The Nigerian capital market, potentially the largest and deepest in Africa, has been lurching from crisis to crisis. The latest has been the forced exit of the Director-General of the Securities and Exchange Commission, Arunma Oteh , following investigations into the organisation’s activities by a House of Representatives ad hoc committee.
AFTER A POWER PLAY WITHIN NIGERIA’S Securities and Exchange Commission (SEC)and in the Nigeria House of Representatives, the board of the SEC has asked its Director-General to take compulsory leave, pending an inquiry into the financial affairs of Project 50, which was primarily a programme to mark 50 years of capital markets regulation. SEC Director-General Arunma Oteh, seen as a reformer, was hired in 2000 to clean up the country’s capital markets after a crisis brought them close to collapse.
It is therefore a paradox that after nearly two years in the hot seat, Oteh is being investigated for her financial management of the Project 50 programme.
Project 50, amongst other things, comprised her funding a Nollywood film to educate the general public on the unpredictable changes and swings of the capital markets, hosting a two-day international conference and much more. The film premiered during an international conference and dinner held at the Abuja Hilton in November 2011 to celebrate 50 years of capital markets in the country.
The SEC did not finance the Project 50 event, as Oteh had mobilised funds from the private sector for this special anniversary initiative. Indeed, Oteh’s aide stated that her focus on private sector funding was adopted primarily to avoid any outcry on the use of public funds, but the SEC Board seized on this perception of wrongdoing and requested her to account for the funds generated in Project 50.
Having set herself the task of reforming the capital markets, Ms Oteh was bound to step on many powerful toes which had vested interest in maintaining the status quo. She had side stepped many land mines since her resumption of duty as director-general, but not for long enough for interested groups within and outside of the SEC.
The Minister of the Economy and Minister of Finance, Ngozi Okonjo-Iweala, who also dismissed some members of the SEC board whose tenure ended on 15th June, said that Bolaji Bello, who was Director of Finance and Administration at SEC before this appointment, would take over from Oteh as acting director-general pending the outcome of the investigation into the management of funds in the SEC’s Project 50.
Market still bleeding
The pressure for Oteh’s forced or voluntary exit was expected for quite a while, given what had transpired during the public hearing by the House of Representatives Committee on Capital Markets, which was ostensibly investigating the near collapse of the capital market in April and May.
Ms Oteh, whose qualification and competence for the role of SEC DG was questioned by the Chairman of the House Committee on Capital Markets, the Hon. Herman Hembe, reminded the House that the panel was not interviewing her for recruitment to the job of director-general – rather it was enquiring into how the Nigeria Capital Markets tumbled to historic lows since 2008. But when the Hon. Hembe persisted in his line of enquiry, Oteh opened up Pandora’s box by alleging that the House Committee Chair, the Hon. Hembe, had no moral authority to conduct the public hearing because he had demanded a N44m ($270,000) bribe from her prior to the probe and she had refused to pay. Hembe later resigned as the Chairman of the Committee and the Nigeria House of Assembly set another an eight-man ad hoc committee mandated to see out the probe now headed by the Hon. Ibrahim El Sudi.
But some analysts suspect corrupt individuals burnt by her clean-up are fighting back. “The same corrupt people are fighting back,” said Managing Director, Financial Derivatives Company Limited, Bismarck Rewane.
The President of the Chartered Institute of Stockbrokers (CIS), Mike Itegboje, said: “It was expected when you consider the events in the past several months. We just hope that the investigation by SEC will make things better and not worse. The market is still bleeding and nothing has been done to stop it.”
Michael Obire, a financial analyst, insisted that it was the normal thing to do to ask an incumbent chief executive to step aside if there are allegations that are being investigated. According to him, some of the allegations and counter-allegations were quite weighty and should be investigated thoroughly: “If you look at the bribery allegations during the public hearing and the issue of funds mismanagement under Project 50, you will know that they are serious matters.”
But many also think that latest development at the SEC was yet another attempt to undermine her. The embattled Oteh allegedly masterminded the opening and use of a private account to collect funds from donors for the Project 50. This was a contravention of the Investment and Securities Act (ISA). The opening and use of the private account also undermined the accounting and reporting provisions of the Commission. Donors to the funds were said to have included financial services organisations and companies quoted in the NSE and other stakeholders.
The SEC Board’s Audit and Finance Committee, which probed her, reported that the troubled director-general did not cooperate with it. However, an aide to Oteh said she had responded to SEC’s audit committee’s enquiries on the finances of the Project 50. The aide said funds for the Project 50 were routed directly from sponsors to the service-provider organisations.
Oteh had said the transformation of the SEC had involved a culture shock for some which are sure to create feelings of apprehension and even alienation among some members of the SEC family. She explained that the market succumbed to a combination of ailments – sensational lifestyles and financial recklessness, among others – mainly by past management. Under Oteh, SEC has made several changes such as reviewing and publishing a corporate governance code, which became effective in April. One of the main areas of focus was the strengthening of the institutional capacity of SEC including human capital, technology and process.
The commission has begun implementing key recommendations and made significant investments to enhance its real time information flows and new technology platform. To address the human capital and skills gap, it hired fresh and technically competent professionals.
The market, at the beginning of the year was buoyant before falling back. The all-share index reached a year high of 22,665.99 points with market capitalisation at N7.23 trillion ($44.2bn) in May before the majority of investors started dumping their shares. The market is now dominated by profit takers, prompting a loss of 1.27% in the second week of June.
Despite the relatively flat market performance, widely held bellwether stocks took the hit. The market had experienced an austere performance in the first quarter ended 31st March. The probes, insecurity, and regulatory lapses pushed the market to a 0.38% negative outing. The All-share Index declined from 20,730.63 to close at 20,652.47.
The managing director of Partnership Investment Company Limited, Victor Ogiemwonyi, says things could be better when pension fund administrators comply with new guidelines that allow 10% equity investment in the capital market. “If pension fund administrators comply, they will need to shift N260bn ($1.6bn) into the market, raising market capitalisation by 3.6%. Pension fund investments are expected to increase the availability of long-term funds, enhance competition, induce financial innovation, and improve corporate governance,” he said.
The Managing Director of Sterling Capital Limited, Gaventa Otono, says “the marginal decline of 0.38% recorded in the Nigerian bourse may likely be as a result of investment switch from the stock market to fixed income securities due to higher yields in the segment of the financial market”.
Meanwhile, despite the current turbulence at the SEC, the Nigerian Stock Exchange (NSE), under its new CEO, Oscar Onyema, has determinedly set out on a course of market reform, modernisation and expansion.