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Executive profile: Arunma Oteh

By Patrick Smith
Posted on Monday, 13 February 2012 13:54

Arunma Oteh, the new head of the Nigeria’s capital markets, aims to boost their value tenfold to a trillion dollars by 2016 after imposing international regulatory standards.

As it planned to celebrate 50 years of trading in late October and launch an ambitious expansion plan, Nigeria’s Securities and Exchange Commission (SEC) needed an ambassador to counter the sceptics who point accusingly at the market and banking meltdown of 2008.

In Arunma Oteh, who took over as director general of the SEC in December 2009, it seems to have found both a diplomat-in-chief and a commander.

Oteh’s mission to boost the value of Nigeria’s capital markets to $1trn by 2016 will doubtless require the highest level of diplomatic skills as she corrals investors into what may soon be Africa’s biggest economy.

“”Changing the classification for Nigeria will bring in a pool of funds””

Nigeria’s gross domestic product already overtook that of revolutionary Egypt this year, and could rival South Africa’s following the government’s plan to rebase its national income calculations in January 2012.

Statisticians at the IMF point to Ghana’s rebasing exercise two years ago, which upgraded its national income by 60 per cent, propelling it into the ranks of lower middle-income countries.

Like Ghana, Nigeria has not recalculated its national income for 20 years: a 60 per cent hike would push GDP in 2011 to $395bn, just behind South Africa’s total of $422bn.

That would make Oteh’s goal of a $1trn capital market a little less surreal and concentrate the minds of more investors.

“Targets are important,” she insists. The Nigerian Stock Exchange’s (NSE) market capitalisation is about $40bn and there is about $30-32bn in the bond market, says Oteh.

There are some 217 companies listed on the NSE, compared to some 446 companies listed in South Africa. Although the market capitalisation target is ambitious, Oteh says the strategy will be to target top quality Nigerian companies and multinational affiliates to list.

If the Petroleum Industry Bill includes provisions for the state oil company to float its joint-venture companies on the local stock exchange, Oteh foresees a massive and rapid expansion of the market.

The same goes for the restructuring of the power industry, with the incorporation of 19 new electricity generation and distribution companies.

The plans to modernise Nigeria’s power sector are based on a budget of $50bn, a substantial part of which could be raised from the capital markets, Oteh says.

Likewise, the government’s plans to expand agricultural production mean that many more agribusiness companies should use the capital markets. Currently, agribusiness companies represent just 2% of listings on the exchange.

Another source of new listings could come from multinational companies. Oteh points to the success of Ireland’s Tullow Oil, which listed on the Ghana Stock Exchange in July 2011 and was immediately oversubscribed. She hopes that Shell and Exxon will list on Nigeria’s Exchange.

Oteh sees telecommunication companies as an area for expansion, given that Nigeria is one of the continent’s biggest markets for mobile phone operators.

Some 60 per cent of South African company MTN’s profits come from Nigeria, says Oteh. SEC officials are trying to persuade MTN and the others to list: “We think it will enhance their brand. We think people will be more sympathetic because it democratises their success.”

The new team at the NSE under chief executive officer Oscar Onyema has “outlined a bold vision to build a credible market with five product ranges – equities, fixed income, exchange traded funds, options and financial futures – over the next five years,” explains Oteh.

They expect, she adds, “that these products will enhance liquidity and market depth, and lead to a robust market” that could produce a tenfold market expansion in less than five years.

The other task set for Oteh was the commander role – bringing an unstable market under control, punishing the transgressors and imposing a credible regulatory regime.

Foreign and Nigerian business people at the SEC’s halfcentury conference in Abuja said the litmus test for investors was the government’s policy record.

Flanked by President Goodluck Jonathan’s technocrats–central bank governor Lamido Sanusi, trade minister Segun Aganga, power minister Barth Nnaji and agriculture minister Akinwumi Adesina – at the conference, Oteh pushed the message of a coordinated economic strategy.

Appointed by the late President Umaru Musa Yar ‘Adua, Oteh was brought in to manage the SEC’s biggest crisis in its first half century.

The capitalisation of the stock exchange had peaked at more than $110bn, fuelled by the rampant and unsustainable expansion of the banking sector.

Some 60 per cent of the equities listed on the exchange were banks, some of which were doubling their declared earnings every quarter.

Then came the financial crash in the United States and Europe in late 2008. In Nigeria’s version of the crash, the stock exchange lost around $50bn of its value, and the government bailed out nine banks to the tune of $4bn.

Oteh started in the job in December 2009, just a few months after governor Sanusi had taken on the fraudulent and mismanaged banks.

Born in Nigeria, Oteh decamped to Harvard University to take a master’s in business administration after a degree in computer science at the University of Nsukka, eastern Nigeria.

After working in the private sector, Oteh moved to the African Development Bank’s (AfDB) capital markets department in 1993. She was promoted to group treasurer in 2001 and vice president of corporate management in 2006.

After Oteh commissioned the SEC’s own investigations, some 200 individuals and companies were charged. A team from the US Securities and Exchange Commission produced a report that had spoken of “dysfunctional enforcement”, “complicated and entrenched governance problems” and “woefully inadequate” surveillance.

Oteh’s response has been to toughen disclosure rules and financial surveillance. She introduced a new code of corporate governance and her aim is to get all the companies listed on the NSE to meet International Financial Reporting Standards by the end of 2012.

Strongly linked to the new disclosure rules are the listed companies’ efforts at investor relations, which Oteh is trying to promote. One rule under consideration is to require all listed companies to have a website on which they post all required financial information.

She also encourages companies to look at the success that First Bank has scored with its investor relations strategy.

“”We think people will be more sympathetic because it democratises their success””

Confidence is delicate, especially among local retail investors who tend to favour low-yielding blue-chip equities and avoid the more dynamic and high growth Nigerian companies.

Their risk averse attitude has been reinforced by the jittery international markets. Some five million Nigerians out of a population of 165 million own shares.

Only about 500,000 buy into collective investment schemes such as unit trusts, which Oteh sees as a big area for expansion but a challenging one in regulatory terms.

That is because of the need to impose strict controls on how the funds manage investors’ money and the claims they may make about their rates of return.

To help popularise investing on the market, Oteh is in talks with some Nollywood film directors about a soap opera based on the attitude to business in the country. The campaign will not stop there.

Oteh and Onyema are also working on a substantive expansion of the fixed income market in Nigeria, which they think will prove useful to several of the newly privatised companies trying to raise money.

To boost what is already one of the fastest-growing bond markets in the world, the central bank has hiked rates on fixed-income securities and cut taxes.

Expanding Nigeria’s private pension industry could also be a major source of growth for the market. So far, the pension companies’ investments are worth just $12bn, but industry specialists say this is way too small for a country of more than 160 million people.

The other big project is de-mutualisation, which Oteh and Onyema believe will further boost the expansion of the market: “If an exchange is listed, it helps the value of that exchange and the value of stocks listed on that exchange, but it also helps you to raise money to do things that the exchange needs,” says Oteh.

If all or most of these planswork out, Oteh believes the Nigerian market will graduate from a frontier market to an emerging market within two years.

There is more than nomenclature at stake: “The pool of funds for emerging markets is much wider than the frontier market … changing the classification for Nigeria will bring in a pool of funds which will also build our liquidity.

“Having set herself a roster of clearly measurable targets over the next five years, noone accuses Oteh of bucking some of Nigeria’s toughest challenges.

This article was first published in the November edition of The Africa Report, on sale at newsstands,
via our print subscription or our digital edition.

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