Bank Financing Cannot Address Long-term Funding Needs – Oteh

Director General of the Securities and Exchange Commission Ms Arunma Oteh has just been re-elected Chair of the Africa and Middle East Regional Committee (AMERC) of the International Organisation of Securities Commissions (IOSCO) for another two years. She spoke on the significance of the re-election and efforts by IOSCO and AMERC to restore investor confidence, provide long term funding for infrastructure among others. NSE ANTHONY-UKO captured it for LEADERSHIP

Nigeria is having a third term as chair of AMERC, what does it mean to you and the country?

First and foremost, I think the starting point should be IOSCO, which has 200 members that cover 95 per cent of the capital markets around the world. So first to have qualified as Nigeria, we have been over the years as an IOSCO member is very important. The way that we work as IOSCO is to organise ourselves through technical committees and also by regions. There is an American region, their is an Asia Pacific region, there is a Europe region and then there is an Africa Middle East region which potentially has 70 capital markets, but there is 24 of us today regulators who have met the requirements to become members of IOSCO. First being members of IOSCO means we have met the requirements to abide by global best practises so when domestic or international investors look at our markets, they can feel comfortable and confident that these are markets that operate on the basis of global best practices, that are world class.

 

When you look at Africa and Middle East, they are two regions that have contrasting socio and economic factors, how easy is it to draw a common narrative for both regions when you have them together?

Actually, my perspective is different and I think it also comes from having led the AMERC committee of IOSCO, I think that there is a lot that we share. There are lots of common narratives. I think the level of poverty, the youthful population, the traditional cultures are worth looking at.

We have very traditional societies that have cultures that have come from several thousands of years, we fortunately are countries that have a high number of people who are very poor, whether in africa or the Middle East. We have a youth population which is a positive if managed properly and a time bomb if not managed properly. We are basically the future of the world. If you look at some of the fastest growing economies in the world are actually in these regions. The opportunities for the world basically exists in Africa and the Middle East.

What that means is that you can leverage the capitals markets which I believe is an opportunity for any country to try and realise the potentials of any of these countries. Some of the things that the capital market can do is provide funding for large companies or small companies or for governments for infrastructures.

The countries in Africa and the Middle East have huge needs for infrastructure, setting up Small and Medium Scale Enterprises, to be able to create jobs.

Jobs is an issue not only for Africa and the Middle East, but also for all countries of the world. Being able to support SMEs is also important and the capital market can do that. The capital market can also ensure that as these countries that are building systems based on the best corporate governance practices because funds are directed at entities that merit it, the entities that deserve it, the higher performance entities.

The third thing which is very important is the issue of creating wealth. I think for many of these countries ensuring that the living standards of the people is rising is important and capital markets create wealth either through enabling young people or older people who have ideas to be able to promote these ideas, raise money for those ideas but also to have people participate in the success of those companies.

So those are wealth distribution and income distribution characteristics of capital markets. So I think that those things are important particularly for any country in the world, but more so for these newer economies that in my opinion are the future of the world.

 

What comments do you have on this year’s IOSCO conference?

First the theme for the conference is market based financing, global growth looking ahead. I think there is a general realisation all over the world that banking finance is not going to help us address some of the challenges that we face. One is the stronger and stricter regulations of banks particularly with the entrance of the requirement where they are supposed to put up capital for loans that they make and this is something that has come out on the heels of the global financial crisis as well. I think it is a challenge, it is also a challenge because governments no longer have the resources that they had to support the development of their economies and so there is a greater emphasis, if you look at what the Financial Stability Board is looking at, what the Bank for International Settlement, if you look at what G-20 is looking at, everyone is looking at what are the alternatives.

And the alternative is market based finance because there is a lot more that can happen in that fore. Therefore it is pertinent that IOSCO is focusing on this theme now. And that is why we are having the discussion on how we can scale up the support to SMEs across the world, what are the lessons from around the world that we can learn, how can we make sure that infrastructure financing is available while ensuring that the environment controls the risks that investors have to face by focusing on infrastructure. What are some of the lessons from around the world, what are some of the alternative approaches, which is why there are discussions within IOSCO about the benefits of non-interest financial products and Islamic finance?

 

How do we begin to look at the capital market as a viable source of funding for infrastructural development?

It is interesting that you bring up infrastructure. SME financing and infrastructure are two areas that IOSCO feels that market based financing can help tackle. With infrastructure, it is clearly an area that is important to the development of any nation. Some of the statistics show that Africa’s GDP shrinks by two per cent because of some of the the weakness and infrastructure. We know that our needs in terms of infrastructure in Nigeria is over $3.9 trillion over the next 30 years. The Africa Development Bank says in the next 10 years we would need about $350billion. Therefore the issue is with the challenges government are facing, with banking finance being short term, with some of the more difficult regulatory requirements that banks are facing, the alternative is basically to structure different kinds of vehicles that allow you to go to the capital market and raise money. So you can either have project finance where the specific structure that is set up, where the flows that are received from that particular infrastructure project are used to meet the obligations from that particular structure. So you can have securitisation, you can have project finance, you can have a variety of options which are available in the capital market.

Just as SME finance needs patient capital, it also needs you to match the requirement of certain investors with the different structures that infrastructure can provide. It can be structured such that you can have predictable cash flow which is what some investors require, it can be structured such that you can match long term liabilities with long term assets. So it also gives you an opportunity that other kinds of vehicles may not give you, it is great that we are focusing on infrastructure as well.

 

Talking about SMEs, how is this going to be improved using the capital market?

There is recognition globally about the importance of SMEs because they are the ones who create jobs. There is a greater focus on how SMEs can be supported. In Nigeria, President Goodluck Ebelo Jonathan recently set up an SME council, he set up a job board, all of that is focused on how we can practically address the challenges we are facing with SMEs. Our capital market is an absolutely important solution for a number of reasons. The first one so that we need economies of scale. We need to provide funding at reasonable cost.

 

 

 

Source : Leadership

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