Association of Ent. Risk Management Professionals (AERMP) Mid Conference & Inauguration 2024

www.continentaleconomy.com REPORT | In many developed economies, capital markets function as the backbone of economic growth, significantly outweighing money markets in both size and influence. Conversely, Nigeria’s capital market represents a mere 13% to 16% of the Gross Domestic Product (GDP), highlighting a disconcerting gap and a compelling case for reform. According to Emomotimi Agama, Director General of the Securities and Exchange Commission, there exists a significant 87% opportunity for investors. At the recently concluded Mid Year Conference and Induction Ceremony of the Association of Enterprise Risk Management Professionals, Agama, stressed that the Nigerian capital market, despite its immense potential, remains underutilized due to several factors, including poor implementation of enterprise risk management (ERM). “By improving risk transparency and disclosure, ERM can enhance investor confidence and attract more capital to the market. This, in turn, will contribute to the overall economic development of the nation. He added that enhancing risk transparency in the capital market can serve as a catalyst for economic growth. An improvement in enterprise risk management practices could potentially elevate the capital market’s contribution to GDP, closing the existing 87% opportunity gap. Improved Enterprise Risk Management One of the primary benefits of ERM is its ability to enhance risk transparency and disclosure. By providing a clear picture of potential risks and their associated impacts, ERM enables investors to make informed decisions and assess the investment climate more accurately. “It is essential for all capital market operators, regulators, and listed companies to improve risk transparency to provide investors with a clearer picture of the investment landscape.” When investors have a clear understanding of the risks involved in the capital market, they are more likely to have confidence in the market and the economy as a whole. Increased investor confidence leads to greater capital inflows, which can drive economic growth and development. A Barometer of Economic Health The capital market serves as a barometer for a nation’s economy. A strong and vibrant capital market is indicative of a healthy and growing economy. Nigeria, unfortunately, has been hampered by mismatched resource allocation, where short-term funds are used to finance long-term projects. “One of the critical challenges facing Nigeria’s capital markets is the mismatch in resource allocation. The prevailing practice of utilizing short-term funding for long-term projects has led to significant inefficiencies and increased risk. This approach often subjects capital projects to fluctuations in funding availability, exacerbating financial instability.” “To ensure sustainable economic growth, Nigeria must concentrate on aligning funding strategies with project timelines. Long-term financing must be directed towards long-term projects to create a resilient economic structure,” Agama added. The reliance on short-term funds for long-term projects introduces inherent financial risks, particularly regarding interest rates that can significantly exceed initial projections. Understanding and addressing these risks through effective enterprise risk management is vital. If You Ask Me The future of Nigeria’s capital markets lies in its ability to enhance enterprise risk management practices. With an 85% opportunity yet to be harnessed, the imperative is clear: build trust through transparency and better risk management. By transforming the capital market’s risk profile, Nigeria can not only boost investor confidence but also stimulate economic growth and sustainability. The correlation between investor confidence in the capital market and overall economic health cannot be overstated. As investor confidence grows, so does the economic robustness, paving the way for sustainable growth in various sectors. To capitalize on the substantial opportunities available, it is crucial for stakeholders within Nigeria’s capital markets to adopt enterprise risk management frameworks proactively. Initiatives that foster collaboration among regulators, market operators, and companies can pave the way for a more transparent and robust market. As we look to the future, the question remains: will Nigeria seize this opportunity, or continue to let the potential of its capital markets lie dormant? Only through action can the nation unlock its full economic potential and establish a strong, resilient capital market. By addressing the critical intersections of risk management and investment confidence, Nigeria stands at the precipice of transformative economic growth. The time for change is now; the opportunity cannot be overlooked any longer.