Dr. Oluwatobi Oyefeso, an economist and pioneer Managing Director at the Nigerian Capital Market Institute, a subsidiary of the Securities & Exchange Commission, also had short stints as senior lecturer at the University of Aberdeen, University of the West of England Business School, Bristol, University of West London and Northampton University, UK and University of Oman, Middle East. In this interview with Ibrahim Apekhade Yusuf, a member of the Vision 2020 Committee who currently sits atop as the Group Executive Vice Chairman, Morewits Consulting, a global firm of consultants, shares interesting insights on how to turn around the financial subsector of the economy. Excerpts:
There must be sound, effective and efficient money market, foreign exchange market, pension market, insurance market, capital market, and indeed, the stability of the macro financial market system, which depends on the policy objectives that may include, one, to transform the structural architecture, statutory regulatory framework and the reform of institutions operating in all sectors of the Nigeria’s financial market system. Two the sacrosanct elimination of the double-edged sword of the foreign exchange rate, thereby controlling the awful downward trend of the Naira’s value because I believe that once we have a policy to increase the foreign exchange supply or/and decrease the consumption of the foreign exchange appropriately to spur the bilateral value of Naira against the US Dollar.
Besides, it must be the government’s policy to deepen and diversify the financial market products in all the sub-sectors mentioned above. We also need to adopt the orthodox monetary policy framework by benchmarking the financial markets’ rates on the Monetary Policy Rate (MPR) and normalising the Credit Reserve Ratio (CRR) and introducing uniform rate for all banks in order to promote integration and collaboration among all the statutory regulatory institutions like the CBN, SEC, NAICOM and PENCOM through workable and optimal approach.
Specifically on Nigeria’s capital markets, what policy strategies do you envisage that can bolster the sub-sector?
What hindrances can you identify as impeding the development of our financial markets as a whole?
There are different challenges peculiar to individual sub-sectors, while some problems are general to all sub-sectors of our financial markets system. Specifically, some hindrances to the development of our capital markets include the government’s under-utilisation of the capital markets, presence of mono-sector concentration with banks as the domineering listed businesses on the Nigeria Stock Exchange (NSE), market shallow depth, limited breadth and illiquidity, lack of transparency and efficiency resulting partly from the delays in the corporate release of financial information and the downside of the market infraction practices like insider-trading.
Not the least, the absence of what I call ‘market-focused regulatory regime’ can be catastrophic without hedging the systemic domino effect of the dire effects of the 2008 global financial crisis, thereby preventing the disastrous contagion effects of a possible future global financial crisis. In the case of the money market, its inherent impediments include dearth of financial instruments and absence of breadth and depth, oligopolistic structure, over-dependence on the government patronage, shortness of money market and spillover of the global financial crises.
While our foreign exchange market suffers from macroeconomic instability, policy impediment to the Nigerian diaspora remittance to Nigeria, as well as the import-and-oil-dependent contagion hindrance. Generally, Nigeria’s financial markets’ stability is inhibited by both the endogenous and exogenous challenges. On the one hand, endogenous hindrances include the market volatility which is also an offshoot of macroeconomic policy instability and somersaults.
Additionally, dearth of liquidity, presence of political and regulatory risk and currency risk and absence of robust and supportive legal framework are all daunting issues. On the other hand, the exogenous obstacles encompass the prolonged extraordinary monetary policies in developed economies and the prospect of asynchronous exits create a wide range of global financial markets’ challenges, prodigious growth of the emerging markets and developing economies’ (EMDEs’) external debt exposures, oil-price decline and increasing oil-price volatility, global rebalancing and week aggregate global demand, high global debt levels, persistent geopolitical and idiosyncratic risks.
What other approach can the government adopt to the said ‘coordinating attention’ besides the direct intervention and coordination by the Federal Minister of Finance and Coordinating Minister of Economy?
I believe very strongly that the government can take a bolder step with their strong political will to establish what I call ‘regulator of the regulators.’ This implies that government, indeed, the Presidency may wish to transform our financial services industry further by establishing a statutory agency to be saddled with the responsibilities of coordinating and monitoring the policy thrust, supervising the statutory functions, providing checks-and-balances on all government institutions and agencies in the Nigeria’s financial markets. Possibly, the new ‘regulator of regulators’ can have names like the Financial Markets Authority of Nigeria (FiMAN), Financial Markets Regulation Authority (FiMRA), Financial Services Regulation Authority (FiSRA) and Financial Markets Conduct Authority of Nigeria (FiMCAN).Clearly, policy results are a function of pragmatic policy objectives to be achieved.
Is there any particular reason for advocating transformation for our financial market system?
Notably, the advocated transformation, which should encompass various experts from the relevant academic background, professionals and policy-makers, would be expected to identify the challenges inhibiting the development of our financial market system considering individual sub-sectors. Further, such a transformation committee should proffer the way forward to making Nigeria’s financial services industry a competitive and sought-after investment destination in the 21st century global financial markets. Importantly, adequate investigative light should be beamed on the statutory and self-regulatory institutions operating in our financial markets. No one would have imagined the veracity and volume of the policy thrust somersaults and operational malpractices inherent in the Central Bank of Nigeria (CBN) prior to the recent expositions. Grossly preposterous! Who knows the level of the ‘treasury leakages’ in the government’s other agencies and institutions operating within our financial services industry? What types of the institutions in our financial market system may require the government’s attention for the prescribed rejuvenation?
Indeed, what forms should the government’s attention take?
With no intention of pointing accusing fingers to any of the institutions and agencies operating in our financial services industry, but pointing to the need for and ways by which we can enhance transparency, competition, robustness, efficiency and effectiveness of our holistic financial services industry. In this respect, therefore, all the statutory regulators and operators in our financial markets would require the government’s adequate attention. The Securities & Exchange Commission (SEC) regulates the capital markets, National Insurance Commission (NAICOM) regulates the insurance market, Pension Commission (Pencom) regulates the pension segment of our financial markets. Alike, other statutory institutions including the Nigeria Social Insurance Trust Fund (NSITF), Investments & Securities Tribunal (IST), statutory investment and asset management institutions including the National Sovereign Investment Authority (NSCIA) and the Asset Management Corporation of Nigeria (AMCON) would need government’s evaluation attention.
On the mode of the government’s attention, I have no iota of doubt on the ability and capability of the Minister of Finance and Coordinating Minister of Economy in discerning the format of the government’s attention and designing the appropriate policy strategies for attaining such format of the government’s attention. Part of such ‘government’s policy attention’ could be a mandatory corporate policy and strategies depicting the strategic priorities and key performance indicators (KPIs) of the individual public institution within our financial services industry.
Do you subscribe to the CBN’s continued independence vis-à-vis its recent policy laxities and operational inadequacies?
Certainly yes. Despite the CBN’s policy somersaults and operational farce, I still subscribe to the bankers’ bank’s continued independence, which is the global practice. However, such ‘imported global practice’ should be modified to suit our local peculiarities. As I discussed above regarding the government’s other agencies under the purview of the Federal Ministry of Finance, I am of the unambiguous view that the current government of President Bola Tinubu CBN should have a strong ‘coordinating attention’ to the CBN. I would like to think that, given such a coordinating attention before now, could have prevented the CBN’s inadequacies, particularly, the magnitude uncovered in the recent time. Inasmuch as the CBN, the purveyor of the Nigeria’s monetary policy needs to maintain its independence from the nation’s fiscal policy from the Ministry of Finance, the Minister of Finance who doubles as the Coordinating Minister of the Economy or other statutory institution should exert a form of coordination and control over the CBN. The presence of such ‘checks-and-balances’ attention by a versatile economist and finance expert in the person of the Honourable Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, would deter the recurrence of the CBN’s policy laxities and operational inadequacies exposed recently.
With your professional experience of the financial markets, particularly in the United Kingdom, as a maiden Managing Director of the Nigerian Capital Market Institute, a subsidiary of the Nigeria’s Securities & Exchange Commission (SEC), and then part of the SEC management. How would you respond to the poor performance of the stock market in recent times, especially on the back of high inflation rate?
Towards the end of May 2023 and consequent to the promise of President Bola Tinubu to reboot the Nigerian economy underpinned by low growth and high inflation, the Nigerian equities responded with bullishness and extended gains. Recall that the President’s impressive reforms in the foreign exchange market, removal of fuel subsidy and other policies that could boost the economy, truly had positive spill-over effects on the equities.
That was the power of positive information, the economic agents’ short-term reaction in the capital market sub-sector of our financial markets. However, with the persistent inflationary upward trend, the equity market began to suffer hiccup and bearish trend. Expectedly, the domino effects of inflation on the capital markets’ performance are from two salient fronts.
Firstly, high inflation rate calls for the monetary policy remedy of higher interest rates, which make credit more expensive for companies and consumers, discouraging them from spending and investing. This can lower profits and hamper revenue, hurting stock prices.
Secondly and particularly in the short to medium term, the accompanying increase in the monetary policy interest rate often attracts investors to divest from the capital market and move to the money markets to catch-on the high saving rates from the high interest rates. Ceteris paribus, high inflation often creates bullishness in the money markets via the increase in the demand and prices as investors divest from the capital markets to invest in the money markets. In this case, the mutual funds on money markets instruments will experience market growth. Correspondingly, as the interest rate increases, investors will become averse to investing in the ‘existing’ fixed income securities (i.e., bonds and treasury bills) that pay lower than the new rate, and move to new issues in the corresponding higher interest rate.
One sore point of contention is that this administration would have to contend with servicing both the internal and external debts and the associated counterproductive effects on macroeconomic stability, infrastructure development and economic growth. How can the government get around this?
Debts are necessary evils for the development of both the private and public sectors. Barely ambitious business corporations and nations ever exist without debt. The United State of America is one of the largest global economies, but has massive national debts. The above being said, the important thing about national (public) debt is the use. Debts are okay as long as they are not for consumption applications like servicing domestic recurrent expenditure. Public debt becomes credible and productive if expended on capital projects, predominantly, the revenue-generating capital projects.
On the management of the existing national debt, it was commendable to have observed the high political willpower of President Bola Tinubu that resulted in the policy decisions like blocking the forex leakages by introducing a single interest rate window, instituting tax reforms to prop-up our internally generated tax revenues. These bold economic decisions in the early part of the government’s existence were a pointer to more of the revenue-saving policy objectives and strategies from this government. Overall, the government should focus on making phenomenal revenue, part of which can be applied to service our national debts. In point of fact, it may become necessary to re-ascertain and reschedule our national debts with our lenders.
According to some analysts, Nigeria has the misfortune of recording high GDP growth with insignificant or no measurable and positive impact on the citizenry. What can be done differently?
The ‘output’, ‘expenditure’ and ‘income’ measures of GDP depict different results, so, it is difficult for ‘outsiders’ to know the exact approach adopted by the government agency responsible for it. As such, ascertaining the validity and reliability of our GDP’s forecast poses a challenge. For certain, there is a data challenge in the less developing economies with Nigeria not an exception. Typically, our macroeconomic statistics face fundamental challenges that include data non-availability, poor data gathering and construction techniques that collectively impinge on reliability of our macroeconomic variables.
With all these fundamental issues, our macroeconomic metrics barely can depict the true state of our macroeconomic performance, for example, our GDP outlook. Particularly notable is the fact that GDP is not a measure of ‘wealth’ as it is generally erroneously assumed. It is a measure of income. It is a backward-looking ‘flow’ measure that tells you the value of goods and services produced in a given period in the past. It tells you nothing about whether you can produce the same amount again in the following year. As such, the use of a balance sheet comes into place. Companies have balance sheets as well as income statements, while nations do not have such financial statements. For example, there was a time when Nigeria was busy selling high-priced oil to the world before the price crash. Nigeria’s GDP trended upward, but ironically, the wealth trended downward. The oil windfall was consumed without cash reinvestment in human, physical and technological resources to guarantee future income.
Clearly, only the wealth accounts could have depicted the fallen state of the nation’s wealth. So, let there be cautious reliance on the GDP for ascertaining the economic prosperity of a nation. This perspective is not just an academic cogitation, but a pragmatic concern to the global market economies. GDP as a metric used as a benchmark for a nation’s progress is far from an insightful and reliable account of the effective and efficient management of public health, economic equity, climate action or racial justice. This is a herculean challenge in view of the fact that in government, we manage what we measure as it is the case in business enterprises. In summary, GDP is only useful in its official objective of measuring short-term economic output, but a failed gauge for national progress. Regrettably, it is used as the primary indicator of the success or antithesis of government and public policies. With all the above issues and flaws surrounding the use of GDP as a macroeconomic metric, there are still pragmatic solutions that can enhance the robustness and effectiveness of GDP’s measurement and use. GDP still has its uses and government policy makers need not abandon such macroeconomic variables. Instead, it can be transformed into a series of indicators as in practice in the US you don’t need to abandon it.
Rather, governments should transform it into a series of indicators as in practice in the US economy where the statistics for unemployment are reported as ‘U1’ to ‘U6’ with each number depicting different aspects of unemployment. In the case of the GDP, G1 can symbolise the standard national income, while G2 depicts a bigger picture of income that reveals how equitably it is distributed and simultaneously reflecting the contributions of unpaid labour such as care for children and elders. G3 may be futuristic by ensuring that today’s output does not hamper tomorrow’s by exacerbating environmental challenges or depleting resources. G4 could seek to account for our overall day-to-day well-being, including, for example, measures of health and social connection. New indicators would identify the societal problems indeed; they would capture the important gains that a singular GDP metric currently misses out of its measurement.
