The original Nigerian Stock Exchange was established in 1960 and currently has some 180 listed companies with a total market capitalisation as at the end of 1997 of around $3 billion. All listings are included in the only index, the Nigerian Stock Exchange All Shares Index. In Q1 1998, the NSE management protested officially to the government about the contents of the report of a committee set up by the government, headed by Dennis Odife, a respected banker, on the reform of Nigeria’s capital market. The NSE said the report’s recommendations for setting up what would be called the Stock Exchange of Nigeria, coupled with the reversion of the NSE to its former name of the Lagos Stock Exchange (LSE), was bound to be misunderstood by many Nigerian and foreign investors, who might question the rationale for downgrading the NSE to a local stock exchange. NSE officials requested that the exchange be allowed to retain its name and to operate on a level playing field with the proposed government exchange, and argued that SEN should not be given undue advantage over the NSE and other competitors. The Securities and Exchange Commission (SEC), the apex government body which regulates the capital market in Nigeria, favours a multiple exchange system, which it views as a better option for attracting investors to cities other than Lagos, the business nerve centre of the country, where capital market activities are concentrated. The controversial second stock exchange, proposed for the federal capital of Abuja, was due to open in mid 1998 despite business’s view that the country was being served adequately by the Lagos exchange. The new exchange was to be registered with a share capital of 1 billion naira and an issued share capital of 500 million naira. The exchange is said by many to be an unnecessary duplication and that the move is based largely on political motives, as Government has long tried to persuade business to relocate to the new capital. The Lagos Exchange is an affiliate member of the Federation of International Stock Exchanges (FIBV). The Exchange is an Observer at meetings of International Organisation of Securities Commissions (IOSCO). The Nigerian Stock Exchange is also a foundation member of the African Stock Exchanges Association (ASEA). The Exchange has an Automated Trading System. Data on listed companies performance are published daily, weekly, monthly, quarterly and annually. In order to encourage foreign investment in Nigeria, the government has abolished legislation preventing the flow of foreign capital into the country. This has allowed foreign brokers to enlist as dealers on the Nigerian Stock Exchange and investors of any nationality are free to invest. Nigerian companies are also allowed multiple and cross border listings on foreign markets. Trading days and times on the Lagos Exchange are Monday to Friday, 11:00 to 13:00. Charges include a 3% commission of the traded value of shares and a 1% Securities and Exchange Commission fee. Withholding tax on dividend and interest remains at 10%; corporate income tax, 35%, capital gains tax, 10%.
Procedure for Foreign Investment Through The Nigerian (Lagos) Stock Exchange
The following procedures are to be adopted by the foreign investors who intend to bring in investible funds under the new legislation : The prospective investor appoints a local stock broker of his own choice The broker and the investor agree on a bank in Nigeria for the investor The potential investor then informs the bank on how much he is investing Thereafter, the money is routed by electronic transfer to the designated Nigerian bank, cash movement for dealing in securities is not allowed On receipt of the funds, the bank issues the investor with a Certificate of Capital Importation (CCI) With this Certificate, the investor through his stockbroker, enters the market; invests in any company of his choice and if at any point in time the investor wants to put out, he must go back to the bank with his Certificate of Capital importation and transfer all proceeds abroad including profit, net of all taxes.
Members of the Nigerian (Lagos) Exchange
Dealing Members of The Nigerian Stock Exchange (Stockbrokerage Firms) can now accommodate foreign shareholders in their equity capital; or go into any form of Partnership with foreign stockbrokerage firms. Application from foreign stockbrokers as Members on The Nigerian Stock Exchange can now be entertained within The Rules and Regulations of The Nigerian Stock Exchange, as well as registration with Securities and Exchange Commission and Corporate Affairs Commission.
Public Issues of Shares (Primary Market)
Companies quoted on The Nigerian (Lagos) Stock Exchange can now make new issues which could be subscribed to by all persons irrespective of nationalities and to any level within the capital structure of the companies. Quoted companies may also seek multiple/cross border listing, subject to The Nigerian Stock Exchange “Memorandum of Understanding” with such international stock exchanges. Companies making initial public offers through The Nigerian Stock Exchange should ensure that henceforth their prospectus are issued to accommodate all subscribers whether Nigerians or foreigners.
Secondary Securities Market
Dealing members may now buy and sell quoted securities on behalf of Nigerians and non Nigerians within the Rules and Regulations of The Stock Exchange. Accordingly, current Transfer Forms that contain attestation of Nigerian citizenship should now be amended to allow transfers to Nigerians and non-Nigerians. All the securities listed on The Nigerian Stock Exchange Official List are still registered securities, in which case bearer note transactions remain inadmissible on The Exchange. As the total Market Capitalisation of each quoted company is listed on The Exchange, all divestments or sale of shares must be effected on the Trading Floors through Stockbrokers licensed by The Stock Exchange. Investors should note that share certificates of companies quoted on The Exchange are negotiable instruments, hence Registrars should NOT seek the approval of the vendors before effecting transfers. In effect, owners should protect their certificates as they would their currencies. The Nigerian Stock Exchange through its Central Securities Clearing House provides Custodial services to all investors on request. To avoid concentration of share ownership in few hands, nominal transfers are still limited to among/between family members and associated corporate entities.
Disclosure of Equity Holding
As soon as the holding of an individual or corporate body in a quoted company gets to 5% of the equity capital, the beneficiary must notify The Exchange; also Directors’ Interests must be disclosed.
The market is still an as cash market and therefore settlement for transactions on The Exchange is on “Account settlement’s” basis. This is done fortnightly in accordance with the settlement roster issued at the beginning of each year to all Dealing Members. However, as soon as the Central Securities Clearing House, promoted by The Exchange commences operation, delivery and settlement on The Exchange will be done 5 business days after transactions.
The Nigerian Stock Exchange publishes a Daily Official List which provides information on Daily transactions on The Exchange. It is available to subscribers at the end of each Trading Day. Also, this information is transmitted globally via the Reuters International Network to which The Exchange is linked on line. The code of The NSE on the Reuters Networks is NSXA – B. The Exchange also publishes Weekly, Monthly and Quarterly reports and trading statistics. All foreign enquiries concerning investment or divestment through The Exchange should be made via Members of The Nigerian Stock Exchange (Stockbrokers).
The Nigerian Stock Exchange Performance
The Nigerian Stock Exchange All-Share Index 100 (1984) was 6992.10 at end 1996 and 8561.39 at end March 1997. During 1998, foreign investors spent a total of 4.2 billion naira on the shares of quoted companies in Nigeria, a 426% improvement over the previous year. In turnover terms, a total of 1.9 billion shares worth 12.6 billion naira were traded at the end of November 1998, in contrast to 1.3 billion shares valued at 11 billion naira traded on the exchange over the whole of 1997. The new issues market performed well, with approval granted to 32 companies to issue fresh securities worth 15.9 billion naira.
The Nigerian Investment Promotion Commission Decree No 16 of 1995
The Nigerian Investment Promotion Decree No 16 of 1995 establishes the Nigerian Investment Promotion Commission (The Commission) whose main function, amongst others, is to encourage, promote, co-ordinate and create a conducive environment for investment in Nigeria. The decree provides that a non Nigerian may invest and participate in the operation of any enterprise in Nigeria (Section 17), and that a foreign enterprise may buy the shares of any Nigerian enterprise in any convertible foreign currency through The Nigerian Stock Exchange (Section 21). The decree also protects the foreign investments from forced acquisition/nationalisation by any government of the Federation (Section 25), in addition to providing for an unencumbered repatriation of capital, profits, and dividends (Section 24).
The Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree No 17 of 1995
The decree establishes an Autonomous Foreign Exchange Market (AFEM). Under the decree any person may invest in any Nigerian enterprise or security with foreign currency or capital imported into Nigeria through an Authorised Dealer (a bank or non banking corporate organisations so licensed by the Central Bank of Nigeria), either by telegraphic transfer, cheques, or other negotiable instruments (Section 15). It also provides that a person, whether resident in or outside Nigeria, or a citizen of Nigeria or not, may deal in, invest in, acquire or dispose of, create or transfer any interest and other money market instruments whether denominated in foreign currencies in Nigeria or not (Section 26).
Main Thrusts of Decrees 16 and 17 of 1995
Registration: A person who wishes to establish an enterprise to which this decree applies shall first of all comply with the provisions of the Companies and Allied Matters Decree 1990 via registration with the Corporate Affairs Commission. Prohibited enterprise: The decree permits a non Nigerian who may wish to invest and participate in the operation of any enterprise in Nigeria, to so do except in areas that, pertain to petroleum enterprise and to the negative list i.e. production of arms, ammunitions, dealing in narcotic drugs production or military apparels. Purchase of shares of a domestic company by a foreign company: A foreign enterprise may buy the shares of any Nigerian quoted enterprise in any convertible foreign currency, such purchase (shares) shall be completed through The Nigerian Stock Exchange. Transfer of capital, profit and dividends: Unconditional transferability of funds are guaranteed through an authorised dealer in freely convertible currencies of: dividends or profits (net of taxes) attributable to the investment payments in respect of loan servicing where a foreign loan has been obtained and the remittance of proceeds (net of all taxes) and other obligations in the event of a sale or liquidation of the enterprise or any interest attributable to the investment. Guarantees against expropriation: Any investment under this decree shall not be nationalised or expropriated by any government of the Federation, and no person who owns whether wholly or in part, the capital of any enterprise shall be compelled by law to surrender his interest in the capital to any other person.