A former development banker and Nigerian regulator reflects on the importance of capital markets.
Hi, and welcome to The Long View. I’m Dan Lefkovitz, strategist for Morningstar Indexes. Our guest this week is Arunma Oteh, currently of the University of Oxford Saïd Business School. Arunma is a former treasurer of the World Bank and also served in various leadership roles in the African Development Bank. In 2010, she became Director General of Nigeria Securities and Exchange Commission, and she led that apex regulator for several years following the global financial crisis. She writes about the experience in the recently published book All Hands on Deck: Unleash Prosperity Through World Class Capital Markets. Arunma is a graduate of the University of Nigeria, UNN Nsukka, and Harvard Business School.
All Hands on Deck: Unleash Prosperity Through World Class Capital Markets
“Nigeria’s Iron Lady Takes on Fraudsters,” by Caroline Duffield, bbc.com, July 1, 2010.
“Changing the World One Bond at a Time,” Rita Stankeviciute and Kathleen Manahan, worldbank.org, July 18, 2018.
“Nigeria SEC Boss, Arunma Oteh, Fights Back,” YouTube video, March 15, 2012.
Securities and Exchange Commission, Nigeria
“A Tale of 2 Exchanges: As FMDQ Thrives NGX Plays Catch Up,” by Bala Augie, moneycentral.com, Oct. 2, 2021.
(Please stay tuned for important disclosure information at the conclusion of this episode.)
Dan Lefkovitz: Hi, and welcome to The Long View. I’m Dan Lefkovitz, strategist for Morningstar Indexes. Our guest this week is Arunma Oteh, currently of the University of Oxford Saïd Business School. Arunma is a former treasurer of the World Bank and also served in various leadership roles in the African Development Bank. In 2010, she became Director General of Nigeria Securities and Exchange Commission, and she led that apex regulator for several years following the global financial crisis. She writes about the experience in the recently published book All Hands on Deck: Unleash Prosperity Through World Class Capital Markets. Arunma is a graduate of the University of Nigeria, UNN Nsukka, and Harvard Business School. Arunma, thank you so much for joining us on The Long View.
Arunma Oteh: Dan, I’m delighted to join you, and I look forward to our conversation.
Lefkovitz: Likewise, it’s great to have you. I really enjoyed your book All Hands On Deck. You say that one of your goals in writing the book was to debunk the myths around capital markets. Maybe you can explain how and why you think capital markets are misunderstood.
Oteh: I’m sure you share some of the views since you work for Morningstar. I think a lot of people assume that investing is actually gambling or it’s for rich people. And so they feel excluded from that game. And I was fortunate to come from a family where my parents invested in the stock markets and basically complemented their income, paid for my education through investing in the stock market. So one of the things that I’ve always been keen to do is to make sure that as many people as possible understand the value of capital markets, the value of investing, the value of saving. And my view is that finance is life and so that people shouldn’t feel so removed from something that should be basically a part of their day-to-day life. The other myth is that it’s just so difficult and it’s too challenging. So it’s things that people who are really bright do. It’s enjoyable. You learn every day. I mean, there’s so much that you learn, but there are experts. There are financial advisors that can provide you guidance. There are mechanisms to support individual investors and other investors to make sure that the markets work. And so there’s a lot of support that people have.
The other thing is that, there are other things, other myths, which is that when some stock prices are low in price and some are high in price and when they’re low you buy, when they’re high you sell. Rather than they focus first on what are your investment objectives, what is your profile. I would say, for example, that a young person or a wealthy person can be more open to riskier investments. And someone who’s older, who’s retired, needs to be a bit more careful. What does that mean for the kinds of investments that you make? I also think that a myth that is true, it’s a myth, but I do always say that if it’s too good to be true, it’s often too good to be true. If somebody is scamming or selling you something that is unusual, you should ask a question. First of all, has the person created their own wealth through that?
Secondly, is it something that’s well known today? I would say compared with when my parents started investing in the capital markets, today there are so many resources available that basically are available in your phone, on TV. And my parents weren’t expert. My father was an engineer. My mother was a nurse. And both of them basically learned to invest in the capital markets. They needed to complement their income as middle-level government officials if they wanted to give us a kind of education that we were fortunate to have enjoyed through their hard work and through them being able to invest in the capital markets.
Lefkovitz: You described in the book your father having you read annual reports for companies as a young girl?
Oteh: My father had some very unique ways of bringing up children. But one of it, which anytime I’ve told the story, which is why I share it in the book, people first of all chuckle that an 8-year-old was having to read bulky annual reports of the companies that my parents had invested in after dinner. Then, they chuckle first and they kind of think, OK, maybe we should actually consider investing in financial education for our children from when they’re young. I remember at the time, I didn’t think that I understood a number of the concepts. I grumbled about it because after dinner you want to kind of spend a little bit of time enjoying a game or playing some more before it’s time to go to bed. But the tables turned, and my father wanted me to be an engineer. And so when I started a finance career, I said to him, well, you started my career as an 8-year-old. So you shouldn’t be complaining if I’m going into finance.
So, when I look back on my life and look back to starting as an 8-year-old, understanding the value of finance, the discipline of saving, the discipline of investing, the importance of saving for the future, it really, for me, makes me feel that it should be a requirement for every young person to understand the value of saving, the value of investing, the opportunities available in their environment to build wealth from earlier on. And of course, you and I understand the concept of compounding, the concept of time value of money. And so the earlier you start in building wealth, the more likely that you will be wealthier. But I also go beyond just the focus on building wealth to say that the skills that you get taught in finance are actually life skills, the discipline to forego immediate gratification so you can have future gratification. The idea of thinking about how do you make sure that you can manage your life today but also manage it for the future? How do you have an emergency fund? How do you understand the environment?
One of the things I love about finance is that the idea of learning about finance is that you need to learn about what’s happening in the world. What happens in the macroeconomic environment affects what happens to individual businesses, affects how your money is doing. If you live in Nigeria or you live in Japan or you live in America, that environment, the inflation in any of those countries would affect the value of your wealth. So the discipline of finance kind of exposes you to how to manage your life in a way that allows you to have a good life, essentially. So my call to action is actually much broader. It’s like, it’s good to build wealth, but it’s also good to have a good life. And the discipline of finance is a discipline that we can all enjoy and, in a sense, make it a lifelong skill.
Lefkovitz: I did want to turn to your experience running the Security and Exchange Commission of Nigeria. You took over in 2010, and you describe in the book the journey from Tunis to Abuja, the capital of Nigeria, literally the journey as sort of epitomizing some of Africa’s challenges. Could you talk about that?
Oteh: Yes, it’s interesting that you did note that. I was very particular about it because having worked for 17 years at the time at the African Development Bank, I was at a point in my life where I thought that it would be more impactful if I could return home to Nigeria and contribute. And so a year or two prior to when I was appointed as the director general of the SEC Nigeria, the Security and Exchange Commission of Nigeria, I had started talking to my network about my desire to return to Nigeria and contribute. And some of what was driving that, having spent time working in North and West Africa, seeing all of what we won’t call challenges, but all of the potential opportunities. So issues around connectivity. What still exists today across countries. So one of the stories I do remember telling, sharing is around the fact that I lived in Tunisia and there wasn’t a direct flight to Abuja. So literally I would do Tunisia-Paris, Paris-London, London-Abuja. Yet it was a much easier flight to just have a direct flight from Tunis to Abuja.
And that’s the same story that happens across the continent. When you want to travel, it’s a little better today. There’s more connectivity, but there’s a lot more to do. I mean Dubai is a hub, Paris is a hub, the UK is a hub. Fortunately today there are a few flights out from the continent that go directly into the US, but not as many. So there are challenges of connectivity, but there are also opportunities that the capital markets can help resolve. Essentially there’s loads of opportunities. And for me, I come at the issues around the continent as to, my God, how can you have such a wealthy continent and not have, after so many years, the continent be able to respond to some of its needs? In the book I do talk about some of the wealth very early in the book. Ninety percent of the world’s platinum comes from Africa; 80% of the world’s manganese comes from Africa; 75% of the world’s diamonds in value comes from Africa; 70% of the world’s phosphate is from Africa; 80% of coltan, 60% of cobalt, 40% of gold, 40% of chromium, vast deposits of bauxite, uranium, iron ore, zinc. And I can go on and on. Lithium, lead, 60% of the world’s uncultivated arable land. So I don’t know if it happens to you, but when I’m on a flight, it’s an opportunity to contemplate. And I was going to take on this rule. And my view was that I was going to lay the foundation to develop capital markets that can help Africa unleash its potential, unleash its huge wealth.
Lefkovitz: And you also write that you were initially interested in taking over the Ministry of Power and Works in Nigeria, and there were some discussions around that. What intrigued you about that role?
Oteh: So most Nigerians will understand this when I share it. And now that South Africa has had to deal with load shedding or Sri Lanka had a power outage. So despite being a nation, Nigeria, of 200 million people, its installed capacity in terms of power is what I would consider the equivalent of one fifteenth of the installed capacity of South Africa. So most Nigerians essentially depend on providing their own power. And so for a business, a small business, I think it adds about 30% to the cost of business because they have to provide their own power. So if you live in the US or live in the UK, you essentially never have to worry about a power outage except if there is an extreme event like a storm. While on a day-to-day basis, you’re worrying in Nigeria about having power. And it’s a very unfortunate issue. And the reason it is a very unfortunate issue is because there’s huge amounts of sunshine, there’s thermal power, there’s hydro. And of course, it’s also a country that is amongst the top 10 producers of hydrocarbons in the world.
So there’s no reason why it should be underperforming in power. And at the time, when I had interactions with the then president, late President Yar’Adua, and he was talking to me about being a member of his cabinet, he had expressed a desire for me to consider the ministry of finance. And I essentially said that I thought where there really was work that needed to be done was actually in the power sector. Nigeria is doing slightly better, but it’s still struggling in the power sector because there are many interdependencies. It depends on the sources of the energy. So some of the challenges with the hydrocarbon sector is a problem. There’s a lot of legacy issues to manage. There’s a lot of, in my view, it’s a source of, it has a lot of institutional weaknesses, governance weaknesses. And at the time, I thought it’d be an area that would be challenging. Of course, I don’t remember if I shared in the book that my sister was praying, oh my God, she’d been away for 22 years. I hope that she doesn’t touch the sector because it’s also a very highly politicized sector and all that. And I suspected her prayers that made sure that I didn’t become the minister of power at the time.
Lefkovitz: Well, you ran into some political entanglements as the SEC DG as well. But maybe you can talk a little bit about what the state of the Nigerian market was like when you took over in 2010. It was the aftermath of the global financial crisis and Nigeria was heavily affected.
Oteh: So most people have lived through the global financial crisis. Although when covid happened, I said to myself, it felt like the global financial crisis was child’s play. And others have read about the global financial crisis, and even though it originated in the US because of the challenges of subprime lending and of course, the geometric effects of having securitization of those assets, it’s something that essentially affected the entire world. And for me, the starting point is that most countries are connected to other countries and that even emerging markets that appear removed from the more developed markets are also very, very connected. So what happens in one market affects another market. Nigeria, as I said, is among the top 10 producers of oil. And with the global financial crisis, oil prices declined significantly. And Nigeria’s foreign exchange reserves, basically 90% of it still comes—I think now it’s probably about 80%—comes from oil production. And so the impact of what was happening globally affected Nigeria.
But also the same kinds of issues that you saw in the US and Europe where there was laxity in risk management practices, I would say most regulators were sleeping on the wheel was also what happened in Nigeria. So at the time that I joined the SEC, Nigeria had just gone through a recapitalization exercise for its banking sector. And what was supposed to have been a great exercise where banks were raising their capital several times to strengthen them wasn’t as well managed as it could have been managed. And so a number of the banks in trying to meet capital requirements, then participated in some capital market abuses, where they were doing pump and dump. They were increasing the prices of their shares; retail investors were excited about the direction of prices. And they were pumping and dumping these shares. So when prices got to a particular level and retail investors had gotten into the market, then some of these players will then basically bring down the share prices significantly. And a number of retail investors lost some of their life savings. And a lot of it, in my view, started with the regulator itself, not necessarily focusing on what was going on. In a lot of jurisdictions, margin lending is very, very carefully regulated, especially with respect to banking stock, because of the impact of banking stock on an economy.
There were no margin-lending guidelines at the time I came in. So the central bank at the time and ourselves at SEC worked together to develop rules. Nigeria basically uses the US Securities and Exchange Commission model. And that model, basically one of the principles is that you build trust through making sure that wrongdoing has consequences. So an enforcement regime is a very important part of that model. And it’s really one that was inherited from the US. And so when I came in, we were very particular that any illegally gained profits will be discouraged, that we would bring people to book. The SEC wasn’t at the time very well recognized. Most people didn’t understand what the SEC did. Some people thought it was a subsidiary of the only exchange that we had at the time. So one of the things that I did was partner with the Department of Public Prosecutions and with the police, there were police officers that were seconded to the SEC Nigeria at the time. And so that when we took enforcement action against schemes, similar to Ponzi schemes, that we had teeth.
The police officers were literally able to take care of the criminal issues because the SEC didn’t have jurisdiction over criminal issues. So the first part was really to restore trust from investors, because people essentially had lost their savings. They’d moved away from the market. The Nigerian capital market was one that enjoyed domestic and international investors, retail and institutional investors. So starting with restoring the confidence of investors was a key thing that we thought was important to do. The other part was really to make sure that there were products that supported both retail and institutional investors. So we broadened the type of products that existed in the market. So as I said, the market was predominantly equities, predominantly banking stock. We encouraged other sectors to list shares. We encouraged retail investors to consider collective investment schemes, mutual funds, or exchange-traded funds, because the culture and the tradition in the Nigerian capital markets was that people invested directly. And so we had a number of educational programs to explain the value of collective investment schemes or exchange-traded funds or mutual funds, because an opportunity to diversify risk is an opportunity to benefit from a financial advisor’s experience, you can buy an index, you can buy the index of a market rather than buying individual stock and all of that.
So we saw a significant increase in the collective investment schemes, the retail-driven. There are also some structural and fundamental reforms that supported the development of the capital market. So I think it was in 2002, there had been a series of reforms. One of them was basically the strengthening of the pension sector. So it helped bring in place a group of institutional investors, pension fund operators, who then complemented the insurance entities and therefore broadened the nature of investors that one has, including also asset managers, as I had mentioned. The other was really basically to diversify the products that existed in the market. So the market had a very well-organized sovereign-bond market, but the corporate-bond market wasn’t particularly significant. We were able to ensure that the corporate-bond markets developed. We also, some of the others that are quite significant is today we have three thriving exchanges. The original Nigerian Stock Exchange, which is now called the Nigerian Group Exchange, NGX, but also FMDQ.
FMDQ is an exchange I’m particularly proud of because it was really an example that Nigeria showcased to the rest of the world. It was an over-the-counter marketplace, organized by the money market dealers, and they essentially came to the SEC seeking regulation because they thought it would give them more credibility. And today it’s a full-scale exchange and one that is basically the hallmark, both of our markets, of Nigerian capital markets, but also an example for others to emulate. There was another exchange that we approved, the National Association of Securities Dealers, and basically, they decided that they would provide a trading platform for unlisted public securities. So through the three exchanges, we have a strong fixed-income market, we have a traditional listed securities market, we have an unlisted securities market that are all thriving. So I would say that today the market is more sophisticated, there’s more liquidity, there’s better investment trust, investment confidence, both from domestic and international players, because of the strength of the enforcement regime. And the team at Nigeria Securities and Exchange Commission are a great team, even if I say that because two of them are my staff and one of them used to run the National Association of Securities Dealers platform, the unlisted securities platform.
Lefkovitz: And have you managed to retain that high retail participation rate that existed before the crisis?
Oteh: So there is, I forget the numbers today, but there is a significant increase in the number of retail investors that are now investing through mutual funds and exchange-traded funds, which is what we were looking to achieve. In my time, I remember the interaction with colleagues in Brazil, and I was fascinated because at that time—and I don’t know what the numbers are today, since I don’t work in the Nigerian capital markets today—at that time, they had more investors in Brazil investing through the collective investment schemes than directly. And so we’re seeking to achieve the same because of what it does in terms of diversification and also what it does in terms of, in my view, enabling the investor to leverage what I would consider investment expertise of experts.
Lefkovitz: Well, I’d love to get you talking a little bit about some of the resistance that you met. You mentioned enforcement was a big focus for you and addressing the malfeasance. You earned the nickname “Nigerian’s Iron Lady” from the BBC, and there was this famous episode that went viral, televised hearing at the National Assembly. Can you talk about that?
Oteh: Yes. It’s something that you would think that it was 2012, and so this is 13 years later, and I still, people still talk about it to me as if it’s something that happened not so long ago. So what had happened, I would say that regulators all over the world and at the time, my colleagues in the US SEC, and by the way, the US SEC was a great partner for us. And one of the things about market conduct regulation, which is what securities regulation is more of than central bank regulation, which is more prudential, in how much money do you set aside that allows you to do business, is that collaboration is extremely important so that if the proceeds of any malfeasance, it’s outside of your own jurisdiction, your partnership with another regulator allows you to be able to enforce and have whatever proceeds be discouraged. So the collaboration between market conduct regulators, securities regulators is an extremely important one. And one of the things that helped me very much was actually the collaboration with the United States Securities and Exchange Commission.
In fact, and I’m saying this as a precursor to then talking about what happened. One of the things that I did before I joined was to seek them doing a peer review of the Nigerian capital markets before I joined. And so a few months into me joining, a team came from the US SEC and basically did a peer review of our market because I did want to benchmark as far as—I knew the value of building a world class market and I wanted to benchmark us against building against the best. And in my view, at the time, the US was the gold, and is still the gold standard, because the cost of capital, in my view, basically determines at the end of the day, if investors are confident, then they’ll be able to invest and then you can raise money cheaply. It’s also one of the deepest markets in the world. So for me, that was significant.
So I came in understanding that integrity is the backbone of any market. And what happens when you’re dealing with change and post global financial crisis, there were people who were profiting from what was going on previously. I mean, those who were pumping the price of shares and then when retail investors bought those shares, they would then bring down the price of the shares who were pumping and dumping shares. It was a racket. And usually, you’re going against people who are politically connected, you’re going against people who have a lot of wealth. And so the session that you said went viral was an altercation that I had with the House Committee on Capital Markets at the time. My assumption is that some of them were in cahoots with some of those we were going against, particularly at the stock exchange at the time. So we had put together this, what I consider now was a scheme to try and see how they could take me out. At the time, they had approached us and said that they wanted to do an investigation to understand better the root causes of the 2008 crisis and the impact on Nigeria. Even though it was 2012, and we kind of wondered, I came in to help restore the markets. This was now 2012. We had made significant progress.
A market that had basically declined to 40% of its value would restore the value. And so we thought, OK, we’ll tell them what happened. We’ll tell them what’s going on. And the SEC had always had a tradition, because it does regulation and market development of providing support to journalists, to legislators, to judges, to all market participants as a way to build knowledge in the markets. So we had had this request from the House Committee on Capital Markets to come and explain what had happened in 2008. And we then thought, we’ll also explain what we’ve done to restore confidence in our markets. It ended up being a mob lynching if I could use that term of myself, which I didn’t realize at the time. But what saved me was that the then chair had sent somebody to ask us for a bribe of what was 5 million Naira at the time. And we refused to give the bribe. And so when we were invited to then make this presentation that they asked us to make, it ended up being him questioning my capacity to run the organization, making accusations of my team and I of things that we were not associated with since I joined in 2010 post crisis, and I thought I came to help solve the problem.
And so we had this and he had put me on live TV and was making these accusations. The day prior, we had explained where the markets was, what we had done, and that wasn’t covered by the national networks, the television networks. And so I responded and one of the things, and I don’t know how much time we have, but one of the things I wanted to share is that I wasn’t even aware that we had sponsored this chairman to go to a conference, an emerging-markets conference, and that’s normal. That’s what the SEC would normally do. But he actually hadn’t gone, and he hadn’t returned the money. I found out the day before that hearing, that public hearing. And so I walked into the room thinking, the first day he didn’t let me speak. So they said we should reintroduce ourselves. And I thought I will just explain that this guy had asked us for a bribe of 5 million Naira or had sent somebody to ask for a bribe of 5 million Naira. He’d also had received a ticket. He had received monies to travel and he hadn’t traveled.
And apparently that doesn’t happen in a developing country government where you basically tell legislators to their face that they’ve done wrong. And so that became a big issue. The House of Rep decided that they were going to fight me to a standstill. Fortunately, the then-president—who wasn’t the president who had hired me because the president who hired me had passed on—was very supportive. They’d asked him to fire me. Otherwise they wouldn’t approve the budgets of the country. He was like, oh, this woman is leading some reforms. I’ll support her. They took me to court for defamation. I had a lawyer who was helping me pro bono. So it was really a shake down. But it’s a very short time to explain. I could spend half a day explaining what happened. But for me, the key elements are that in these roles, you come into a public sector, my sister was worrying about me being minister of power.
But as somebody who ran an independent agency established by law that was earning its own income, I still had to deal with politicians. Everywhere in the world, there are good and bad people. And as a public sector official, you will run into good and bad people. And for me, my message is, if you act with integrity, if you do your work well, if you’re courageous, if you focus on what it is that is the assignment that you’ve been given, God will take care of you. Because that’s what happened in my case. And really, that is my message in sharing that story. It’s a story about how does a public-sector leader deal in this environment? And I would say all of the world, that’s what’s going on in America, everywhere else in the world today, you’re having to make a decision about how do you make sure that you work in respect of your values, even in the private sector. So for me, it was really a story about leadership.
Lefkovitz: So you’ve worked at development banks, the African Development Bank as well as the World Bank in various capacities. Maybe you can give us a little bit of a sense of what these development banks do and what sorts of roles you held for them.
Oteh: So the African Development Bank is exactly the World Bank that focused on Africa, in terms of the countries that it does business in, where it lends to. It’s owned by all African countries and over 20 non-African countries. Nigeria is the largest shareholder. The US is the second largest shareholder. Japan, Germany, Egypt, and a number of other countries are in the top 10 shareholders. So it’s a mix of African countries and non-African countries. And I said the model is the same in terms of having this cooperative institution that is triple A rated because it is a cooperative institution that has both countries that are highly rated and also, it’s the lender of last resort, essentially. So in terms of the roles that I had, I had a variety of roles at the African Development Bank. I started off as a lending officer that lent to projects in West and North Africa. I covered Egypt, Sudan, Ghana, Nigeria, Sierra Leone.
So many countries in North and West Africa. So I did that when I joined the African Development Bank first. And I think after a year, I moved to Treasury. And Treasury in Development Banks is slightly different from Treasury in Commercial Banks. So Treasury has both sides of the balance sheet. So you are in corporate finance, raising money for the business, so issuing bonds in international markets. And there’s the other side of the balance sheet where you’re managing money for the institution and managing money until that money is then provided to fund projects, the projects that that particular institution invests in. So I spent some of my career working in corporate finance and that entailed several areas. One of them was raising money around the world. So I raised money in the US. I raised money in Europe. I raised money in Japan. And raising money means that you’re basically explaining to institutional investors why you’re a highly rated institution.
And you know people have biases. So people are thinking, OK, this organization focuses on Africa. So how come it is a AAA rated institution? So explaining the basis for the strength of the organization, which is first of all the shareholding as I pointed out. Secondly, the quality of its policies and its practices, which I kind of explained as to the fact that most of its borrowers will never owe it. And if they have difficulty paying back, it’s a temporary difficulty versus what happens with commercial banks. It’s a cooperative institution. There is another aspect which I haven’t talked about. So the way that the capital of development banks are structured is that there is that part that is paid in and there is a part that is called the callable capital. And the callable capital is basically a commitment that each shareholder, so each country makes that in the unlikely event that there is a call on capital, that particular country will pay to the extent of the proportion of its shareholding. In many cases, it could be for every dollar of paid in, there’s $12 of callable capital. And that callable capital is only available to pay bondholders. That is partly one of the reasons why the development banks are AAA rated. Because even in the unlikely event, and none of these organizations have gotten to a point where they’ve gone bankrupt.
But even at that stage, every country to the extent of the callable capital that they have committed to will commit to making sure that they will pay bondholders in the unlikely event of a bankruptcy. So it’s a very unique business model. And that’s one of the things that also showcases the strengths of the organization. So one area that I worked in was really raising funds globally. The other area that I worked in was actually managing the capital from the shareholders. Because it was a cycle of every 10 years when I was at the African Development Bank, there will be a request to replenish the capital of the African Development Bank. And I worked on that. The other bit that I should say is that these organizations are structured in a way where they’re actually a group of institutions. So there is in the African Development Bank group, there’s the African Development Bank, which borrows predominantly from the capital markets. And then there is the African Development Fund, which is funded primarily by donations from the more wealthy shareholders. And those donations are used for social projects in the poorer countries.
I then worked in the trading room. I covered, I managed a dollar book, I managed the euro book. In fact, I was in the trading room at the time that you still had Spanish peseta, Deutsche mark, French francs, and I managed some of those books. So as I said, the difference between a commercial bank Treasury and a development bank Treasury is that you’ve got the liability side, which I described earlier, and then the asset side, which is a trading room function. In most commercial banks, it’s just the trading room function that is called Treasury. The development banks also leverage the sophistication of their Treasuries to provide products to their clients that are developed by a Treasury. So that’s another area. They’re also the bank to the bank. So the back office, the payments, settlement of transactions is also handled in Treasury. So I was a corporate finance officer. I was a trader, investment manager, then I ran the trading room.
And after running the trading room, I competed to be treasurer. I became the treasurer of the African Development Bank. I can talk a little bit about the World Bank because it’s a much bigger organization. And so the Treasury is obviously much bigger than the African Development Bank. But when I was treasurer, we basically raised $50 billion from around the world. And we had a derivatives portfolio of about $500 billion. And the reason we had a derivatives role, we basically used derivatives for risk management. So the World Bank is a dollar-reporting entity. And so we would issue around the world in Japanese yen, in Singapore dollars, in Brazilian real, and we will always convert it so that the obligation will be in dollars. We managed about USD $100 billion for the World Bank Group, USD $70 billion for the World Bank. And as I said, these entities are groups of institutions. So the World Bank has five institutions. It’s got the World Bank, which is the International Bank for Reconstruction and Development. It’s got the IFC, which is the private-sector arm.
Quasi-independent, has its own ratings. It has the Multilateral Investment Guarantee Agency, which is the insurance arm. It has a settlement arm. And it has the equivalent of the African Development Fund, the International Development Association, which basically supports poorer countries. And when I was treasurer, we decided as a way to expand the funding sources after almost 60 years, that the International Development Association will also issue in the capital markets. And not having had debts in almost 60 years, it also got a rating of AAA and still maintains that rating. What are things that’s unique about the World Bank Treasury is that it provides investment management services to central banks around the world. So in my time, we were managing money for 65 central banks and other official institutions.
We also provided debt management and risk management services to around 130 clients, ministries of finance and debt management offices. Unlike the African Development Bank, it’s got an arm that supports the rest of the World Bank in developing products that it uses for its own lending and financial-services operations. So I just wanted to add that perspective. And by the way, I always share this bit when I talk about the World Bank. In my time, the annual settlement and payment cash flow was $7.3 trillion. So in its role as bank of the bank, pretty significant in the financial system of the world. A lot of the innovations that are very, very important to society have come out of development banks. The first formal swap was done between IBM and the World Bank. The first green bond was issued by development banks. In my time, we did the first pandemic bond, we did the first blockchain bond, we did the first SDR transaction. So one of the things that I also hope, and I hope that my next book we’ll be talking about development banks—is really that people better understand the value of these organizations to society. So thank you for giving me a bit more time to kind of add that perspective as to the value of the development banks and particularly the World Bank.
Lefkovitz: We’ll have to have you back on the podcast after that next book comes out. I’m afraid we’re out of time Arunma, but this was fantastic.
Oteh: Well, thank you very much for inviting me and I look forward to my next book so we can have another conversation.
Lefkovitz: There we go. Thank you so much for joining us on The Long View.
Oteh: Thank you very much.
Lefkovitz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts. You can follow on socials at Dan Lefkowitz on LinkedIn.
George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week. Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at thelongview@morningstar.com. Until next time, thanks for joining us.
(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording and are subject to change without notice. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates, which together we refer to as Morningstar. Morningstar is not affiliated with guests or their business affiliates, unless otherwise stated. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. This recording is for informational purposes only and the information, data, analysis, or opinions it includes, or their use should not be considered investment or tax advice and therefore is not an offer to buy or sell a security. Morningstar shall not be responsible for any trading decisions, damages, or other losses resulting from or related to the information, data, analysis, or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision. Please consult a tax and/or financial professional for advice specific to your individual circumstances.)