Raising Capital: Why the Stock Exchange May be Good Choice for SMEs
By Timi Olubiyi, PhD
According to the World Bank, formal Small and Medium Enterprises (SMEs) contribute up to 60 per cent of total employment, and up to 40 per cent of national income (GDP) in emerging economies.
A common outcome of research and discussions on SMEs is that this form of business plays a crucial role in promoting economic development, especially on the African continent where SMEs have remained critical contributors to employment and economic activities.
However, these SMEs face a financing gap and the challenge of access to capital, which restricts their economic prosperity.
From context observation, these SMEs largely ponder with questions such as “should we take a bank loan, or should we consider other alternatives for funding and credits?”
If this sort of thought applies to you, then this piece is for you, take out time to read through.
Furthermore, for those that are not aware of the benefits listing on the stock exchange portends, this piece will be of use as well.
World over, SME operators primarily depend on bank loans or government schemes for financing. More so, SMEs have a heavy dependence on debt rather than equity in their business operations. Therefore, the need to bring awareness to the diversification of funding sources is necessary.
The capital market is critical to a country’s economic development and a distinct alternative to traditional bank lending and financing. If accessed, it can provide a cost-effective medium- to long-term finance for SMEs including large corporations and multinationals.
Though many non-bank financing alternatives such as financial leasing, private equity (including angel investing and venture capital), and crowd-funding are all other forms of financing which businesses may use at various stages of their life cycle, however they are not as easily accessible as the stock market.
Importantly, SME listing on stock exchanges will add significantly to the creation and distribution of wealth in any economy. However, firms may list on a stock exchange for a variety of financial and non-financial reasons.
Evidently, the recent crisis with the novel coronavirus pandemic and the looming recession has revealed that bank financing is not a reliable source of long-term financing.
Agreeably, long-term financing is an essential element for supporting investment and growth at this time, for any business. Hence, the stock market is the best way to have access to a meaningful impact.
Bank loans might either be too expensive or not even an option for most SMEs at this time because of bank stringent measures which often require assets to back the loans.
Access to long-term financing enables SMEs to solve their financing needs over the long term and this has a positive effect on economic growth and employment generation.
The stock market can provide this and have always played a role in bringing together those with savings to invest and those who need capital, thereby supporting economic growth.
The stock exchange can be the most appropriate form of acquiring long-term financing for structured SMEs and the cost of equity capital can be lower than other forms of finance particularly bank loans.
The stock market’s capital allocation role, which means that the exchange provides channels for financial intermediation between investors and issuer (listed companies), which creates an opportunity for SMEs.
Businesses do not need to be a conglomerate or multinational to be listed on the stock exchange. In fact, there are trading platforms tailored to the needs and capabilities of SMEs.
Many countries in the world allow SMEs to raise funds from the capital market and have SME platforms such as the Alternative Investment Market in the UK for instance.
In Africa, SME board also exist on some exchanges on the continent; namely Botswana (BSE); Casablanca, Morocco (CSE); Douala, Cameroon (DSX); Egypt (ESX); Johannesburg, South Africa (JSE); Nairobi, Kenya (NSE); Lusaka, Zambia (LuSE); Mauritius (SEM); Mozambique (BVM); Alternative Securities Market (ASeM) (recently remodelled to become Growth Board) in Nigeria (NSE); Seychelles (Trop-X) and Swaziland (SSX) amongst others.
One key difference on these platforms is the requirements for listing which vary across the exchanges. Significantly, listing requirements for SME boards are usually more relaxed compared to the main trading boards, this is done with the aim of cutting barriers and encouraging SMEs to list.
The SME board is a segment of the stock exchange, dedicated to trading the shares/securities of SMEs, who otherwise find it difficult to get listed on the main board of the exchange due to stringent listing requirements.
In Nigeria, the Alternative Securities Market (ASeM) trading platform helps small and growing companies to raise funds and it is different from the premium and main platform of the stock exchange. The platform is strictly for SMEs and the platform is characterized by lower attractive listing requirements and reduced listing costs than the mainboard. Simply put, it can be adjudged a second-tier listing alternative which provides the opportunity for SMEs to raise long-term capital at relatively low cost from the capital market.
Businesses can raise funds directly on the stock market when they list. In Nigeria, for instance, there are no limits to the amount of capital companies can raise on ASeM trading platform of the Nigerian Stock Exchange, as long as it is in line with other regulatory requirements, such as those of the Corporate Affairs Commission (CAC) and the Securities and Exchange Commission (SEC).
Whether or not they raise funds upon listing, listed firms may also be able to tap other sources of finance more easily than similar, unlisted firms.
This is because the process of listing requires firms to meet strict financial reporting and corporate governance requirements. Therefore, meeting these standards improve accounting practices and financial management, thereby increasing firms’ transparency and potentially improving their creditworthiness out there.
It is important to state that a Stock Exchange listing offers the following benefits to SMEs: firstly, it will provide a clear price for the shares and a valuation of the business once listed, it gives businesses access to a wider potential investor base and access to long term capital for growth and expansion. Recall, one of the most important reasons firms list is to increase their access to finance.
Moreover, listing does encourage good corporate governance culture from the listed companies. It can also raise the company’s public profile with customers, suppliers, investors, financial institutions and it can majorly help SMEs with international business conducts, particularly with the company perception and prestige. Like all businesses, SMEs need capital to start up and keep going until they become profitable, once listed SMEs can have access to fundraising as required.
In order to make listings more attractive, however, government, regulators, and policymakers should consider policy responses to encourage more listing, further lowering listing requirements to encourage more participation in the capital market.
Furthermore, regulators can reduce transaction and listing costs so that more SMEs will be attracted to the market and make the space wider.
Also, to deepen market participation, it is recommended that government agencies, which regulate the market, should organize promotional campaigns, public seminars, and conferences to increasing public awareness and to address potential drawbacks of SMEs from listing.
The point of note is that to improve the responsiveness of SMEs to listing and its ample benefits, government intervention is necessary. Therefore, the post-COVID-19 regulatory regime should involve consistent and coordinated policy responses and pronouncement to assist and encourage SMEs to list on the stock exchange, this will, in turn, improve foreign market participation, boost the economy, and also advance market confidence.
SMEs can only grow and contribute positively to economic growth and development if they are well supported by Government and regulatory institutions.
Therefore, attention should be given to this significant sector of the economy that is increasingly faced with the problem of high cost of production, lack of access to funding and threat to business survival. More businesses will strive and more jobs will be created with policies and regulations that can drive and aid access to capital and SME growth in the country.
Globally, SME’s are substantially the major employer of labour, an avenue for wealth creation, and sustainable economic development. Therefore, for many businesses seeking funding to remain viable is crucial, consequently, an alternative source of funding can be accessed through listing on the Stock Exchange, even though is likely to be a long-term objective.
It should be seriously considered as part of the company’s strategy post-COVID-19, particularly as it relates to business funding and credits. More so the survival of small and medium-scale enterprises with access to capital is key at this time.
It is very convenient to list on the stock exchange but many SMEs have difficulty in arranging the listing requirements, meet legal and regulatory frameworks, and so on.
Getting or finding advisors to prepare these requirements for listing on an exchange might just be reasonable. If you are concerned or interested in benefits listing on the stock exchange can provide, you may need to urgently reach out to a professional for essential advice. Good luck!
How may you obtain advice or further information on the article?
Dr Timi Olubiyi is an Entrepreneurship and Business Management expert with a PhD in Business Administration from Babcock University Nigeria. He is a prolific investment coach, seasoned scholar, Chartered Member of the Chartered Institute for Securities & Investment (CISI), and Securities and Exchange Commission (SEC) registered capital market operator. He can be reached on the Twitter handle @drtimiolubiyi and via email: email@example.com, for any questions, reactions, and comments.
Misunderstanding the Nigerian Understanding
By Prince Charles Dickson PhD
“Misunderstanding the understanding” can refer to a situation where someone fails to comprehend or interpret a concept, idea, or situation correctly, despite believing that they have understood it. This can occur due to various reasons such as cognitive biases, lack of knowledge or experience, miscommunication, cultural differences, or preconceived notions.
For example, imagine a person from one culture trying to understand a complex concept or idea from another culture. Even if they have the best intentions and have studied the concept extensively, they may still misunderstand it due to differences in language, values, or beliefs. This can lead to misinterpretations and miscommunications that can create confusion and misunderstanding.
Another example could be in a professional setting where a manager provides instructions to an employee, but the employee may not fully understand the instructions due to different interpretations or assumptions. The employee may then carry out the task incorrectly, leading to errors and inefficiencies.
In order to avoid “misunderstanding the understanding,” it is important to maintain open communication, clarify concepts and ideas, and be aware of potential biases or assumptions that may affect the interpretation of information. Additionally, seeking feedback and asking questions can help ensure that everyone is on the same page and that there is a shared understanding of the information at hand.
We cannot do the last paragraph above because elsewhere the police say freeze when they want to arrest you, but in Nigeria, we say ‘hold it’. The people that say hold it is the same people that, by the time you are reading this, would have settled whether Vivor of Lagos is Igbo or Yoruba. They are the same group of people that will remind you that Murtala Muhammed was from Edo or one-time Vice President Sambo is from Agenebode.
If you understand the misunderstanding, one time, an Eboni man was told that he could not be governor in Enugu, the same way Bianca Ojukwu was once told by the family of Ojukwu she could not be a senator in Anambra state.
We are a people that are no different from our politicians, who are dealers rather than leaders, so it is difficult to understand the difference because we are consciously misunderstanding, no Minister’s kid is looking for a job, and no governor’s brother is jobless. No local government chairman has an issue with getting his sister a job.
The political class don’t know that there’s no electricity, because Rimi road, Adeoye crescent, and Mbakwe close all have houses powered by big generators.
While we battle our misunderstanding, the fact is that we don’t understand the pain of a family whose substantial monthly income goes to purchasing cooking oil (kerosene) or gas.
We believe that the earth is chasing us, so where did we put our feet while running? I was once told that the fowl on a journey inside the basket does not know where it will end.
You need to understand the misunderstanding that the Nigerian dream is that you steal much and even more because if you are caught, you need money to settle all the steps of the staircase, police, lawyers, and more. At the court, you seek a restraining order and restrain anybody from arresting or investigating you. You pay a handful to protest that you’re being persecuted because of your faith or creed…do you understand, or are you being misunderstood?
Stealing government money is no big deal; it’s a dream, after all, we have erroneously insisted it is everybody’s money. If you do not want to steal, your people will mock you, in fact, as you aspire, the past records of looting by your predecessor are packaged in phrases such as ‘see the house he built for his mother’, ‘how he buried his father’, and ‘he managed to build us a small clinic too’, ‘it is our turn’, ‘you must put our people in position’, and these are misunderstandings that must be understood.
The Nigerian dream is to have your cough treated in Germany, your kids’ school in heaven knows where, and get all sorts of awards and titles, from the Baba Adini of Adiniland to an honorary degree from a one-storey building college in Maputo, that is after being knighted by one of the numerous churches, countless lesser and higher hajj, and it is all ‘you either understand or you misunderstand’.
The United Kingdom has a Hindu prime minister of Indian descent and a Muslim mayor of London of Pakistani descent. Jeremy Hunt, who is currently Chancellor of the Exchequer, when was foreign secretary, referred to his Chinese wife as Japanese during a visit to Beijing to discuss post-Brexit trade deals between the UK and China. We do not understand that true diversity is about disrupting the status quo, not enforcing it with zeal. In Nigeria, it is a different story.
How do we understand the misunderstanding in Lagos, the Igbo and Yoruba drama, as in the real deal is our dichotomy is not a subject within the shores of this nation that one talks about without understanding; it evokes a lot of passion from the heated arguments which it generates, everyone holding dear to their values, and idiosyncrasies. A lot has been written on old perspectives, likewise, new viewpoints; after the elections, we go back into the cocoon, and the differences remain and are not tackled.
In our misunderstanding, we think of easterners, westerners, northerners, and middle belters, all depending on the turn of events. In our sensationalism, we have, in every sense, approached most problems sectionally, thereby creating all kinds of unnecessary petty-cultural-ethnic-religious-paranoia and bourgeois mentality in dealing with our national issues.
There is an ideology of hatred, one that props up again and again, Lagos in the West, Anambra in the East, North vs South, Muslims vs Christians. This is a factor that reactionary elements within the system use in battling the progressives. The misunderstanding in the understanding, which really borrows a lot from bourgeois theories, which essentially is directed at confusing our intellect, like we try to argue within the parameters of “anti-class theory”, “theory of development”, “take off theory”,, “theory of cooperation”, “theory of external push”, “end of ideology theory”, “convergence theory”, “the theory of the periphery in the periphery”.
Wonderful sociological concepts that do very little to help us shift in the way of progress because only a few theories work for us…” the theory of corruption”, “the theory of bad governance”, “chop I chop theory”, and “killing for god theory”, “WIKE”, “Obi, and Elu Pee theory”, “Balablu theory” and now the “BVAS theory”. Do you understand, or you misunderstood me?
Interestingly and constructively, when we fulfil the Nigerian dream-like stealing, we have no religion, no tribe, and no fights; all is good so long it ends well, we only fight when one attempts to out steal the other. It is the misunderstanding that we do not understand, and we never will until the ordinary Nigerian becomes the focal point, it will almost never work. The dream for a better, strong and virile nation lies in our hands. Sadly, we refuse to understand it and choose to misunderstand the difference, we continue in our wild goose chase till when—only time will tell.
Democracy, Economy: How to Understand Intertribal Conflicts in Africa
By Nneka Okumazie
It is often puzzling to watch two weak people engage in a fight of mostly rare necessity. There are often reasons. Different sides deploy different tools, but they contend over what should possibly be avoided. They most certainly become weaker subsequently.
For some, the objective is that when something else is added, they become stronger. However, conquest alone does not guarantee a change in strength, so weakness remains, even when they don’t think so.
In Africa, there have been intertribal conflicts for decades across different locations, but there is hardly any conflict between the peoples of Africa that is about the future. There is always something immediate or some form of possession as the purpose, but it is never about the future.
Tribe, race or ethnicity is not what is important for a people that desire true progress. The origin may be a useful community but that origin, religion or whatever else weak people take pride in as the first thing leaves them below progress, at a time of excellent progress from other places around the world.
For all the resources that countries in Africa list, what is absolutely irreplaceable or which ones do the existence of the world depend on, that are excluded from there? How did they also find out that these are resources, or have they always been needed?
There are tribes, places and resources in Africa that are not as exciting as some new technology in the world, because of the promise, yet the people fight and lengthen hate.
The governments in Africa are powerful because the people are mostly beneath their government. Many structures of power in Africa in modern times are mostly from other places. The people within have been unable to drive alternative structures that would be powerful enough to earn the respect or boundaries of government.
Governments in Africa are as powerful as their people are weak. Protest, election, advocacy, politics, tribe, religion, complaint, press, education, business, law, criticism, and whatever else are unable to match the crazy behaviour of their governments. There are tools that governments in Africa cannot live without at present that did not come from Africa. African governments are not more powerful than those external tools, yet their people seek change from weakness.
There are tribes in Africa in power more than others, but it is of no use to the development of their people. There are tribes that are considerably wealthier than others but worthless to their people. There are others with good locations and education but are useless to their people.
The interest of someone in some place trying to have a nice time can hardly be advanced as a group. The determination to make the future different from the past does not exist in the people. The shame they should have as a people for where they are, to organize with superior methods to emerge into an advantage is not there. Tribes in Africa want to stay weak, so their fights are never about the future.
[Judges 20:16, Among all these people, there were seven hundred chosen men lefthanded; every one could sling stones at a hair breadth, and not miss.]
Maintaining Nigeria’s Momentum in the Fight Against Maritime Criminality
By Musa Ilallah
2023 kicked off on a significant note for the Nigerian Navy, with the hosting by Nigeria of Exercise Obangame Express 2023, the largest multinational maritime exercise in Western and Central Africa, in collaboration with the US Africa Command and the US Naval Forces Europe and Africa.
This year’s edition featured 32 countries from the Gulf of Guinea and beyond, coming together to “improve regional cooperation, information-sharing practices, and tactical interdiction expertise.”
At the beginning of March, barely a month after the end of Exercise Obangame Express 2023, Nigeria commemorated one year since the International Maritime Bureau (IMB) announced the country’s exit from the Global List of Piracy-prone countries. This feat came as a welcome follow-up to the IMB’s Global Piracy Report of July 2021, which indicated that Nigeria had recorded its lowest number of piracy and sea robbery against ships attacks in 27 years.
These remarkable milestones were the culmination of unprecedented naval and maritime security investments by the Buhari administration through such initiatives as the Falcon Eye Maritime Domain Awareness System, commissioned by President Buhari in 2021, and the acquisition of several new platforms, including a brand-new Hydrographic Survey Ship, NNS LANA, as well as a new Warship, the Landing Ship Tank (LST) NNS KADA, whose inaugural operational assignment was a mission to Guinea Bissau to support the ECOWAS Stabilization Force there, in August 2022.
Two brand-new Seaward Defense Boats (SDBs) are currently under construction by the Naval Dockyard Limited in Lagos, while, in September 2022, the keel-laying ceremony of two 76-metre Offshore Patrol Vessels (OPVs) took place in Turkey.
Weeks after the March 2022 IMB announcement on Nigeria exiting the Piracy List, the Nigerian Navy launched one of its biggest operations in years, Operation Dakatar Da Barawo, aimed at curbing crude oil theft and vandalism in the creeks of the Niger Delta.
The Operation, launched in partnership with the Nigerian National Petroleum Company (NNPC) Limited, has since begun yielding fruit. So far, well over N80 billion worth of stolen petroleum products have been seized or recovered, with hundreds of arrests made.
Importantly, oil production, which had been declining since the start of 2022, reversed course and began climbing steadily from October, a feat that has been roundly commended by all stakeholders.
Speaking on this, the Minister of State for Petroleum, Timipre Sylva, said, “I am happy to announce that there is a significant improvement in crude oil production, with both Nigerians and the international community acknowledging the improvement.”
The Chief of Naval Staff, Vice Admiral Awwal Zubairu Gambo, has consistently stated his determination to achieve this goal and has expressed gratitude to President Buhari for providing the wherewithal and the resources to record the significant progress being recorded in the fight against maritime piracy and criminality.
One of the high points of the fight against maritime criminality was the interception, in August 2022, of a Very Large Crude Carrier (VLCC), the MT Heroic Idun, a timely action that helped abort unauthorized entry into a producing Nigerian oilfield.
Working with Nigeria’s regional partners, through the Yaoundé Architecture, a Gulf of Guinea maritime safety and security coordinating mechanism covering 19 countries, the Nigerian Navy successfully alerted Equatorial Guinea to arrest the vessel, which had by then fled into the country’s waters.
Interestingly, the West Africa Regional Maritime Safety Centre (CRESMAO), based in Abidjan, Côte d’Ivoire, and the ECOWAS Multinational Maritime Coordination Centre (MMCC) Zone E (covering Nigeria, Benin, Niger, and Togo), two critical operations centres within the Yaounde Architecture, are currently headed by Nigerian Naval Officers.
Following the arrest and investigations by the government of Equatorial Guinea, the ship owners paid a substantial fine, after which it was handed over to the Nigerian Navy and duly repatriated to Nigeria to face justice. The case is currently being tried by a Federal High Court in Port Harcourt.
MT Heroic Idun is the most high-profile of a number of rogue vessels arrested by the Nigerian Navy in 2022. According to the Chief of Naval Staff, Vice Admiral Gambo, “The arrest of MT Heroic Idun will serve as a deterrent to those who are stealing our crude.”
But, of course, the arrest and trial have not come without resistance from the powerful owners and elements behind the VLCC. They have been waging a vicious international propaganda campaign against the Nigerian Government and the Nigerian Navy. But the Chief of Naval Staff has made it very clear that he will not be deterred and that justice will take its due and transparent course through the Nigerian legal system.
Nigeria’s hosting of Obangame Express, to kick off 2023, is a testament to the Nigerian Navy’s determined efforts at advancing regional and multinational cooperation to achieve its objectives of securing, in a holistic and sustainable manner, Nigeria’s maritime environment and the wider Gulf of Guinea.
It is this unwavering commitment to partnership that saw the CNS and Naval Headquarters host, at the Naval Headquarters in Abuja, delegations from the European Union, China National Aero-Technology Import and Export Corporation, Defense Academy of UK, the African Union, International Seabed Authority (ISA), European Security Academy, Italian Defense firm, Leonardo; the United States Navy Office of Security Cooperation, among many others.
The CNS, also, in this spirit of partnership and engagement, attended Euro-Naval 2022, the Sixth Symposium of Chiefs of Staff of Navies of the Gulf of Guinea in Paris, France, and the XIII Trans-Regional Sea-Power Symposium in Venice, Italy, among others.
In October 2022, President Buhari awarded him the National Honour of Commander of the Federal Republic (CFR), and a month later, he was in Banjul, Gambia, to receive the Award of Most Outstanding Naval Chief in Africa, presented at the 17th Edition of the Africa Security Watch Awards and Conference (ASWAC).
In 2023, the partnerships are set to continue, and Obangame Express 2023 is just the beginning. Speaking at the closing ceremony on February 3, 2023, Vice Admiral Gambo noted, memorably, “Coming together is a beginning, staying together is progress, and working together is a success.”
Musa Ilallah writes from Abuja, Nigeria
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