Oteh has helped develop new financial tools to address the world’s most pressing issues

The former Director-General of the Securities and Exchange Commission of Nigeria and current Treasurer of the World Bank, Ms Arumah Oteh in an exclusive interview Euromoney, talks about the difference the capital markets can make and her previous career fighting corruption in Nigeria.
“I’m always interested in how you can use the capital markets to make a difference,” Arunma Oteh says. The treasurer of the World Bank, who meets Euromoney during a recent visit to London, says this fascination with finance came to her – or rather, was forced upon her – early on.
“I spent my career in the capital markets because of what was discussed at the dinner table with my father,” she explains. After dinner, when she was only a young girl, her father made her and her sisters read the annual reports of the companies whose stocks on the Nigerian exchange he was invested in. “I hated it. I couldn’t believe that this was what we did every night.” But, she adds, this served as a valuable lesson and gave her work life a direction.
“From when I was a child, I recognized the power of the capital markets.”
As the treasurer of the World Bank, a position she took up in September 2015, she has never been in a better position to harness that power. Oteh and her team have been thinking of new, treasury-driven ways to address the world’s most pressing issues, from pandemics to refugee crises. Oteh, nursing a cold in the drab London weather, orders Earl Grey tea and honey; she likes her tea well brewed. She speaks with great enthusiasm of the work of the World Bank treasury, which, in her view is “such a compelling story”, but one “that isn’t told”.
This is a year of particular significance for the treasury, as it marks the 70th anniversary of the bank’s first bond, that is, of the first time the treasury impressed its mark on the institution. “For me it’s such a fascinating year,” says Oteh.
She wants 2017 to be remembered as one of particular innovation for the treasury. But she also wants it to be an opportunity for reflection on what it has done so far. Although relatively new to the organization herself, she speaks with passion of the role the treasury has played at the bank in decades past.
She remarks that the treasury has been able to greatly leverage the relatively small amounts given to the Bank by the many countries that form its shareholder base. Although it has received funds of just $15 billion over 70 years from its member states, the International Bank for Reconstruction and Development (IBRD) – chronologically the first, and still the largest, of the World Bank’s divisions – has lent as much as $650 billion to countries in need of financial support.
“That $15 billion is what has enabled the World Bank to yield the influence to help economies grow around the world,” says Oteh.
“For me, that’s significant.” Gaining trust that the World Bank has been able to punch so much above its weight is due to the efforts of the treasury and in particular to its ability to tap the capital markets.
Oteh says the treasury has managed to gain the trust of investors by virtue of how prudently the institution is managed and because those who borrow from the World Bank almost always pay it back. The treasury borrows around $50 billion a year from the international capital markets, reaching a record of $63.5 billion two years ago.
Oteh notes that in recent years, dependence on the treasury has boomed. Before the financial crisis, it borrowed a maximum of $20 billion annually, she says. The borrower programme has tripled since then because of countries’ greater need for funding to cope with the aftermath.
The treasury borrows in 20 currencies a year, on average; it has borrowed money in 60 different currencies since its foundation. It is also an extensive user of interest rate and currency swaps for hedging, with about $30 billion in annual volume and a swap book totalling around $250 billion. Asset management is another one of its remits.
The treasury now manages around $150 billion in global liquidity portfolios and balanced funds for the World Bank Group, the staff retirement plan, central banks and other multilateral organizations. The treasury works for all of the World Bank’s divisions, including the IBRD, the International Finance Corporation (IFC), the International Development Association (IDA) and the Multilateral Investment Guarantee Agency (MIGA).
Being a leader is about being able to discover new markets – Arunma Oteh,
World Bank Bank’s projects so far this century, the one that makes Oteh most proud and that the treasury has been a part of is the International Financing Facility for Immunization (IFFIm), launched in 2006 to increase the availability and predictability of funds for immunization programmes.
She says the impulse began with the UK Prime Minister Tony Blair and UK Chancellor Gordon Brown, who “had the idea of having the capital markets allow you to frontload the resources, so that you tackle the problem and you can have pledges come in to pay back on that frontloading.” IFFIm, which uses long-term pledges from donor governments to sell vaccine bonds in the capital markets, was the first-ever aid-financing entity to attract legally binding commitments of up to 20 years from donors. Long-term pledges total $6.5 billion.
She also speaks with pride of the bank’s pioneering role in the green bond market. It issued its first in 2008, and has since raised $10.2 billion through 135 transactions in 18 currencies. Oteh says that the bank’s shareholders have been supportive of these projects and realize the need to keep funding worthwhile endeavours. “There’s recognition by the large shareholders that you can’t count nickel and dime over development, you need to put money,” she says. “And the needs are huge. I think everybody understands that if we have to solve poverty problems, it’s everybody’s problem – and we have to put money to it.” The wide range of the treasury’s activities – asset management, advisory, bond issuance, risk management – gives the World Bank the breadth of knowledge to structure transactions in new ways “that people haven’t even thought about”.
Philosophy of innovation
The philosophy of innovation is behind the treasury’s attempts to find funding to tackle some of the world’s most pressing issues. One that Oteh speaks of with particular enthusiasm is a pandemic emergency facility – the first instrument of its kind that aims to reduce delays in getting funds to areas in urgent need of support to cope with the spread of a disease.
She says this endeavour is in reaction to the Ebola epidemic of 2014, which took hold in Sierra Leone, Liberia and Guinea and at one point threatened to spread more widely in West Africa.
“There were a lot more lives that were lost, and a lot of development gains in those countries rolled back, because the world wanted to move but it wasn’t quick enough,” says Oteh. “So the World Bank said we need to have a standby facility so that when you have an outbreak, we can move quickly.”
The World Bank treasury and the World Health Organization worked together to answer this problem. “We came up with this idea that we could work with insurance companies, re-insurance companies and provide a product, but we could also work with investors in cat [catastrophe] bonds and try and have them provide that leverage,” says Oteh.
The result was the Pandemic Emergency Facility (PEF), a $500 million scheme announced at the G7 finance ministers meeting in Sendai, Japan, in May 2016, and designed to funnel financial assistance to an outbreak area as soon as certain severity triggers are reached to prevent an epidemic from taking hold.
Developing this product was particularly important to Oteh, as she was near the outbreak of the epidemic at the time and was well aware of the risks it presented. “I was in Nigeria when Ebola struck,” she says. “I say this not because I’m Nigerian, but if it had hit the Nigerian people it would have been a pandemic for the world, in the same proportions as we had during the Spanish fever. “God helped us,” she continues. But she quickly adds, paraphrasing an Arab proverb: “God can help you, but tie your camel.” This new fund is the World Bank’s attempt to hitch the camel safely. Refugee crisis another big project the treasury has been working on is aimed at dealing with the refugee crisis born out of the Syrian civil war.
Oteh tells Euromoney that the bank’s European shareholders came to it asking if the treasury could do anything to address the refugee crisis. We know you’re not a humanitarian agency, they told her, but wondered if the Bank might be able to develop an instrument to financially support the countries most directly affected by the influx of refugees. Oteh says the World Bank was eager to address that issue because it could see the heavy price Syria’s neighbours were paying with large numbers of refugees. “Lebanon and Jordan have seen Syrian refugees come in and put more pressures on their public services,” she says. “They don’t have a choice, they can’t turn back people. It’s not in their culture, and they’re seeing young women and children running from war.”
The World Bank set out to develop a way to reduce Lebanon and Jordan’s cost of funding. To that effect, it launched the MENA Concessional Financial Facility at last year’s spring meeting. It has since become global in scope. The UK was particularly supportive, as it agreed to lend $100 million of 25-year money to the World Bank at 0% interest.
The difference between the rate the bank would have obtained from the capital markets and the 0% rate it obtained from the UK went into the new-born fund. “So we went from market-based to concessional funding,” Oteh says.
“The idea was that Lebanon and Jordan were providing a public good. If they are providing a public good, we certainly should be able to support them. A public good to the world. “Basically the UK lent us 25-year money, which they have because they can print the money.” Japan and Sweden are the other two largest contributors. In total, the concessional financing facility has unlocked $1 billion to support Syrian refugees and host communities in Jordan and Lebanon.
Projects funded so far have included a $300 million project in Jordan to enhance investment and job creation for refugees, and a $200 million roads and employment project in Lebanon. No easy fix while dealing with problems on the magnitude of pandemics or refugee crises is new to Oteh, she is accustomed, from her previous career in Nigeria, to tackling problems that have no easy fix.
Oteh, who was born in Dundee in Scotland but says she is “150% Nigerian”, started working in finance in 1985, when she joined Centre Point, a boutique Nigerian investment bank. In 1987, she left Nigeria and went to study at Harvard Business School. Upon completing her degree she was hired by Harvard’s Center for International Development to do some research and consulting on business in West Africa. “That’s when I caught the bug of development,” she says.
In 1992, she joined the African Development Bank and by 2001 became its group treasurer, moving on to being group vice-president in 2006. But it was when she became a regulator in 2010 that she took on some particularly tough challenges.
She does not often discuss this time in her life with journalists anymore, in part because she does not want to divert attention away from her current work and in part, perhaps, because she does not want to relive an especially arduous period of her life. She does, however, agree to tell Euromoney a little about that time. Her return to Nigeria was a result, she says, of then President Umaru Musa Yar’Adua’s desire to give technocrats positions of responsibility in the country. Rather than make her a cabinet minister, however, he offered her the job of director general of the Securities and Exchange Commission.
“They tried to shake me down. The House of Representatives put me on live TV and made false accusations of me – Arunma Oteh “I just want this market to be cleaned up,” she recalls him telling her.
She says he picked her because he knew that, while she had experience of the capital markets, she did not have a network of close connections in high places in Nigeria, having lived abroad for so long. She could, therefore, the theory went, take on the country’s vested interests without fear or favour.
When Oteh accepted the offer, she did not yet realize how hard that clean-up task would be. “When I accepted the job I thought it was a very technical role,” she says. “But it was a bit more fascinating than I had expected,” she adds, euphemistically.
Oteh quickly removed the head of the Nigerian Stock Exchange, Ndi Okereke-Onyiuke, and moved to bring before a special tribune 250 defendants, including stockbrokers and bank directors, who she said were involved in market manipulation. This did not make her many friends. “They tried to shake me down,” she recalls. “The House of Representatives put me on live TV and made false accusations of me.” Nigeria’s legislators, who, she says, think of themselves as “demi-gods”, accused her of mismanaging public funds. An investigation by PwC eventually cleared her.
Proud Looking back, that experience did not discourage her. “I’m more bullish on Nigeria today after having been head of the SEC,” she says. Although many opposed her, many also supported her. She is proud of her record in reforming the capital markets. She says the Nigerian president, while accused of being corrupt by others, never hindered her in the exercise of her role.
Still, when her mandate expired, she knew it was time for her to move on. She told her older sister: “I don’t want a second term. Even if I’m asked I’m not going to accept.” She says: “Anywhere in the world, being a capital market regulator is a tough job. But in a developing country, it’s an even tougher job, particularly post-crisis, because you’re going after rich people who are politically connected. I knew that I wanted to do it only for five years. Otherwise I’ll turn into an old maid.”
After that she was eager to launch her own business venture and hoped to start an asset management firm in Nigeria, perhaps exploiting the recent reform of the country’s pension fund sector. But Oteh spotted an advertisement for the job of World Bank treasurer in The Economist magazine and – completely changing her plans – decided to apply. What drew her to the role, she says, was the World Bank’s declared ambition to tackle the sustainable development goals laid out by the United Nations and the vision of the World Bank’s group president Jim Yong Kim. Kim is a man she clearly admires; he has sought to lead innovation at the institution and spread the message of the bank’s work more widely since his appointment in 2012.
As for Oteh, beyond the refugee and pandemic initiatives she set up, she has other projects about which she is keen. Among them is a plan to allow retail investors to buy into bonds straight from ATMs – a project she will not discuss at length because it is still in the works. Another is the IDA’s planned entry to the capital markets, to allow it to raise money as easily and flexibly as the IBRD and IFC. The treasury is supporting that project by asking various regulators to provide the same exemptions that the two other divisions of the World Bank have been given to access the market, ahead of a debut bond issue planned for next year. This all fits within her broader view of the treasury’s role. To her, it should continually develop new ways to grow its tool box to support the World Bank in addressing its priorities. “Being a leader is about being able to discover new markets,” she concludes.
Credit: Euromoney