CHAPTER ONE INTRODUCTION DEFINITION Stock exchange is a place where shares in companies or private individuals are bought and sold. Stockbroker is a person or organization that buys and sells stocks and share for other people. Stockholder is a person who owns stocks and shares in a business.
THE NIGERIAN ECONOMY The Federal Republic of Nigeria is the largest single geographic unit in Africa. The climate is tropical, with some variation between the south, which is cool and wet and the North, which is hot and dry. The country is highly populated with a census figure of over 100 million. Nigeria has over 400 ethnic groups with each group speaking a different dialect, however English is the official language of the people. The most important industry in Nigeria is the oil industry, which produces about 90 percent of the Federal Revenue. Nigeria recently adopted a democratic system of government since 1999 and presently headed by President Yar’adua.
LABOUR Nigeria has a relatively large work force, consisting of both skilled and unskilled . Skilled labour can be recruited through the employment exchange or through the registry of the Federal Ministry of Employment, Labour and Productivity. Recruitment can be done directly from the labour market, by the placement of advert on newspapers and magazines. All unions are affiliated with a central labour union. The Nigeria Labour Congress in 1991, the National Minimum Wage Act was revised and minimum wage of not less than N5,000 per month for every worker under its employment. This was recently reviewed to N3,500 for state and Federal governments. However, increases are subject to negotiations between employers and unions and are usually the employer’’ financial strength.
TRANSPORT Nigeria has 16 airports, 7 of which are of international standard. The most widely used airport is the Murtala Muhammed Airport in Lagos, about 16 are scheduled flights in Nigeria covering the international airports. Domestic flights are handled largely by Nigeria airways, a parastatal company, and about 14 domestic airlines. Most domestic flights operate on a “first come”, first served basis some private airlines allow pre-booking of flights.
SEAPORTS At present, Nigeria has 6 seaports namely Lagos, Warri, Port Harcourt, Calabar, Sapele, Koko. Unfortunately, the last three mentioned have not been doing exceptionally well because of low capacity utilization, especially since the onset of Nigeria’s economy problems. There are also two berthing terminals the Onne berthing term terminal and the Snake Island terminal.
ROADS Nigeria has extensive road network connecting most parts of the country. The roads connect all major commercial centres in the country. The defunct Petroleum Trust Fund (PTF) contributed largely towards the rehabilitation of urban roads and construction of feeder roads. The Nigerian Railway Corporation administers the Nigerian railway network. Unfortunately, the services of the Nigeria railway Corporation declined in recent times, however the Federal Government has awarded contract to foreign companies for the purpose of establishing a functional railway network.
MEDIA In Nigeria at present, there are over 18 major daily newspapers published everyday. They serve as a wide medium for advertisement and business connections. In addition there are also several weekly newspapers and monthly magazines most of which are published in English. A large selection of foreign newspapers and magazines are available in the country.
TELECOMMUNICATIONS The Nigeria telecommunications sector is gradually becoming vibrant with enough opportunities for private sector participants. At present the Nigerian Telecommunication PLC (NITEL), a parastatal of the Federal Government is responsible for internal telephone; telex, fax and telegraph services. Efforts have been made to digitized telephone system. Mobilize telecommunication has experienced tremendous growth since the introduction of the Global System for Mobile communication (GSM). The Government has indicated its intention to deregulate to allow competition, with the aim of running in it, a more efficient way. This is why NITEL has been one of the government parastatals to go up for privatization. Electricity and water supply are fast improving with the advert of the new democratic dispensation in government. The administration body for electricity is the Nigeria Electric Power Authority now PHCN is also one of the government parastatal embarked for privatization.
EDUCATION The Nigerian government recently adopted the 6-3-3-4 system of education. It is six years of elementary school, three years of secondary school, three years of high, four years of university education. A universal basic education programme aims at education. Primary school pupils at no cost at all is soon to be implemented by the government. There are number of international schools catering for various educational system including the America, British, French and Lebanese system. There are also universities spreading throughout the country that offer wide range of undergraduate and graduate courses. Foreign companies cannot do business in Nigeria a branch operation, it must take all steps necessary to obtain local incorporation of the Nigerian branch as a separate entity for that purpose. Joint ventures are not recognized as legal foreign investment requirement as required to approval of the industrial development coordinator committee. A co-operation wholly or partially formed with foreign investment minimum must have a capital base substantially higher than that required for wholly Nigerian companies, certain approved activities of foreign entities may be granted exemption as a requirement for incorporation in Nigeria.
FORMS OF BUSINESS ENTERPRISE Company: Formed by incorporation of under the companies and allied matters Act company could be incorporated as either a public or private company. Every company incorporated outside Nigeria. Whether before or after the 1990 act that intends to carry on business in Nigeria must take all steps necessary to incorporate as a separate entity in Nigeria for the purpose, otherwise such incorporated company may not carry on business in Nigeria formation procedures includes companies association, particulars of directors, statement of authorized share capital and declaration by legal practitioner stating that all requirements have been complied. Capital structure: minimum authorized share capital must not be less than N10 for private companies and N500 for public companies. The minimum capital paid by a company in which a foreigner cn invest is 2 million. Partnership: An investor to operate through a partnership without unlimited personal liability of a general partner, a limited partnership may be foreign investors who intends to do business in Nigeria through a partner, within partnership agreement should form the partnership. The agreement should include the name and purpose of the business. Capital contribution of the partnership, profit and loss, management structure partners powers and dissolution. Capital Structure: There is no minimum capital requirement for the establishment of partnership formation procedures; the firm name must be registered. Also the names of all the partners must be shown on all particulars, letter heads a formal documents relating to the firm. Joint Venture: there is no regulatory legislation on joint ventures as there is for sole and partnership. A joint venture is therefore not a legal entity and only the provisional agreement distinguished a joint venture from a partnership. Under the Company and Allied Decree 1990, a foreign company may not operate in Nigeria as a joint venture unless an exemption from local incorporation has been granted this in case the foreign company can only be a shareholder in a local company for the purpose of the joint venture.
FOREIGN SHARE OWNERSHIP Under the Nigerian investment Promotion Commission Decree No. 16 of 1995, Nigerian Company or individual can easily buy shares of any Nigerian company. Shares can be bought through the Nigerian Stock Exchange, while unquoted companies can be bought through the Securities and Exchange Commission (SEC) as well as by direct contact between the parties.
INVESTMENT INCENTIVES Restriction on foreign participation in Nigeria enterprises has been greatly reduced. Various exports linked incentives are now available. Restriction on capital allocation claimed by manufacturing companies has been removed. Various tax incentives are available. Removal of restriction on repatriation of dividends has been introduced.
OIL INDUSTRY Petroleum is currently the mainstay of the Nigeria economy. In 1992, the total Government revenue from both oil and non-oil sectors amounted to N139 billion, oil sector alone was N115 billion, representing 83.2% of the total revenue.
INVESTMENT OPPORTUNITIES This includes exploration and production seismic data acquisition and interpretation. Geological wire line logging, core analysis, surveying, geodetic control establishment and sea bottom survey. Civil works, site survey, preparation of drilling locations construction of access roads to drilling location supply of cement, chemicals operations, drilling and work over rigs, field transportation and crude oil storage are areas of investment opportunities. A period of 5 – 8 years is required for investment in the core activities of the upstream (i.e. exploration, discovery and extraction etc) to mature into crude oil lifting.
BANKING AND FINANCE Most banks in Nigeria fall into one of these 3 categories; commercial, merchant and development banks. The legal framework within which banks operate in Nigeria is defined in and other Finance Institutions Decree (BOF ID) No. 25 of 1991 as amended the Central Bank of Nigeria (CBN) formulates and issues annually the guidelines for operation of all banks. The minimum paid up capital requirement for both merchant and commercial banks in Nigeria is N500 million. The banking business can only be carried on in Nigeria by a company that is incorporated in the country after obtaining all necessary approvals and possess license issued under BOFID. The following documents will be required by the CBN for granting a banking license feasibility report of the proposed bank, a list of the shareholders, directors and officers of the proposed bank and their particulars, a draft copy of the Memorandum, Article of Association of the proposed bank, evidence of payments of minimum capital requirement, Document and reports as the CBN may from time to time direct.
AGRICUCLTURE The Nigeria government has realized the importance of agriculture and the need to expand its export base, it has therefore designed a number of economic incentives aimed at encouraging investment in the agriculture sector. The main crops available in Nigeria are: Cereals: wheat, millet, maize, rice, guinea, corn, grain legumes: cowpea, soya beans, groundnut green peas; Root Crops: Cassava, yam, cocoyam, sweet potato and nuts; Kolanuts, cashew nut, benniseed, groundnut fruits, and Vegetables: pineapple, avocado, banana,, orange, mango lemon, grape fruit, pepper, tomato industrial tobacco, kenaf, sugarcane, tree crops, cocoa, oil palm, coconut, coffee, tea, rubber, livestock farming and fishery are also practised in various parts of the country.
MANUFACTURING Manufacturing has continued to play an important role in Nigeria’s economy. The manufacturing sector have continued to rely on the imported raw materials because of indiscriminate policy of import substitution. Opportunities exist for new manufacturer to produce appropriate intermediate goods as an extension on the import substitution strategy. Further growth is expected in the paint and chemical, pharmaceutical, rubber, and electric goods industries also other sectors as the steel, metal products, machinery manufacturer and food processing industry are been gradually resuscitated.
IMPORT AND EXPORT Importation of goods from all countries is encouraged, however some specific goods are prohibited from being imported into the country. These goods include: Air pistal, counterfeit coin of any country; obscene articles, matches made with phosphorus cowries, meat vegetables unfit for human consumption, second hand clothing disguised in any form, silver or metal coin not legal tender in Nigeria, material that offend the religious views of any class of person in Nigeria spirits other than Swedish bitters, brandy, drugs and medical spirit, gin, rums, whisky, methylated spirits and perfumed spirits, weapons of any description designed for the discharge of liquid, gas or similar substance. The principal taxes in Nigeria are companies income tax, personal income tax, capital tax, petroleum profit tax and value added tax.
PERSONAL INCOME TAX The personal income tax decree No. 104 of 1993 as amended regulates the payment personal income tax throughout the federation and established the procedure for determining the total income of a tax payer for tax purposes. The decree provide the amount that shall be payable each year upon income accruing in, derived from, brought into for persons resident in Nigeria such as salaries, investments income, dividend, rents, royalties and director fees. A person is deemed to be resident to Nigeria if he is resident in the country for a period amounting to 183 days in any 12 months period. Expartriates holding Nigerian residence permits are liable to pay tax even if they resides in the country for less than 183 days in any 12 months period.
COMPANY INCOME TAX In Nigeria, tax is payable for each of the assessed profit of any company accruing in derived forms from, bought into or received in Nigeria in respect of all known income. On the other hand, the profits of a non-Nigerian company are deemed to accrue from Nigeria if: that company have a fixed base of business in the country, the profit is attributed to the fixed base. The foreign company operates in trade through a person in Nigeria authorized to conclude contracts on its behalf. Company income tax rate is currently 30% of all companies are required to file their fax returns self assessment basis within 6 months from the end of its accounting period. In new companies the returns can be filed within 18 months from the date of the income months, after its first accounting period. Whichever occurs first. A non-resident company is required to file its annual tax return using both the normal basis and the deemed assessment.
VALUE ADDED TAX The Value Added Tax Decree 102 imposes a value added tax of 5% on all taxable goods and services as defined by the decree. The VAT rate is 5% and 17 categories of goods and 24 categories of services including some banking sector. Goods are however exempted from VAT. These include: Medical and pharmaceutical products; Basic food items, Books, baby products, Commercial vehicles, House rents, Spark parts, transaction of community banks.
TAX TREATIES Nigeria presently has double taxation treaties with the UK, France, Netherlands, Belgium, Pakistan, Canada and Romania. Under the treaties each country allowed taxes paid in the other country.
PETROLEUM PROFITS TAX Petroleum profits tax is imposed on the profit of all companies operating in Nigeria or foreign companies that are on their own account in petroleum operations in Nigeria. Tax is levied on the profits of a petroleum company at the 85% on crude oil exploration and production activities. The government offers a guaranteed minimum profit margin after tax royalties.
BUSINESS HOURS Business hours vary from institution to institution, however, the norm is 40 hours working period. The following are the working hours of various institutions: 8am – 5pm. Government offices: 7.30am – 3.30pm, Private offices: 8am – 5pm Banks open for operation on Saturdays. However,, government offices and most offices are closed on Saturday and private offices are closed on Saturdays too.
PUBLIC HOLIDAYS The public holidays in Nigeria are as follows: New Year’s day (1 January) every Malud (variable day) Easter Monday (Variable date) Fitri (variable date) Id-el-Kabir (variable date) Labour Day (1 May) every year Independence Day (1 October every year) Christmas Day (25 December) every year Boxing Day (26 December).
HOTEL ACCOMMODATION There are a number of hotels available in the country. Listed below are some of these hotels in Abuja and Lagos: Abuja/Lagos (Nicon Hilton Hotel) Lagos Sheraton Maitama District. Sheraton Hotel and Towers Federal Palace Hotels Ladi Kwali Way Ahmadu Bellow, Maitama, Abuja.
OBJECTIVE OF THE STUDY The objective of this study is to the role of banks in the Nigerian Stock Market. To this end, the author has presented the economy as it is and would like to review some banks that have something to offer to the economy and the stock market.
SIGNIFICANCE OF THE STUDY The study will provide information to bankers, government, researcher and investors alike.
SCOPE OF THE STUDY The study is limited to some quoted banks in the stock market. It is also limited to their recent operational contributions to the Nigerian economy as quoted companies.
LIMITATION OF THE STUDY The study is limited to the fact that it could not cover all the banks in Nigeria. This could involve huge financial costs and time.