Recent Developments in African Capital Markets – The Nigerian Case

1. Recent Developments in African Capital Markets – The Nigerian Case Discussion Notes By: Godwin Obaseki October 29, 2007

2. FDI & Portfolio Inflows Across Africa, recent evidence suggests that achieving substantially increased levels of FDI and portfolio inflows is possible, given the right domestic environment. Ingredients for Success: • Improved international credit ratings, as has been the case in Nigeria • Commitment to reforms, liberalization and private sector participation; as has been the case in Egypt • Stability in macro-economic and political affairs, as has been the case in South Africa and Nigeria • Robust external indicators, including high external liquidity and declining public external debt, as we have seen in Morocco and Nigeria

3. GDP Growth 2001- 2007 in Nigeria Robust macro-economic growth continues to be a key driver of stock market performance National GDP growth (2006 GDP: US$117m) at over 5.0% since 2003, forecast at 7.9% in 20072; New Goal is to achieve 13.5% GDP growth rate between 2007 - 2020 2Central Bank of Nigeria (CBN) forecasts

4. Non Oil Sectors Leads GDP Growth • Non-oil sector growth far outstrips the troubled oil sector with estimates at over 10% growth in 2006, albeit from a small base • Local interest rates have continued their downward trend, with inflation now estimated at 8.0%, as exchange rates remain stable

5. External Debt Plunges • High oil prices and fiscal discipline basis for restructuring of the nation’s balance sheet • Nigeria’s new status as an almost debt free nation, currently rated BB- by Fitch and S&P is helping drive growth • Total external debt now comes to about US$3bn, in a country with external reserves of over US$43bn (as at April 2007)

6. FX Rates Stabilizes • Some of the FX stability may be attributed to high global oil and commodity prices, and the recent slide in the value of the dollar • Much of this forex stability can however be put down to consistent macro-economic management by the Central Bank of Nigeria

7. Increasing Market Capitalization • Since 1998, market capitalization has grown at a compound annual growth rate (CAGR) of 46%, from about US$2bn to over US$62bn as at August 2007 • Over that same period, the number of listed companies has increased by only 12%, from 186 to 208 companies.

8. Annual Trading Values / Volumes (1998 - 2007) 4,000 4,500,000 4,000,000 3,500 3,500,000 3,000 3,000,000 2,500 2,500,000 (US$ Millions) Annual Values Traded Traded (US$ Million) 2,000 2,000,000 Annual Volumes 1,500,000 1,500 1,000,000 1,000 500,000 500 - - (500,000) 2001 1998 1999 2000 2002 2003 2004 2005 2006 2007 Years Annual Value Annual Volume Improved Liquidity • The total value of trades executed on the Nigeria Stock Exchange (NSE) has grown at a CAGR of 50% since 1998- to about US$3.7bn in 2006 and US$2.9bn as at April 2007.

9. An Impressive 10 year Bull Run

10. A sizable bond market emerges In a very short period, over US$ 6.3bn in sovereign bonds of varying maturities have been issued, leading to an emerging yield curve.

11. Summary Reduction in trading costs and extended trading hours Improving reporting and disclosure standards More stringent requirements for operators Wider issuer and investor base/ Regional expansion Increasing market liquidity and improving trading infrastructure Increased listings, including cross- boarder e.g GDRs Nigeria Capital Markets

12. But what can slow down progress? However, various obstacles to growth continue to exist in both Lion and Cub countries. • Uncertainty in political affairs, crime, poverty and corruption; as we have seen in South Africa and Nigeria • Low per capita output and large poor populations, as is the case in Nigeria, Kenya and Senegal • Government and regulatory restrictions on private capital flows, increasingly less so across the continent • Low levels of infrastructural development, as is still the case across much of sub-Saharan Africa