Nigeria’s aspiration to achieve a $1 trillion economy by 2030 hinges significantly on the performance of its capital market. However, analysts at Proshare have expressed concerns about the market’s current state, characterizing it as shallow and narrow, thus limiting its capacity to drive the desired economic growth. Their analysis suggests that without substantial reforms, the capital market will remain a bottleneck, hindering Nigeria’s progress towards its ambitious economic target. They argue that the projected nominal growth rate of 13% annually required to reach the $1 trillion mark from the current $364 billion GDP is unrealistic, considering the government’s own modest GDP growth projection of 4.6% by 2025. This discrepancy underscores the need for a strategic overhaul of the capital market to unlock its full potential.
The core issue lies in the market’s structural limitations. Its shallowness refers to the limited variety of financial instruments available for investors, restricting their choices and hindering the mobilization of capital for diverse investment opportunities. The narrow breadth, on the other hand, points to the low number of listed companies and the overall limited participation of both domestic and foreign investors. This constrained environment dampens market vibrancy and liquidity, making it less attractive for potential investors and hindering the efficient allocation of capital to productive sectors of the economy.
Proshare analysts propose a multi-pronged approach to address these challenges and transform the capital market into a robust engine of economic growth. A key recommendation is the financialization of public assets, a process involving converting illiquid state-owned assets into tradable financial instruments. This strategy can unlock significant value from these assets, creating new investment opportunities and injecting much-needed liquidity into the market. Listing these assets on exchanges such as the Nigerian Exchange and FMDQ would further enhance their visibility and accessibility to investors, both domestic and international.
Furthermore, the analysts emphasize the importance of enhanced market transparency. Greater transparency fosters trust and confidence among investors, encouraging increased participation and reducing information asymmetry. Clear and readily available information on listed companies, market regulations, and trading activities empowers investors to make informed decisions, promoting market efficiency and stability. Coupled with the financialization of public assets, increased transparency can significantly deepen the market, attracting a wider range of investors and boosting trading volumes.
Beyond structural reforms, the report advocates for a shift in the perception and utilization of the equities market. Rather than primarily serving as a platform for investment trading, the equities market should be actively leveraged as a source of cheaper capital for businesses. This requires a deliberate effort to encourage companies to raise capital through equity issuance, reducing their reliance on more expensive debt financing. The analysts suggest aligning the Medium-Term Expenditure Framework with the capital market, ensuring that specific funding projects are channeled through the exchange. This strategic alignment would not only provide companies with access to affordable capital but also deepen the market and strengthen its role in driving economic growth.
In essence, the path to a $1 trillion economy for Nigeria necessitates a reimagining of its capital market. The market must evolve from its current shallow and narrow state to a deep, broad, and vibrant hub for capital mobilization and allocation. This transformation requires a concerted effort from policymakers, regulators, and market participants to implement the recommended reforms. Financializing public assets, enhancing market transparency, and promoting the equities market as a primary source of capital are crucial steps towards unlocking the market’s full potential and enabling it to play a pivotal role in achieving Nigeria’s ambitious economic goals. The successful implementation of these measures can transform the capital market from a bottleneck to a catalyst for economic growth, paving the way for a more prosperous future.
