Nigerian financier Sonnie Ayere reflects on the performance and outlook of African financial markets

After years of experience in corporate and structured finance, corporate banking and asset management at prestigious institutions such as HSBC Bank, NatWest Bank, Sumitomo Mitsui Bank, Bank of Montreal (BMO), Nesbitt Burns (the investment bank subsidiary of the Bank of Montreal), the International Finance Corporation (IFC), the United Bank of Africa, Sonnie Ayere founded Dunn Loren Merrifield in 2009. Under his leadership, Dunn Loren Merrifield associated the award for best debt house in 2011 and best investment bank in 2012. Mr. Ayere is a member of the Nigerian Bond Steering Committee, the SEC Committee on Market Structure and Reforms, the Steering Committee for Nigerian Inclusion and Securitization Law Review, FSS2020 Technical Steering Committee of the Central Bank of Nigeria (“CBN”). He holds an MA in Financial Economics from the University of Dundee, Scotland.

Sonnie Ayere  was awarded best CEO of the decade in 2020 and DLM Capital won “Innovative Investment Bank of the year 2020″ at the Business Day Financial Institutions Award. Business Day is Nigeria’s most read financial and business news publication.

In this exclusive interview, we return to the context of the Nigerian financial market and African financial markets. The all-stock index of the Nigerian Stock Exchange (NSE) closed 2020 with growth of 47.2%, its strongest increase since 2013, the best performance of the 93 stock indices tracked by Bloomberg. It was well worth an interview.

As a financial professional, what is your analysis of the performance of the Nigerian and African stocks market in 2020?

African stock markets performed in a manner reflective of frontier markets that had lost significant value over years of low patronage in favour of higher yielding flight to safety assets. This is due in part to lower commodity values from lower global demand, which has led to slower growth in the overall. Recovery in market vigour followed the fallout in Europe, Asia, and the Americas on the onset of the Covid-19 pandemic announcement.African stock markets largely surged over 2020; driven by a recovery stroke to the slow global growth attributed to the China US Trade War before the pandemic, and the slowdown in overall economic activity on a par with other countries following the assault of Covid-19. Investors mining for value found African financial assets at significant discount to world markets and evened up the differences. The low yield environment endeared retail and institutional investors in fixed income assets into equity investments within Nigeria as benchmark interest rates fell.

How do you explain that foreign investors remain cautious on the Nigerian financial market?

Nigeria’s financial markets have over the last two decades seen an exponential increase in activity in both the equity and bond markets. This increased activity has undoubtedly contributed to pressures on its currency. The Central Bank has gone back and forth on its communications over exchange rate controls to foreign investors and importers alike within Nigeria; and this typically hurts large investment positions within Nigeria or for Nigerian Securities as the concern relates to the ability of realizing trading profits without losing to forces due to demand and supply. The relatively low market depth threatens market activity; occasioned by low foreign currency reserves amongst African central Banks. With every cycle that sees a decline in commodity prices, it is characteristic to see a corresponding shrinkage in currency value for most African countries. Finally, whist the FMDQ OTC Currency Futures is a welcomed development for foreign investments, the fact that it settles in Naira still provides investors cause for concern.

Global financial markets are overflowing with liquidity at low rates. What should African economies do to take advantage of this windfall?

It is important for all players, governments, private sector; to participate in promoting investment opportunities within the African space. African industrialists, entrepreneurs and governments alike need to access capital in the long run to sustain growth. Given the current low interest regime, which is transient, portraying Africa as an investment destination to international investors remains of utmost importance. They need to be look properly at well-structured foreign direct investments that have more impact of the countries rather than portfolio investments. The same applies for short to medium-term and long-term needs capital market access for existing companies.

What comparison would you make as a good financier of the change policies of Nigeria and the franc zone?

Policies as related to the business environment within Nigeria differ from the CFA Franc zone in large part due to the autonomy of the Central Bank of Nigeria which is not aligned with external influence. In contrast to this, are the countries of Francophone West Africa, where autonomy does not fully feature with the monetary authority but, they enjoy stable inflation and zero currency depreciation. One could argue, that where having one’s domestic currency is a symbol of pride but, riddled with the pain of devaluation and continuous loss of value, the Francophone model or a variant thereof could be explored for close to a 100% stability.

We talk a lot about the single currency of ECOWAS and rarely about the interconnection of financial markets in the area. What are the benefits of a single financial market for the 15 countries?

The ECOWAS region has long promoted a single currency option for financial markets in the area. It is of importance for member states to be on a course of increasing economic integration between them. In matters of ownership and financial transaction, a common template must be arrived on which manages through the complexities of the diverse legal systems in agreements over different transactions across the region. The interconnection between financial markets and domestic economies in the region is low, there is no doubt about the growing significance of goods trading between member countries. There is room for increasing industrial activity and merchandise sales, both of which currently stand below potential. Capital raising efforts to scale business eases when running on a single currency. We expect this would open markets for access for a lot more participation; but not without addressing policies that would ease travel, goods trading conduct of business.

What would the ZLECAF (ACFTA) mean for a financial actor like you?

Instituting the African Continental Free Trade Area offers an era of new opportunities for financial intermediaries across the African space with specific focus on trade Finance to increase business transaction activities with the inclusion of SME businesses across the continent. The free movement of people across the continent will also help to significantly bridge the skills gap across the continent.

DLM Capital Group was created in 2009. What are the main services you offer?

DLM Capital Group is a premier Diversified Financial Institution with businesses covering consumer banking, corporate lending, Advisory, Securities Trading, Trustees, Nominees and Asset Management. Our clients stem from DFIs to the Federal Government of Nigeria, State Governments, Public and Private Companies, High Net Worth Individuals and more importantly, the average Nigerian.

How do you see the year 2021, beyond Covid-19 and the vaccine war?

The year 2021 marks the beginning of a coordinated response to the pandemic that struck the global economy. We see 2021 offering an era of new growth to otherwise challenged Industries and the past. What stands clear is that the businesses would evolve, driven by new growth sectors, technology and rationalisation or possible exits of whole companies or industries. We would like to focus on areas needing financing We expect the low-yield environment to provide for the short-term funding opportunities, the further development of credit markets across Nigeria.

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