Unlocking investment opportunities in Nigeria’s capital market via PIA

By Chinwendu Obienyi 

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

So, in a bid to break loose from the resource curse classification, attempts had been made to upgrade the Nigerian oil and gas legal framework to boost real growth and development.

Specifically in February 2021, when the National Assembly assured speedy passage of the PIB, there was a slight uptick in the NGX index for oil and gas. By July 21, 2021, there was a dip because it was expected the PIB should be passed by then and because it did not happen, the index went down. In August 2021, the sector also recorded a sustained rally when the President assented to the bill.

Hence, when the Petroleum Industry Act (PIA) was signed into law by President Muhammadu Buhari on August 16, 2021, this brought an end to several years of uncertainty and stagnation in the petroleum industry and the market reacted well to the news.

Indeed, the PIA provides legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, the development of host communities, and related matters. With this, the oil and gas industry now has legal, governance, regulatory and fiscal framework.

However, Nigeria has lost over $50 billion worth of investments because of the delay in the enactment of the PIA and this was due to the uncertainty. In fact, the U.S. energy information administration estimated that Nigeria lost over $15 billion annually due to the delay in the passage of the PIA.

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

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

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

Speaking further on the opportunities available for the capital market, the commission at the 25th annual conference of the Chartered Institute of the Stockbrokers (CIS) in Lagos recently, said the new law has the potential to put an end to decades of uncertainties concerning the future of oil and gas industry in Nigeria by providing a robust legal framework that would support reforms required to position the industry as an investment hub which could attract investors from across the globe.

It said the emergence of a more structured industry would offer a level playing ground that could attract massive Foreign Direct Investments (FDIs) into the country, promote competition that could bring about 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 fundraising activities in the domestic market and stimulate the primary market segment of the exchange.

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Director-General of the Securities and Exchange Commission (SEC), Lamido Yuguda, said stockbrokers must create viable innovative financial products that would support businesses, boost market liquidity and breadth if it must unlock potential in the PIA.

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

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

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

Also speaking at the conference, Partner, Energy & Natural Resources Tax of KPMG Nigeria, Wale Ajayi, affirmed that the PIA would present significant investment opportunities for both regional and international stakeholders, especially at a time when the global energy sector is particularly competitive for foreign capital.

Ajayi pointed out that this would offer greater opportunities for the capital market as stakeholders in the oil and gas, who seek to optimise the gains from deregulation, are likely to approach the equities and fixed income market to raise funds.

He expressed optimism that the passage of the PIB would impact positively on the nation’s economy as well as the capital market by attracting both institutional and retail investors as well as local and foreign issuers into the capital market.

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

Environmental, Social and Governance (ESG) is a method of analysis and reporting on how a company serves all stakeholders, including workers, communities, customers, vendors, shareholders and the environment.

ESG is important for the oil and gas industry specifically 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, labour standards, diversity and corporate governance.

Oil and gas companies have been implementing ESG strategies for years through reduced emissions, responsible water use and disposal, and research and development into renewable energy programmes.

The current push to track and report ESG programmes are seen as an opportunity for oil and gas companies to promote, validate and expand upon these efforts.

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

Therefore, he stressed the need for the entire capital market ecosystem to be well positioned and leverage opportunities in the petroleum industry act.

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