Category: CEO

Phillips Morris Limited Nigeria Managing Director Mr Coskun Dicle, in this interview with TOBA AGBOOLA, says despite Nigeria’s challenges, it is still attractive to foreign investors. He also speaks on why the economy remains attractive to global brands and how his company intends to compete here.

With the state of the economy, why  do you think any global brand will  come to Nigeria and why did you venture into the market at the time you did?

Africa is at the forefront of investment focus for many international companies across a wide range of industries. Within Africa, Nigeria’s human and natural resources, combined with the fact that there has been political stability and democratic governance since 1999, make it an attractive investment destination. From our industry perspective, despite our global market leadership position as Philip Morris International (PMI), we were not present in Nigeria and one of our global competitors was enjoying what we can call a monopoly situation in Nigeria. We began business in Nigeria in 2015, after obtaining all necessary statutory and regulatory approvals. Our objective has always been to provide our international brands of the highest quality, as alternative choices to the legally-aged smokers who have made the choice to continue to smoke. Beyond Nigeria’s position as Africa’s largest economy, Nigeria is also home to a consumer population that is  sophisticated and discerning. Nigerians recognise and appreciate quality while placing significant importance on the value-for-money proposition. This type of environment is one where Philip Morris Limited and its products can add value and thrive.  In fact, we estimate that our employment footprint will reach approximately 2,000 Nigerian talents, through direct and indirect employment.

Furthermore, through our global efforts on tobacco harm reduction and reduced risk product development, which we hope to make available in all of the markets where we operate, we are committed to meeting the market’s demands for the best quality, innovative products, now and for many years to come.

Why did the your firm start local manufacturing in Nigeria at this time?

Since our entry into the market, we have been very clear about our commitment to Nigeria and about the contributions we can make to its economy.  It has always been our strategy to manufacture our brands locally. Having found the right partner in International Tobacco Company Limited (ITC), we are proud that this is happening in less than two years of our presence in Nigeria; this will no doubt contribute to the local economy and establish a long lasting presence for our company. There is also the advantage of significant job creation, which PMI globally is passionate about as attested to by the many top employer awards received across the countries and regions where we operate. We are already providing direct and indirect employment to thousands of Nigerians, through our distributors, agencies and the support we are giving to the trade.

Currently, one of the major attractions of the Nigerian economy to global investors, to my mind, is the stability that has been bestowed on it by the sustenance of democratic governance. International businesses and investors want to flow with stable policies. For a country that endured long spell of military intervention in governance from independence in 1960 with civil rule lasting barely six years from that date to find herself under unbroken civil leadership since 1999 is remarkable. Civil rule promises stability and so long as that is guaranteed, global investors would be attracted. And so long as leading investors from across the world are attracted to any economy, it will continue to witness growth.

For us this time is the best time for any investor to invest in Nigeria economy. I believe that Nigeria economy is growing. It will not grow over night but gradually. Despite all the concerns about the state of our economy, I would say that our country offers tremendous opportunities for investors. We have the largest population in the African continent (estimated 170 million). We have the largest black population in the world; ours is the second largest economy in Africa (with a GDP of over $300 billion). We have one of the highest growth rates in the world currently (6.7 per cent). We account for over 50 per cent of the GDP of the West African sub region. We account for over 50 per cent of the population of the west sub region, we are blessed with abundant natural resources (minerals and arable land) and our democratic structures are becoming firmly .entrenched.

What is missing is the capacity to harness these opportunities for our common good. I am confident that this will happen before long.

How do you hope to compete, being new in Nigeria?

By providing better products at better value than those available to consumers. This consumer quality-and-value proposition, along with our commitment to maintaining the industry’s highest standards, is in our DNA and is what has helped PMI to become the world’s largest international tobacco company. These are values on which we never compromise and which will allow us not only to compete in this market, but to thrive in it.

Additionally, with our global efforts on tobacco harm reduction, including the development and commercialisation of products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes, and which we hope to make available in all of the markets we operate, we believe we can change the face of the industry.

What has been your experience since you started operation here?

It has definitely been worthwhile. Looking back to the time I started as managing director in Nigeria, precisely in February 2016, I can say we have had a fast learning curve discovering the uniqueness of doing business here. Our experience shows that doing business in Nigeria at this time might not be as difficult as it is being portrayed outside the country, particularly in the media, which has created an erroneous perception of the Nigerian business terrain as a difficult operating environment. With the government’s intervention in addressing the power supply challenges, infrastructure deficiency as well as the recent economic reforms focused on the ease of doing business in Nigeria, the business environment can only get better. From PM’s perspective, the operational and economic outlook is extremely positive and we are here to stay. We recognise that both the opportunities and challenges in Nigeria are great, not least of all the highly competitive nature of our industry. However, we have invested considerable time and resources to better understand the market and how to work in it. As a result, we are confident that with fair competition and a level playing field, we will be able to operate with integrity in Nigeria and provide meaningful contribution to the community while delivering long-term sustainable growth.

The cost of doing business in Nigeria is said to be higher than that of most countries; how has it affected your cost and pricing template?

It is costly doing business in Nigeria, and this was discussed at various meetings. There are two big things, energy and the logistics needed to support moving goods across the country and different markets. Being an export organisation, we have to compete against other factories in these markets that do not have the same challenges. However, to manage our costs, we localise a lot of our operations, growing, packaging, manufacturing, among others. A number of our competitors who are transactional have challenges with the inflation and foreign exchange pressure. But due to our deep roots, we only see these challenges as opportunities.

What is your position on Nigeria’s Tobacco Control Bill?

We were fully aware that the National Control Bill was being discussed at the National Assembly as we sought our registration. We strongly believe that proper regulation of tobacco products is essential to ensure that adult smokers are aware of the harmful effects of smoking, that tobacco products are not made available to minors, and that legitimate companies can compete on a level-playing field with clear rules.

How do you handle the issue of illicit tobacco trade?

Available statistics from different sources estimate the size of the illicit tobacco trade to be between 10 and 12 per cent of the global cigarette market. This is alarming not just because of the income it denies various governments and the world economy but growing concerns that such income is further employed to support other illegalities.

Contraband cigarettes deprive governments of billions in tax revenue yearly, while consumers lose because they often end up buying fake products of poor quality that are not subject to any regulatory scrutiny or quality control procedures by manufacturers.

Around the world, PMI undertakes a broad series of measures to fight illegal cigarettes to ensure that our brands are protected and consumers get the genuine product they expect. We support strict regulations and enforcement measures to prevent all forms of illicit trade in tobacco products, including tracking, tracing, labeling, record-keeping requirements, and where appropriate, implementation of strict licensing systems. We are also working with a number of governments around the world on specific agreements and memoranda of understanding to address the illegal trade in cigarettes.

We are planning to meet with all relevant authorities in Nigeria, in particular with Nigeria Customs Service, to present our tools and know-how to foster cooperation in addressing illicit trade together.

Can you shed light on your investment plan for Nigeria and how have you affected the economy positively?

The plan is to steadily grow our investment in Nigeria. Since 2015, when we started our operations by taking advantage of the ECOWAS Trade Liberalisation Scheme (ETLS), which enables free movement of goods within West Africa, we have gone from 100 per cent importation of brands from our manufacturing plant in Senegal, to taking the bold step of starting to locally manufacture our brands in Nigeria with our strategic partner, International Tobacco Company Limited (ITC). This goes to show the confidence we have in the Nigerian market and our focus on local manufacturing and other investments will certainly continue. PMINTL Nigeria intends to have significant positive, long-term impact on the Nigerian market.

First, we expect that the work that we are doing in tobacco harm reduction will transform the tobacco industry.

Next, we have already created approximately 500 direct and indirect employment opportunities in the country and are still creating new ones with the hope to grow our footprint by as much as four times in the near future. To aid in this, and in pursuit of our long term investment plans in Nigeria, full-scale local manufacturing of our brands will begin before the end of the year through strategic partnerships.

Additionally, we have started exploring the possibility to produce in Nigeria, with key partners and local farmers, tobacco and/or other agricultural crops for the local and international markets.  We would work with local business partners to share our know-how and help to ensure good agricultural practices to obtain good quality crops, high yields and good income for farmers, while minimising environmental impact and fostering sustaina-bility. PMINTL Nigeria, through our investment plans and commitment to Nigeria, will be a significant tax payer – contributing to the government revenue, providing foreign direct investment into Nigeria, creating sizeable direct and indirect employment opportunities to Nigerian talents with ongoing focus on education and development. Overall, we are committed to contributing to the local communities, while operating with integrity, and look forward to becoming a major player in the Nigerian economy to establish a long-lasting presence.

Comparing Nigeria with other markets where you operate, how is it like?

Every market has its peculiarities. For PMI, countries that have signed up to and are  guided by the WHO Framework Convention on Tobacco Control (WHO FCTC) resolutions have some unanimity in the treatment of the tobacco industry and this helps to maintain a unified approach in addressing the challenges facing the tobacco industry, such as illicit trade, youth smoking, etc.

Since the enactment of  the National Tobacco Control Act, 2015, which has led to the setting up of the National Tobacco Control Committee with a view to ensuring compliance with the law by all stakeholders, there have been a lot of activities within the industry and all players are aware that it is no longer business as usual. We welcome these developments in the hope that they will help the tobacco industry operate within the provisions of the law to the benefit of all stakeholders.

How does the firm impact its operating environment?

Our industry is highly regulated. Philip Morris Limited (PML) maintains a global policy of compliance with rules in each market where it operates. So, our best way of impacting our environment is through quality processes and ensuring full compliance to all laws and regulations. For instance, we are very much interested in partnering with different Government Agencies on jointly fighting illicit trade of cigarettes, to ensure that every pack sold in Nigeria contributes to the tax revenues of the Federal Government.

In what areas would you want to see changes?

Regarding the operating environment, it will be nice to see more of an improvement in power supply and quality of infrastructure. On industry specific changes, I would like to see more efforts towards the fight on illicit trade and counterfeit products as this will invariably increase revenue generation for the Government. I am also keenly looking forward to the continued implementation of the Act and other subsidiary legislations with a view to ensuring compliance by all stakeholders.

Can you shed more light on PMI’s operations and how they started?

We are the world’s leading international tobacco company, with six of the world’s top 15 international brands and products sold in more than 180 markets. In addition to the manufacture and sale of cigarettes and other tobacco products, we are engaged in the development and commercialisation of reduced-risk products (“RRPs”).

Initially, the company is incorporated as PMINTL Nigeria Limited. In December 2014, we applied for and received all regulatory approvals required to commence business in 2015 and started by importing some of our brands into Nigeria under the ECOWAS Trade Liberalisation Scheme (ETLS) from its factory in Senegal. As PML Nigeria, we are already providing direct and indirect employment to thousands of Nigerians, through our distributors and agencies. Through our investment plans and commitment to Nigeria, the company is a significant tax payer, contributing to the government tax revenue, providing foreign direct investment into Nigeria, creating sizeable direct and indirect employment opportunities to Nigerian talents with ongoing focus on education and development, while upholding the highest standards as a socially responsible company. We look forward to continued contributions to the Nigerian economy and establishing a long lasting presence.

PML and ITC are partnering local manufacturing. Can you shed light on this?

To start with, Philip Morris Limited (PML) is the national affiliate of Philip Morris International (PMI) in Nigeria. Recently, we entered into a strategic partnership with International Tobacco Company Limited (ITC) to manufacture one of PMI’s leading brands in Nigeria.

Under this agreement, PML will be investing in technology and capacity building at ITC’s factory, creating additional employment opportunities and contributing to the local as well as national economy of Nigeria.

We strongly believe that investing in local manufacturing is the right thing for the future as it contributes to the Nigerian government’s efforts to strengthen the economy and reduce the dependency on oil. It will also benefit all parties. Our consumers will have their preferred brand readily available at the highest quality standards, our partners will enjoy improved capacity utilisation of their facilities, and the local community will benefit from the micro-economy boost and new employment opportunities. We are here to provide a choice to those consumers, who choose to continue to smoke, and we are here to make a positive contribution to the Nigerian economy for the long term.  The giant stride that PML has made in less than two years of operations in Nigeria is attributable to PMI’s global strategy to deliver long-term sustainable growth and the passion of local employees.

The start of local manufacturing is just the beginning of various planned investments in the Nigerian economy by PML. PML and ITC are eager to become integral part of Nigeria’s drive to strengthen the economy through creation of jobs, more foreign direct investment, and tax payments, while upholding the highest standards as socially responsible companies.

What is the future of Philip Morris in Nigeria

We are optimistic about the prospect of our business in Nigeria and against this background, we are currently focused on building our business organisation, hiring local talents and strengthening our infrastructure and ties with our counterparts in the tobacco value chain. But I can assure you we are here to invest and we are here to stay.

We have planned to invest heavily into Nigeria economy, which I know would provide a lot of job opportunities for the youths of the country. The Nigerian youths deserved the best, and that is why we are in Nigeria. When you look at the economy, there are a lot of challenges but we not looking those challenges at moment now, we are looking at the future. The future is bright for any investor like us in Nigeria.

What is your experience in Nigeria?

I absolutely love Nigeria and Nigerians, the passion and energy is unmatched and contagious. I have enjoyed every bit of my time here and made many good friends because everybody is so warm and welcoming. I have also developed new taste buds and I relish all the local dishes, especially pepper soup and suya.

The problems in the nation’s petroleum sector are many and require proactive measures from the government and other stakeholders to solve. The Chairman, Society of Petroleum Engineers (SPE-Nigeria), Dr Saka Matemilola, says operators should close ranks to address low local refining output, crude oil price, infrastructural decay, shortage of gas and paucity of funds. Matemilola, who is also the Chief Petroleum Engineer, First Exploration and Petroleum Development Company Limited, says diverstment by oil majors has spurred local production and building of technical capacity. AKINOLA AJIBADE met him.

How would you assess the state of the oil industry in Nigeria?

The industry is recovering from shocks caused by the meltdown in the global oil market. The sector is experiencing problems, such as low crude oil production, prices and inability of members of the Organisation of Petroleum Exporting Countries (OPEC) to meet up with their fiscal responsibilities. However, there have been signs of recovery in the global oil market in recent times. The price of Brent crude price is improving. Oil price, which went as low as $28 per barrel per day in 2015, has increased to $56 barrel per day in March this year. Besides, there is increase in activities in the oil sector, a development, which suggests that the industry is regaining its momentum. At the international level, oil drilling activities are increasing by the day. For me, the sector is coming back to life gradually, and I strongly believe that the sector, would in the future, deliver energy globally.

Is there any likelihood that the price of crude would go up to between $120 and $130 per barrel  this year?

Signs are there that the price of crude oil is appreciating.  It is not impossible to see the price of crude moving to $120 or more in the future, if necessary mechanisms needed to spur growth are put in place. The Organisation of Petroleum Exporting Countries (OPEC) has put in place measures, which are not limited to the growth in oil output of member countries, cutting supplies of crude, among others, that would help boost the price of oil. The efforts have paid off, as prices of crude oil are improving. The price of crude oil is determined by factors such as forces of demand and supply of the product, discovery of new oil and gas resources, international politics, among others. When the factors are favourable to the market, the price of crude oil moves up, while the oil producing countries are better for it. But if the factors are unfavourable to the market, the price of crude oil plummets, while oil producing countries groan. That is why the market has what it is described as ‘boom and burst cycle’.

Menace, such as pipeline vandalism, crude oil theft and others, are affecting the industry. Are these problems not surmountable?

Yes, they are. The industry will overcome its problems, whenever the stakeholders display political will and the courage to do the right thing. The stakeholders such as the Federal Government, the state governments, the International Oil Companies (IOCs) operating in the Niger Delta region, the indigenous oil firms, and the communities, where the firms are prospecting for oil, need to come together to solve the problem. They need to sit at the roundtable to sort out their differences and subsequently proffer solutions to them. They need to advocate and implement policies that would help in checking the malaise. When this happens, problems such as poor compensation, infrastructure, breaking of oil installations by militants, among others, which exist in Niger Delta region, would be solved. When factors that are fuelling crisis in the region are addressed, production and earnings accrued from the sale of crude oil would improve, and the government and the people enjoy it. As I said earlier,  political will and courage to do what is right among the stakeholders, is what is required to resolve crisis in the oil producing region of Niger Delta.

How will the problems in the Niger Delta come to an end? Efforts made to resolve the problem appear not to be yeilding dividends.

It is difficult to know when the festering issues bordering the region would cease. But once the political will and courage to do the right thing from the stakeholders are in place, the problems would end. The problem was caused years ago, a development, which suggests that the solution cannot be provided in a day. The problems are deeply rooted, and therefore, require political will and determination of the parties concerned to deal with.

The Vice President, Prof Yemi Osinbajo and his team, seem to be securing peace in the region. Do you share this view?

 It is true that the visit to the Niger Delta by the Vice President,  Osinbajo, has produced some results. Through the visit, the VP discussed the need to live and work in peaceful atmosphere with the residents of the region, he emphasised the need for the youth to  stop breaking pipeline and other national assets. During the visit, Osinbajo met the elders and others in order to foster peace in the region. The idea paid off, as oil production improved. Through this, the Vice President  and the peoeple  of Niger Delta, have shown to all and sundry that political will can resolve the problems in the region. When this initiative is sustained, peace would not only reign, but socio-economic activities in the country will improve.

To what extent has the indigenous oil firms benefited from divestment of shares by oil majors?

Local oil firms have benefited immensely from the divestment of stakes by foreign oil companies. The decision by the multinational oil companies such as Shell, Chevron, Agip and others to divest their shares in the industry, has boosted the operation of indigenous oil firms. The idea enabled local players to participate actively in oil exploration and production (E&P) activities, an area hitherto, regarded as an exclusive preserve of the multinational oil firms.

The local firms that bought juicy oil fields from their foreign counterparts activated the fields, and record growth through them. As a result of this, local oil firms are contributing between five and 10 per cent to the nation’s oil output. Indigenous companies have doubled, tripled and quadrupled the output of the assets (oil) they bought from the oil majors. The divestment is a blessing to the oil industry, as it is helping indigenous operators to record growth.

How many barrels of oil per day  are local operators producing?

Indigenous companies that engage in oil exploration and production, such as Seplat, Aiteo, Oando and others, produce between five and 10 per cent of the total oil output, which is between 180,000 (bpd) and 200,000 (bpd). There are companies which produce between 70,000 bpd and 100,000 bpd. This is a no mean feat in the industry. It is a plus to the industry and the economy. What this is telling us is that if the local oil operators are given the opportunity, they would do well.

Will the performance of local operators not  encourage competition in the industry?

I do not think so. I do not expect any competition between the local and foreign owned oil companies that are operating in the country. Instead of indigenous oil companies engaging in competition with their foreign counterparts, they should try and discover areas, which they can leverage to achieve a reasonable level of growth. To forestall  competition, each entity in the oil and gas sector, should try and define area(s) where it can play better and the level at which it can  play in that area, to achieve growth. Also, each entity must be able to manage the resources of the country, in order to achieve results. When an oil firm knows where to play in the sector, it would be able to master the area well. When this happens, the firm in question would leverage it for growth, which is the main reason, why people go into business.

Can Nigeria produce three million bpd or more, taking into consideration the challenges in the industry?

Despite the problems in the oil industry, Nigeria produced 2.1 million bpd. Before Shell shut down its Bonga facility, which contributes 200,000 bpd to the nation’s oil output, for maintenance in March, the country has reached 2.1 bpd. Nigeria has capacity to produce 2.5 million (bpd) or 5 million (bpd). The International Oil Companies (IOCs) were producing 2.5 million bpd before they divested their shares in the industry, few years ago. They have got the capacity to explore and produce oil in large quantities. Once Nigeria can provide the infrastructure and further put in place measures that would prevent disruptions of activities in the oil sector, the country would produce between 2.5 million bpd and five million bpd.

In all these, what is the place  of technology?

 I want you to understand the fact that technology is not owned by one person. Nobody can say he has all the technologies. So, who are those people that are operating in Seplat, Aiteo, Oando and other local oil firms? How many expatriates do we have in many of these companies? We seem to under-estimate the capacity and technical know-how of Nigerians, which is a big shame.  I have been in the industry for over 20 years now and I can tell you that some of the best technocrats in the industry are Nigerians. Unfortunately, we do not give credit to ourselves, may be because of the ways past leaders have mismanaged the country’s resources. Just look around any of the companies, which bought the assets from the IOCs, how many expatriates do they have? That is why I said  technology and technical know-how are not a preserve of any country. We have technology and technical expertise to produce millions barrel oil per day.

What is your take on the oil production cut exemption granted Nigeria by OPEC?

OPEC has the right to determine whether the cap on crude oil production would continue or not. The body has to make a decision on the issue, because the issue is salient  for Nigeria and Libya, the two countries in Africa, which were affected by OPEC’s decision. The exemption cut granted by the organisation to the two countries needs to be properly understood by Nigerians.  It is only when one understands the basis, that one can say the basis is still valid or not. If we look at the basis as Nigerians, we can say yes, the exemption should continue, since OPEC‘s goal is to stabilise the price of crude oil by checking the supply glut and further help the member’ countries grow their economies.

What are the problems facing the local refineries?

Our refineries are not being run as a business, hence the problem of low productivity, that is facing it. The refineries are not generating profit for the country, a development, which suggests that they are not established for business purpose. This is wrong. It is only when a project is run as a business, and the manager in charge of the project is made accountable that the project can generate profit. That is when the project can run effectively. Though the government has spent a lot of money to repair the refineries, it has little effects. The problem facing the refineries is more of corruption than technical. To the best of knowledge, the refineries do not have technical problem. It is corruption that does not allow our refineries to work well.

Does this mean that some people are siphoning funds budgeted for the repairs of the refineries by the government?

I do not know about that. What I know is that there is corruption in the system. Inability to fix the refineries is depriving the country of its shared values, as well creating room for sharp practices. The SWAP programme, through which crude oil was exchanged for fuel, refused to work, so also other initiatives introduced by the Federal Government to improve fuel supply  in the country. The issue of fixing the refineries is the best thing to do in Nigeria.

Does that mean that the refineries cannot function well as long as they are managed by the government?

Refinery is a serious business, which requires an effective management from its owner(s). Each refinery has its own capacity, vis-a-vis the number of barrels of crude oil per day it must refine, the amount of money invested on it and what it must deliver as a profit. To enable refineries achieve their goal of generating revenue for the country, private investors must be encouraged to establish refineries. Dangote Petrochemical Refinery is being built to refine 560,000 bpd and it would be run as business. Billed for completion in 2019, the refinery is being cited within Lekki-Ajah business corridor, Lagos, to generate profits. If similar refineries are built in other parts of the country, the problem of scarcity of fuel would be over.

How can Nigeria address the problem of gas shortage in the power sector?

To solve the problem, the government and other stakeholders in the value chain must invest in infrastructure. Building of gas pipeline is vital to the resolution of the crisis in the electricity sector. There is sufficient gas in the Eastern part of the country, while the Western part do not have gas. The pipeline cannot deliver enough gas  to the West. The OB3 pipeline that would connect the East and West together is yet to materialise. So, who is to do that? Also, there is a lot of gas in offshore area and there is a pipeline that takes gas from Bonny to the Nigerian Liquefied and Natural Gas (NLNG) headquarter in Bonny, Rivers State. But the capacity of the pipeline is not enough to take care of the operators in the offshore. Then, the question is: Who would provide the infrastructure that would deliver gas to the users? Is it the small operators that are battling to survive? Is the environment conducive enough to build pipeline that would supply enough gas? It is when the infrastructure is in place, that the problem of shortage of gas would be resolved in the electricity sector.

Is the government capable of boosting investment in the gas and power sector?

The government does not have enough money to invest in the sector. The private investors must come into the sector to salvage the situation. The private investors ( local and foreign) must invest to bridge the supply gap in the sector. There are people who are willing to invest in the gas infrastructure. The Lekki-Bonny gas project is one of them. A gas pipeline that would take three million cubic of gas per day from Bonny in Rivers State to Lekki, Lagos. This is a multi-billion dollar project that would ease supply of gas, in order to improve gas supply. The project is going to have multiplier effects on the economy. The sector needs more gas project to survive.

How can the industry rid itself of huge debt burden?

The sector should scale up investments in order to save itself from debts. The operators such as power generation companies (GenCos), power distribution companies (DisCos) and others, have incurred debts, because they do not have investments that would provide money for them. The banks are not providing loan to the firms, because they are unable to pay back. Banks are set for business, and they are therefore, not charity organisation. Now, that banks have closed their doors to the power firms, the best thing they can do to get out of the woods, is to create more opportunities for investments. By so doing, they would have enough money for operation, and in the process make profits.

Why was Society of Petroleum Engineers(SPE) established?

The reasons for setting up SPE are many. First, the body was formed in 1958, to provide standards for its members globally, who incidentally are operators in the oil and gas industry. Secondly, it ensures that the operators operate, in line with the industry best practices. Hitherto, an arm of the American Institute of Mechanical Engineers, SPE became a separate entity, after recording strings of successes, which resulted in growth in its membership base.

Was there no standard in the oil industry, before the emergence of SPE?

There is always room for improvement in everything a man does. SPE came to improve operation in oil and gas industry, by providing it with standards that would enable it to grow well. The standard, which is being used currently in the sector, was developed by the Petroleum Resource Management System (PRMS). The body, in conjunction with four others namely the American Association of Petroleum Engineering and Geo-physists (AAPEG), World Petroleum Congress (WPC), Society of Petroleum Exploration Geologists (SPEG) and Society of Petroleum Engineering Evaluators (SPEE) worked together to produce the standard.

What are the achievements of  SPE so far?

The body has developed a system, through which hydro carbon reserves and resources are classified and categorised. It also, collates and disseminates information, needed to move the industry forward, as well as providing services to departments such as Health Safety and Environment (HSE), petroleum economics, geology, facilities and others. Of interest is the use of professionals in the sector, by SPE, to gather information, which is used in stimulating growth.

What is SPE doing to enforce compliance to its standards?

SPE does not enforce compliance to its standards in the industry. The body is not an industry regulator and, as such, cannot provide roles outside its jurisdictions. SPE is charged with the responsibility of providing standards that would encourage the best practices in the oil and gas sector, while leaving the right to adopt and enforce compliance to the operators.

Businesses are finding it difficult to operate under a volatile foreign exchange and poor infrastructure. To Tajudeen Akande, Senior Partner/Director of Africa Region Board, PKF Professional Services, an accounting and business advisory firm, the problems can be resolved through economic restructuring. He speaks with Group Business Editor SIMEON EBULU and Senior Correspondent COLLINS NWEZE.

How would you match Nigerian accounting firms with their foreign counterparts?

Matching, if you say so, yes. Apart from the new generation accounting firms, the big ones are all born by the foreign ones. All the people who started accounting practice in Nigeria trained with those ones.

When the Institute of Chartered Accountants started local training, it was moderated by England and Wales. If there is any difference between the local accountants and the foreign ones, it will be the difference in attitude and the environment.

PKF in Nigeria or PKF in the United Kingdom (UK) or any part of the world is the same. The first black man accountant, Akintola Williams, trained in the UK. All the people who started this practice were recruited in the UK and transferred to Nigeria.

Does it mean that Nigerian accounting firms can stand shoulder-to-shoulder with those of developed countries?

Oh yes. I can say that confidently. When we meet at conferences, I know that we still command some level of respect.

I asked that question because the government always preferred foreign accountants for its jobs?

It is the mindset. During the privatisation era, we had an international project with experts from the UK. They came and we were taking them to some project sites. We went to Abuja and had meetings with stakeholders and were meant to go to the European Commission Office in Abuja, and some other parastatals. So, when we got to one office, the gentlemen who came from the UK suggested that we should go to a particular office. We did not book for an appointment there. Then it was suggested that we should go there, because when they see a white face, they will let us in. And that was what happened. Even the foreigners know their mindset.

How can that mindset be corrected because it is injuring the local firms’ interests?

It is. I think we have to believe in ourselves and in our ability. I am not saying the West is not ahead of us. Also, when the International Financial Reporting Standards (IFRS) was introduced, we sent people abroad to learn about it.

How helpful is the IFRS in validating the audit report in Nigeria?

The truth is that the implementation of the IFRS by companies is far below expectations, with many firms only carrying out pure desk conversions. The IFRS is a new world order, in corporate reporting, that is currently altering  not only the financial accounting and reporting landscape, but also tax accounting/reporting, tax cash flows and tax distributable reserves.

Despite the challenges faced in implementing the IFRS in the country, local companies should be praised given the level of improvement seen in reporting their operations. There is no doubt that developed countries are far ahead of Nigeria in the IFRS implementation plan. The truth is that there is still a lot of financial reporting that is IFRS in title in this part of the world.

The IFRS main role is to ensure comparability of financial reports from different regions. To that extent, the IFRS has achieved that. But there are financial reports that are just IFRS in title, because when you dig deep into the requirements of IFRS you need systems that can produce certain information.  Even the country does not have that type of infrastructure that allows very robust IFRS reporting.

The fair value principle is used to report companies quoted in the stock market. Let’s take the capital market for instance, the IFRS reporting is based on fair value. In some other jurisdictions, you go to the market where the products are traded. If you want to sell anything in some developed countries, you just need to Google the product and the prices will show.

We are not doing badly, but we are not there yet. We need to admit that some of these constraints exist, so that regulators can continue to improve and help the level of implementation.

What level of implementation has local companies recorded in IFRS?

Every company in Nigeria should be reporting their accounts based on the IFRS. Yes, they started with public interest companies, like banks and others. They are a set of standards, they are rules. To comply means you must have the skills, and resources to do those things required by the standard.

Of course, if the law says you must do IFRS, you have to. To that extend, compliance is 100 per cent. IFRS is a system-based financial reporting standard. The infrastructure is a challenge. Some of them are not just lack of ability to implement those standards. The economy itself lacks some of those infrastructures. The principle of fair value is very important in IFRS implementation.

When businesses become target driven, then people must begin to prove that the resources are accounted for. The fair value principle requires that every year, one must state the fair value of the material. Still, banks have been able to comply better than other institutions when it comes to IFRS implementation because they can afford to buy sophisticated software for the IFRS implementation. We are managing to make the best of a bad situation.

What is it that we cannot get right in our leadership, as every time, leaders keep postponing developmental goals?

The first things, is that our screening process is weak. It is non-existent. Because when you talk of leadership, you mean, effective leadership. An effective leader is a person that can translate vision, into reality. You need effective leadership to move from conceptualisation to reality. That is why I said it is our screening system that determines the leader. What are the qualities of a good leader? What characteristics should the person have for him to be adjudged an effective leader? Is he principled, is he a visionary, is he effective, does he have integrity? These things are important so that even within your own boardroom, a candidate’s name comes up, you must be able to tick the box, and say, I had a relationship with him in time past, in terms of integrity. I give it to him. Is he firm? We must be able to have those sets of values. Like this current leader, I think the main thing that goes for him is that he is not corrupt. But there must be some other things. But we need to go beyond those things, so that we do not have same of same  all over again.

Let’s talk about the economy. Is it where it is supposed to be?

The straight answer is that the economy is not what it should be. The next question is why? The main problem with the economy is the structure of the country. Our economy is mono-product. Over 90 per cent of the government’s foreign exchange earnings comes from oil. Seventy per cent of total revenues comes from oil, that is the problem of the economy. Even me, the ethical rule of my practice is that if one client is generating up to 30 per cent of my income, I should not take that client because when the client sneezes, I shiver.

So, what happens in the international oil market affects us. It is not whether we are competent or not. The second problem is our consumption pattern. I do not have the statistics to compute the percentage, but we are like 80 to 90 per cent import-dependent.

The import-dependent mono-product, the relationship to that has affected the economy, because since mid-2014, oil process and other commodity prices have been down. Oil prices had at some point, dropped to $38 per barrel, about a third of our revenues down. That is what has put pressure on the exchange rate.

The economy is sitting on three variables- Inflation rate, exchange rate and interest rate. What the monetary authority does is to manage the economy by trying to do something on each of them. When the interest rate has gone up so high, importers would need more naira to get the same amount of dollar. So, they may need to borrow, and that pushes up your interest rate. So, when your exchange rate is up, your interest rate is up and your inflation will go up and that is the first structural problem.

The second one is where we would have gotten our cushion. Not just the oil prices that are down, commodity prices are also down. So, the only economy that can survive is an economy that is industrial. An economy that is producing and if you look at statistics 2015/2016, all the economies contrasted a little, from about 2.1 per cent of the Gross Domestic Product (GDP) to 1.6 per cent.

Nigeria’s economy went into deep recession because we had no cushion. The only economy that survived was China and Japan. Why? Production. Even if you had visited Dubai five years ago and revisited two years ago, you will see that even construction work was stopped. Even Saudi Arabia was affected. For Nigeria, we are only interested in living easy life. Oil money comes, we spend it. And we spend it by just throwing the money back to the developed countries. We imported everything.

What is the way out?

We need to diversify the economy away from oil. We need a leader, who is determined to move the economy away from overdependence on oil. We need to do some kind of mass national orientation so that we begin to change our overdependence on foreign products. Then industrialisation. Can we begin to produce those imported products? We need to make life easy for people to do business in Nigeria. Key infrastructures that will drive the economy have to be privatised. Number one of them is power. Then means of transportation, roads, rail among others. Even Dubai today has Metro lines.

How would you access the Central Bank of Nigeria’s management in the ongoing foreign exchange crisis?

Number one, I believe that the Central Bank has too many experts and consultants it is working with that have information that is not readily available. As an informed observer, my view is that whatever monetary policy it wants to adopt, let it be consistent. We cannot change one quarter this way, another quarter the other way. If you are floating the currency, float it. You cannot have floating flexible exchange rate. Then you have a corridor you cannot go beyond. Half measures cannot work. If you want to control the exchange rate, let it be, if you want to have market determined exchange rate, let it be. People want to know where the Central Bank is going. Again, you cannot have a monetary policy in isolation of what you are doing with the fiscal policy. Somehow, the CBN and the Ministry of Finance must be talking. They must work together. All they are doing with the fiscal policies, in terms of taxes, taxation, and all that ultimately affects your monetary policy. What you are doing with the monetary policy will ultimately affect the fiscal policy. So, it is not when the implications are out, you will rush another policy to reverse the policy. That will be inexcusable.

As a businessman, has this foreign exchange policy affected your operations?

Yes. Even though I render services, but what affects my clients ultimately affects me. In 2016, my revenues were less than what they were in 2015. In 2016, for the first time, I have more management team coming to have meetings with me for a deduction in fees. It is either you do not want us to pay what we already owe you. I also have companies that are technically dormant, so, I cannot earn fees from them. It affects my members of staff. They go to the market and buy things. For the first time since 65 years of our operation, we did not have an annual increment in salary.

It is taken as given in this office, that every January you will have a new salary package. For the first time, in my own working career, we did not have that. Honestly, I did not even see my workers agitate, which is fantastic about the level of understanding we have. It means they equally understand the state of the economy.

Why did you think the blame was on the forex exchange crisis?

My honest view is that information was not available. So, people are reacting based on emotions. The truth is that foreign exchange was not available. There was a time they released data, showing that the weekly foreign exchange bidding was $2.5 billion while the weekly revenue was $500 million.  So, there is already a gap and they cannot use everything to fund the market. Some of the entities that left, left because of uncertainty. In a bad situation, businessmen will make money out of it if the right information is provided. If there is certainty, businesses will plan for it. But the managers of the economy were not putting the right information to the public at the right time. They delayed for too long before doing what the people expected. I think they have released the economy blueprint, which in itself will be studied by corporate entities.

How can we address illegal foreign exchange hawkers?

We need to reinforce discipline in the economy. I do not want them to chase people on the street. They need to remove any control on the official rate. If you are floating, float. Let everyone have access to the same foreign exchange. Once the gap between the official and parallel market rates is closed, there will be normalcy. Once the gap is no longer there, the issue of round tripping will be a thing of the past. The government should create other sources of foreign exchange inflow. There should be guarantee that investors can easily exit.

Likewise, the Eurobond offer, which was oversubscribed, has helped to boost foreign reserves. The government needs to open up other revenue plans that are denominated in dollars. If the debate about selling national assets is that if you sell them, if it is in naira, it is not going to solve the problems.

If you sell national assets and in the future similar problems occur, what will you sell?

You have a problem, and you want to solve it, you better solve it. You see, you have a problem, solve it. Then, you need to do something to say this should not happen again. Another thing could happen.

Do you realise that when something happens, the developed economies spend a lot of money to do investigations, even when they knew that thing has gone? Even in murder case of 20 to 30 years, they keep following it up. I am sure they do not want to just spend tax payers’ money, but to find out why it happened. An effective leader ensures that the problems do not reoccur. We need to take emotion out of it. If a business has a problem, you can sell some of the shares. You can even sell only 10 per cent of those assets. For you to control a business, you need 51 per cent.

Why has privatisation of power not worked?

They privatised only distribution. You need to generate power for them to distribute. We need to unbundle the laws on power. Even the small generations that state governments are getting have to be supplied to the national grid. They need to review the law. In Nigeria, it is still against the law to generate your own power.

Speak to the Small and Medium Enterprises sector. Here we have several SMEs, still nothing is happening. Why?

The ease of doing business in Nigeria is frustrating. The government knows exactly what to do, but they are not doing that. There are many bottlenecks from company registration to tax registration to even electricity generation. There are several factors that ensure that SMEs do not get off the ground. The mortality rate of SMEs in other jurisdictions is very high, but they still survive. Take for instance, if you register a company, you have to go through processing receipts, the day you open a file with tax authority, the next day, you are in trouble. The tax authorities will just swap on you. In short, voluntary tax compliance puts SMEs in trouble. But I think the government is doing something about that.

The government has given N500 billion to Bank of Industry so that the young graduate who does not have money can start SMEs. But the ease of doing business has to improve and then the availability of funds. There is also the need to mentor SMEs on corporate governance and how to package a bankable business plans.They should not just get the money and keep it. They have to understand that regulatory compliance is key. We, at PKF, have to also help the SMEs on governance structure. We need to render free seminars to help the SMEs. Let’s begin to disabuse our minds about cutting corners. If you need licences, then you have to get them.

Yours is  an international accounting body. The rating agencies keep rating banks and the government. How are they impacting on the companies?

The ratings are basically meant to help the company give assurances to people they do business with, either the lenders and others. It says that this entity is rated so much, which means the chances of not defaulting on its obligations is high, and all that. The objective is to give confidence and assurances to those that will do business with the company. When a rating is strong, it means that your international financiers will be confident; suppliers will release goods knowing that the banks will pay the bills.

So, you have to initiate the ratings?

It is a standard practice for some companies, but you have to submit yourself for rating and the agencies will give you the template.

But can it be influenced?

There is nothing in the world that cannot be influenced, lets’ not deceive ourselves. But top rating agencies always have control measures to guard against that. For instance, in my office here, if I send a team to go and audit, there is an engagement leader, a manager, a partner, who services that team. And behind that, there is a quality assurance department. And then there is an independent reviewer. If you finish, you send a file so that somebody can look at that. Then the person will want to look at the facts and the conclusion.

Are there correlations between what you set out to do, and what you actually did when you were there, your findings and conclusions?  You can say it can be tailored, but from my experience, even when you read through, you can know that it is too good to be true. There is an independent person that looks at it, the person has no contact with the client and the team. He looks at this against other independent information. The day any of those reports suffer credibility problem, the rating agency will be out of business. But that does not mean it is 100 per cent perfect.

How much of these blames will accountants take?

Everything. Because they are supposed to be the professional, that should be taking the professional stand. Yes is yes. No is no. If I run foul, I am the one that should suffer the licence, humiliation. So, accountants should be the ones putting things right.

The xenophobic attacks in South Africa and the retaliatory effect on MTN Nigeria, does theey speak well for the two countries?

No, they don’t. It will adversely affect their economy. The last time I had them send trainers here, or bring conferences here was maybe 2003 or so. Jos is 5,000 kilometres away from Lagos. Unfortunately, South Africa is doing this, which is not going to be good for their economy. It shouldn’t happen, but unfortunately, it is happening.

There was a time I supposed to have a board meeting in South Africa, I was like can we do it through teleconference or we go to another place. Of course, I have to react that way. A big investor will also react that way. On the diplomatic level, we shouldn’t be doing retaliatory attacks on MTN because we are beyond that. As long as we are able to demonstrate that we are beyond that, then we are in a position of strength. Look at what is in the Middle East; you see that in whatever way you see it. Britain has handled it above emotional reaction. You won’t see the kind of emotional reaction you will see from a Russia or America of today. We must understand that it is in their psyche. Those people, since they were born, they have known nothing other than struggle.