‘Greedy brokers behind capital market fraud’

Madubuike

Mr. Emeka Madubuike is the immediate past Chairman of the Association of Stockbroking House. In this interview with Bukola Aroloye he speaks on the challenges facing the capital market, the effects of the recession on the market and measures the Association has put in place to checkmate fraudulent practices among stockbrokers. Excerpts:

Banks recently had their AGMs and all of them declared profits. In views of the current recession, do you think banks really could have made profits they claimed they made?

Have they been declaring losses? Banks always declare profits; nobody was expecting they would do a loss. If you are in financial services, chances are that whether there is recession or not, the worst thing that might happen is that volume of service may reduce but you will make profits.

Does it mean financial sector is the only hope Nigeria economy has to get out of the recession?

I don’t think it can be taking from that angle. The fact is that the financial system is just a component of the entire economy so if the economy is challenged, the financial sector will not be left out. We have a challenged economy because we are a commodity country, we are exporters and our level of production is very low. Unfortunately we ran into the decline in oil prices. The financial system especially the capital market is tied to the economy. If the economy is challenged, the market will also be challenged.

Would the demutisation of the Nigeria Stock Exchange affect the Exchange?

You need to understand that the stock exchange is a neutral company. It doesn’t have shares, it is a company that guarantee and is limited liability and have members who are stockbroking firms.

Is it the right step in the right direction?

Yes, because that is where the whole world is heading to. We are looking at the exchange that is right now closed but if you open up the exchange, it will bring more confidence and everybody will be part of it.

Some years ago, Nigeria went into meltdown. We also later experienced recession and since then, investors’ confidence has come down. How will this bring back investors’ confidence?

The 2008 phenomenon was a worldwide phenomenon. So many other countries have recovered but the question is why has Nigeria not recovered? This is because there is no linkage between the capital market and the economy. Capital market is like the barometer that measures the economy but the linkage is very small if you compared it with the GDP of the country. Whereas in other countries, it is multiplies the economy. Our economy does not develop until the capital market develops. In every country, government is the largest lender so government needs to begin to use the capital market especially in an economy where there is infrastructural challenge.

We have had foreign investors coming into the market but the kind of foreign investors have are not the type we required. We need foreign direct investors with long term projects. Why is it that Lagos state seems to be the only state doing infrastructural projects? It’s because they are in the capital market. They are able to borrow and have enough funds. There is no magic about it. That connection has to be made. Every single infrastructure requires deposit fundamentally power sector. Now we are not doing up to 4000kilowatts whereas this country needs 30,000kilowatts.

We have fundamental challenges and the way to get out of it is to boost investors’ confidence but how can you build it when there is no rule of law.  Everybody sees it. It is because there is no consistency in policy. If a policy comes up today, they will truncate it and make another policy.  It is a very difficult thing to do business in Nigeria. Who is to blame is not the issue but the fact is that we have challenges so until we get to the point that we get to face this challenges and find solution,  people must say enough is enough.

In the light of this, do you foresee any hope that the market would bounce back?

Yes. For instance forex is coming down but can we sustain it. The whole thing boils down to sincerity of purpose whether everybody is doing the correct thing or not. Everything we do has a value chain and there are participants in every chain. If one participant breaks the rule, there is a breakdown unless somebody makes sure the right thing is done. Unless we have that kind of overseer, the breakdown will continue. The capital market is for tomorrow. When people invest, they are not investing for yesterday, they are investing for tomorrow. There is so much uncertainty. For people of faith, there is hope. We have the resources. This country has so many resources that if we get our investment right, we can begin to look at solar power.  We should get a solar plant that can power the whole of Lagos and south west, and the north. We have the money to do it.

Those sources of money that have gone the other way are enough to improve this country. Nigeria has enough resources to fix this country. In America, there is a system that checks what you do even if you are president but can this country do it?  If you do things correctly, you get good results but if you do differently, you get different results.

Do you think we have the right people in the economy team to manage this situation?

It is a general problem. We are all part of the problem. We have not gathered enough momentum to say no when things are going wrong. We must get to a point the majority of us will say no. in South Korea, the people insisted the president must step down. The closest we have gotten to that situation was the 2012 protest. Unless all of us condemned the kind of leaders we have, we can request for change. The voice of the people is the voice of God but unfortunately we have been broken into religious and ethnic groups and when you are in groups, you can’t work together.

Members of the economic team are Nigerians so they can’t do anything.  You can’t build something on nothing so we need to get our foundations right. The fundamental thing is to do things that are for the common good. We have evolved a system that is broken and is so challenged but unfortunately for us, our economy is where it manifests.

What measures can be taken to bring back the vibrancy in the capital market?

If the economy is challenged, the capital market will be challenged. The problem is not that we entered into the recession but what are we doing to get out of the recession. We are doing a lot of advocacy. Recently we have the federal government savings bond and it’s something the capital market is collaborating with government, getting people to invest more. The green bond was also launched. We believe that a lot more people need to get involved. How many Nigerians get involved in the capital market? In countries that we want to be like, 70% of the people gets involved in capital market. The economy needs to begin to produce and that is when you get people involved. If we can refine crude oil in this country, it will get so many people working. But things are designed not to work in this country.

People must be held accountable for what they had done or what they have failed to do. No country is better than Nigeria but the problem is that we have failed to implement our rules. In other countries, things work there but here it is not so. We can do the right things but it must start from leadership. It will be more structured.

What is your view about commodity exchange?

In the last two years, we have been trying to put up commodity exchange. We are making progress. What gives us the confidence is that we believe we have the man power and with a little adjustment, we will be able to make sure the commodity exchange works. Because Nigeria is a commodities country, if we put it right, it will help the agriculture more. We are trying to make sure there is a place commodity products can be sold in transparent manner. We believe there is a future in commodity market. There are still challenges. One of the things commodity requires is to be able to present value. It is one of the biggest challenges people who produce those commodities have.

If you are a farmer and you produce cassava, how can you preserve this cassava so that we can carry it to London or elsewhere? If you can’t carry it like that, you can do one level processing and preserve it because nobody will buy rubbish from you. There should be quality assurance because outside this country, they will not allow you to bring trash to their country economy. They must make sure the quality is assured. So you must preserve value. We are hoping that we will get there.

If you are to rate the market, which sector will you say is doing well? Is it the manufacturing, telecom or financial sectors?

. There is even no telecom in our market. That’s why I said there is dislocation between the market and the economy. We have been pushing that companies like telecom companies be listed on the market.

Why are they not listed?

It has to with doing things that are for the common good. In other countries, it is part of the condition for foreign companies that after two years, they must be on the stock exchange. If telecoms are ion the market, they will be able to raise money from the market when they have problems.

The GENCOS and the DISCOS are not doing well because their major problems is funding. If they come to market and raise money from it, they will have long time projects because the market has discipline. Whatever money you raise form the market is monitored to ensure it is used for the purpose it was raised for. There is process that monitors it.

As it is now, will you advise Nigerians to have confidence in the market despite recession?

It is still work in progress but if Nigerians choose not to have confidence in the market, where else will they have confidence. We are the people who must build our country. We must learn to do the right thing. Confidence doesn’t come from the sky. It is something all of us must jointly work together. Every human has tendency to be selfish but your faith can stop you from being selfish.

What is your take on the rising incidence of fraud in the market?

In every system, you have people who want to bring the system down but for the system to continue to work there must be ways of holding people back. We have complaint resolution mechanisms that ensure that any stockbroker that breaches the rule is punished. If a broker gets a mandate from his client to sell shares and after selling the shares he fails to pay the money or pay less, if the client report, the broker is in trouble. Our Association of Stockbrokers will call the broker and get him out of the system and give you time to reinstate the client and later pay fine. The rule says whatever you owe the client you pay back three times the value as a penalty. The level of infractions in the market has gone down significantly because those rules are being implemented. If you are going to operate in this market, you must follow rules.