Oteh became the Director General of the Securities and Exchange Commission (SEC), in January 2010 and was elected Chairman, Africa Middle East Regional Commission (AMERC) of the International Organization of Securities Commissions (IOSCO) in June same year. She is a member of the Nigerian Economic Management Team (NEMT) and the Agricultural Transformation Council, both chaired by the President of the Federal Republic of Nigeria and a Director of the Board of the Asset Management Company of Nigeria.
Prior to joining SEC, Oteh was Group Treasurer at African Development Bank Group (AFDB) from 2001 to 2006 and the Executive Vice President, Corporate Services from 2006 to 2009. She also held other positions in treasury and lending in the course of her career in the bank which she joined in 1992.
Oteh had a stint at the Harvard Institute for International Development, USA and Centre Point Investments Limited, Nigeria where she worked in corporate finance, consulting and teaching departments. She has served on the board of a number of organizations, including the Advisory Board of the Africa Investor, and the International Financing Facility of Immunization (IFFIM).
She is the co-editor of the book, ‘African Voices African Visions’.
Ms. Oteh holds a Masters Degree in Business Administration (MBA) from Harvard Business School, Boston, USA and a First Class Hons. Degree in Computer Science from the University of Nigeria, Nsukka, Nigeria.
In this interview with VIVIAN ONYEBUKWA, she spoke on her efforts to restore the Nigerian Stock market to global lime, the importance of women in the economic development of the country and other issues.
Stabilizing Nigerian market
I have been at this job for four years. As I said earlier, don’t go into something you are not familiar with because the financial literacy agenda is big. Second and more importantly is that as the apex regulator, we will not permit wrong doing in our markets and so we will take the necessary steps to ensure that people who do the wrong things are brought to book. There were a lot of things that were done wrong in the past and that is a signal, so those who are in this market today know that you cannot do the wrong thing.
Third is going back to the financial literacy agenda. It is to really make sure that people understand that investing particularly in the stock market is not something you do with money that you need to feed tomorrow. It is what you do with savings that you are going to use in the future and therefore there will always be volatility in the markets, you will not feel as hurt as if you understood that this money is not money that we need immediately.
The other thing is just to make sure that the market is deeper and that there are many more companies listed. There are other instruments other than equity, so the bond market is one of the things that we have supported.
The fourth is to make it easy for you to come in and exit the market, liquidity issues and our infrastructure. We have taken a holistic reform agenda in that respect and I hope that what we are seeing today is sustained. At the beginning of 2010, stock market capitalization was at N4.99 trillion, but today it is give or take N12.5 trillion, and rising. In fact it hit a peak of N13 trillion recently.
What our pre-occupation going forward is really to focus on listing agenda because we believe more companies need to be listed on the NSE so that they reflate the economy. We would like to see the telecom companies list, we would like the see the companies that would be transferred to the private sector list, we would like to see large companies come to the market so that Nigerians can participate in the success that they are enjoying because of the growth in Nigeria and particularly because of rising middle class and rising incomes for Nigerians. That is an agenda we want to focus on going forward.
New minimum capital requirement for market operators
The SEC is very comprehensive when it does anything. Many of you may know that in 2007, I had not joined but I read some of what journalists had written. The SEC had asked for capital requirement to be raised and that was foiled. When I joined in 2010, as fallout of the global financial crisis, the SEC staff felt that we need to raise the capital requirement primarily because there were accusations of people selling customer shares without authorization, people holding on to the proceeds of sale and all kinds of accusations.
So, my colleagues thought we need an immediate response. But because I was new, I wanted to study the issues. I also wanted the circumstance to be much easier for all of the market participants, whether brokers, fund managers or in whatever sector. So I took sometime myself to study the issue. After doing that, I then set up a committee that was chaired by our then Commissioner for Operations and had representations from the Chartered Institute of Stock Brokers, Owners of Association of Stock broking Houses of Nigeria (ASHON), representations from the NSE and others. And they came up with a proposal. They completed their work at the end of 2012, we studied the work that they did, and we also had an international expert who was Deputy CEO of the Toronto Stock Exchange comment on that work. We reviewed it internally, and then made proposals on the basis of that work.
Essentially, the issues are first we want our institutions in Nigeria to be as strong as institutions everywhere. As the market is evolving and we are building a world class, you are not going to be world class if you do not build institutions. You do not want people to come from outside Nigeria and take the benefits of what is happening in Nigeria because our own firms are not prepared. But our primary mandate is to protect the investor, we do not want the kinds of circumstances that happened in the past where people were taking proceeds of customer shares and using them to fund themselves. Our approach has been inclusive; our approach has been to make sure that we think about what would be appropriate.
My understanding was that in 2007, the request was actually to raise it to N1billion. For brokers, the maximum is N300 million, so as a result of those consultations and the work that we did, the level is actually lower than what was proposed in 2007. What is important to us is that we are fit and proper market participants brokers, fund managers, registrars; trustees etc because this market can do better and are the place that everyone wants to come to. But we are not going to do it if we are not ready to do the right thing that is our perspective.
The board has made this decision and by virtue of the law, submitted to the Minster of Finance and if there is no feedback from the Minister of Finance it is considered done. This is where we stand today on the issue. But I think most importantly is making sure that we are truly building a world class market, that we have firms that understand the risks that they face, that can manage those risks and then ultimately protect the investor. We don’t want what happened in between 2007 and 2009 to ever happen again in Nigeria.
Why stakeholders resist capital market reforms
Many people in the country were afraid that with the return of sanity at the capital market, they would lose their strong hold on the economy. I will continue to do my best to ensure that the ugly past did not return.
People have said that I am very courageous, and I believe that I am courageous because I am an Igbo. We have been honoured by several organizations and this is because despite what people are doing to bring us down, there are people somewhere who are appreciative of the good work we are doing. I am not afraid to say that I will always do the right thing as the Director General of the Securities and Exchange Commission. I am not moved by what people are doing, trying to pull me down, so long as I know that I am doing the right thing. In the past, we had a Capital Market where people wore suits and sat down to steal money belonging to peasants.
But when I came in, I told myself that all these have got to stop. We must sanitize our Capital Market and build a trust that will let the poor man put his savings in it and be assured that it will not be stolen by people. What I am doing at the SEC, I am ready to die for. I am not afraid to die so long as I am doing the right thing.
And I am very emboldened by the fact that people are watching. No matter the level of conspiracy against one, people are seeing your efforts and at the right time, one will be rewarded for every good work. We should learn from the horrible things that happened in the past when people lost everything after selling all they had to invest in the Capital Market. Even up to 2010, it was still happening. People were told that their money will just double, and many of our people are crying today because they sold their houses, took their life savings and put them there. That is not what we are saying today.
Saving and investing is very critical to building a nation, and no nation can develop without a strong capital market. If you want medium to long-term money for businesses, it comes from the capital market. One, it creates wealth and helps you to train your children so that you can retire and still live well. Everything that is negative in the economy affects the capital market because capital market is about the state of the economy.
SEC’s partnership with Corporate Affairs Commission(CAC) on regulations
It is important to have more women on boards. We have about 190 listed companies today, 73 of them have no woman on their boards, 10 percent have 20 percent women on their boards and I think there are only 15 female CEOs of the 190 listed companies. What we have found recently is that there is now some link between the performance of companies and the number of women they have on their board. And that linkage is very positive that the more women we have on the board, the more likely their performance would rise.
There is a catalysts organizational study that companies which had more women on their board, at least 19 percent of their board members being women did better in terms of Return on Investment ( ROI) and other profitability indicators. My suspicion is that the reason for that is that first, if you have got women on the board, It opens up the market to the broader range so when you are crafting your policies, when you are reviewing how you are doing as a board the questions would point you to something that may not have come out if you had just one gender, if you had a board that is solely men.
The other thing is that diversity inspires innovation; there is a linkage between diversity and innovation because people come from different directions. So we think that something should be done. The Companies and Allied Matters Act was last reviewed in 1990. There was a recent amendment which was very specific. We think that one of the things which should be looked into is certainly having a clause that encourages greater participation of women. We are the custodian of the SEC code of corporate governance, so through that we can also somewhat influence that issue. But I think that the best ways is that the companies themselves look at that issue as something that is most beneficial to them because it opens up their space for them and their market. So we will probably report in a more granular fashion on this issue of having more women on boards.
Incentives that encourage women to invest in Collective Investment Scheme (CIS)
I think in 2010 we first drew attention to the fact that as a retail investor, you may consider as an alternative instead of investing directly yourself while you are not so familiar with the company, that you may seek the services of a financial expert and go through collective investment schemes. Before we did that, we decided to enhance the regulations of fund managers because you do not want a situation where you are encouraging people to go to mutual funds and it turns out that the fund managers will now steal their money. We also have tried to improve the capacity of fund management firms; we also asked that they come together as a trade group so that we can interact with them much more efficiently. We are very proud with what they have done, they have put together a strategy document which basically shows what the potentials are for Collective Investment Schemes. And today, we have less than 200,000 who are leveraging into CIS funds to save and invest. There is clearly room for more to be done. We have about $1billion of funds under management that is very small for a country of 167 million people.
So the potential is enormous. One of the things we are looking at doing, hopefully we will be able to achieve it this year, is to make sure that we have a common standard for reporting on performance so that the investors can compare one from another, so we are looking at what CFA does, the Global Performance Standards as a standard that we should look at adopting in Nigeria. What we want to do is to make sure that we don’t reinvent the wheel, where something exists and is already working that we will do. We are very pleased that there is already a body of people who are trained in the CFA qualification because it is a very comprehensive qualification for anybody in investment management. We are also working through the Nigerian Capital Market Institute with the Financial Planning Association to try and ensure that we can train young people to become financial planners, so maybe those who graduate from law school, economics among others, we can put them through a booth camp programme that then prepares them to be able to affiliate with some of these fund managers and be able to sell their products to investors. That is something that we are very keen to do because we think it will also help the job situation in Nigeria. It is something that will take us time to be able to do because it is not just within our own hands in that respect.
Special incentives for women
Your choice to participate in CIS is an individual choice so you don’t need to create incentives for one group to participate versus the other group. I want men and women to invest in mutual funds; I don’t think we should do one thing in favour of one over the other. And then unlike some of the gender biases we have in other areas, there are no gender biases in terms of how you participate. It is unlike when you want to get bank loan where there are gender biases. If I bring my money for you to take and invest and you are a fund manager will you say you won’t take it because I am a woman? You also will not say you won’t take it because I am a man. There is no gender bias; at SEC what we are interested in is that where there is a gender bias, we want to ensure that those biases are removed. But we want men and women to have equal opportunities.
Dwindling IPO market and prospects of e-IPOs
The reason the IPO market has been slow to take off everywhere in the world is that if I am selling my company for the first time, I have invested a lot of handwork so I want to get the greatest value. So when valuation was depressed, it would have been difficult for people to come to the market. So what we are seeing today is people starting to look at the market again for valuations and where they feel comfortable enough to come in.
The second thing is that the process of an IPO is a very long process and one of the things that makes it different from the past in terms of IPOs is that you have to meet certain requirements like IFRS. So if you were a company that was not reporting under IFRS, you need to go and fix that first and it is very elaborate process to change from Nigerian Gap to IFRS and it takes time and we don’t want a company to come to the market if they are not ready. The third thing is that we had listing requirements which would not enable any company to come to market except the company has been in business for a long time and if you note the history of Nigeria, a lot of companies that have come to the market has been because of regulation.
We had the indigenization Decree where the multinational s had to reduce their shareholding and allow Nigerians to participate, then we had the Privatisation, then we had the increase in capital for banks. So this is the first time that we had regulation that is supportive for someone who has a great idea, has a great technical plan to come to the market. The alternative securities market in Nigeria was non-existent because it is very hard for you to have a track record before you start a business. Today the changes in the listing requirements allow certain kinds of companies to come to the market.
The Exchange has also been good in becoming much more market oriented because in the past because when there is a regulation everyone has to come to the market, they sat back until someone came to the market. But now, they have a Market Development Directorate where they go out educate companies about why it is good for them to come to the market.
The issue about the e-IPO is a very important one but one of the issues I recognize very quickly when I came to Nigeria is that in Nigeria when you want to do something new, you take time and consult stakeholders. But look at what you are saying about recapitalization, the stock brokers were involved themselves in the process, after the thing is out, there is an issue. So consultation is a big part of our culture.
Last year the SEC released a statement saying that we need to have e-dividend. Not for the benefit of the SEC but for the benefit of individual investors. Who were those who complained? It is the individual investors themselves. We were worried that we have unclaimed dividends and peoples dividends were stuck and they were not getting them, but with e-dividend they can get it directly. And the people who were supposed to receive the benefits were the ones so we said ok, we will pull it back, we will go back and consult and consult. So you take account of your environment before you embark on something.
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We’re poised to restore Nigeria’s capital market to global limelight – Arunma Oteh |
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