International Credit

Nigerian Government Presses Telecoms to List on NSE

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The trading floor of the Nigerian Stock Exchange in Lagos, Nigeria. Nigeria's exchange is the third largest equity market in Africa.

Other than oil, the telecommunications industry has been a major area of growth in Nigeria in recent years but only a few companies are publicly traded.

The Nigerian government took the unusual step last week of urging the country's telecommunications companies to become publicly listed on the Nigerian Stock Exchange (NSE) face regulatory penalties, according to an article in Bella Naija, a Nigerian online media outlet.  The NSE could certainly use additional listings as the exchange's market value has fallen 43 percent in U.S. dollar terms in the past year. 

"I appeal to telecom companies that before government wields the big stick, they must get their companies listed on the NSE so that Nigerians can also be a part of the ownership of these companies,"said Adebayo Shittu, Nigeria's communications minister while speaking at a solar energy conference in the capital city of Abuja.  Mr. Shittu also noted that many Nigerians are not happy with the quality of service from the sector.

Attracting capital investment is a priority for many in Nigeria these days as the country struggles through an economic recession brought about mainly by a steep decline in oil prices, the country's major export.  Approximately, 70 percent of Nigeria's revenue comes from the oil industry.  In the fourth quarter of 2016, Nigeria's gross domestic product (GDP), which is approximately $320 billion, contracted 1.51 percent, according to data just released from the National Bureau of Statistics.

Nigeria's currency, the naira, has been under enormous pressure losing 53 percent of its value against the dollar in 2016 trading at a value of 199 to the dollar in June before it was allowed to float and eventually fall to its current offical level of 317.  Only Egypt and Venezuela had larger currency devaluations in 2016, according to CreditPulse currency data.  Sources inside Nigeria claim the currency is trading on the black market at around 499 to the dollar. 

But the move by the minister of communications provides a strong indication that the government is looking to its capital market, the Nigerian Stock Exchange, as a pathway to move the economy forward in much the same way that South Africa's capital market facilitated that nation's economic rise.  Founded in 1960 as the Lagos Stock Exchange, the NSE is the third largest exchange in Africa with 170 companies listed and a market capitalization of 8.97 trillion naira or $28.3 billion.  In June of 2015, the market cap was $86 billion.

Since 2002, the telecommunications industry has rapidly expanded in Nigeria with the country serving as home to the largest wireless and internet communications firms in West Africa, yet none are publicly traded.  Mr. Shittu didn't name any companies in his statement but one that his government could possibly be targeting is Globacom Ltd., one of the largest wireless service providers in the country with estimated annual revenue well over $1 billion and over 2,500 employees.  Airtel Nigeria, a subsidiary of an Indian company, Direct on Data, Etisalat Nigeria and ipNX Nigeria are other large Nigerian telecom companies not listed on the NSE.   

As the accompanying chart illustrates, the NSE is still relatively small compared to other world exchanges but it's importance comes from its status as the largest capital market in West Africa, the region of the continent in which most of Nigeria's economic activies are centered.  Ghana and Ivory Coast may have booming economies, but they don't have capital markets on par with the NSE. 

One example of the importance of Nigeria's stock exchange to the West African region is the recent listing of Med-View Airline Plc, a Nigerian-based carrier that transports more than 3 million passengers and 46 million tons of cargo to local cities in Nigeria as well as Ghana and London.  Med-View went public on January 31st with a market value of approximately $46 million.

"We are particularly pleased that Med-View Airline has taken this strategic step to join the prestigious club of quoted companies in Nigeria," said Oscar Onyema, the CEO of the NSE.  "It further reaffirms our belief that in spite of several policy and economic challenges facing the nation, our platform remains one of the best avenues for raising capital and enabling sustainable growth for national development."

The most valuable company on the NSE is Dangote Cement Plc, the largest cement company in Africa owned by Aliko Dangote, the richest man in Nigeria.  Dangote Cement's market cap of $9.08 billion represents 33 percent of the total market value of the NSE.  The company's market value far exceeds it 2016 annual revenue of $1.9 billion.

Written by John Bassford in the United States.