Monetary and fiscal policies at cross purposes, not in economy’s interest- Kurfi

Kasimu Garba Kurfi, Managing Director/Chief Executive Officer of APT Securities and Funds Limited, is a Fellow Member of the Institute of Chartered Accountants of Nigeria (FCA) and a Fellow of Chartered Institute of Stockbrokers (FCS). He is also an authorised Dealing Clerk of the Nigerian Stock Exchange. He has close to 30 year-working experience covering the public sector, oil and gas, financial services / stockbroking industry.

Kurfi is reporters’ delight any day and Wole Tokede, Editor, Business247 News Online, engaged him on some issues affecting the nation’s Capital Market at the weekend. As usual, he was frank in his responses to the questions. Happy reading.

The market has been going down steadily for quite some time. Where do you think the market will end the year?

From all indications, it seem that except there is a drastic change from the Central Bank of Nigeria (CBN) in terms of monetary policy directive, we are likely going to close in negative just as we did in 2014 and 2015. The truth of the matter is that we need flexible exchange rate to work because without it really working, it will be very difficult for foreign investors to inflow into the country. In fact, Morgan Sterling Frontier Index give us till the end of September to review their position in Nigeria if they will continue to allow Nigeria All-share Index to reflect in their Frontier Index or they may delist Nigeria as it did in the Bond Market. And if they do this, it will be a serious issue that nobody in the Capital Market will like that to happen because in the last five years, foreign investors have been controlling between 50 to 55 per cent of transactions in our market. Today, this has been reduced to 43 to 47 per cent and if the Morgan Stanley Frontier Index decides to remove Nigeria, in its index, its participation will be reduced to next to nothing or at least not more than 10 per cent and this will be very bad for the market.

And what is the challenge? The challenge is that the flexible exchange rate is not working because today you cannot get to the bank and get dollar as you want though they said the rate is flexible. If the rate is flexible, the dollar should be available to the highest bidder, but that is not the case. You go to the bank, you bid and they keep telling you wait for a week or a month or even more than a month and this shows the flexible exchange rate is not working.  Foreign investors won’t come to our market except there is exchange rate that allows them to go in and come out as they wish. Where you can come in and you cannot go out, will not, in any way, encourage foreign investors and without them our market will continue to go down, one because local investors don’t have purchasing power. You remember, many states owe three to six-month salaries and without their salaries to meet their immediate needs, how do you expect them to have savings to invest? That’s a big challenge.

The institution investors are not investing here. The pension ought to invest seriously in our market, but they are not doing it rather they buy Federal Government Bond or invest in money market instruments and because of the high inflation rate, more than 16.5 per cent, they are trying to see alternative ways to beat the inflation and they are not investing in our capital market and without pension fund investing, without foreign investors, our market will continue to go down because these are the major players that can move the excess and move the market and without stabilising the market, it will be difficult to see the price gain and this is the situation as at today.

In essence, the CBN policy is the major reason why the capital market is continuously going down

Really, we have two issues. One the fiscal policies and the monetary policies are not in alignment so it is as if we are in different countries. There is no linkage of the fiscal and monetary policies. They are supposed to complement each other and without complementing each other, we will never have growth and without growth, the value of the naira will keep on going down and when naira keeps on devaluing, inflation rate will keep going high and once inflation rate keep going high it mean it is more risky investing in Nigeria and this will discourage foreign investors to invest and that will mean our naira will be perpetually devalued.

Banking stocks have been having problems with Non-performing loans (NPLs). How does this affect investors in them?

If you look at sectorial indices, you will see that the banking stocks are still in the positive.  We can say that banking stocks are still very okay. Stocks like GTB is trading at N24.00, Zenith is trading around N16.00 compared to N9.00 it was before. Despite the challenges the banks are facing, in aggregate they are performing better than All-Share Index. Yes, most of them have issues with NPLs, but most of the times they make provision for this and I do not envisage that they will make additional provisions and if you look at the results they declared so far for half year, some of them even do better than the previous year. Some of them are just marginally down. Like Zenith it is just about three per cent decline in its gross income and when you look at other banks that have released their results, they have not done badly.

I believe the banks are still meeting the expectations of investors. Don’t forget that our banks are very generous and most of their dividend yields are going as high as 15 per cent and this is better than investors depositing their money in banks, aside from capital appreciation. I still believe the banking sector will still perform better than the All-Share Index at the end of the year.

About 26 per cent of the stocks on the Nigerian Stock Exchange are trading below the par value.  What is happening here?

The Nigerian Stock Exchange (NSE) has applied to the Securities and Exchange Commission (SEC) that it should be allowed to let par value of stocks to go below the current N.50. But the challenge is that when you are encouraging all companies to come to the market and the ones that are already there you allow their price to go that low, it will give room for take over and this will discourage more companies to come to the market. I think the challenge the exchange is facing is the nature of the market. No new issue, no primary issue. We need to revive the market and by the time the market begins to come up, they can apply that rule and I believe that once there are more companies getting listed, even if these ones go,  it will not affect the market, but for now, those companies have to remain there.

What should be done to make the market come back to life

For the market to come back we have to look at the issue of fiscal and monetary policies. First, the monetary policy coming from the CBN must be encouraging, must be promoting growth. For now, what we are seeing is not. In a situation where you moved MPR from 12 per cent to 14 per cent what it means is that you are discouraging people from lending which is now between 20 and 25 per cent.  When lending is 20 to 25 per cent who can borrow? Only the traders and therefore you are killing growth because industry needs cheaper funds for them to be able to grow. What we are saying is that we need such fiscal policies such as tax relief by the government to bring more incentives to the companies to encourage them to get listed. Don’t forget that MTN is getting listed next year and we hope that it will open window for other telecoms companies to get listed and we hope government will privatise the refineries and get them listed and we hope the NNPC will also be listed. If these companies get listed, there will not be a single company that dominates the market just like Dangote Cement now. It controls about 30 per cent of the market and that is not good for the market. By the time we get more companies listed and no single company controls up to 10 per cent of the market, it will be better for all of us and that will encourage more companies to come to the market and the more companies we get listed the better for the market.

The FG promised to put N100 billion into the economy. How does that affect the market, the economy as a whole?

It is a step in the right direction but the money is too small. Don’t forget the money is to pay some companies that are in to construction. Most of these companies are already exposed to banks and immediately the money is released, the banks will take most of it to reduce their exposure and there will be little in circulation. We want government to go into productive sector, small entrepreneurs need more funds. Government should be able to know how easy or difficult for them to assess loans from Bank of Industry (BOI) and other developmental institutions. We gathered that it takes, in most instances, more than a year for those that will even get to get anything. We should be able to do it in such a way that maximum of one month they should be able to assess funds. If this is done, it will increase productivity and once there is increase in productivity, there will be growth in the economy. Once there is growth in the economy, there will be reduced unemployment and economy will be better for all. We need such positive monetary and fiscal policies. Moving MPR from 12 per cent to 14 per cent is not good enough. It should be made a single digit and that will reduce the cost of lending and once you reduce the cost of lending, the economy will grow and we need that kind of policy for the market to grow.

The increase in MPR to 14 percent, was it not done to allow foreign investor to come in with the much needed foreign currencies?

Look, foreign investors will not promote the growth of our economy. If you don’t believe in yourself, nobody will believe in you. For CBN to increase the MPR to 14 per cent to attract foreign investor is not the issue. The issue is that foreign investors will only come when they see foreign investors doing well. No foreign investor will walk into any country and invest when the local investors are not doing well. It is the performance of local investors that will attract foreign investors. So, the right thing is that CBN should have reduced MPR to a single digit and promote growth. Don’t forget, our economy is in recession already, the GDP was in the negative in the first quarter though the second quarter is not yet out, but it will not be different from the first quarter. Don’t forget the IMF has already predicted we may likely close this year at 1.8 negative GDP. These are all indications that we are in recession and we need to boost the economy to promote growth that we get us out of the situation we are.

The NSE recently reviewed downwards the transaction cost of fixed income securities. How do you see this development?

I think it is a right step in right direction. Well, believe this could have come earlier. Before the establishment of FMDQ, the Bond Market wanted to use the platform to trade bond if the Exchange had listened to them and reduced the price at that time, there would not have been FMDQ today.  Today we have FMDQ trading in trillions. For just half year they have done about fifty trillion as against the Exchange which did less than 300 billion turnover. You can imagine if that 50 trillion done by FMDQ is done on the NSE. That would have promoted us and lift our position to a far better position than South Africa or any emerging or frontier market that are doing very well. Today, we remain small and simply because we didn’t do the right thing at the right time, but it is better late than never. So, for us it is a welcome development but you see the damage has been done because FMDQ is now trading and they are trading thousand times of what we are doing and this ought to have been done on our floor.

Where do you see the All-Share Index at the end of the year?

We are likely going to close in the negative for two reasons, one already all results coming from all quoted companies reflect the economy and when the economy is in recession and we have not pumped enough money to improve growth in the economy the recession may likely continue till the end of the year and if recession persist to the end of the year, there is no doubt that the All-Share Index will close in the negative as it is already in the negative.