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Friday, June 15, 2012

NIGERIAN CAPITAL MARKET: THE PROBLEMS IN SEC


   The current crisis brewing out of the head quarters of the security and exchange commission (SEC) warns one that it is not yet time to celebrate. It is not a return to the good old days of 2007. The suspension of the Director General of the security and exchange commission by the board on Tuesday on accusation of misappropriation of funds, wasteful expenditures and corruption is a signal to the problems in the organization. But, its management have continued to hide that fact from the eyes of the public. It will be recalled that the Director General of the commission Ms Arunma Oteh came into office in 2010 after the resignation of her predecessor Musa Al-Faki on allegations of corruption and shady dealings involving listing of  shares of AP petroleum companies own by Femi Otedola who is currently involve in another corruption scandal on fuel subsidy. It is about three months now since the house of representative committee on capital market accuse Ms Oteh of wasteful spending and corruption. Ms Oteh on her own part is a controversial lady, recently he was caught in an exchange of fire with the former DG of the Nigerian stock exchange, another controversial lady who has her own cases to answer pertaining corruption allegation in the capital market, each one accusing the other of being corrupt and incompetent. Nigerian authorities have penchant for appointing individuals with baskets of foreign qualifications into top position without recourse to other factors. Ms Oteh was recruited from African Development Bank where he held various positions including that of vice president corporate management & corporate service of the bank. She has an MBA from Harvard in the United States of America. The former DG of the Nigerian Stock Exchange (NSE) Ms Ndidi Okereke and the current DG Oscar Onyeama worked for some years in the US and also earned their degrees there. Like in the now famous case of the US oil giant Enron, having degrees from top schools around the world is not guarantee for integrity and ethical conducts. The earlier Nigerian authorities come to understand that the better. Even the top business schools in the world have now come to realized the importance of emphasis ethical conduct in their regular courses. It now includes visits to prisons to forewarn potential executives against stealing and misconducts.


    Just as in the Nigerian banking industry, effective regulation and ethical conduct is the hall mark of financial sector world wide. It was with the intention of restoring sanity into the Nigerian banking industry after the collapse of the capital market in 2008 that Oteh was appointed. Alas, that look to me a long way journey.  The current management of SEC under Oteh has failed to bring the changes needed to pilot the capital market into a higher level. Just like Sanusi did in the Central Bank of Nigeria. Instead she is foot dragging and lack will power to bring needed changes. Many of what Oteh is parading as her achievements is not more than change of names to inherited regulatory rules and management style. For example, Oteh failed to effectively address the problems that arised from the margin lending crisis that ushered the collapse of the market. Instead, went on to employ high ranking bankers as consultant who are yet to make any difference to the system.  While other Security and exchange commissions around the world are busy developing mechanisms to deal with challenges that arise after the last global financial melt down, Ms Oteh was busy painting offices and hotel booking for her extravagant trips. Until this moment nothing concrete have been achieved on issue of demutualization of the exchange apart from the initial setting up of committees to look into the issue.  While other exchanges around the world have since recovered from the effects of the last global crisis, internal crisis and absence of effective supervision and regulation on the part of the SEC have delayed that in Nigeria. Though, in fairness to the commission and Oteh it has succeeded in suspending some brokers for failing to comply with directive on minimum capital requirements. The commission under Oteh has made amendments to the commission rule and regulation to incorporate ethical/Islamic fund, exchange traded funds, payment of divided etc. It has also organized some training workshops for it staff that consumed a lot of the commission money.


    Though, most of the problems in the commission at the time of Oteh tenure in office were inherited from Al-Faki, looking at the importance of capital market to the economy Oteh should have done more in attending to these issues. In the fifty year history of the commission, it always lagged behind the Nigerian stock exchange it is suppose to supervise. Now that an acting Director has been appointed by the ministry of finance to supervise the affairs of the commission under the leadership of Bolaji Ibrahim (a former director in the organization) we are waiting to see whether Oteh will return to her seat or finally ask to go.  From what is happenings now, it looks like even those close to the presidency are against the return of Oteh back to her seat. Already, Oteh has petitioned the minister of finance Ngozi Okonjo-Iweala over the board decision to send her on compulsory leave. Nigerian capital market, as an emerging market, has failed to live up to it potentials instead trailing behind it competitors such as those of Egypt and South Africa. For example, bond issuing in the market is still at primary stage of development, likewise the development of ethical instruments such as the Islamic bond Sukuk. In term of corporate governance, a lot need to be done to improve the standing of the market. Now that the management of the commission is under prove we wait to see what actions are going to be taken to pave way for rapid development of the Nigerian capital market. The contribution of capital market to the development of economies such as that of Nigeria cannot be under estimated, needles to say one does not need to explain it here. For example, the rapid development of the financial superstructure in Malaysia and Singapore would not have taken placed without the simultaneous development of the capital mark