South Africa (Johannesburg) stock exchange has a cumulative market cap of about $990 billion when the Nigeria stock exchange is $50 billion. When you remember that Nigeria (population, 200 million) has 3x the population of South Africa (pop, 60 million), you will agree that we can do more.
The question is what can we do? In this note, I explain that rural Nigeria has latent opportunities which must be unlocked through new and improved property rights in the nation. If Nigeria modifies its property rights and digitizes its lands, farmlands, houses, etc, we can triple the value of our stock exchange within three years.
Yes, the wealth of rural Nigeria is not in any balance sheet in Nigeria, and that is unfortunate. And without a strong capital market, everyone becomes poor since pension funds, retirement funds, etc would return poor returns. If the Nigerian stock exchange is valued at, say $500 billion, it would mean, on average, every investor (directly and indirectly) is richer by a factor of 10!
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Nigeria must look into our capital market and work to expand the asset classes, and build the necessary trust to get the citizens into the game. Part of that includes formalizing our economy at scale.
In 2,000 years of economic history, nations have advanced only after they have improved property rights. And if that is the case, Nigeria can use the next few years to deepen its property laws, their implementations and enforcements, because without those condition-precedents, we will remain largely informal, unable to provide the future our citizens are hoping for.
South Africa (Johannesburg) Stock Exchange – $990 billion
Nigeria stock exchange – $50 billion
Nigeria’s capital market is still at infancy. Unfortunately, a critical enabler to transform it is not in the hands of the market players and makers. Nigeria’s lack of property rights is the reason we’re capital-poor despite the latent opportunities.
Do you know that we do not have any property-focused company with any decent market value in Nigeria’s capital market? Do you know that our real estate companies have only marginal values? Yes, all the lands and most properties in the rural areas in Nigeria have zero value, out of the balance sheets of our banks and national economies. Without being in those balance sheets, no one can build an asset class around them.
If you digitize all properties in rural Nigeria and put them in Nigeria’s balance sheet, Nigeria’s capital market can triple within 3 years. The farmlands, houses, etc should become components in great companies whose stocks could be traded in Nigeria’s stock exchange.
I call the National Assembly to revisit Nigeria’s property laws and work on modalities to strengthen the legal system. When people pay for lands or properties and cannot easily verify on government’s websites, that lack of transparency will not enhance the velocity of assets’ change of hands. And when that does not happen, we cannot unlock the value therein.
Comment on Feed
Comment 1: Although nations have advanced after improving private property rights, that does not necessarily translate into capital market formations. Private property rights allows individuals to borrow based on, and against, the value accumulation, or equity held on their own properties. Therefore the property owner can borrow to help them fund their own small business, or buy seed, or equipment for their small farm. This process helps many people accumulate some wealth, therefore accumulating national wealth. But this does not necessarily add to the capital market.
South Africa’s capital market has many more large corporations and public companies than Nigeria does, and those companies are worth more. The value of entries listed on capital markets are driven by market sentiments: the street value. The stock value is a reflection of what people on the street are willing to pay for one unit of that entity. So the population of a nation and their individual property rights does not necessarily equal (causality) of their capital market valuations.
Generally speaking risky stocks = lower value, risky bonds = higher coupon rate. And you know Nigeria is considered risky otherwise there would be less registrations in Delaware and UK.
My Response: ‘Although nations have advanced after improving private property rights, that does not necessarily translate into capital market formations” -. If you have property rights, you can set up a vehicle, buy farmlands in Abia State, and set up a capital formation, with assets as farmlands. My point is that with strong property rights, the velocity to buy and sell will ramp up and that will help to invent new asset classes which do not exist today in Nigeria. The point is that capital market formation is limited by property rights in Nigeria’s real estate and agriculture farmlands.
Also, a key component, as you already noted, if you do have property rights, rural people in Nigeria will become richer since they can borrow easily on their assets. If that happens, they can invest in the capital market because they will be liquid.
If you have 100 hectares of land in Ovim today, no bank cares. But if we normalize things, those hectares could unlock credits in a bank. If that happens, someone can sell 20 hectares and deploy the funds in something else which can boost the economy – and in extension the capital market.
Response 2: “this analogy of yours is confusing as I try to learn;” – I have a video which can help if you prefer that method. But if I may try again: if you own a land in your village right now, it is not likely you have a document which can help me buy it, assuming you want to sell. But if we deepen property rights and associated documents, we can do that easily. And if we do, some young people will see the buying and selling of farmland as a business. Quickly, they can create a company which can trade in Nigeria stock exchange on that core purpose.
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This one involves politicians, let the old PIB be your guide. The level of thinking and commitment needed to debate these things dispassionately don’t exist. So you have to start thinking of alternative ways to grow the capital market value.