With an absent president, a restrictive foreign exchange regime and slumping oil revenues, the opening months of 2017 proved to be a torrid time for investors in Nigeria.

As money managers fretted over a leadership void and an absence of wider structural reforms, the trading screens at the Nigerian Stock Exchange (NSE) reflected widespread investor frustration and apathy with Africa’s largest economy. Oscar Onyema, longstanding chief executive of the bourse, admits that the challenging early months of the year “significantly” impacted activities on the NSE.

“The market is very highly correlated with the economic direction of Nigeria, which is correlated to oil price movements. So we’ve taken a major hit,” he tells African Business at the London Stock Exchange’s Nigeria Capital Markets and Banking Forum.

However, Onyema – no stranger to the vagaries of the market during his six-year stint at the bourse – believes that the corner has now been turned again. With oil prices supported by coordinated OPEC output cuts, a belated dismantling of disastrous foreign exchange restrictions and a recovering president back from his London exile, Onyema says that renewed confidence is coursing through the Nigerian market.

“With the recovery in oil prices, not to pre-2014 levels, but certainly closer to the mean – that is good for Nigeria. Today output is back to about 2m barrels a day, which has really helped.

Because of an increase in FX revenues, pressure on monetary policy from an FX perspective has gone down and the central bank was able to open the investors’ and exporters’ window, which has been very useful for foreign investors looking to access our market. All of these things coalesced to make our market very active and attractive.”

Those converging factors have led to a tangible recovery in the NSE’s fortunes – albeit from a low base. Onyema says N4bn ($11m) worth of stocks are traded daily. He points to a diverse influx of rights issues and special placements amounting to over $1bn this year – Union Bank and cement giant Lafarge Africa are targeting N50bn and N132bn respectively, while brewer Guinness Nigeria has already secured N40bn from investors.

The palpable sense of optimism is partly driven by a long-awaited government return to economic pragmatism. Nigeria emerged from its first recession in 25 years in the second quarter. After months of mounting criticism and investor fury, the administration of President Muhammadu Buhari has steadily began to dismantle the wildly unpopular foreign exchange restrictions that kept investors away in their droves.

Since it opened the investors’ and exporters’ foreign exchange trading window, the long overpriced naira has finally converged with the black market rate. Previously reluctant portfolio investors, while understandably weary of government backsliding, are once again prepared to stake out positions in the country. Onyema credits these and other government moves with helping to get the market back on its feet.

“On the fixed income side we’ve seen a lot of activity as the federal government tries to raise capital to finance its budget deficit and drive growth. Even with the new strategic shifts that the government is making with regards to reducing the domestic to foreign debt ratio, that reduces the crowding out effect and allows more corporates to issue debt in the market.”

Oil recovery?

While the administration appears to have learned from its mistakes, there remains a danger that policy decisions are being kept afloat by temperamental oil prices. A shaky détente at OPEC – where Nigeria and Libya are exempt from output cuts imposed on other members – is not likely to offer a permanent solution.

If Nigeria refuses to join future output cuts when ordered, or other members lose their resolve, the impact is likely to rebound on global prices, which have tentatively recovered to over $56 a barrel from $43 in June. Remove the incentive of higher oil prices, and government policy could again embrace restrictive FX policies – something that Onyema is keen to caution against.

“Certainly, capital controls were not perceived well by the investor community, both domestic and international, and it did affect our market, so we’re quite pleased that government is moving away from that. There are still several windows that need to be converged. What I would like to see from government is making it easier for people to do business, be consistent with policy… and allow the markets to determine their allocation of resources.”

Enforcing the rules

Even if oil prices tick along nicely and support government policy, the labyrinthine industry that produces Nigeria’s most valuable export occasionally throws up problems for the exchange. In October, the NSE was forced to suspend shares in energy company Oando after an order from the Nigerian Securities and Exchange Commission (SEC), which raised concerns about potential insider trading and irregularities in the firm’s shareholding structure.

Just days later, both the suspension and an imposed forensic audit were halted after Oando secured a court order against the action. For an exchange that prides itself on good relations with both listed companies and the SEC, the affair has proved embarrassing. Onyema says that the NSE is hoping for a speedy resolution.

“As you know the suspension we implemented was at the insistence of the Securities and Exchange Commission which is the apex regulator – they gave a directive that we carried out. So we can’t really comment much on what Oando is doing or not doing… the investor community typically doesn’t like uncertainty. From that perspective it’s in everyone’s interests to work it out quickly and have certainty as to the status of the company.”

Nevertheless, he insists that the NSE remains stringent in its enforcement of rules and regulations, pointing to tough action against both companies and the broker-dealer community where discrepancies have arisen.

“We have a good working relationship with the SEC and companies listed on the exchange and generally try to maintain partnerships with all stakeholders to move the market forwards… it’s a small number of the population that tends to fall foul of our rules and we pride ourselves on enforcing our rules rigorously.”

While the NSE may be uncompromising in its implementation of strong regulations, the exchange is tinkering with rules elsewhere in a bid to attract new business. With prospects for the bourse’s Premium Board – launched during a period of high optimism – hit by Nigeria’s economic underperformance, the threshold for new listings has been reduced to 220bn naira ($608m).

Onyema says that the bourse is accelerating efforts to review existing applications so that the largest companies can ascend to the Premium Board while the NSE maintains its rigorous standards. Despite the rough economic ride, Onyema’s daily interactions with the investor community have convinced him that the tentative recovery will again transform the NSE’s fortunes.

“The mood is upbeat, we engage with investors and issuers and generally they are more positive in their outlook for the economy at this time as opposed to this time last year. We’re seeing it in the numbers in terms of the reports that corporates are submitting, profitability increasing and generally better performance than last year.”

David Thomas