Victor Ogiemwonyi

victorogiemwonyi@gmail.com 

The Shenzhen Stock Market may not be familiar to many. It is the
junior stock market in Shanghai, China dedicated to the Small and Medium enterprises (SMEs).

 

Its development since it’s creation in 2004 should be of interest to us. First let me quote some of the interesting statistics I read lately about the market.

 

In the last 6years of its existence, it has listed 490 companies and raised 53billion Dollars. In the first 10 months of 2010 alone, it admitted 261 initial public offers (IPOs) all of them SMEs, raising $36billion while 400 new applications are waiting for approval of their prospectuses before listing.

 

While the boom in IPOs reflects the strong economic growth in China, there is also something else that our market needs to learn from them, a focus on promoting the primary market,
particularly SMEs that require growth capital.

 

This is a core activity of all Stock Exchanges. For several years now, industry participants and regulators have talked of deepening the Nigerian Stock Exchange (NSE) by listing more companies and products, nothing has happened.

 

There has even been talk of using legislation to force some of the larger companies to come on board. This is not the right approach, I will rather we register an alternative market that will give opportunities to the several SMEs hungry to raise money, that will  attract new investments and new investors, and
will eventually come to the NSE when they have established the right
pedigree and market history. 

    
Listing this emerging companies  in an alternative market that
allows them to grow and have a history, will provide the  NSE a  healthy pipeline of new issues , that  will ensure that investors have sufficient room to diversify their securities portfolios with a wider array of securities  to invest in, thus reducing excessive speculation that come with fewer securities. We have seen during the last boom, investor’s continuing to bid up the prices of  shares long after they have reached their peaks because there were far too few stocks for investors to invest in.

 

The need to promote new listings should start from putting in place an alternate stock market to focus on SMEs, The Association of Securities Dealers of Nigeria (NASD) has proposed such market for a very long time, strangely enough our regulators have either not seen a need for it or can not immediately see where it will benefit the economy. Their insistence that it must have all the structures like the Nigerian Stock Exchange before it even gives out an ‘approval in principle’ clearly shows the understanding and interpretation they are giving to the new market.

 

There is a need to fast track the birthing of an alternative exchange that will focus on SMEs like the Shenzhen Stock Exchange to serve as an incubator for new companies that will not necessarily meet the stricter requirements of the NSE.

 

 The alternate market will meet the needs of different investors and companies, because smaller companies are fundamentally different from larger older companies, usually with a manufacturing base favored by the larger exchanges.

 

Investors in these companies usually have different expectations
and concerns. This is why the alternate exchange will need to adapt precise rules, oversight, investor education and marketing strategies to attract emerging companies and investors. One thing is clear, Nigerian investors are ready.

 

The unparalleled risk appetite displayed recently   before the crash
in the market and several billions invested in the private placement market clearly shows there is a market and the liquidity to make this market work exist.

      
Why SMEs Will Need the Capital Market

 

Small and medium enterprises world over are the drivers of growth in
any economy. They create jobs and bring innovation to bear on their
business. SMEs are also a source of revenues for governments as they collect fees for licenses, permits and taxes. It is also well known that the major problem for SMEs is financing. Most SMEs after going through their initial capital usually find the next stage financing difficult. Many of them despite the good ideas behind the business are forced to close because they are unable to finance their growth until revenues are sufficient to sustain the business to profitability. That is where capital markets come in. 

 

We must provide a platform to replace the traditional sources of
financing that includes banks that will no longer be available going
forward, given the recent happenings. Banks will be more conservative for sometime to come and will even be less willing to support SMEs now.

 

The capital market is ideal for providing risk capital and it’s ability to
allocate capital to deserving entities is unparalleled. Government should stop throwing money at SMEs the way they do it now. What is needed is to promote an alternate market and give support to it’s development and focus on investor education to provide necessary information to protect the small retail investor that are more susceptible to herd mentality and baseless rumors.

 

To properly situate how important investor education is to all this,
I will again go to our example, The Shenzhen Stock Exchange, where over 600 TV and radio, newspapers and magazines are used yearly to publicize educational information for investors. Also provided, are 350,000 booklets, 20,000 Education DVDs free of charge with over 15,000 investors taking part in a mock trading program for a simulated experience of trading in 2010 alone. 

 

 

Now we know why we have a lot of work to do.

 

Victor Ogiemwonyi is MD/CEO of Partnership Investment plc in Ikoyi, Lagos.