THE
announcement of a write-off of N22.6 billion of the debt owed sundry
commercial banks and bought out by Asset Management Corporation of
Nigeria (AMCON) is a matter of grave concern. As an initiative, it is
wrongheaded for, among other things, enabling damaged firms to be
recycled rather than allowed to exit the market as the doctrine of free
enterprise dictates.
The Minister of Finance, Dr. Ngozi Okonjo-Iweala, said that the Federal Government adopted a number of measures to reduce transaction costs and offset the N22.6 billion bank loans owed by 84 stockbroking firms. But the Nigerian capital market is comparatively expensive in respect of revenue going to the Treasury, namely, VAT and Stamp Duties and for trading commissions to the Securities and Exchange Commission.
Monetary authorities in many parts of the world gain credibility by the logic of the policies they offer for each peculiar economic cycle and the country’s development agenda. Subsequent implementation of these initiatives and policies is often the justification of populist or electoral acceptance or dissent in many countries, today. To that extent, it is appropriate for regulators in the capital market to initiate fiscal sacrifice that is dressed up as a stimulus to recovery, and as incentive to participation. In such a policy, the framework of the parties involved should be certain: offering all persons and companies trading in the capital market, a level playing field. This is the only way to ensure transparency and non-discrimination in the market. This does not appear to be present in the recent intervention in the capital market.
In fact, the N22.6 billion so-called stimulus is, arguably, the highest amount of gratuitous proposition ever made by the Nigerian treasury to any vested interest group in the land. The philosophy underlying this intervention is simply supercilious. Originally, enlightened money men as bankers and stockbrokers struck a private contract, without dispute, to issue margin loans and literally play on the Nigerian stock market.
And quite pertinently, this continued unfettered for years. They celebrated a series of initial public offers from the consolidating banks and kept their tons of profit. These men rode the crest and price rallies that were dumbfounding, and created a self-fulfilling rise of all indices on the Nigerian Stock Exchange.
Bubbles created in stock prices were so obvious and were well in the view of every sane onlooker and participant. Neither the bankers nor the stockbrokers called time on their margin contracts. In fact, they cleverly walked away as the bubble began to burst. Those writing off the huge debt of the capital market operators ought first to ascertain the trading profit of the 84 stockbrokers and how much tax return was made by each firm and its directors to the public treasury.
It does appear that the Finance Ministry, thanks to the dexterity of lobbyists at the highest levels and at different venues, has interloped into a market relationship between banks, AMCON and a number of private firms. The ministry has decided, misleadingly, that the exit of these firms from the stock market will reverse the doctrine of free enterprise of entrance and exit. This is a grossly flawed logic.
These stockbroking companies are their own agents and they act as intermediaries for their clients. Where these clients, relying on the judgment of the moneymen lose their investments, the hazard must extend to the brokers who, presumably, traded on the same assumptions.
The downturn in the market should be read more circumspectly. Brokers are marginal or majestic in the market to the limit of their resources, and it is not in the place of the public treasury to underwrite vested commercial interests at the neglect of the Nigerian people. No other jurisdiction has paid off stockbroker commercial debts.
The tendency for superficial fixes is ever so prevalent. It is a highlight of the misdiagnosis that after two months of the stock exchange appointing market makers, the sky is still grey because the larger picture, the Nigerian economic fundamentals, are still hobbled by a set of negative and stagnant variables.
What is required now is greater caution in fiscal spending. A series of fiscal intervention in the textiles, aviation, and agricultural sectors have yielded poorly, indicating that these initiatives have not been thought through. Even then, the compelling N22.6 billion is a gift of a strange colouration. What justifies this bailout, which principal effect is to enable the bohemian and swashbuckling work ethic of a few private companies to be revived?
The sanctions imposed on these firms as corollary to the tax-payers’ N22.6 billion include being barred from AMCON mandates ‘for not less than three years’, restriction on debt financing of their trades or taking of proprietary positions, compulsory reports of trade in excess of N25 million and use of custodians. These are mild or inadequate actions in exchange for N22.6 billion gift of public money. There are so many more pressing alternatives, the reconstruction of public infrastructure, for instance, for which this sum could be deployed. If in the end this stimulus is allowed to stand, it must rank as the sacrifice made by so many at the instance of a few.
It will be tantamount to a reward from the public purse in the sum of N22.6 billion for deviant behaviour by private enterprise in pursuit of private greed. Which law of the land allows such anomaly? Stockbrokers who were in cohort with bankers and others with misguided enthusiasm on the stock market to create the bubble that Nigerians are still paying a price for, do not merit a national gift of N22.6 billion. The stimulus should be cancelled.
TheGuardian
The Minister of Finance, Dr. Ngozi Okonjo-Iweala, said that the Federal Government adopted a number of measures to reduce transaction costs and offset the N22.6 billion bank loans owed by 84 stockbroking firms. But the Nigerian capital market is comparatively expensive in respect of revenue going to the Treasury, namely, VAT and Stamp Duties and for trading commissions to the Securities and Exchange Commission.
Monetary authorities in many parts of the world gain credibility by the logic of the policies they offer for each peculiar economic cycle and the country’s development agenda. Subsequent implementation of these initiatives and policies is often the justification of populist or electoral acceptance or dissent in many countries, today. To that extent, it is appropriate for regulators in the capital market to initiate fiscal sacrifice that is dressed up as a stimulus to recovery, and as incentive to participation. In such a policy, the framework of the parties involved should be certain: offering all persons and companies trading in the capital market, a level playing field. This is the only way to ensure transparency and non-discrimination in the market. This does not appear to be present in the recent intervention in the capital market.
In fact, the N22.6 billion so-called stimulus is, arguably, the highest amount of gratuitous proposition ever made by the Nigerian treasury to any vested interest group in the land. The philosophy underlying this intervention is simply supercilious. Originally, enlightened money men as bankers and stockbrokers struck a private contract, without dispute, to issue margin loans and literally play on the Nigerian stock market.
And quite pertinently, this continued unfettered for years. They celebrated a series of initial public offers from the consolidating banks and kept their tons of profit. These men rode the crest and price rallies that were dumbfounding, and created a self-fulfilling rise of all indices on the Nigerian Stock Exchange.
Bubbles created in stock prices were so obvious and were well in the view of every sane onlooker and participant. Neither the bankers nor the stockbrokers called time on their margin contracts. In fact, they cleverly walked away as the bubble began to burst. Those writing off the huge debt of the capital market operators ought first to ascertain the trading profit of the 84 stockbrokers and how much tax return was made by each firm and its directors to the public treasury.
It does appear that the Finance Ministry, thanks to the dexterity of lobbyists at the highest levels and at different venues, has interloped into a market relationship between banks, AMCON and a number of private firms. The ministry has decided, misleadingly, that the exit of these firms from the stock market will reverse the doctrine of free enterprise of entrance and exit. This is a grossly flawed logic.
These stockbroking companies are their own agents and they act as intermediaries for their clients. Where these clients, relying on the judgment of the moneymen lose their investments, the hazard must extend to the brokers who, presumably, traded on the same assumptions.
The downturn in the market should be read more circumspectly. Brokers are marginal or majestic in the market to the limit of their resources, and it is not in the place of the public treasury to underwrite vested commercial interests at the neglect of the Nigerian people. No other jurisdiction has paid off stockbroker commercial debts.
The tendency for superficial fixes is ever so prevalent. It is a highlight of the misdiagnosis that after two months of the stock exchange appointing market makers, the sky is still grey because the larger picture, the Nigerian economic fundamentals, are still hobbled by a set of negative and stagnant variables.
What is required now is greater caution in fiscal spending. A series of fiscal intervention in the textiles, aviation, and agricultural sectors have yielded poorly, indicating that these initiatives have not been thought through. Even then, the compelling N22.6 billion is a gift of a strange colouration. What justifies this bailout, which principal effect is to enable the bohemian and swashbuckling work ethic of a few private companies to be revived?
The sanctions imposed on these firms as corollary to the tax-payers’ N22.6 billion include being barred from AMCON mandates ‘for not less than three years’, restriction on debt financing of their trades or taking of proprietary positions, compulsory reports of trade in excess of N25 million and use of custodians. These are mild or inadequate actions in exchange for N22.6 billion gift of public money. There are so many more pressing alternatives, the reconstruction of public infrastructure, for instance, for which this sum could be deployed. If in the end this stimulus is allowed to stand, it must rank as the sacrifice made by so many at the instance of a few.
It will be tantamount to a reward from the public purse in the sum of N22.6 billion for deviant behaviour by private enterprise in pursuit of private greed. Which law of the land allows such anomaly? Stockbrokers who were in cohort with bankers and others with misguided enthusiasm on the stock market to create the bubble that Nigerians are still paying a price for, do not merit a national gift of N22.6 billion. The stimulus should be cancelled.
TheGuardian
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