The Managing Director/Chief Executive Officer of CardinalStone Securities Limited, Elile Olutimayin, in this interview with UTHMAN SALAMI explains how the activities of speculators in the foreign exchange market and others factors have led to the depreciation of the naira in recent times
How has the journey been since you took over the leadership of CardinalStone Securities?
In the last few years, one of our challenges amid a post-pandemic regime is talent retention, with the huge outflow of talent from Nigeria, ‘quiet quitting’, and the great resignation experienced globally. The success and sustainability of our business are premised on our people. This has been a challenge for us but we will continue to find innovative ways to scale the hurdle and retain our people against all odds. We will try to retain our top talents. In terms of achievements, we are extremely delighted that despite the obvious headwinds, the business continues to trend upwards. Notably, we executed the largest deal in the Nigerian Capital Market this year which was the acquisition of Union Bank of Nigeria Plc by Titan Trust Bank, a N191bn transaction representing the sale and acquisition of 93.41 per cent of the bank.
Many investment firms had come with outrageous return on investment promises but folded up in no time. How can individuals know reliable firms to invest?
Firstly, the list of duly licensed and registered capital market operators or firms is published on the website of the apex regulator– the Securities and Exchange Commission. It is accessible to everyone. So, the first way to validate if you are dealing with a relatively reliable firm is to check its registration status. Secondly, SEC has done a lot of work and continues to do so to clamp down on unregistered investment firms. If you recall, last year, firms were given a deadline to regularise their compliance and registration status with the regulator. Also, the SEC has reintroduced periodic renewal of the registration of CMOs to reduce incidences of unethical practices by CMOs that may affect investors’ confidence and impact the Nigerian capital market negatively. All these initiatives by SEC will further strengthen the supervision and monitoring of CMOs by the regulator.
Are operators doing enough to educate the youth on the need to invest in stocks?
We believe some work has gone into educating the public on key investment topics. However, more could be done to include and encourage the younger population. Specifically, we think a lot of private sector collaboration and grassroots projects that educate young individuals on financial literacy and investment culture are needed in schools and specialised finance groups.
Moreso, we believe it is imperative to capture the youth at a tender age to ensure their future participation in the capital and money markets. CardinalStone is involved in several collaborative efforts to increase financial literacy in Nigeria and attract the younger population to the Nigerian capital market.
How has the rising inflation affected the capital market?
Inflation has numerous touchpoints in an economy. One significant effect of rising inflation is the subsequent increases in interest rates which is likely to reduce the attractiveness of equity market investments. In addition, higher interest rates lower company valuations, resulting in investors seeking alternative investment classes.
Evidently, we have seen a shift in inflows from equities to fixed-income securities and a reduction in company valuation in tandem with the high-risk environment and higher interest rates. Also, we expect investors’ participation in equities to remain somewhat lukewarm as fixed income offers better returns. However, we will continue to handhold our clients to cherry-pick potential winners in the stock market to ensure they achieve their investment objectives.
What impact do you think the recent introduction of the new naira would have on the economy?
We have begun to see some of the impacts of the naira re-design process, evinced by the N50.2 trillion in money supply (highest ever) reported for October. We believe this action underscores the commitment of the CBN to improve the efficacy of monetary policy transmission while tightening the noose on counterfeiting and illegal stashing of the domestic currency.
Despite the economic challenges, Nigerian banking and other sectors have been resilient. What are the factors responsible for this?
The perceived resilience of the banking sector despite macroeconomic headwinds possibly highlights the accretive benefits of the elevated yield environment. Specifically, banks in 9M’22 reported higher earnings on the impact of higher yields and increased volatility which has improved returns on trading income.
These improvements in operating income were significant and outpaced negative pressures from higher operating expenses and tax burdens.
The Nigerian forex market has been very volatile, resulting in a massive devaluation of the naira. What can be done to reverse this trend?
The persistent devaluation of the currency has been caused by a myriad of issues, including a slowdown in crude oil exports repatriation, which likely reflects the production shortfall experienced this year, and the speculative induced demand since the CBN halted sales of FX to BDCs earlier in the year.
A combination of these two factors and the increased need for dollars to import are also contributing factors that have dug the hole for the devaluation of the naira. Rectifying these issues will require the government to improve infrastructure and encourage non-oil export actively. A less desirable option, which has been touted for years, is the unification of the exchange window and allowing the value of the naira to be determined largely by market forces.
Nigeria’s GDP slowed to 2.4 per cent in the third quarter of 2022. What is your take on this performance?
Nigeria reported a 2.4 per cent Q3 GDP growth, missing the consensus expectation of 2.9 per cent. In our view, the lower-than-expected outturn reflected a faster pace of oil sector contraction (-22.5 per cent), as crude oil production in the review period slumped to a decade low of 1.2mbpd. Likewise, the manufacturing sector (-1.9 per cent), likely reeling from the impact of the CBN’s aggressive tightening, suffered its first dip since Q4’20.
Positively, the services sector remained resilient, growing by 7.0 per cent in the quarter (vs 6.7 per cent in Q2’22). We link the sector performance to better domestic trade output (5.1 per cent) and a data-induced ICT sub-sector growth (10.5 per cent).
Many experts believe the government does not have any business in business. Meanwhile, there are countries whose economies are booming despite government active participation in their economies. Why is Nigeria’s case different?
Records have shown less impressiveness in government involvement in the business. Enhanced private sector participation should be encouraged, and an enabling environment should be created. Perhaps, it should be a public-private partnership model.
And what area of the economy do you think the Nigerian government should be actively involved in?
We believe the government should focus more on creating an enabling environment for private sector investments to thrive.
