Controversy Rages Over Stabilisation Fund - 2008-10-27

Bright Nwogwugqwu

These days, good news is hard to come by in the nation's capital market. Last week, the bear continued its rampage, dragging further down the All-Share Index, market capitalisation and prices of most equities.

Meanwhile, controversy raged over the stabilisation fund proposed last month by the 16-man presidential advisory team on the stock market but yet to be implemented by government.

Market watchers remain divided on the issue, with some of them stoutly opposed to any such government intervention in the beleaguered market. These dissident voices maintain that government should concern itself with providing its teeming citizenry with improved social services and bother less about the fate of the market. According to them, it would be foolhardy for the government to channel tax payers' money towards the redemption of a market which, they claim, is basically founded on private interests, with no discernible bearing on the trajectory of national growth.

Mr. Festus Odume, one of those in the vanguard of anti-stabilisation fund advocacy, argued that the capital market, as the name tends to suggest, is for capitalists (who by their very nature are self-seeking and inordinately profit-driven), and not for the federal government. He believes that the government may be endangering its core essence in an unguarded bid to rescue the capital market from its parlous condition.

“There are roads to construct and re-construct. There are schools to build and many to be refurbished. The country is in dire need of world-class hospitals so that our people don't continue to go abroad to seek medical attention. Don't forget that we have an agricultural sector to mechanise, oil refineries to re-position for increased productivity. We have an embattled manufacturing sector to address and as a country, we also have a strong perception problem to take care of. Don't forget the burning issues of power supply and mass provision of potable water. I can go on and on,” Odume said.

He insisted that investors and regulators should be left to find a solution to the protracted bearish run in the market.

Another analyst, Mr. Ajibola Nurudeen, similarly took a swipe at those pressurising the government to throw its weight behind the capital market and restore it to the path of profitability.

His words: “Anyone crying for FG's intervention through a stabilisation fund is not being realistic. When the capital market was booming in the past years and investors were busy making millions and billions, did they go beyond the statutory payment of taxes to assist the government in providing social amenities to the country? Were they not living in undue luxury and stashing money away in their foreign bank accounts? The problem here is that people tend to get unnecessarily sentimental when the chips are down.”

An avid investor who mirrored the feelings of worried shareholders, however, faulted this line of thinking. “If government had put in place a stabilisation fund, this would have done the magic,” said Mr. Adeleke Omotayo, a shareholder in one of the blue chip companies, who argued that even governments in advanced economies across the world have intervened decisively to bail out their troubled markets.

Throwing his weight behind the campaign for the introduction of the stabilisation fund, Dr. Charles Ekemini, an avid market watcher and commentator, declared that it is erroneous to see the capital market as the exclusive preserve of capitalists. He argued that the bulk of investors in the market are the hoi polloi in the society and that no nation can make any appreciable progress by neglecting the yearnings and aspirations of its people.

Ekemini noted that the lull in the market is taking its toll on stockbroking firms, adding that some of the firms are beginning to lay off their staff in order to continue to be in business.

“It is common knowledge that every responsible government will rise against any condition that contributes to the unemployment rate among its citizens,” he argued.

Ekemini explained that what the stabilisation fund would do is to create equilibrium in the market mechanisms of demand and supply, and thereby nip the looming confidence crisis in the bud.

“We will experience an influx of foreign investors when confidence is restored in the capital market and you know that every foreign investment that comes into this country will have a trickle-down effect on the economy,” he stated.

Asked why the stabilisation fund proposed by the “16 wise men” is yet to see the light of the day, Ekemini said: “Ideally, the fund should come from the government to market makers through the Central Bank of Nigeria (CBN). One likely reason why it has not come is that most market makers are yet to meet some guidelines laid out by the Securities and Exchange Commission (SEC), one of them being that each market maker must have a minimum paid up capital of N2 billion.”

Contributing to the debate, a banker, Mrs. Cynthia Anagboso, said that the N600 billion lifeline being put together by a consortium of banks under the auspices of the Nigerian Stock Exchange (NSE) is a good step in the proper direction. She, however, declared that the money is far below what the market requires to experience a re-bound.

“It is good that these banks have taken it upon themselves to clear the glut in the capital market. But the market, having lost so much since March this year, needs much more than N600 billion to come back to its feet,” she submitted.

Last week, pressure further mounted on the Umaru Musa Yar'Adua administration to activate the stabilisation fund following a meeting between executive officers of stock-broking firms and NSE Director-General, Prof. Ndi Okereke-Onyiuke.

Briefing newsmen after the closed-door meeting held Tuesday at NSE headquarters in Lagos, Mr. Emeka Madubuike, Managing Director/Chief Executive Officer of Compass Securities Limited, said: “We have thoroughly reviewed the market and looked into the solutions that were brought up but are yet to be fully implemented, and discussed ways to ensure that they are properly worked on.

“It was jointly agreed that the federal government should take a cue from the response of governments in other developed countries to financial crises rocking their economies, and act accordingly, by addressing the perceived imbalance in the Nigerian financial system.”

On the eve of Okereke-Onyiuke's meeting with the stock-broking chiefs, the stabilisation fund debate had rocked the House of Representatives, which that day hosted market regulators in a bid fashion out a way out of the crisis.

The hearing, however, ended without a compromise, as the lawmakers and their hosts took different positions on the matter. While the lawmakers favoured government's intervention by way of the introduction of a stabilisation fund, the visitors strongly opposed the idea.

“Our situation has not reached a point where we need an intervention fund,” insisted team leader Senator Udo Udoma, Chairman of the Board of the Securities and Exchange Commission.

M2 learnt that over N3 trillion is required to mop up the excess shares in the market, and rebuild trust in the market. The amount is far beyond what any investor (retail or institutional) can muster, meaning that the future of the market lies, to a large extent, on the government. In the circumstances, the fate of the market will continue to hang for as long as the government refuses to decisively come to its rescue.