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capital market and human security, Defense college-3.pptx

  1. The Capital Market and Human Security: Whole of Society Approach Uche Uwaleke PhD Professor of Capital Market Nasarawa State University Keffi Being a lecture delivered to Course 30 Participants, National Defence College. October 20 2021
  2. Outline  Introduction  Concept of Human Security  Issues/State of Human Security in Nigeria  Overview of the Nigerian Capital Market  Issues/Challenges of exploiting Whole of society (WOA) approach in the Nigerian Capital Market  Capital Market Pathways to achieving economic sustainability for enhanced human security in Nigeria  Conclusion Prof Uche Uwaleke Presentation
  3. Introduction  Security is a state of being free from fear, threat, danger, molestation, intimidation and harassment in all respects. The absence of these conditions whether to an individual or group implies insecurity (Ndanusa, 2018)  According to Adesola (2007), national security is traditionally viewed as the protection of the territorial integrity of a state and the protection of its citizens from external threats with specific focus on protection against military attack. Prof Uche Uwaleke Presentation
  4. …Introduction  In recent times, the emergence of new threats that defy military solutions have driven scholars to challenge traditional definition of security  Thus, security has been redefined to include not only freedom from physical threats but also material well being of individuals (Ngwube, 2013 cited in Ndanusa, 2018)  Therefore, Human security emerged as a challenge to ideas of traditional security, (often referred to as national security or state security) which is chiefly about a state's ability to defend itself against external threats. Prof Uche Uwaleke Presentation
  5. ..Introduction  However, human and national security are not mutually exclusive. It has been argued that, without human security, traditional state security cannot be attained and vice versa (Tadjbakhsh & Chenoy 2006).  Human security has a connection with the capital market which exists for the mobilization of long term capital.  The ultimate goal of capital markets is sustainable growth and development through the provision of long term capital Prof Uche Uwaleke Presentation
  6. ..Introduction  On the one hand, lack of human security has adverse consequences on the capital market as it hinders the ability of economic agents to participate in the capital market; on the other hand, the capital market can provide funds needed to ensure human security  Human security forms an important part of people’s well- being and is therefore an objective of capital markets. Prof Uche Uwaleke Presentation
  7. ..Introduction  In other words, human security and capital market are people centred- both address the root cause of poverty.  Both are inextricably linked since progress in one enhances the chances of progress in another while failure in one increases risk of failure of another  How can the capital market, via its stakeholders (Whole-of- Society), facilitate human security in Nigeria? Prof Uche Uwaleke Presentation
  8. Concept of Human Security Prof Uche Uwaleke Presentation
  9. Concept of Human Security  The concept of human security emerged in the late 1980s and early 1990s.  It gained prominence as part of the holistic paradigm of human development contained the United Nations Development Program (UNDP) 1994 Human Development Report.  It proposed the shifting of focus of security from the protection of the state and its borders by military means to the protection of individuals from a wider range of threats to their well-being and security. Prof Uche Uwaleke Presentation
  10. ..Concept  The UNDP 1994 Human Development Report defined human security as including safety from threats such as disease, hunger and repression as well as the protection of people from sudden and hurtful disruptions in their daily lives.  The UNDP Report asserts that ensuring "freedom from want" and "freedom from fear" for all persons is the best path to tackle the problem of global insecurity.  It argues that the scope of global security should be expanded to include threats in seven areas: Prof Uche Uwaleke Presentation
  11. ..Concept  Economic security – Economic security requires an assured basic income for individuals, usually from productive and remunerative work or, as a last resort, from a publicly financed safety net. Unemployment problems constitute an important factor underlying political tensions and ethnic violence.  Food security – Food security requires that all people at all times have both physical and economic access to basic food. According to the United Nations, the overall availability of food is not a problem, rather the problem often is the poor distribution of food and a lack of purchasing power. Prof Uche Uwaleke Presentation
  12. ..Concept  Health security – Health security aims to guarantee a minimum protection from diseases and unhealthy lifestyles.  According to the United Nations, in both developing and industrial countries, threats to health security are usually greater for poor people in rural areas due to insufficient access to health services, clean water and other basic necessities. Prof Uche Uwaleke Presentation
  13. ..Concept  Environmental security – Environmental security aims to protect people from the short- and long-term man-made threats to nature, and deterioration of the natural environment. In developing countries, lack of access to clean water resources is one of the greatest environmental threats. In industrial countries, one of the major threats is air pollution caused by the emission of greenhouse gases.  Personal security – Personal security aims to protect people from physical violence, from violent individuals or domestic abuse. Prof Uche Uwaleke Presentation
  14. ..Concept  Community security – Community security aims to protect people from sectarian and ethnic violence. Traditional communities, particularly minority ethnic groups are often threatened.  Political security – Political security is concerned with whether people live in a society that honours their basic human rights. Human rights violations are most frequent during periods of political unrest. Along with repressing individuals and groups, governments may try to exercise control over ideas and information. Prof Uche Uwaleke Presentation
  15. ..Concept  In a nutshell, Human Security encapsulates the UN Agenda 2030 SDGs- one that seeks among others an end to extreme poverty and hunger; a low carbon, climate-smart economy with decent jobs, inclusive growth and shared prosperity.  Distinction between human security and traditional security is summarized in the following table Prof Uche Uwaleke Presentation
  16. ..Concept Table 1 Traditional Security Human Security Referent Traditional security protects a state's boundaries, people, institutions and values. Human security is people- centered. The important dimensions are to entail the well-being of individuals Scope Traditional security seeks to defend states from external aggression Human security expands the scope of protection to include a broader range of threats, including environmental pollution, infectious diseases, and economic deprivation. Prof Uche Uwaleke Presentation
  17. ..Concept Traditional Security Human Security Actors The state is the sole actor. Decision making power is centralized in the government. The realization of human security involves not only governments, but a broader participation of different actors, viz. international organizations, NGOs and local communities. Means Traditional security relies upon building up national power and military defense. The common forms it takes are armament races etc. Human security not only protects, but also empowers people and societies as a means of security. People contribute by identifying and implementing solutions to insecurity. Prof Uche Uwaleke Presentation
  18. State of Human Security in Nigeria: Some stylized facts/Issues Prof Uche Uwaleke Presentation
  19. Table 2: RGDP Growth Rate (Annual %) (source: World Bank) Year Nigeria South Afr Ghana India China 2010 8.01 3.04 7.90 8.50 10.64 2011 5.31 3.28 14.05 5.24 9.55 2012 4.23 2.21 9.29 5.46 7.86 2013 6.67 2.49 7.31 6.39 7.77 2014 6.31 1.85 2.90 7.41 7.42 2015 2.65 1.19 2.18 8.00 7.04 2016 -1.62 0.40 3.45 8.26 6.85 2017 0.81 1.41 8.14 7.04 6.95 2018 1.92 0.79 6.26 6.12 6.75 2019 2.21 0.15 6.48 5.02 6.11 Prof Uche Uwaleke Presentation
  20. • Nigeria’s Per capita Income, dropped from $2412 in 2018 to $2386 in 2019 in spite of the increase in GDP growth rate while, that of SA and Ghana increased Table 3: GDP Per Capita (Constant 2010 $) source: World Bank Year NGR Ghana SA India China 2013 2476.864 1618.598 7563.993 1544.619 5710.588 2014 2563.9 1627.76 7582.697 1640.181 6103.59 2015 2563.149 1625.906 7556.789 1751.664 6500.282 2016 2456.306 1644.598 7476.621 1875.732 6907.962 2017 2412.367 1739.467 7476.386 1986.633 7346.611 2018 2395.97 1808.327 7433.615 2086.451 7806.953 2019 2386.872 1884.285 7345.962 2169.14 8254.301 Prof Uche Uwaleke Presentation
  21. • In Nigeria, data from the Global Consumption and Income Project (GCIP, 2019) showed that the rate of poverty overtime has been significantly high.  On average, between 1960 to 2015, poverty headcount in Nigeria was 61.8% of the population peaking at 79.6% in 2000.  In the area of Human Development Index (HDI) which is a summary measure for assessing long-term progress in three basic dimensions of human development: a long and healthy life, access to knowledge and a decent standard of living, Nigeria has not made any significant progress. • Number of children out of school in Nigeria (aged 5-14 years) was 13.7 million in 2019 (World Bank, 2021).
  22. • With a population of about 200million in 2019, about 80.5 million Nigerians were living below the poverty line according to the World Bank. • T Selected Economic Indices Year Population Population Growth Pov (%). (<$1.90) Population in Poverty (million) 2010 158503197 2.67 54.43 86,273,290.13 2011 162805071 2.68 54.9 89,379,983.98 2012 167228767 2.68 55.01 91,992,544.73 2013 171765769 2.68 55.21 94,831,881.06 2014 176404902 2.67 55.9 98,610,340.22 2015 181,137,448 2.65 55.8 101,074,696 2016 185960289 2.63 57.2 106,369,285.30 2017 190873311 2.61 61.2 116,814,466.30 2018 195874740 2.59 39.1 76,587,023.34 2019 200963599 2.56 40.1 80,586,403.20 Prof Uche Uwaleke Presentation
  23. • In relation to HDI, Nigeria dropped three spots to 161 in 2019 from 158 in 2018 among 189 countries in the 2020 HDI (UNDP, 2021). • The country’s HDI value for 2019 was 0.539 which put the country in the low human development category when compared to countries like South Africa, Ghana and India. Table 5: HDI for Selected Countries Country Nigeria South Africa Ghana India 2015 0.526 0.701 0.59 0.624 2016 0.526 0.703 0.598 0.63 2017 0.531 0.705 0.602 0.64 2018 0.534 0.707 0.606 0.642 2019 0.539 0.709 0.611 0.645 2019 HDI Ranking 161 114 138 131 Prof Uche Uwaleke Presentation
  24. • The national unemployment rate rose from 18.5 percent in 2017 to 23.42 percent in 2019 as shown in figure 1. Figure 1:National Unemployment Rates(%) Source: NBS (2020) 21.1 15.8 16.2 16.7 17.1 17.6 18 18.5 23.1 23.42 0 5 10 15 20 25 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Percentage (%) Years Prof Uche Uwaleke Presentation
  25. .. Human Security: Issues Real GDP growth rate below annual population growth rate • 2015 2.7 • 2016 -1.62 • 2017 0.81 • 2018 1.92 • 2019 2.21 • 2020 -1.92 (later revised) • Population growth rate annual 2.6% Sources: NBS, Macrotrend Prof Uche Uwaleke Presentation
  26. .. Human Security: Issues • The inability of real GDP growth to exceed population growth rate has fuelled poverty. • Poverty rate- latest estimate by NBS 40.1% (82.9 million people are poor) • Situation is made worse by rising inflation rates. • Stagnant economic growth amidst rising inflation has given rise to stagflation Prof Uche Uwaleke Presentation
  27. .. Human Security: Issues Prof Uche Uwaleke Presentation
  28. .. Human Security: Issues  Pursuit of low inflation and GDP growth has been hindered by huge Infrastructure gap.  Infrastructure stock represents only 35% of GDP far below that of peer countries  In order to narrow this gap, according to the National Integrated Infrastructure Master Plan, Nigeria needs to invest $3 trillion in infrastructure over the next 30 years - $100bn annually in other words.  This translates to a yearly investment of N36trn Prof Uche Uwaleke Presentation
  29. .. Human Security: Issues 35 47 58 70 76 87 0 10 20 30 40 50 60 70 80 90 100 Nigeria Brazil India Indonesia China South Africa Infratructure stock as % of GDP source: National Integrated Infrastructure Master Plan Prof Uche Uwaleke Presentation
  30. .. Human Security:Issues • Little wonder the country’s debt stock is growing • Now reaching unsustainable levels. • With dwindling revenue, debt service ratio is on the rise heightening vulnerability to debt distress • At circa 24%, Nigeria’s debt to GDP ratio is below international thresholds (DMO) • But the real debt burden is from the debt service to revenue ratio. • Debt servicing gulped 97% (N3.34trn) of FG’s total revenue (N3.42trn) in 2020 (source: BudgIT) Prof Uche Uwaleke Presentation
  31. Nigeria's TotalDebtStock as at31stDecember, 2014- 2020and Q1 2021 YEAR USD MILLION (₦" MILLION) 2014 67,726.28 11,243,120.22 2015 65,428.53 12,603,705.28 2016 57,391.53 17,360,009.58 2017 70,999.26 21,725,773.03 2018 79,436.72 24,387,071.74 2019 84,053.32 27,401,381.27 2020 86,392.54 32,915,514.85 Q1,2021 87,239.12 33,107,247.23 Prof Uche Uwaleke Presentation
  32. .. Human Security: Issues  So, the fiscal imbalance is widening as the government continues to rely on borrowing to finance spending plans.  Leading the DMO to increase borrowing threshold in relation to GDP from 25% to 45%.  Recently, worsening insecurity necessitated a supplementary budget of nearly N1 trillion approved by the National Assembly.  Expectedly, fiscal deficit as a percentage of GDP is on the rise and breaching the 3% limit allowed by the Fiscal Responsibility Act 2007 Prof Uche Uwaleke Presentation
  33. .. Human Security: Issues 1.28 1.14 1.14 2.09 3.09 3.82 4.52 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 2012 2013 2014 2015 2016 2017 2018 Deficit as % of GDP Prof Uche Uwaleke Presentation
  34. Selected economic indicators Key macro variables: sources NBS, CBN, DMO Inflation rate 16.63% (September 2021) Unemployment rate 33.3% (Q4 2020) Real GDP growth rate 5.01% (Q2 2021) Exchange rate N410.15/$1 (Official) Public Debt stock circa N35 Trn (Q2 2021) Prof Uche Uwaleke Presentation
  35. The Capital Market Prof Uche Uwaleke Presentation
  36. ..the capital market • Capital market is the market where medium and long terms finance can be raised. • Capital market enables companies to raise funds for expansion and the government for the provision of infrastructure. • This results in increase in productivity within the economy, more employment and hence growth and development. Prof Uche Uwaleke Presentation
  37. OVERVIEW OF THE NIGERIAN CAPITAL MARKET source: Uwaleke 2021 MoF SEC IST SROs/FMI -NSE FMDQ NASD AFEX NCX LCFE CSCS CMOS Trade Groups Investors Issuers Equities Bonds ETFs ABS Derivatives KEY MoF – Ministry of Finance SEC – Securities & Exchange Commission IST – Investment and Securities Tribunal SROs – Self Regulatory Organizations FMl – Financial Market Infrastructure NSE – Nigerian Stock Exchange FMDQ – Financial Market Dealers Quotation NASD – Natioal Association of Securities Dealers NCX – Nigerian Commodity Exchange LCFE – Lagos Commodity and Futures Exchange CSCS – Central Securities Clearing System CSOs – Capital Market Operators ETFs – Exchange Traded Funds ABS- Asset Backed Securities
  38. The Nigerian Exchange  Equities  Bonds  Exchange Traded Products FMDQ OTC Securities Exchange  Fixed Income  Money Market  Currency  Derivatives The Nigerian Commodity Exchange  Commodities (Spot) NASD OTC Securities Exchange  Unlisted Public Equities AFEX Commodities Exchange  Commodities (Spot) Exchanges ..OVERVIEW: NIGERIAN CAPITAL MARKET TRADING ECOSYSTEM Source: SEC 2019 Prof Uche Uwaleke Presentation
  39. Issues/Challenges of the exploiting the WOS Approach in the Nigerian Capital Market Prof Uche Uwaleke Presentation
  40. .. Challenges  Relatively low retail investors and MSME’s participation  Due in part to low capital market literacy level especially in the North East and South East regions of the country.  Weak commodity trading ecosystem  Issuer base concentrated and not diversified.  Shallow market: Small number of listed companies. Low market cap as a percentage of GDP.  Only 7 companies constituted 75% of total market cap on July 26 2021 Prof Uche Uwaleke Presentation
  41. .. Challenges : Market Concentration source: author’s adaptation Company Market capitalization N Trillion Percentage As at 26/07/2021 Dangote Cement 4.23 20.9% MTN 3.32 16.4% BUA Cement 2.41 12% Airtel Africa 2.31 11.4% Nestle 1.22 6.1% GTB 0.87 4.3% Zenith 0.78 3.9% Others 5.01 25% Total Mkt cap 20.15 100% 75% 25% High Cap Others
  42. .. Challenges Source: SEC 0 50 100 150 200 250 300 350 Market Capitalization% of GDP Prof Uche Uwaleke Presentation
  43. .. Challenges: ECONOMYIC SECTORS VIS-A-VIS STOCK MARKET source: SEC Sector Market Cap.(N'b) Sector Share in Market Cap. % Agriculture 171.88 0.82 Conglomerates 61.39 0.29 Construction/Real Estate 43.18 0.21 Consumer Goods 2,354.01 11.19 Financial Services 3,846.85 18.29 Healthcare 33.76 0.16 ICT 6,678.58 31.75 Industrial Goods 7,286.25 34.64 Natural Resources 6.69 0.03 Oil & Gas 457.11 2.17 Services 93.15 0.44 Total 21,032.84 100.00  Equities market cap at end of 2020 was N21.03trn.  Nigerian capital market concentrated in Industrial goods (34.64%), ICT (31.75%), Financial services (18.29%) & Consumer goods (11.19%).  However, the entire economy, as indicated by GDP is concentrated in Services (26%), Agriculture (25%), Industrial/Consumer goods (14%), Construction/Real estate (13.5%) and ICT (11%)  More companies still needed in the Nigerian capital market for it to be representative of the economy and contribute more to Nigerian growth and development. Over N3.1 Million companies registered by the CAC as at 2018 but only 160 companies on NGX, and less than 50 on NASD
  44. ..Challenges • Provision of capital market services still concentrated in a few major cities especially Lagos and Abuja • Low Mutual Fund penetration- only 441,267 CIS participants as of 31 December 2020 (SEC). • Nigeria has the highest population in Africa • Yet mutual fund asset as a percentage of GDP is the least in the continent at 0.35%. The highest value was in South Africa at 52.02% Prof Uche Uwaleke Presentation
  45. ..Challenges 52.02 31.7 2.13 0.35 0 10 20 30 40 50 60 SA Namibia Uganda Nig Mutual Fund Asset as % of GDP Prof Uche Uwaleke Presentation
  46. ..Challenge: small size of Infrastructure Bonds FGN DOMESTIC DEBT BY INSTRUMENT as at March 31 2021. Source: DMO FGN BONDS 75.48% Treasury Bills 15.77% Treasury Bonds 0.61% FGN Savings Bond 0.09% FGN SUKUK 2.20% GREEN BOND 0.16% Promissory Notes 5.69% Total 100% Prof Uche Uwaleke Presentation
  47. Capital market Pathways to economic sustainability for enhanced Human Security in Nigeria Prof Uche Uwaleke Presentation
  48. Pathways  The capital market can facilitate the financing of investments for the provision of basic services to the citizens.  Improving access to basic services such as water, power, health services and education is necessary to reach the SDGs and ensure human security  Whole-of-Society approach involves all stakeholders such as investors, regulators, government and non-state actors Prof Uche Uwaleke Presentation
  49. Pathways  Mutual Funds/Collective Investment Schemes  Private Equity/Venture Capital  Infrastructure, Green, Social and Sustainability Bonds  Asset Securitization  Privatization  Commodity Trading Ecosystem  Effective regulation  The WOS approach requires the collaboration of the public and private sectors in all these areas Prof Uche Uwaleke Presentation
  50. ..Pathway: Mutual Funds Mutual Funds • Mutual Funds (Collective Investment Schemes) pool funds from various investors for the purpose of investing in a portfolio of securities such as shares, bonds, treasury bills, etc • Mutual Funds (CIS) represent veritable channels of access to financial markets by low income earners. Private Equity/Venture Capital Private equity is capital invested in an entity that is not publicly listed. Venture capital is funding provided for startups or young businesses that show potential for long term growth often fueled by innovation. Technically, venture capital is a form of private equity, the latter being more interested in mature companies. Both have potential for driving MSMEs and creating jobs Prof Uche Uwaleke Presentation
  51. ..Pathway: Infrastructure Bonds Infrastructure Bonds  Use of infrastructure bonds tied to self-liquidating projects will reduce debt burden, free up amount spent on debt service for development purposes.  Sukuk is a good example of an infrastructure bond Green Bonds  Green bonds are devoted to financing new and existing projects or activities with positive environmental impacts such as renewable energy, clean transportation and waste management. Prof Uche Uwaleke Presentation
  52. ..Pathway: Social Bonds Social Bonds  These are issued to finance social projects or activities that achieve positive social outcomes and/or address a social issue. In many cases, social projects are aimed at target populations such as those living below the poverty line, marginalized communities, migrants, unemployed, women and/or sexual and gender minorities, people with disabilities, and displaced persons.  Examples of project categories eligible for social bonds include: food security and sustainable food systems, affordable housing, access to essential services and affordable basic infrastructure Prof Uche Uwaleke Presentation
  53. ..Pathway: Asset Securitization • Asset Backed Securitization is the issuance of marketable securities backed by the expected cash flows from specific assets • The seller of the assets called the originator sells receivables (an asset or a flow of future receipts) to a Special Purpose Vehicle (SPV) established to isolate the receivables. • The SPV finances the purchase of receivables by issuing securities to investors. Using the cash flow generated by the asset, the SPV reimburses the investors, any residual is given back to the originator. • Securitization is a good way to finance viable projects Prof Uche Uwaleke Presentation
  54. ..Pathway: Privatization Privatization promotes Human Security. Sale of government assets through the Stock Exchange brings many benefits including:  Increase in government revenue  Reduction in wastes  Transparency and Accountability  Improved Corporate governance  Enhanced service delivery Prof Uche Uwaleke Presentation
  55. ..Pathway: Commodity Trading Ecosystem Commodity Trading Ecosystem The Agric and Solid minerals sector can be developed through Commodity Exchanges. Commodity Exchanges aid economic growth and development via:  Standardized and graded products  Price discovery  Market liquidity  Risk-sharing  Collection and dissemination of market information
  56. … Pathway: Effective Regulation • Effective capital market regulation boosts investor confidence and makes the market more attractive to members of the society.  Effective regulation is enhanced by deploying technology (Regtech) in order to be proactive  It also entails effective education of opportunities and risks in the capital market in order to increase participation of members of the Society. Prof Uche Uwaleke Presentation
  57. Conclusion • Human security emerged as a challenge to ideas of traditional security which emphasize freedom from physical threats. • Human security and the capital market are interconnected as both ultimately seek material well being of members of a society. • Like everything else, the achievement of human security requires money. A capital market WOS approach is about the interaction of public and private actors in mobilizing long term funds to tackle the different dimensions of sustainable development – economic, social and environmental Prof Uche Uwaleke Presentation
  58. Signing off- Motivational Quotes • “Be a student as long as you still have something to learn and this will mean all your life” – Henry Doherty • Life has two Rules (1) Never Quit (2) Always remember Rule 1 – Unknown author Prof Uche Uwaleke Presentation
  59. Prof Uche Uwaleke Presentation
  60. References  Adesola F. (2007) ‘’National Security, Democratization and the menace of ethnic militia in Nigeria’’ West African Review, issue 11  Ndanusa S. A (2018) ‘’Impact of Macroeconomic policies on economic security in Nigeria’’ Unpublished PhD Thesis on Security and Strategic Studies  Tadjbakhsh & Chenoy (2006), Human Security: Concepts and implications, Routledge  United Nations Development Programme (1994): Human Development Report  World Bank Reports, various issues  ………………………….. Resources  Websites of CBN, SEC, DMO, NBS, BudIT, Budget Office, ProShareng, GlobalEconomy, Macrotrend Prof Uche Uwaleke Presentation

Editor's Notes

  1. Source: DMO
  2. NB: (1) Three other commodity Exchanges have recently been licensed by the SEC. These include the (1) Lagos Commodities and Futures Exchange (2) Gezawa Commodity Exchange Kano and (3) Prime Commodities Exchange, Kano. (2) Following demutualization concluded recently, the Nigerian Stock Exchange now has a holding structure known as the Nigerian Exchange (NGX) Group
  3. Source: