The Nigerian Securities and Exchange Commission (SEC) has released a 9-point communique, highlighting the capital market’s role in supporting the mobilization and deployment of resources to fund the N2.36 trillion gap in the nation’s 2017 budget.
The communique was issued following the 2017 budget seminar held on the 9th of February with theme “The 2017 Budget of Growth and Recovery: Relevance, Implications and Perspectives of the Nigerian Capital Market.
Amidst speculations on the budget deficit to be funded through, domestic and international borrowing, the SEC said that proceeds from borrowing should not be spent on recurrent expenditure, rather such funds should be tied strictly to capital projects such as infrastructure with potential to stimulate economic recovery and sustainable growth.
According to the communique, another point the government should put into consideration is effective privatization, channeled through the capital market, in order free up resources being directed to manage Government’s ailing assets, for other critical sectors of the economy.
“Privatization of government owned assets is a quick win, having strong potential to release funds from government handouts of ailing enterprises to funding badly needed capital projects such as infrastructure.” The communique read
The SEC also said that the Federal Government should collaborate with capital market stakeholders to improve the financial performance of listed companies and by extension, the equities market. Giving the fact that government deficit financing ultimately increases cost of funds to the private sector and influences asset reallocation in favour of government securities.
It said “Key interventions should include reduction in interest rate, addressing foreign exchange challenges and provision of relevant infrastructure.”
Another point noted was that “In order for the capital market to more effectively meet the challenges of the time, there is the need to further deepen and develop it by introducing products that provide hedging opportunities for domestic and foreign investors and alternative asset classes such as infrastructure bonds, retail bonds and interest derivatives to maximize the value of the market to investors and market operators.
The communique also said Capital Market stakeholders must become actively involved in advocacy programs to ensure that government policies do not adversely affect the development of the capital market. For example, high inflation and interest rates have the tendency to adversely affect the market, with investors tending to prefer short-term money market instruments offering high rates of return” it said
Addressing the issue of Pension funds, the SEC said PENCOM & PFAs should take active steps to encourage the creation of pension investment portfolios that are more diversified in their asset allocation by exposing younger workers to a greater percentage of equities since they have a longer time horizon to invest.
It said Pension contributors are of varying age groups and therefore have different capacities for risk exposures.
The communique further addressed the need for Government to exploit Public-Private Partnership (PPP) in developing infrastructure.
“There should be proper legal and regulatory frameworks to ensure that each party in these partnerships is held accountable for their parts of the agreement. Advocacy efforts are required to make the PPP arrangements more acceptable to the general public whose buy in is critical for the success of such arrangements.
In order not to send wrong signals to potential investors, the communique also touched on the need for the board of SEC and those of other critical agencies in the financial sector of the economy to be constituted.
It added that an important way to help the economy grow and achieve inclusive development is for all stakeholders to contribute to the promotion of locally produced goods as alternatives to imports. Commendable progress has been noted in the promotion of agricultural activity as a veritable alternative to imports. A virile commodities exchange system should be promoted for price regulation and avoidance of post-harvest losses due to lack of markets.
Proceeds from borrowing should not be spent on recurrent expenditure. Such funds should be tied strictly to capital projects such as infrastructure with potential to stimulate economic recovery and sustainable growth.