Last week two senior ranking officials employed by Nigeria’s stock exchange were deposed by acting president Goodluck Jonathan as he moved to reform the nation’s messy financial sector. The exchange’s president, Mr Dangote, who is also one of Nigeria’s eminent oligarchs, was temporarily relieved of his duties by the Securities and Exchange Commission after a scandal surrounding his company’s finances.
Celebrated as Africa’s second largest stock exchange, the Nigerian Stock Exchange (NSE) is perhaps the only frontier market stock exchange where returns have rivaled those from more developed emerging markets such as India and Brazil. Poor regulation, however, has long placed the exchange in disrepute. Foreign investors looking to tap into Nigeria’s economy are likely to circumvent the NSE after being warned off by the recurring stories of market manipulation, mismanagement and corruption. Nigeria’s lack of streamlined financial oversight has not helped either.
Transactions on the exchange are regulated by The Nigerian Stock Exchange, a self-regulatory organization (SRO) like the U.S. Securities & Exchange Commission (SEC). Just like government entities, companies listed on the stock exchange and their executives can come under the scrutiny of Nigeria’s Economic and Financial Crimes Commission (EFCC), the relatively effective national anti-corruption agency which had become quite aggressive under the then-leadership of Nuhu Ribadu, who was eventually sacked by the government after pursuing too many politically sensitive cases.
Unfortunately in Nigeria, there are a host of other financial oversight agencies that do not hold such high reputations. In fact, the Global Integrity Report: 2008 notes a deplorable score for Nigeria’s oversight of state owned enterprises. Nigeria’s score on those indicators ranks below those of other, competing frontier markets such as Ghana, Qatar and Romania. The supervision performed by the Ministry of Finance and Bureau of Public Enterprises, both major shareholders in Nigerian state-owned companies, has mostly been episodic. In practice, both government agencies rarely initiate investigations independently or impose penalties. Furthermore, citizens are barred from accessing financial records of state-owned companies; those records are erratically updated and not always audited according to international accounting standards.
The Nigerian exchange recently announced that accounting firm KPMG will audit the stock exchange and has moved to appoint a former regional chief executive of Deloitte to raise investor confidence. The hope seems to be that including developed market finance and accounting outfits in the investment and regulation process will increase the credibility of the exchange. Time will tell.
— Shahryar Malik
