Unlock investment opportunities in the Nigerian capital market through PIA


Through Chinwendu Obienyi

For For many years, Nigeria has been ranked globally as the apt illustration of a nation suffering from the resource curse problem.

So, in a bid to break away from the resource curse classification, attempts have been made to improve the Nigerian oil and gas legal framework to spur real growth and development.

Specifically in February 2021, when the National Assembly ensured the rapid adoption of GDP, there was a slight uptick in the NGX index for oil and gas. On July 21, 2021, there was a drop because it was expected that the GDP would pass by then and because that didn’t happen, the index went down. In August 2021, the sector also saw a sustained recovery when the President approved the bill.

So when the Petroleum Industry Act (PIA) was signed into law by President Muhammadu Buhari on August 16, 2021, it ended several years of uncertainty and stagnation in the petroleum industry and the market responded well. at the news.

Indeed, the PIA provides a legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, host community development and related matters. Thanks to this, the oil and gas industry now has a legal, governance, regulatory and fiscal framework.

However, Nigeria lost over $50 billion in investments due to the delay in enacting the PIA and this was due to uncertainty. In fact, the US Energy Information Administration has estimated that Nigeria is losing over $15 billion a year due to the delay in adopting the PIA.

But now that the PIA has been passed, the question is what opportunities can the Nigerian Capital Market (NCM) tap into?

Well, the Securities and Exchange Commission (SEC), in a document titled; The Petroleum Industry Bill (PIB) and the NCM, explained that the adoption of the GDP is expected to impact the national economy as well as the capital market by attracting institutional and retail investors as well as local and foreign issuers in the capital market.

According to the commission, this will in turn provide the necessary financing both on an interim basis (bridge financing) and on a long-term basis, thus making the capital market a real part of the financial system that contributes to economic growth and development.

Speaking further on the opportunities available to the capital market, the committee at the 25th Annual Conference of the Chartered Institute of the Stockbrokers (CIS) in Lagos recently said the new law has the potential to end decades of uncertainties about the future. oil and gas industry in Nigeria by providing a strong legal framework that would support the reforms needed to position the industry as an investment hub that could attract investors from around the world.

He said the emergence of a more structured industry would provide a level playing field which could attract massive foreign direct investment (FDI) into the country, promote competition which could result in a more efficient system, product choices and lower prices in the long term.

According to the commission, the outcome of the repositioning was expected to trigger domestic fundraising activities and boost the exchange’s primary market segment.

Securities and Exchange Commission (SEC) chief executive Lamido Yuguda said stockbrokers need to create viable innovative financial products that would support businesses, increase liquidity and market breadth if they were to unleash the potential of PIA.

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He argued that the capital market can channel assets into long-term productive investments such as critical infrastructure needed to unlock economic improvement and improve the living standards of our citizens.

Yuguda urged the IEC to ensure that its members continue to uphold high ethical standards in carrying out their fiduciary duties as trusted agents of investors.

“We must therefore rise to the challenge of working hard and doing whatever we must to attract investors to the market and engage in strategic discourse and advocacy with policymakers at all levels, to channel long-term funds to profitable cost recovery. infrastructure based.

Also speaking at the conference, Wale Ajayi, Partner, Energy & Natural Resources Tax of KPMG Nigeria, asserted that the PIA will present significant investment opportunities for regional and international stakeholders, especially at a time when the global energy sector is particularly competitive for foreigners. Capital city.

Ajayi pointed out that this would provide greater opportunities for the capital market as oil and gas players, looking to maximize gains from deregulation, are likely to approach the equity and fixed income market. to raise funds.

He expressed his optimism that the GDP shift would have a positive impact on the national economy as well as the capital market by attracting institutional and retail investors as well as local and foreign issuers to the capital market.

According to him, due to the challenges of the environmental, social and governance (ESG) agenda, it has become increasingly difficult for oil and gas players to raise funds for oil investment in mature markets.

Environment, social and governance (ESG) is a method of analyzing and reporting on how well a company serves all stakeholders, including workers, communities, customers, suppliers, shareholders and the environment.

ESG matters to the oil and gas industry, particularly as momentum continues to build to promote renewable energy, sustainability and the energy transition as investors, governments and individuals remain focused on issues such as climate change, labor standards, diversity and corporate governance.

Oil and gas companies have been implementing ESG strategies for years through emissions reductions, responsible water use and disposal, and research and development of renewable energy programs.

The current push to track and report on ESG programs is seen as an opportunity for oil and gas companies to promote, validate and grow these efforts.

Ajayi argued that local players who fail to meet this obligation are likely to turn to primary and secondary markets to expand their portfolio as they will find it extremely difficult to access capital in the international market.

Therefore, he underscored the need for the entire capital market ecosystem to be well positioned and take advantage of the opportunities of the Petroleum Industry Act.

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