 with a decree of the same name, which was re-enacted in 1988,

further enlarging the functions and the powers of the Commission.

6. The Privatisation and Commercialisation Decree of 1988, and the Companies

and Allied Matters Decree of 1990, further reinforced and entrenched the powers of

SEC over the Capital Market.

7. Although the various decrees gave power to SEC to develop the Market, the

emphasis in practice was on regulation and control. "Keeping in check", rather than

facilitating the development of the Capital Market.

8. In the 1991 Budget, Government proposed a policy of deregulation, and the

matter was referred to an InterMinisterial Committee. Records of the deliberations of

the Committee show that while SEC and the NSE played impnrtant roles in the

proceedings, the conclusions of the Committee may have been inappropriate as they

lacked the inputs of market participants.

3.15 FINDINGS AND RECOMMENDATIONS

The Panel has in this Chapter examined the objectives for which the Capital

Market, the Stock Market and the lead Regulatory Agency for the market

were set up.

The Panel found that the objectives for the establishment of the Capital

Market and the Stock Market are still very relevant, but that the focus and

the objectives for the establishment of the Regulatory Agency for the

market were rather restrictive and need to be amended in order to facilitate

the unlocking of Nigeria's vast economic potentials.


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Report of the Panel Oil the Review of the Nigerian Capital Market

CHAPTER FOUR

STRUCTURE CONDUCT AND PERFORMANCE

OF THE NIGERIAN CAPITAL MARKET

4.01 INTRODUCTION

This Chapter deals with the second aspect of the 1st Term of Reference and with the

second part of the 9th Term of Reference which require the Panel:

"... To review... structure, conduct and performance of the

Nigerian Capital Market and its contributions to the

Nigerian economic development"

"To examine the structure of the Nigerian Stock Exchange and its branches and

their adequacy in the context of the Federal Government Privatisation Programme

and the policy of ensuring widespread shareholding, and make appropriate

recommendations."

The structure of the Capital Market is examined in this Chapter in terms of the numbers of

institutions and volume of activities in the Market over time. A review of how the business of

the Capital Market is conducted and the performance of the same in comparison with other

Capital Markets of the world is undertaken. In addition, the Chapter also examines the

contribution of the Stock Market to the indigenization,and privatisation

programmes of Government and the policy of encouraging wide-spread shareholding.

4.02 MARKET STRUCTURE

The major Capital Market Institutions

The main institutions of the capital Market include the CBN, SEC and NSE, the

merchant Banks, Stock-Brokers, Registrars or Transfer Agents, Insurance Companies, Unit

Trusts and Pension Funds. The NSE which is based in Lagos and liaison office in Abuja. In

1994, there were 140 Stock Brokers, and 177 quoted securities. This excludes the

Government Stocks and other fixed interest securities. By 1996, there were 162 Stock-

Brokers and 181 quoted securities. There were also 51 Merchant Banks and over 65

Commercial Banks.


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4.03 Table 2.1 shows the Structure of the Nigerian financial system including the Capital

Market, in terms of number and distribution of financial institutions. Attention is drawn in the

Table to the large numbers and varieties of financial institutions, as well as the numbers of

listed securities over time, to the growth of the Stock Exchange and its branches, as well as

the increase in the number of Merchant Banks and Stock-Brokers.

Charts 2.1, 2.2 and 2.3show graphically the growth in the numbers of various types of listed

securities, as well as the growth in the membership of the Stock Exchange compared with

listed securities. The figures however do not show the fact that until 1994, the Stock

Exchange had more non-dealing members members (156) than dealing members (140) and

that it was only in 1995 that the Exchange did not have, as Members, more people and

institutions who were not Stock-Brokers than there were Stock-Brokers.

4.04 Securities

Market capitalisation at the end of 1995 was appropriately $2.098 billion, and with a.

turnover of 0.1 %, approximately

$2,098,000, or just over -N= 178,330,000, which is the amount of Stock Broking business tobe shared by more than 160 Brokers. This ranks amongst the lowest in the world.

4.05 Table 2.1 also shows the growth of listed securities as well as new Issues of Debt and

Equity in the Nigerian Capital Market from 1985 to 1994. Chart 2, 1 plots all new Issues in

the market over time. The new Issues curve shows two peaks which correspond to the major

privatisation in 1988 to 1990, and the privatisation of banks during 1993. The chart also

shows that the issue of Government Bonds has been on the decline, while the Issue of

industrial bonds has been on the increase. Table 2.2 shows the number and value of

industrial securities listed from 1976 to 1994.

4.06 As at the end of 1995, the total number of" shares quoted companies listed on the

NSE was ~20.33 billion compared with N17.51 billion for the same period of 1994. (SEC

Annual Report

1995). Table 2.3 shows the amount of net new. Issues as a percentage of market

capitalisation for each year from; 1980 to 1995. The proportion has been consistently below

10%, and following the sharp me in .market capitalisation from 1993, the proportion has

dropped even lower.

4.07 Transactions CostsTransactions "costs" in the Nigerian Capital Market are


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of the Capital Market is however to be evaluated not only in the relative but in the absolute

sense.

4.03 Table 2.13 shows the Ratio of Market Capitalisation to Gross Domestic Product from

1985 to 1995. Table 2.14 shows the Performance of the Nigerian Stock Exchange All-share

Index on a monthly basis from 1991 to 1995. Table 2.15 shows the Comparative Performance

of the Nigerian Capital Market with other Emerging Markets.

4.04. Table 2.16 shows a Comparative Ranking of the Performance of the Nigerian Capital

Market with other Capital Markets based on the data in Table 2: 15. The comparison shows

the following:

(1) The performance of the Nigerian Capital Market is at the bottom

dennis odife panel report on the review of the ncm by mof sept 1996 - abridged

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