At 11% Of GDP, Nigeria’s Capital Market Highly Under-developed, Says PwC

• Sustaining ongoing Reforms Key To Enhancing Confidence

PriceWaterhouseCoopers, an international firm of external auditors, consultants and advisors, last week hinted of a dire need to significantly develop and increase the depth of the Nigerian capital market, measured as a percentage of its gross domestic products (GDP).

In the January 22, 2018 edition of its publication Nigeria Economic Alert, titled “External Debt Issuance: Towards Capital Market Development,” co-authored by Andrew S. Nevin (PhD) and Adedayo Akinbiyi, PwC noted that Nigeria’s capital market is just 11% of its GDP , which is significantly below the world average of 98.5% in 2016, outperforming fellow African nation- Egypt’s 9%.
According to the report, Nigeria’s came far behind South Africa’s capital market at 334% of its GDP; which was far better than 136% for India; 63% for China; and Russia’s 49%.

Responding to a mail by Investdata at the weekend, Dr. Nevin explained further that in terms of total market capitalization to GDP, the depth of Nigeria’s capital market is still shallow, which translates to the fact that it is still “way behind!”
Developing the capital market is not however the result of wishful thinking according the report, as it requires improvements in demand and supply “which involves the creation of investable assets and securing a large universe of stable domestic and foreign investors that want to buy Nigeria assets.”

The report noted the discernible offshore interest in Naira assets, judging from the bond yields and the stock market rally, leading to its attracting foreign portfolio investments of $6.8bn as at Q3, 2017, as against $3.5bn in the corresponding period of 2016.
“There are investors who are comfortable with Nigeria risk, but not necessarily with Naira risk. By issuing external bonds, Nigeria attracts this class of investors, further increasing investor confidence and expanding Nigeria’s investor base,” the report added.
The analysts urged the Federal Government do all that is possible to sustain the tempo of investor confidence Nigeria is currently enjoying.
One of way doing this, PwC said is for the Federal Government not to falter on key reforms.

These include the ongoing efforts to increase tax revenues and improve the ease of doing business, given the growing appetite for sovereign and corporate bonds, maintaining ongoing business environment reforms, which noted, is crucial.
Such increase in revenue and sustained reforms, it continued, are crucial for attracting investment amidst the moderate debt sustainability risks.

While short-term borrowing can help bridge fiscal deficit, Nigeria’s tax revenues must increase, they noted, at a time Nigeria spent an estimated 44.6% of its revenue on debt servicing, a situation that is not sustainable in the medium term.
“The implication of such a high level of borrowing is evident in increasing interest rates, which crowds out the private sector’s access to credit

http://investdata.com.ng/2018/01/11-gdp-nigerias-capital-market-highly-developed-says-pwc/