Recession Exit: Finance Minister Applauds Capital Market Role, Calls For Inclusive Economic Growth

The Minister of Finance, Mrs Zainab Shamsuna Ahmed , has noted that the prevailing strong capital market activities was instrumental in taking Nigeria out of recession and setting it back on path of positive economic growth.

She made the observation as the 22nd African Securities Exchanges Association (ASEA) Annual General Meeting and Conference kicks off in Lagos, Monday.

Represented by the Acting Director-General, Security and Exchange Commission (SEC), Ms Mary Uduk, Ahmed explained in her address to the participating African countries that President Muhammadu Buhari decided to pump money into various sectors of the economy in order to spur economic growth and sustain the tempo to where it is now.

A statement by the Special Adviser to the Minister of Finance on Media and Communications, Mr Paul Ella Abechi, quoted the minister as explaining that Nigerian government’s deliberate effort gave support to the private sector which is a critical pillar in its policies, by ensuring macroeconomic stability and diversifying the economy from a focus on oil to other sectors and providing an enabling environment for the financial sector as a major catalyst in the implementation of the Nigeria’s Economic Recovery and Growth Plan (ERGP).

She said: “The African Securities Exchanges Association as a premier association of leading exchanges in Africa has the primary goal to develop Member Exchanges, provide an enabling platform for sharing best practices, and articulate actionable strategies to strengthen and develop Capital Markets on the African Continent.

“We are very pleased that this year, such a high level conference is taking place in Nigeria. It is my strong belief that the private sector presents an effective engine for growth in any economy. For this reason, Nigerian government has made supporting the private sector a critical pillar in its policies, by ensuring macroeconomic stability and diversifying the economy from a focus on oil to other sectors and providing an enabling environment for the financial sector as a major catalyst in the implementation of the Nigeria’s Economic Recovery and Growth Plan (ERGP).

“Also in Nigeria, the capital market was instrumental in taking the country out of the recent economic recession and back to the path of positive growth. Specifically, government decided to increase its spending to spur economic growth and this has been made possible through long-term financing provided both by the domestic and international capital markets.

“It is therefore critical that African governments continue their efforts to ensure rapid development of capital markets and support innovations to deepen and accelerate their growth and help direct financial capital to more sustainable economic activity.

“World class capital markets are characterized by high levels of liquidity, depth, breadth and sophistication with a strong domestic investor base. They are innovative, transparent due to robust disclosure regimes, and efficient both in terms of price discovery and in the allocation of capital. World class capital markets serve as an important source of medium to long term capital for governments and businesses.

“Capital markets also contribute to macroeconomic and financial system stability by fostering the diversification of economies and raising their capacity to absorb capital flows. The G20 acknowledges, for example, that domestic bond markets help countries to reduce reliance on foreign loans which reduces vulnerability to foreign exchange risk and eases external imbalances.

“Considering the immense benefits that world class capital markets bring, every economy, especially African economies, needs such markets.  Africa needs to develop its capital markets to accelerate inclusive economic growth and to tackle infrastructure challenges. This will complement banking sector finance to provide long term capital for growth and development.

“I encourage ASEA and all stakeholders to continue the work of integrating our markets in Africa as this will no doubt transform African markets to world class markets.”

However, the Minister who expressed concern over low capital market size in Africa which has affected economic growth and development noted that, “Unfortunately, the size of most African capital market relative to the entire economy as well as activities are still low compared to other regions of the world with the exception of few countries, like South Africa, these low size and activities have limited the potentials of many African capital markets. This therefore represents a large room for improvement.

“Another challenge African capital markets face is the absence of a strong and vibrant domestic investor base. The levels of savings and investment are still low in Africa and these have also affected the growth of the capital market.

“These are challenges that policymakers are well aware of and have been implementing reforms to tackle them. For example, some Sub Saharan African (SSA) countries are learning from Egypt who established a separate exchange for SMEs, the Nilex, which lists high growth SMEs, nurtures them and prepares them for listing on the bigger Cairo Stock Exchange. This can prove to have a significant impact on depth and diversification of listings.

“Other countries like Mauritius have implemented reforms that have reduced transaction costs while opening up the economy. Today Mauritius is considered among the world’s most open economies to foreign ownership.”

Meanwhile she noted that efforts to build and develop deep capital markets in Africa are widespread, championed by regulators who belong to the International Organization of Securities Commissions (IOSCO).

Nine of the 20 members of IOSCO’s Africa Middle East Regional Committee (AMERC) are based in SSA and they employ best practice in their regulatory activities. IOSCO, being the global body of securities market regulators, has developed a set of high-level global standards in the form of 38 principles 8 of which take into account the lessons learnt from the global financial crisis.

“In addition, world class capital markets broaden access to economic prosperity by enabling the emergence of financially responsible citizens, accelerating wealth creation and wealth distribution, providing capital to small and medium scale enterprises (SMEs), and catalyzing housing finance”, she stated.

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