From an all-time high market capitalisation of N13.5 trillion in March 2008, the Nigerian capital market crashed to N4 trillion by January 2009. The All-Share Index also nose-dived from a historic 66000 basic points to less than 22000 within this same period. The summary of this grim statistics is that millions of Nigerians who invested in the market lost life’s savings and investments. As with any tragedy of such magnitude, the government sought to find out what happened.
Three prominent reasons stood out – the global financial crisis of 2008, the unprecedented growth of the Nigerian banking sector being partly spurred by high-level insider trading and the fact that regulatory bodies like the Central Bank of Nigeria (CBN), the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) were caught napping. Predictably, the House of Representatives, in 2011, moved to exercise its oversight functions by probing the crash with a view to resuscitating the market and avoiding a repeat. In the course of this campaign, the lawmakers crashed into Arunma Oteh.
The SEC, as the primary regulator of the capital market, changed leadership in 2010; one year after the crash and Ms Oteh emerged as the director general. She came highly qualified; with an impressive resume in the capital market section of the African Development Bank and a history of managing capital in excess of billions of dollars. Nigerians heaved a sigh of relief as she hit the ground running with a series of reforms and interventions all in the name of protecting investors and building a world-class capital market. However, this run was halted with the House of Representatives probe.
Ms Oteh’s clash with the Herman Hembe-led House of Representatives Committee on the Capital Market is widely known and this article will not go into the sordid details. The summary is that Mr Hembe is on trial for soliciting bribes, while Ms Oteh has been cleared by an independent investigator of the various financial misdeeds the lawmakers threw at her. However, the battle is yet to be over as the House has gone ahead, through its ad-hoc committee constituted after Hembe’s version was disbanded, to call for her removal. While the diversionary tactics continue, Ms Oteh has been put back on the saddle and Nigerians are watching keenly to see how she continues the task of rebuilding confidence in the market via the powerful regulator.
The SEC, as a regulator and developer of the Nigerian capital market, is primarily mandated to register and protect investors, ensure fair-play among all players, and develop and facilitate efficient markets. As the supervisor of operations at the Nigerian Stock Exchange, the SEC has the task of ensuring that the estimated 28 million Nigerians that own shares in listed companies, and their dependants, are not short-changed. Sadly, prior to 2010, the SEC lacked the requisite capacity to effectively carry out this mandate. The regulator did not possess the technological capacity to ensure adequate monitoring; it lacked sufficient human capital to enforce compliance; it also lacked the will power to function effectively. All these factors, and more, exposed the Nigerian investor to significant danger, and that danger became a reality when the market crashed taking life savings along with it
To avoid a repeat performance, the federal government has rolled out various intervention programmes – from improving liquidity via a proposed forbearance package to revitalising the banking sector – all aimed at removing the dangers and encouraging the resuscitation of the capital market. While the banking sector reforms have been successfully carried out via the CBN, the federal government needs to move faster on regaining investors’ confidence by intervening in the estimated N300 billion debt overhang that emerged from margin loans incurred by stockbrokers. The government has shown sincerity in this regard via the various speeches credited to Finance Minister Ngozi Okonjo-Iweala. It has also shown a sincere commitment to revitalising the market by swiftly resolving the crisis at the SEC.
As all stakeholders will agree, the SEC is the real driver of this reformation and Ms Oteh’s agenda has been thrust under a brighter spotlight as she gets back behind the wheels. The four-part agenda that she introduced before the leadership crisis – build a world class capital market; address investor education and capacity building; support the strengthening of the NSE; and strengthen SEC – has been widely acknowledged by financial experts both in Nigeria and internationally as the required road map to lead the capital market out of the woods.
We’ve already seen action. There are ongoing legal proceedings against 260 firms and individuals that committed infractions and put investors at risk. The litigation has been backed up by investor education through outreach programmes. In terms of supporting the NSE, the SEC approved revised listing criteria that make it easier for oil and gas companies, along with medium-sized indigenous companies, to list on the stock exchange. And on the home front, the SEC has injected its ranks with young professionals and provided training across the cadres.
However, industry experts will expect Ms Oteh to take it a notch higher by ensuring that ongoing legal proceedings against the 260 individuals/entities found to have engaged in sharp practices is taken to a logical end. Nigerians are tired of law suits against fraudsters that rarely result in convictions. People have to be made to pay for their crimes. Investor protection needs to be backed by reasons for confidence in the market, which will only happen if the approved listing criteria engender new listings, and don’t fall victim to being another great change on paper. Finally, there is the house-cleaning, which continues to generate friction between workers and Ms Oteh. It is expected that the workers will come round and see the sense in getting equipped with international operating standards in order to be able to effectively carry out their roles. The workers will only be able to say they have justified tax payers’ funds if the average investor can go to sleep knowing that he/she is being protected from sharp practices.
The debt that Ms Oteh, the federal lawmakers, and indeed all stakeholders in the nation’s economy owe the Nigerian investor is to strengthen the system by these reforms to forestall a repeat occurrence. The Nigerian capital market, and indeed the economy, is one that holds immense potentials and can be positioned among the global leaders given the right enabling environment. Ms Oteh should then be allowed to do her bit in ensuring this environment by building a regulator that will outlive us all and benefit generations to come.
Somefun, a stockbroker/financial analyst lives in Ikoyi, Lagos