Nume Ekeghe

Financial experts have warned that Nigeria could jeopardise its fragile progress towards regaining inclusion in the FTSE Frontier Market Index if it proceeds with implementation of the Capital Gains Tax (CGT) on securities transactions.

They stated that while the recent FTSE Russell “Quality of Markets” Review acknowledged notable improvements in transparency and liquidity within Nigeria’s foreign exchange (FX) market, introducing a new tax regime at this stage could reverse those gains and erode investors’ confidence, particularly at a time when the country was seeking to re-establish its credibility with global index providers and portfolio investors.

Head of Financial Institutions Ratings at Agusto & Co., Mr. Ayokunle Olubunmi, explained that although the capital gains tax was not entirely new in Nigeria, its economic impact will depend largely on how the policy was executed.

According to him, “The capital gains tax is not that new in Nigeria. However, the impact will depend on how this new tax law is implemented.

“We should also note that the capital gains tax will only apply when the profit from the sale of equity instruments exceeds N150 million.

“Hence, only big-ticket transactions will be impacted, with most retail equity sales excluded. It is also important to note that the tax will be waived if the proceeds are reinvested in another equity instrument.

“Given that only sizable transactions will be affected by the capital gains tax, we anticipate an uptick in tax planning when large equity positions are sold.”

A senior market analyst, who preferred not to be named, said, “Today is not the day for capital gains tax. Pushing CGT now risks undoing the fragile progress we have made and could easily downgrade one of the few areas we actually passed in the FTSE review taxation. It is not a trophy we can afford to lose.”

The analyst explained that the journey back to the FTSE Frontier Index and eventually the MSCI Emerging Market Index will depend not just on announcing reforms but also on demonstrating credible, sustained results.

“If we are serious about getting re-included, it is not just about reforms on paper; it’s about showing the world that our market can function efficiently, transparently, and predictably,” he said.

He stated that while Nigeria’s FX market reforms under the Central Bank of Nigeria (CBN) had improved liquidity and restored some level of confidence, governance and investor protection remained critical weak spots.

“Minority shareholders are still treated like distant relatives – welcome, but rarely respected. Our laws look fine on paper, but enforcement is inconsistent,” he added.

The FTSE review also cited Nigeria’s “restricted” score on shareholder protection and deficiencies in market infrastructure, such as post-trade allocation, securities lending, and derivatives trading – tools analysts said were essential for modern market efficiency.

“Without derivatives and securities lending, our market is like a smartphone without internet – it works, but no serious investor wants to use it,” the analyst added.

He further pointed to operational inefficiencies in Nigeria’s clearing and settlement systems, which remained mostly at T+3, compared to T+2 or T+1 standards globally.

“Clearing and settlement may not be glamorous, but to investors, they are everything. A market that cannot settle efficiently is a market that carries unnecessary risk,” he said.

On governance, the analyst criticised the slow pace of regulatory coordination between Nigerian Exchange (NGX), Central Securities Clearing System (CSCS), and Securities and Exchange Commission (SEC), stating that market development is being held back by bureaucracy.

He added, “The NGX owns 40 percent of CSCS and chairs its board, so responsibility for market plumbing cannot be deflected. Extending trading hours to 4pm, enabling instant share unblocking, and implementing post-trade allocation should not take years of debate.”

He also highlighted the imbalance between regulators and market operators, warning that high transaction fees and compliance costs are suffocating brokers, the key intermediaries that sustain market liquidity.

“A market where regulators make more than operators is dysfunctional. Brokers are not middlemen; they are the engine oil. If they dry up, the system grinds to a halt,” he said.

Despite the challenges, analysts acknowledged that Nigeria had made progress since its 2023 downgrade, citing CBN’s efforts to clear FX backlogs and unify exchange rates.

But they insisted that policy consistency was critical to maintaining momentum.

The analyst concluded, “The FTSE report is harsh but not unfair, it’s a mirror showing us exactly what must change. Until Nigeria fixes its market infrastructure, protects investors, and maintains predictable taxation, one phrase will continue to define our standing in global markets: Not Met.”

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