Unless the nation’s bourse comes up with more products and instruments to absorb the expected investment inflow from the rebased GDP, the benefits of being Africa’s biggest economy may elude the Nigerian capital market as fears are rife that its new status may have whittled down its total capitalisation.
These are the views of analysts examining the prospects and challenges of the jumbo size economy to the market.
Looking at the issue from rose-coloured spectacles, Mr. Ariyo Olushekun, the immediate past president of the Chartered Institute of Stockbrokers (CIS), said the rebased GDP has opened a new vista about Nigeria to global investors who are now eager to explore the huge opportunities in the economy. This, he said, would in turn, rub off on the market capitalisation of the Nigerian Stock Exchange (NSE), which its CEO, Mr. Oscar Onyema, said is hovering between 16 and 20 per cent of the $509.9 billion new GDP.
Hear him: “The impact of the rebasing would be positive for the market in many ways. It has changed the picture of Nigeria to investors, both local and foreign. The people can now see the huge opportunities available in the economy and they will take advantage of them. As investors come in, we stand the chance of attracting the $1 trillion market capitalisation target set by the Exchange.”
But Mr. Mike Itegboje, another past president of the institute, was worried that the rebasing has put enormous burden on the operators as it has squeezed the market capitalisation.
His words: “While the GDP rebasing will attract investors and investment, it has, however, resulted in low capitalisation for the market. When the market capitalisation to GDP is calculated, we will have a problem. We will have a lower market capitalisation unless we can increase the market capitalisation. This means that all of us will have to work harder to ensure that the capitalisation is increased.”
Itegboje’s worry on the decreasing capitalisation echoed that of the Minister of Finance and Coordinating Minister for the Economy, Dr. (Mrs.) Ngozi Okonjo-Iweala, who recently expressed concern that the nation’s tax revenue-to-GDP ratio has dropped from 20 to 12 per cent.
The minister said that before the National Bureau of Statistics (NBS) began the rebasing exercise, tax-to-GDP ratio was about 20 per cent, which was not even as good as the 22 per cent target by the country. Non-oil tax revenue-to-GDP ratio was estimated at 7 per cent then. But with the rebasing of the GDP, Nigeria has seen its tax revenue-to-GDP ratio decline to about 12 per cent, and 4 per cent for the non-oil tax, which the minister said was of concern to the Federal Government.
She stated: “Nigeria is confronted with many constraints when attempting to increase tax revenues. We have just celebrated the fact that Nigeria has now become the largest economy in Africa with N80 trillion of GDP ($509.9 billion), which makes us the 26th largest economy in the world and advances us on our goal to become one of the 20 largest economies in the world. But I want to tell you that there is one piece of the news that is not so cheery. With the increase in GDP, all our revenue ratios have been recalculated. As you know, our tax revenue ratio to GDP before was 20 per cent, just about in the middle of the emerging market economy, not as good as the 22 per cent we want to be. But now, with this recalculation, our tax revenue-to-GDP ratio is 12 per cent and our non-oil revenue ratio to GDP is 4 per cent, which means that we live worse than before. For tax revenue-to-GDP, we now have to redouble our effort to get back to at least the 20 per cent ratio that we were before.”
Echoing Mrs. Okonjo-Iweala’s clarion call, Mr. Bola Ajomale, the Managing Director of National Securities Dealers Association (NASD) Plc, in his contribution equally urged both the capital market operators and regulators to work together to develop products and instruments that would take in the funds from both local and foreign investors when investments start to roll in.
He said: “For us at the capital market, the GDP rebasing means that a large part of the economy is brought into the books. There are vast more potentials to be realised from the initiative. All of us at the capital market support it. We realise that it means that we now have capacity to absorb international funds. To this end, the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE), the body of the stockbrokers -– the CIS and Association of Stockbroking Houses of Nigeria (ASHON) – should work together to ensure that when the funds come in, they will have enough products and instruments to absorb them.”
Toeing the middle line, Samir Gadio, the emerging markets strategist at Standard Bank, London, said while Nigeria is now officially the largest economy on the continent, the country would continue to trail South Africa over the next decades in terms of GDP per capita, basic infrastructure, institutional capacity and financial market sophistication.
“Obviously, this will make it increasingly harder for companies looking at Africa to overlook Nigeria, especially considering the size of the domestic market and its potentials. But the main constraints on a sizeable turnaround in Foreign Direct Investment (FDI) will still persist. These include persistent energy and infrastructure bottlenecks, weak institutions and governance issues as well as the slow pace of structural reforms in the economy. Addressing these shortcomings will probably have much more impact on investment than the perception that Nigeria is now a bigger economy,” said Gadio.

Capacity challenges worry capital market community