Director-General of the Securities & Exchange Commission (SEC), and by extension, police chief for the Nigerian capital market, Arunma Oteh, after one year in office, a fortnight ago, came short of saying the nation’s capital market is yet to attain its potential, because government and the private sector have not adequately tested its true depth.

According to Oteh, the capital market everywhere performs the function of helping government – whether at the centre, state or municipal, to bridge the gap between a nation’s development status and envisaged future.

Speaking, a fortnight ago, as guest speaker at the Independent Man of the Year Award on Governor Rotimi Chibuike Amaechi of Rivers State by Independent Newspapers Limited (publishers of Daily, Saturday and Sunday Independent) in Lagos, she said for stakeholders to overcome the challenge of bridging the gap in economic growth and development potential, there was need to ensure that a world-class capital market is in place.

“We believe at SEC (Securities & Exchange Commission) that a world- class capital market is key for us in Nigeria, because it seeks to better leverage our wealth, not just in terms of capital resources, but in terms of human resources, to realise our potential and address our social challenges. We need to all stand up and tackle this squarely,” the SEC DG stressed.

Continuing, Ms. Oteh, who spoke on “the state of the Nigerian capital market,” defined a world-class capital market as an enabler of social development, besides helping to “foster meritocracy, good corporate governance, innovation, which would enable us as a country harness our resources.”

Aware of this distinction, she noted that since resuming office in January 2010 as chief executive, SEC under her watch, has desired building a world-class capital market, insisted on zero tolerance for infractions, besides ensuring “that the cost of wrongdoing is higher than doing it right.”

To signpost the commission’s seriousness in this regard, she said the Nigerian Police recently “responded to its request to have their officers at SEC deal rapidly with wrongdoings.”

Before January 2010, Oteh continued, the nation’s capital market was under-regulated and lacked integrity, a very essential ingredient for the growth and development of any capital market.

The full value of ongoing efforts by SEC, Oteh assured, would soon become evident, when they begin to reflect in the market value of quoted companies, in addition to engendering a market that will help provide government at all levels with funds needed to fund the huge infrastructure deficit existing across the country.

A world-class capital market, she said, “is one that engenders investor’s interest, has breadth and depth, and fosters good corporate governance.”

Besides sanitising the market, the SEC boss noted that it has been further diversified by strengthening the fixed income leg by growing the market for the Federal Government, sub-national and corporate bonds. She acknowledged the efforts by President Jonathan to grant tax waivers for sub-national and corporate bonds, an advantage previously enjoyed only by investors in FGN bonds.

It would be recalled that many questioned the depth of the Nigerian capital market prior to the 18-month banking consolidation exercise that saw investors mobilising over N2 trillion through the capital market to fund their growth and development needs. The amount included the over N700 billion raised between October 2007 and late 2008, was raised through about 320 private placements, according to Group Chief Executive, BGL Plc, Albert Okumagbe. The feat was previously thought impossible when it was first announced by the Central Bank of Nigeria (CBN), under Prof. Chukwuma Soludo.

The Debt Management Office (DMO), in January, said the nation’s domestic bond market has grown significantly since 2003, even as it put the face value of investment in bonds (medium to long-term instruments) in the domestic market at N3.263 trillion at the end of last year. Bond issuance, within the period was dominated by the Federal Government bond, which accounts for N2.901 trillion or 89 per cent of the total outstanding, while state government debt instruments (sub-national bonds) contributing a paltry N251 billion or eight per cent; trailed from afar still by N111.075 billion or 3.0 per cent in corporate bonds.

Infrastructure financing

Perhaps buoyed by the innate capacity in the capital market as a veritable source of long-term development financing, Oteh told the gathering that infrastructure deficits is estimated at about $500 billion. These deficits in the power sector where an estimated 40,000 megawatts is needed, roads, railway, electricity, and water, she said, abounds across Nigeria. She lamented the situation where many small and medium-scale enterprises are at the throes of death, unable to provide jobs for the youthful population the nation is endowed with. This, she believes, may be blamed for the estimated 20 per cent unemployment rate in the country, a figure that is higher among the youths. She noted that in the advanced economies, the SME sector provides up to 50 per cent of jobs in the private sector.

“I hear it is more in the urban areas. So we need to do something about jobs.

The level of home ownership is extremely low. For those of you who are economists, you know the hierarchy of need, the first is food, then shelter. In developed economies, 50 per cent of jobs in the private sector are from the SMEs,” she stressed.

The situation today, where an entrepreneur has to generate his own electricity, provide water and security, among others to function, is unacceptable, she lamented, adding that such unnecessary cost elements make Nigeria’s business environment more expensive, pricing of goods and services uncompetitive and unfriendly.

Investments in infrastructure through the capital market, she believes, would also benefit immensely from the nation’s growing pool of pension assets estimated today at about $13 billion, while praising the efforts of the National Pension Commission (PenCom) and Pension Fund Administrators (PFAs), among others.

“Today, we have a pension industry with an asset of over $13 billion, which represents the foundation for investment in the capital market. We have a pension commission that has been very prudent around how to make sure that when you have worked for 30 years, you still have something that you can fall back on.

But more importantly, they have put in place a very systematic framework which would enable us as a nation grow that $30 billion, and pension fund administrators that are extremely conservative. I’m told that they have about 60 or 70 per cent of that money in the money market. But I’m told that as people gain more confidence in our economy, we can begin to invest longer term (through the capital market), because if you invest long term, the assets can grow more,” Oteh noted.

The $13 billion pension assets, she believes, “is a foundation for reforming the capital market, apart from being a framework for growth as people gain more confidence and begin to invest long-term.”


Boosting Nigeria’s stock exchange

Still on the government’s desire to grow Nigeria’s capital market and enhance its value while ensuring variety of instruments from which investors can choose the SEC boss announced a directive by President Goodluck Jonathan that the administration’s Economic Management Team, chaired by Vice President Namadi Sambo should woo oil exploration and telecommunication companies operating in the country to list their shares for trading on the NSE.

The move is expected to lead to an upsurge in the number of listed companies and by implication, the market capitalisation of the NSE to get closer to that of South Africa’s JSE Exchange. It will also ensure that Nigerians become part owners of those companies, many of who are listed on their home exchanges in Europe and South Africa.

The move, Oteh said, will ensure that domestic investors partake in the growth in the nation’s telecoms industry, reputed as the fastest-growing across the world today. Official figures, she said, shows that subscriber base at the end of 2010 stood at 83 million in 10 years.

“Nobody expected that the Nigerian telecoms industry would grow as much as it has today. MTN (MTN Communications Limited) makes 40 per cent of its profit from Nigeria. Talks are ongoing to encourage them (MTN, GlobaCom, Barti, Airtel and Etisalat) to consider listing on the NSE,” she stressed.

MTN is listed on South Africa’s JSE Limited (formerly the Johannesburg Stock Exchange), while most oil exploration conglomerates like Royal Dutch Shell, Total, Chevron Agip, ExxonMobil and Texaco, among others, with multi-billion dollar assets, have rebuffed previous moves to get them listed in Nigeria, even when they are listed on exchanges in Europe and U.S. The attempt by the government to get them listed saw them playing a fast one by listing only their capital intensive but low income petroleum marketing businesses, keeping away the exploration side from prying eyes of regulators.


Sovereign Wealth Fund

Oteh praised the Federal Government’s decision to establish a Sovereign Wealth Fund (SWF), the brain child of Finance Minister, Olusegun Aganga, with a N1.0 billion take-off fund, which she believes “will be a catalyst for (attracting) investment – whether local or foreign direct (FDI).”

With 90 per cent of Nigeria’s revenue coming from crude and external reserves at about $36 billion, Oteh noted that “the development in the Middle East as it affects oil prices is another opportunity to rebuild our reserves.”

Speaking after receiving the award, Amaechi said: “the Rivers State Government is going to court against the Federal Government over the Sovereign Wealth Fund.”

According to him, the state government already sets aside N1 billion monthly, besides the money contributed for an Independent Power Plant (IPP), so “if they want to save, they should save from their 52 per cent share of the (Federation Account).”

Continuing, the governor wondered about the necessity for sustaining the subsidy on oil, since only as few as 10 persons are beneficiaries, and the price of petrol is only uniform in frontline states like Rivers and Lagos, besides the Federal Capital Territory, Abuja.

“Take away the fuel subsidy, nobody is benefitting… Only very few… less than 10 benefit from the about N600 billion spent to fund the subsidy yearly. Invest that amount on power, and the excess in the SWF,” he stressed.


Becoming top 20 economy

Citing the example of Brazil, which is today a major economic force globally, the SEC DG noted : “The interplay of capital market and economic developmentis one reason for the successes recorded by Brazil.”

Urging Nigeria to take out a leaf out of Latin American nation’s experience, Oteh recalled that 20 years ago, Brazil was notorious for poor use of its natural resources, despite its huge population of 250 million. In 15 years however, and with purposeful leadership, she said that Brazil has become the largest economy in Latin America with a GDP of $2 trillion, which is 10 times Nigeria’s, and has an inflation rate of six per cent, compared with 11.2 per cent. Brazil’s capital market, she continued, has a capitalisation of N1.37 trillion, as against Nigeria’s $70 billion.

It is possible, she stressed, for Nigeria to attain that height, with purposeful leadership across the various cadre public and private life, praising the efforts of Governor Amaechi to diversify Rivers State’s economy from oil, by investing in agriculture.

The state, she said, currently has a Gross Domestic Product (GDP) of $21 billion, making it the second largest after Lagos, noting the administration’s focus on education, infrastructure, job creation and healthcare.


Praising Gov Amaechi’s efforts

In eulogising the development strides of Governor Amaechi through his administration’s focus on education, Oteh acknowledged, is something all must acknowledge, besides his government’s strides in the 120 medical centres around

Rivers State. This, she noted, is extremely important, just as the diversification of the state’s economy from oil, a non-renewable resource, which its mainstay to commercial agriculture, and transformation of the state from one in which there was daily news of kidnap of oil workers to one in which foreign multinational firms like “SABMiller (South African Breweries) has made Port Harcourt its headquarters in Nigeria, among others.”

She challenged the Federal, State and local governments to focus on “economic transformation, building a very strong municipal bond market. We cannot transform Nigeria only from the centre, but from all sides.

“Everybody is hoping that Nigeria will get it right this time. Overtaking BRIC nations (Brazil, Russia, India and China) will only happen with visionary leadership,” Oteh stressed.

Also commenting on Rivers under Amaechi, Bismark Rewane, chief executive, Financial Directives Company congratulated he Rivers State governor for turning the state into an “island of excellence (that should be) copied and replicated across the country.”

Responding, Governor Amaechi, while thanking the management of Independent Newspapers Limited for the award, noted that on assumption of office, “the first problem we saw was poverty.”

He warned that unless something is done about social justice and concrete steps taken to fix critical infrastructure, goods and services produced in Nigeria would never compete favourably with those imported.

“To do business in Nigeria, you have to generate (your own) power. Competitive business environment can never be until we become serious with governance.

Address social security by putting massive infrastructure in place to create employment, ensure provision of electricity, leading to employment generation.

“When you deal with social security, you will have dealt with physical security.

Government should diversify the economy. You need to focus on agriculture. Government can divert funds from oil and invest in agriculture,” he added.

Continuing, he promised that when re-elected, his government will build add more to the 400 primary each with 500 pupils and 24 model secondary schools already built. He also promised to continue with the free education and health care across the state.

“We have enough power in Port Harcourt. You people must help us beg the Federal Government to allow us distribute this,” he noted, stressing that the enabling law today vests power distribution solely on the FG and should be changed.