The Nation Newspaper

Category: CEO

  • ‘Without steady power, manufacturing is gone’

    ‘Without steady power, manufacturing is gone’

    The real sector has many challenges- dearth of infrastructure, multiple taxation, and stiff regulation, among others. Added to these is the power challenge, which has rendered the sector prostate, according to the Managing Director/Chief Executive Officer (CEO), Honeywell Flour Mills Plc, Lanre Jaiyeola.  In this interview with COLLINS NWEZE, he says manufacturers will do better if power is stable.

    What is your position on the Federal Government’s cassava initiative and how is Honeywell complying with the directive?

    The cassava initiative is a welcome development and we at Honeywell Flour Mills will constantly support government’s policies that will help grow the economy. In demonstration of this, we have invested almost N1billion in modifying our plants to add high quality cassava flour to the composite flour that we produce today.

    More than ever before, the Federal Government has created a stronger bonding between players in the flour milling industry and the Ministry of Agriculture. We are working together in ensuring that the policy is properly articulated when it comes into effect and that it can work in the overall interest of Nigeria and Nigerians.

    We are presently working in a committee set up by the Ministry of Agriculture to look at the details of the policy and in a couple of weeks, this will be made public.

    What are the implications of high interest rate on manufacturers’ operations?

    The interest rate in Nigeria is among the highest in the world. Unlike Europe and America where interest rates hover between one and two per cent, we operate an interest regime of over 15 per cent. After the recent rebasing, the manufacturing sector accounted for only seven per cent of the Gross Domestic Product (GDP).

    The implication is that government needs to focus more on the real sector because that is the heart of the economy; that is where we can generate foreign exchange, bring about food security and generate employment for the people. We are very hopeful that the Federal Government can do more to help the Central Bank of Nigeria (CBN) in its efforts to bring down the interest rate.

    How can the tax system be improved?

    Taxation in Nigeria has never been better managed as it is now; we are now in a situation whereby the contribution of taxation or the relative relationship of taxation to the GDP is much higher than what used to be obtained but even at that, when you compare the ratio of taxation to GDP, it falls short. I think the last tax to GDP ratio was 12 per cent, however before the rebasing, it was 20 per cent. Compared to a tax rate of 30 per cent, which means that tax management system needs to be strengthened. However, in terms of administration, I think the tax authorities are doing well.

    How has the current tax structure impacted on your operations?

    As good corporate citizens, we are subject to paying tax as established by regulatory authorities. So, its normal for us that there must be taxation in business; the  least we can do is to comply and pay whatever tax that is established for us.

    Inadequate power supply poses great challenge to manufacturers. How has your company been coping?

    Energy in manufacturing is very critical. Unfortunately, we have not derived much benefit from the national grid. Since we started this business about 19 years ago, we have always run on self-generated power supply. Today, we have a combined 30 megawatts (Mw) of self generated power supply comprising a 15 Mw gas power plant and a back up of another 15Mw  diesel power plant.

    So, you can appreciate the cost implication of running a manufacturing business in our environment. Because of the nature of the processes we run in our business, it is almost impossible for us to depend on power from the national grid.  It is a heavy cost, which is avoidable and we are looking forward to that day when manufacturers will have to depend on power from the national grid to run their business.

    What is your assessment of the  capital market so far?

    It is very unfortunate that we experienced a collapse in the Nigerian capital market about seven years ago, although, it was not only a Nigerian thing but a global phenomenon. That said, the efforts of Nigerian Stock Exchange (NSE) at revitalising the market is highly commendable in the sense that investors’ confidence is gradually being boosted again; the apathy to investing in new issues is gradually going off. Soon, investors’ interest will be fully activated and the capital market will boom again.

    We believe that our share pricing will be better than it is at present. The problem is that most Nigerians want to invest today and get instant returns and when that is not coming, they tend to sell off and create panic in the market. Honeywell is committed to building the wealth of shareholders not only today but for the future. In years to come, all the efforts we are putting in place today will achieve tangible results for our shareholders. So, for an investor who has interest in long term returns on his investment, we believe very strongly that Honeywell Flour Mills is where to focus on

    What is the way out of the rising cases of unclaimed dividends?

    This is a worrisome trend in the capital market if you look at the reports of many companies the rate at which the list of unclaimed dividends grows is sometimes alarming.

    I think the regulatory authorities need to enforce a mandatory awareness campaign by publicly quoted companies on dividend claims, so that shareholders and investors can benefit from their investments.

    We have also observed that information flow from investors to the companies is sometimes faulty.  Therefore, it is pertinent for companies to ensure that from time to time, shareholders addresses are revalidated.

    Though the trend now is e-dividend, as much as possible companies should encourage payment of dividends into shareholders account.  I believe if all of these are put in place the level of unclaimed dividends will drop.

    How has the unclaimed dividends challenge impacted on your operations?

    At Honeywell Flour Mills, we strive to ensure that our shareholders are informed periodically on unclaimed dividends; we make announcements at Annual General Meetings (AGMs). This year, we are going to make a publication listing out names of such shareholders who have their dividends unclaimed. This is part of our contribution towards eradicating the menace of unclaimed dividends.

    Last year, your firm unveiled a N10 billion investment in flour mills. How has that impacted on your output?

    You are right, in 2013, we increased production capacity by adding 1,000 metric tons flour mill, in two tranches of 500 metric tons each. That expansion greatly impacted positively on our brands. Before now, we had attained our peak production capacity for Honeywell Semolina but with that expansion, we were able to churn out more for our consumers. In addition, we were also able to produce more Honeywell Superfine Flour and Honeywell Wheat Meal. The implication of all these is that we were able to satisfy the demand of our consumers and will also be able to grow the business more in years to come.

    What are your expansion plans?

    Yes, in fact that is the medium to long term plan of the business, to have a one stop-shop. We are expanding by investing in a 63 hectare land in Shagamu, Ogun State, the implication of that is that we will be in a position to expand across all the products that we offer the market. We are increasing Pasta and Flour Mill production capacity while also investing in a Feed Mill.

    How will you assess the performance of your company in the last one year?

    Given the business environment in which we operated in the past 12 months which ended March 2014, I want to say that it has been very tough. We were confronted with a lot of challenges which are related to heightened competition among players in the industry.

    There is intense competition in the manufacturing landscape, especially in the sub-sector where we operate, but we are focused, purposeful and with a committed work force, we are equal to the task.

    Our number one competitive tool is the quality of our products, which we do don’t compromise on, we shall continue to remain number one in terms product quality.

    It is also important to note that the key drivers of our superlative performance are our people, workers, board and management. We are driven by the vision of the company, which is: To be the Most Admired African Company in Terms of Our People, Practices and Successes. We are driven by our core values of Responsibility, Integrity, Courage, Excellence and Respect for people.

    What is the next big idea expected in Honeywell?

    The next big idea from Honeywell is that we are presently embarking in a major expansion programme in Sagamu, Ogun State. We are investing in a 63 hectare-land that will enable us expand and increase capacity across all our existing products. At this location, we plan to literally blow up the business.

    We are increasing our capacity for pasta, flour and investing in a feed mill. We plan to expand our flour milling capacity by another 500 metric tonnes per day, expand pasta by about 150 percent of what is currently in place now.

    We are investing in feed mill operation in an effort geared towards focusing on locally available raw materials. For us, it is another way of building value for our shareholders. Most of these projects will be in place in another 18 months and commercial production will start which will enable us not only to increase our top line but also increase our bottom line and offer better returns to our shareholders.

    How will you assess your brand’s performance in the market?

    We play in five categories; our flagship brand is Honeywell Superfine Flour, it is number  two in the market with about 20 to  22 per cent of the market share; Honeywell Semolina – 40 per cent;  Honeywell Wheat Meal – 60 per cent; Honeywell Noodles – 12 per cent  and Honeywell Pasta; 14 per cent. Sometimes our market share is just a reflection of our limited capacity and not a true reflection of the consumers’ preference for our brands. We have exhausted the current capacity for some of our products and as we build more capacity, we will continue to increase our market share.

    Your adverts usually run during football matches. Why have you chosen such time?

    Yes they do. If you look at the profile of our core consumers, they are children, youths and young adults and football is one unifying factor in Nigeria, we believe that football is one platform that can offer the level of awareness that we want to associate our brands with. So, it’s an opportunity for us to connect with all our core consumers not only children, but adults and even the very old ones that enjoy watching football.

     

  • ‘Housing for all by 2020 unrealistic’

    ‘Housing for all by 2020 unrealistic’

    Is it possible to provide houses for all Nigerians in the next six years? No, says Gimba Ya’u Kumo, Managing Director/Chief Executive Officer, Federal Mortgage Bank of Nigeria (FMBN). In this interview with Assistant Editor NDUKA CHIEJINA, Kumo says the National Housing Fund (NHF) is “grossly underfunded”. FMBN provides mortgage for Nigerians to build, buy or renovate their houses under the NHF scheme. Although Kumo lauds the scheme, he says a lot still has to be done to make it work.

    How will you assess the mortgage industry?

    The mortgage industry is just starting. If you look at the size of our contribution to the Gross Domestic Product (GDP), it is less than one per cent, but my target before I leave here is that we should be able to contribute at least 15 per cent to the GDP. That is why we are putting a lot of issues on ground to be able to drive the process. Now the question is: How do we do that? It is simple. If you look at the National Housing Fund (NHF), out of the population of 170 million people, less than one per cent of the population is contributing to the Fund. This is not good. Our target is on how to reach the other segments of the society that is not in formal employment. Essentially, the mandate of FMBN is to finance housing delivery to Nigeria’s teeming population by exploring funding sources such as NHF, the Nigerian capital market and offshore financial markets. Its mandate also include ensuring that there is adequate liquidity in the Nigerian mortgage sector; it also strives to create and nurture a viable and robust housing finance system to improve home ownership for all categories of Nigerians through affordable mortgage services.

    Do you think a single digit mortgage rate is sustainable given the economic indices?

    Yes, our rate has always been single digit, our estate development loan or construction loan is 10 per cent, our mortgage rates are at six per cent and we also intend to extend the same rate to the informal sector so that we can make houses affordable to them. Nigerians cannot afford anything above single digit because the average income is very low. That’s why we are providing a buffer whereby they are able to pay. We took the minimum wage of N18,000 as a base and with that, a beneficiary would be able to do a mortgage of N450 monthly. This is the minimum the informal sector beneficiaries are expected to pay but this will be difficult for some of them, so we are looking at a subsidy.

    Is there any way Primary Mortgage Institutions (PMIs) can be prevailed upon to charge single digit interest rates?

    If you say the government, you are talking in terms of agencies that deliver mortgages. It is only the FMBN that is delivering mortgage as a govrnment entity. Our mortgage isin single digit, six per cent. That is what President Goodluck Jonathan has told us and that is what we are doing. We charge our mortgage at the rate of six per cent on a long tenure basis, 15 years, 20 years and even up to 35 years.

    There are concerns that contributors to NHF have not been able to access loans in the last few months. How true is this?

    Contributors to the NHF have in the last six months been paid over N9 billion either as refunds or as funds to assist them own their homes. The information is in the public domain for anyone that wants to verify to do so. We have been paying contributors and in the last six months, we have disbursed over N9 billion to contributors. Publication of the list may not have been regular like before, but that does not mean that disbursement has not been going on. We have disbursed through 57 PMIs. We are doing all we can within the bank to ensure that our facilities are up to date so as to reduce the waiting time in the disbursement of loans to recipients.

    Some people didn’t subscribe to NHF due to problems encountered at maturity. What is your take on this?

    The NHF loan is a transparent exercise and that is why we decided to be publishing the names of beneficiaries of disbursements and refunds when we came on board. We published the names of refunds of those that have left service. It is because of our desire to address these discrepancies that we came up with the e-collection platform so that each individual contributing to the scheme will be able to, on a monthly basis, know whether his/her account is credited or not. The essence of this is to make them inquire from their organisations why it is not done. These are the issues and we will be able to address them as we move on. We have several strategies for implementation to provide houses to Nigerians. If you look at the minimum wage of N18,000, the deduction is 2.5 per cent. If you run your numbers, it is about N450. We have 3,777,000 contributors.  We have delivered only 56,000 houses. It takes 250 contributors contributing N500 monthly for 10 years for one person to be able to access N15 million. That is the statistics and that is why we are talking to government to fund us, even if it is a low interest loan for a long tenure. By the time you run a mortgage for five years, it is not a mortgage. A mortgage should run for 15 years or more. What this means is that an average Nigerian can identify a house in any location in Nigeria and approach FMBN for a loan through a PMI for financing for either outright purchase or for renovation.

    How can Nigerians access NHF loans?

    Those who want to access the loans need to have equity contribution of some percentage of what they are asking for as loan. If for instance they require N5 million to N10 million from the bank, the equity contribution is 20 per cent, for N10 million to N15 million, the equity is 30 per cent while for N5 million and below, the equity contribution is 10 per cent.

    The bank does not deal with individuals in its transactions. As individuals wishing to buy a house or access the loans, they have to go through PMIs.

    Has there been any  problems with loans granted to property developers?

    Up till now, we don’t have any problem with the loans we have given to developers but the ones issued before we came on board, there are problems and we are trying to resolve them. But generally, Nigeria has an issue that has to do with titling. Mortgage business is based on title and for you to get title in Nigeria is difficult. For instance, you are given a land in Abuja under the development lease agreement to build 500 houses, for you to be able to create mortgages for these houses, you need an individual certificate for each of the houses. If you apply to Federal Capital Territory Authority (FCTA) to get these, it takes you not less than two years. That of Lagos is even worse. But on our own, what we have done is to create a buffer zone which we call the internal record office whereby you will sign our legal mortgage documents and we give you your mortgage, leave us with the responsibility to get the title. By this, we try to reduce the burden to beneficiaries.

    How has repayment been?

    For the ones issued before we came in, it has not been encouraging and that is why we have embarked on an aggressive drive to recover loans in order to meet our obligations to our shareholders. The move is in line with the resolution of the last management meeting held in Abuja. The Board of Directors of the bank also mandated the management to go all out to recover loans given through the NHF. PMIs will also be included in the loan recovery exercise.

    How much are we looking at?

    I will not mention specific figure for now, but we need to recover these monies in order to enable other Nigerians benefit from the fund. We noticed that some provisions in the estate development window gave rise to this and that is why we are planning to review the estate development loan window to remove observed lacuna. The National Housing Scheme (NHS) also would be reviewed to ensure better collection of contributions from the PMIs as FMBN is reforming its operations to enforce discipline and transparency.

    What new innovations are you bringing into the scheme?

    FMBN is working out modalities to roll out a Diaspora product to assist Nigerians living abroad own homes in Nigeria. The product has become necessary given the large number of Nigerians in Diaspora who wish to own homes back home and also as a means of reducing the housing deficit in the country. We realised that about 17 million Nigerians are living outside the country and most of them plan own houses but they have not been able to do so. We understand that over the years, people have been remitting money for building or buying of a house and they have not been getting good results with sad tales to tell.

    By the time we develop the Diaspora mortgage model, it will be a model whereby Nigerians living abroad who want to buy houses can approach FMBN. If they do not take the mortgage, they can get refund of their money with interest. The reason the bank has chosen the United States (US) is because out of the 17 million Nigerians living outside the country, America has about 58 per cent. We will do our case study here and in the United Kingdom (UK). If it works well, we will try to replicate it in Asia and other parts of the world. The move would also lead to the inflow of Diaspora finance to Nigeria. This would further assist to reduce the housing needs. The target of Diaspora is because the inflow of Diaspora money to Nigeria is about $10 billion. If the housing sector takes about 25 per cent of that inflow, we are expecting that about $2.5 billion will come to us in the form of inflow from Diapora people that would need houses and investments in the housing sector. That would translate to about N4billion and with that, we can fund mortgages and build about 30,000 units/ That would be an opportunity for those who would want to have houses in Nigeria. That is within the envelope that we are allowed to operate which is N15 million or $90,000.

    How viable is the real estate sector?

    The total value of the real estate market is put at N59 trillion and that is potentially six times bigger than the local stock market which is valued at N12 trillion. On this basis, the sector cannot be ignored. Let me explain how we arrived at that figure. The housing deficit in the country is estimated to be 17 million units . When multiplied by N3.5 million, the estimated cost of a single housing unit, it will result in that amount. I am however, optimistic that with the coming on stream of the Mortgage Utility Refinancing Company (MURC), the housing sector will experience a revival that will attract investments to the sector and boost the economy.

    Why has it taken government this long to  address financing issues in the sector?

    I think it has taken the government this long to decide to finance the sector because it initially wanted to see if the funds would be well managed before doing so. Government initially wanted to see what we have done before it puts money there. This bank has been operating for 22 years and during that time, it was operating on deficit, we were able to break-even last year and made profit. Secondly, we did some reforms like full computerisation of the bank. The only source of income is the NHF we now collect through the e-collection portal, which has tripled collections. We were able to pay more mortgages and fund more constructions. We did that to show transparency so that contributors can see their contributions being used. We also went ahead to start publishing the names of those who benefitted and those we have refunded because the law says if they retire, they ought to take their contributions and two per cent interest. We have refunded N1.2 billion to about 78,000 people in the last two years.

    What are you doing to create awareness so that the less privileged can be part of this?

    We have come up with a product called the cooperative housing loan, which is designed for people that are not earning salaries. Everyone is privileged. But for people that are not earning salaries, we have made provisions for them such that they can form cooperatives and also access loans in the housing sector. The only way you can do that is through cooperatives or organised informal sector involving farmers, traders, carpenters, among others. They can form cooperative societies and benefit from corporate mortgage facility from us. With that we hope to grow the sector and contribute to the development of Nigeria.

    How does the cooperative loan scheme work?

    Those in the lowest strata of the society have not benefitted from loans because they have limited capacity to access funds to pay for houses as the income they generate is very small. This led to the introduction of the Cooperative Loan Scheme. It was brought about to extend the bank’s services to people who can be termed disadvantaged in the society because their income is low, irregular and difficult to access under the NHF loan window. What the bank has done is to use cooperative societies in the informal sector to service people who can be termed disadvantaged in the society because their income is low, irregular and difficult to access under the NHF loan window. The informal sector constitutes a larger per cent of the economy. Since they do not get salaries on monthly basis, the bank has to look at ways to reach them so that they can contribute and also benefit by owning their own houses. The cooperative loan scheme enables a cooperative society that has acquired a plot of land to develop houses for allocation to its members. The parcel of land would have title in the name of the society which would act as facilitator on behalf of its members in the loan transaction and which would facilitate construction of the housing units. The root of the title of the estate land would be subleased to the beneficiaries. FMBN is aware that people gather in groups to contribute money like ajo, esusu as they call it in different places. They can make contribution of only N450 each per month after joining NHF on N18,000 minimum wage benchmark, which is at 2.5 per cent rate.

    How do cooperatives access loans?

    Cooperatives are registered in states under the Ministry of Commerce and Industry while at the federal level, they are registered with the Ministry of Agriculture. FMBN has presence in all the 36 states and it is therefore our duty to identify cooperatives that are viable. The way this works is that we will not give loans to individual members of the cooperatives to go and build houses, but instead give loans to the cooperatives as a group. The cooperative goes and identifies a plot, does all it needs to do and then applies to FMBN for a loan. When we are satisfied that the cooperative has met all our conditions, provided all the necessary documents and passed our internal credit test, we approve the loans. If they have professionals among them, we will allow them build, subject to our monitoring. It is when the cooperative has finished building that we will give loans to individual members to enable them purchase the houses their cooperative has built. The money the members pay back will be paid into the account of the cooperative to offset the loans. We have created a mortgage loans that will be paid over time by individual members, which is either 35 years of service or 60 years of age, that is retirement time. I normally use retirement age, which is 60 years to calculate repayment period. Labour law provides that a worker should not spend more than 33 per cent of his income to service any loan. We apply that principle and try to establish the average of the person and situate what he can service within that income. Income for this sector may not be regular, but it has to be reasonable for the person to qualify for the loan. We give the loans at four per cent interest to the PMIs while they in turn give it at six per cent to the customers.

    What is e-collection platform about?

    This system will automate NHF deductions and remittances from employers’ salary payments account domiciled with any of the 23 commercial banks enlisted in the project. The e-collection form will ensure compliance by employers and provide contributors with transaction alert in addition to online, real time access to records of their contributions. We expect an increase of at least 300 to 500 per cent, although currently we have recorded over 100 per cent increase in the collections. We are working hard and hope that very soon, we will attain our desired goal. One of the problems that we faced in the past was that of non-remittance of contributors by the employers. Some ministries collect but they don’t remit to FMBN so the money does not get to us, now we are doing e-collection and we know that things will improve. Over N100 billion has been lost in revenue to the NHF due to loopholes in the collection process that encouraged flagrant violation of the NHF Act by employers.

    What does the government need to do to enhance your operations?

    As I have said, the major challenge is funding. The second challenge is recapitalisation and the Federal Government is attending to these. So apart from these, we have others like the issue of corporate governance, we are trying to get the bank to be focused and competitive. FMBN was established 21 years ago and since then, it has not made profit but when I came on board, we were able to break even and make profit for the first time. At present, the NHF only has 3,772,031 contributors and it would require 50 contributors to contribute N500 monthly for 10 years before the bank would be able to provide a loan of N15 million for one individual. So far, the bank has approved NHF loans of about N90 billion out of which only N39 billion or about 22 per cent has been disbursed. While it has also approved N110 billion Estate Development Loans (EDL) out of which only N62 billion or 52 per cent has been disbursed. The total disbursement we have made so far is N100.5 billion and we have been able to deliver 56,000 houses which is just a drop in the ocean when compared to the housing deficit we are confronted with. Since the NHF commenced, we have been able to collect a total of N106 billion and looking at our disbursements, we have disbursed more than that. This is because some of the funds we collected from contributors, we put them in investments. Also, out of the total number of houses delivered, 46-52 per cent was done by the current management of the bank within the last two years, while a further N1.6 billion representing 1.58 per cent of total collections was refunded to retirees. We would also urge the Federal Government to increase the share capital of the FMBN from its present N5 billion to N200 billion to enable the bank address the housing deficit in the country because addressing the over 17 million housing deficit in the country would require aggressive injection of funds by the Federal Government. The bank presently has a share capital of N5 billion out of which the Federal Government has paid up its own share of N2.5 billion representing 50 per cent, while the Central Bank of Nigeria (CBN)  and the National Social Insurance Trust Fund ( NSITF) have not paid up their 30 per cent and 20 per cent shares respectively. The bank  is grossly undercapitalised compared to other countries even in West Africa but the government is currently working on ways to improve its capitalisation. Government can even loan us money to carry out our functions, which we can repay with interest so that we can build houses for Nigerians at cheap rates because the current rate in the banking sector is quite high.

    What should be done to accelerate housing development?

    There is need for the government to put money into it. Secondly,  private sector initiative should also be put in place with a view to fast-tracking government’s housing delivery programme. The issue of 17million housing deficit cannot be addressed by government alone. We have a delivery deficit of 17 million at a N3.5 million per unit, that is N59 trillion, so there should be joint and coordinated efforts both by the private and public sectors with a view to providing houses for Nigerians.

    How affordable are the houses?

    They are expensive in the sense that cost of materials for constructing these houses are also high. So, there is need for reduction in the cost of cement, there is need for a reduction in the cost of iron rod and other accessories that make up these houses. Once that is done, I think it will go a long way in reducing the cost of the houses.

    Do you think housing for all by 2020 is realistic?

    No, it is not. 2020 is the next five to six years. The implication is if you run your statistics to say you need to cover the deficits in the next six years, each year you have to be building more than two million housing units. But don’t forget the deficit keeps on growing because people keep coming up increasing the need for more houses. Government alone does not have all the money, so there will always be gaps but we are working hard to see that we close the gap. So providing houses for all Nigerians in the next six years, I don’t think it is possible.

     

     

     

     

    What would you identify as the major constraint in realizing your mandate of providing affordable housing to Nigerians?

    The major constraint is funding which government is working on. The laws that established the institution also need to be reviewed and we are working on it.  Thirdly we need public awareness on the existence of mortgage and the mortgage we are doing. That we are doing now through sensitization of Nigerians.

    Can you react to claims that the Mortgage Refinancing Company was set up due to the failing of FMBN?

    That is a wrong perception. Nigerian economy is so big, FMBN is supposed to address housing issues for the lower cadre while the Nigerian Mortgage Refinancing Company (NMRC) is supposed to address housing needs of medium and upper class, and  also to some extent, that of the lower class by the introduction of micro financing. NMRC will be market and private sector driven. If you look at most Nigerian workers, they cannot afford any funding that is market-driven; we will take care of that ladder. We will continue to do our social lending. Actually we have not been able to satisfy demand because we have more than 100,000 requests with us and I told you we did less than 60,000 mortgages including the construction that we have done. So there is a gap, we have been able to meet demand by about 40 per cent. People are on the queue because the quantum of money we have is not sufficient to go round, these are some of the issues. If we had enough money, we would have given everybody that requires mortgage. But we cannot do it because we are not properly funded, the money is not there. These are some of the issues that we are facing.

    There are allegations that your management has spent about N600million in renovating the head office. How true is this?

    What the board has approved for us to renovate the entire fourth floor that was damaged by fire and also give facelift of the entrance including replacement of two lifts, was N245million and that is what we have started spending and I don’t think we will spend up to that.

    Some disengaged staff are alleging that management is not favourably disposed to paying them their entitlements. Is this true?

    Maybe before I came in, but since I came in, I have not seen any staff that has been disengaged and has not been paid his entitlements. Maybe they are referring to staff that have been dismissed before we came. But we are in court, they took the bank to court after even taking their money, their exit allowances, they still took the bank to court.

    Going forward, what would you tell Nigerians wishing to own their homes and don’t have the financial muscle?

    Nigerians need to imbibe the culture of mortgage. This idea of me using my money to build my house is too stressful on their savings and keeps people in a very difficult financial situation. So I appeal to them to imbibe the culture of saving. They should embrace the culture of going for mortgages whether through the NMRC, which is market-driven or through the Federal Mortgage Bank, which is specifically designed for contributors of the National Housing Fund (NHF) because the market is now big enough to accommodate all.

    The bank recorded a profit of N188 million in the first quarter of 2012 as against N256.415 million loss in the corresponding period in 2011. What is the magic?

    I would attribute the feat to the reform strategy implemented by the new FMBN management in line with the transformation agenda of the Federal Government. Prior to the current year, the bank also had deficit of N4.420 billion in 2010; N8.898 billion in 2009; N6.560 billion in 2008; and N5.974 billion in 2007. The FMBN-administered National Housing Fund (NHF) scheme had been making gradual impact on Nigerians; the scheme has since funded the building of more than 61,193 housing units in the six geopolitical zones in the country. FMBN is also computerising its operations to make it easier for it’s over 3.7 million customers to access its products and services and the process has become necessary to conform to globally accepted standards and also serve the bank’s customers better. When we came in, we saw that the entire operations were being done manually and we reasoned that there was no way we could carry out effective and efficient banking operations if we continue to operate manually. That led us to award some contracts that will entail entire computerisation of our banking operations and in doing that, the issue of security came up that we have to secure our offices as well. So, we are carrying out this computerisation exercise at the head office in Abuja, our 36 branches as well as our eight zonal offices and this will be done in phases. For the phase one which will comprise of full computerisation of all the bank’s buildings, the bank has already paid out about N200 million. At the end of the exercise the bank would be able to track applications more efficiently. From this exercise, we intend to have a situation where an intending customer who wants to access a mortgage loan can go online to fill the form and submit to the Primary Mortgage Institution and also to us. During the process of submission, it will indicate the date and in the event that the PMI does not submit to us on time, we can call them quoting the date the application was submitted and find out why we have not seen the application.

    What do contributors stand to gain from this computerisation exercise?

    In this computerisation exercise, NHF contributors will be given an NHF e-card, which is like the regular ATM card. With that card, they can check if their contributions have been remitted at any time and also be able to check their balance whenever they want to. Also, if they apply for NHF loans, they will know what their contributions are and what they are entitled to get. The reason why we have decided to computerise our operations is because before now, the operations have been very slow and cumbersome which made it very difficult for contributors to access loans when they need it but with the new system, the organisation intends to cut transaction time by 90 per cent. Staff as well as NHF contributors will have the cards that will allow staff access to their offices and contributors’ access to the first floor that deals with mortgage applications. Staff will have access to their offices while contributors will only have access to the floors that they have dealings with. The cards are ready but for now, we are running a pilot scheme for our Staff, the Police and Central Bank of Nigeria, (CBN). After we have assessed its performance, we will expand it.

    Are there any restrictions to contributions?

    No, if contributors have more income and they wish to contribute more than that, the scheme allows them to. What happens is that the balance contribution that they make aside the statutory 2.5 per cent of their salaries will not go to equity when they wish to take a loan. For example, someone that is supposed to be contributing N450 and now decides to contribute N1000, the excess is multiplied by the number of months he has contributed and that goes to reduce the equity he is required to bring when he wants to access a loan.

     

     

     

  • ‘How auto policy will boost GDP’

    ‘How auto policy will boost GDP’

    Peugeot Automobile Nigeria (PAN) enjoyed a good run in the 70s and 80s, with its various brands of cars which outnumbered other brands on the road. Its Managing Director/Chief Executive Officer, Mr Ibrahim Boyi, believes the company can reenact that era with the coming of the auto policy. The policy, he says in this interview with Assistant Editor MUYIWA LUCAS, remains the best way to put the automobile industry back on track.

    The automobile policy is everything mixed reactions. What  is PAN’s take on this?

    Our take is simple. It is what we require to deploy our investment and infrastructure expertise and leadership in the automotive industry. It is also what Nigeria requires to develop its automobile, steel and petrochemicals industries towards providing massive employment and opportunities to Nigerians.

    What if there is policy reversal?

    All industry players have been concerned about that and also trust that the policy makers are conscious of that concern. At various levels, the subject has been raised and we have received sufficient assurances by the administration that it will not happen and that the policy will be enacted into a law by the parliament to reduce or mitigate the risk of arbitrary policy reversals.

    How prepared is the auto industry for this policy? What are its attendant benefits?

    From the perspective of PAN, we are ready for the policy and have since keyed into it. You will recall that we have over 40 years’ experience and have held leadership position of the sector for long.

    We are far ahead of any other player in terms of our quality of assembly plant, quality processes and expertise. We have fed Nigeria’s automotive industry with technical skills for over 40 years. The benefits of policy to Nigerians are numerous. The policy will protect local automobile industry and enable them to resume activities.

    This will lead to direct and indirect employment and other business opportunities in the areas of dealership networks, logistics provision and after sales service centers. The policy will also encourage other investors to set up in Nigeria as a result of the incentives and protection it provides.

    Finally, the policy will benefit the consumers in terms of provision of new vehicle finance schemes at low interest rates as well as provision of affordable vehicles by the competing players in the industry.

    What is the value addition of the automobile industry to the economy?

    From the official statistics in 2013, total value of vehicles imported into Nigeria was in the region of $3.5billion. If your target is to domicile 25 per cent of that value locally, the impact on the economy will be tremendous. This will mean more jobs for Nigerians and more wealth creation.

    The automobile industry contributes less than two per cent to the Gross Domestic Product (GDP) today, but it has the potential to contribute between five and seven per cent to the GDP if the policy becomes successful. The industry today employs less than 20,000 direct workers directly, but it has the potential of growing that number to over 500,000.

    It has been argued that automobile production should have preceded the policy. Do you buy this argument?

    People making this argument are either ignorant of the structure and development of the industry, or are just mischievous to protect some selfish gains. Automobile production in Nigeria can only occur within a protective policy. Without any defined incentive and benefit scheme to promote local production, no one will make the investments into the sector.

    Even companies that had invested at the time the industry was protected, died once the protection was removed. Nigeria must create a competitive environment for industrial activity to take off, otherwise there will be capital flight, and so will be jobs and opportunities.

    The policy as conceived, has provided for this transition and I am confident it will work out well without any of the skeptical projections of price hikes, or vehicles shortage.

    Do you think the indigenous automobile makers have the capacity to cater for the country’s automobile needs? If not, how will the shortfall be bridged?

    Nigeria’s new vehicle import at end of 2013 was only 49,000 vehicles. This is far lower than PAN’s manufacturing capacity of 90,000 cars per annum on single shift. Therefore capacity will not be the issue in the immediate term.

    As we see a shift in the market structure between used and new vehicles, various players in the sector will certainly be responding to meet the new requirements from their various facilities.

    How sustainable will automobile production be in view of the economic hardship being experienced in the country. Will these made-in-Nigeria vehicles be chaep?

    As I mentioned earlier, a key component of the automobile development plan is the aspect of market development, which will promote the set up of vehicle finance acquisition scheme and also mandate the players to develop affordable vehicles. These will be the market challenges that will shape the strategy of every player that will need to survive and remain viable.

    In PAN, we have already started acting in that direction by creating entry level vehicles that are quite affordable in their class. We will also continue to improve on the affordability of our vehicles without compromising the key elements of safety, reliability, durability and efficiency.

    How prepared is PAN for this new dispensation? What have you put in place to compete?

    We are already positioning and responding to the evolution of the market. Our constant value elements will be safety of our products, reliability and adaptability to our environment, efficiency and overall cost of ownership. As in the past, support for PAN’s products will be everywhere, with assurance to our customers of affordable after sales support and genuine spares. In the end, we intend to make our vehicles more competitive.

    What will be the impact of the comatose Ajaokuta Steel rolling mill on automobile production considering that the plant is meant to supply the industry parts?

    I believe that once we stabilise the auto industry and improve its performance, there will be a natural pressure to develop the composite parts’ industry, such as steel and petrochemicals.

    The Auto industry, as the primary user of such inputs, must develop and create demand for those inputs. This will be the same with auto components manufacturers. Once the auto industry dies, all component manufactures will also perished.

    Is the economy on course?

    There has been consistent growth of our economy. However such growth needs to be more inclusive and diversified.This can be achieved through further diversification of the economy from oil to other productive sectors, such as agriculture and manufacturing.

    Also certain economic reform elements are yet to take root, such as the power sector reform and fiscal responsibility. Once these reforms take root, the impact on the country and its populace will be enormous. It will help the inclusiveness of the growth and create a balanced and more sustainable economic model.

     

  • ‘The best way to save is to invest’

    ‘The best way to save is to invest’

    The idea of establishing a Sovereign Wealth Fund met with resistance when it was first muted, and even now, it is unsavoury to some in political leadership. Nevertheless, the Managing Director of the Nigerian Sovereign Investment Agency, Uche Orji, sees it as the safeguard Nigeria has when its oil wells eventually dry up. He speaks with the Group Business Editor, Simeon Ebulu.

    Was Nigeria on target when it started the Sovereign Wealth Fund?

    In my place, they always say, whenever you wake up, you say good morning. We have woken up to this and our morning for this has started. Obviously if we had started the SWF in 1976, at the same time that Abu Dhabi started theirs, which at the time, I was told, they started with less than $30 million,  Abu Dhabi has built a complete business now of $675 billion. Abu Dhabi produces less oil than Nigeria.

    In 1996 when Norway started, and Norway produces about the same amount of oil as Nigeria, it with $300 million, and I remember this clearly, because when I was at Goldman Sachs  Asset Management, we co-managed a portion of their funds for them. Today, the Norwegian government puts into their SWF, the equivalent of $1 billion every week. When I met with them last October, they said every week since last year and the year before, they’ve been putting $1 billion.

    As we are sitting down here, they are doing that every week. And now they have built their SWF to be the World’s biggest to about $840 billion.

    The point is, we can sit back and say, if we apply the same principles that Norway, or UAE applied in 1976, or 1996, we could have been much bigger. But all of that is water under the bridge. We have woken up, the most difficult challenge is to make sure that the contribution is consistent. The biggest danger is that you start and you stop. It becomes difficult to achieve what you want to achieve with this business.

    What is the underlying priciple guiding SWF management?

    Sovereign Wealth Funds are managed conservatively. They don’t borrow money the way banks do, so you can’t compare this business to banking business. For every dollar of banking equity, you know sometimes, they leverage it, may be 100 times. This business does not expose itself to that kind of risk. It is not the same thing as private equity.

    They invest in equity as a diversified pool of asset, so you don’t take the same extreme level of risk as other people take. The value-added of Sovereign Wwealth Fund is the consistency of contribution by the governments that started it. That is the only way you distinguish SWFs from other forms of investments.

    How soon are we going to be able to measure the success of this venture?

    Well it is helpful in answering that question to accept that various governments in the past, particularly that of President Olusegun Obasanjo, through the Excess Crude Account, attempted to do this. But with the government of President Goodluck Jonathan, a law was actually enacted to make this happen. It is now a question of: Can we consistently keep to that law? If we can, then we will most likely, succeed.

    You measure the success of SWFs, not in weeks, or quarters, you measure it actually in most cases, in decades. I can tell you this because when Norway started, I was there.  At Goldman Sachs, they gave us a small slice of $50 million to manage for them. Here we are almost 20 years, and it is one of the biggest SWFs in the world.

    We’ve stated today, which is great, but we must contribute consistently to this, because really, this is not about me, or any individual. It is the foundation that you put in place today- the consistency of the contribution that will determine the success of the Nigerian SWF in 20, 30 years time.

    Let’s not forget why we set up  this Fund. Our oil resources, who knows when it will run out, but one thing is guaranteed-it will run out. We don’t know when, but it will, so we have to be prepared.

    If SWFs have that much success quotient, as you said, why was there resistance to its creation?

    Number one, it is not unusual that there was resistance to the creation of the SWF. Firstly, there are competing needs for the resources, and it’s a question of, do you save, or do you invest. Even in other places, there are issues, even in Norway, you will hear about people saying, oh, we have saved enough, let’s start spending. The younger generation now want to spend the money. Whenever there’s a pot of resources, the debate has always been, do we invest, or do we save?

    I also need people to understand that the two are not necessarily mutually exclusive. So there is perception issue as to what a  SWF does. I  personally believe that the bridge in the conversation is to accept that the best way to save is to invest.

    Let me explain. If you keep N10million in your bank account, and it’s cash, every time somebody comes to say, this one, you give, that one, you give, that money will never be of any use to you. But if you take that money and buy a flat and you rent the flat out and start collecting rent, you can spend that return and keep your capital, and may be your capital will appreciate.

    So it is a matter of how you decide to approach what people have perceived as a conflict in definition.  So when I hear people say, why are we saving when the roof is leaking, my answer is, it’s not so much about saving, it’s about savings through investing.

    Because we asked the same question 20 or 30 years ago. In the first Gulf War, we had a lot of money, in the oil crisis in the 70s, we had a lot of money. Could you imagine, if we consistently saved a bit of that since the 70s, where  we will be today? We would have enough pool of capital to take on major projects. So the resistance is the age-old perception of the difference between savings through investing and spending.

    The number two reason, is obviously the matter in court between  the Federal Government and the states, on which I cannot comment, but the reality of the issue is, we are investing this money.

    But I want you to take away one impression, which is that, it is not unusual to have a debate around the issue of, do we save, or do we invest. People should understand that we are investing this money, we are not taking it, and the best way to save, is to invest, that’s my personal view.

    Don’t you think there’s need for enlightenment?

    It does call for a lot of enlightenment, which on the one hand we can do, but it’s not just us. It’s enlightenment across, by the government and the media, who have the benefit of seeing and hearing about other countries where this has worked. It is a stakeholder enlightenment by everybody who understands what this, is.

    So for everybody to expect that I would be the one to go about and explain to all these people, there’s already a conflict of interest issue here. You need to understand this, that this is not so much about my career.  I was a managing director of an investment bank for almost 15 years before I took this job. So I’ve had a successful career, but this is about all of us. So, I will do my best to enlighten people, by making sure that people like you who shape opinion, understand it better so that you will be able to help shape peoples opinion.

    What’s the assurance  that this will be a win-win adventure?

    Make no mistake about it, the markets are volatile. It’s not every  investment we make that is going to work, but so far so good. We score ourselves highly on the little investments that we have made so far because we’ve been very, very careful.

    But there’ll be moments when things would be a little difficult when you have significant macro-economic issues.

    The Norwegian Sovereign Wealth Fund in 2011, or sometimes within the last five years, lost over a $100 billion, and two years later, they made $120 billion. Sometimes it can be that volatile, but people need to understand that is how the markets are.

    But in the long-run, one thing is clear. It has been proven that the markets always end up expanding, because demography is growing, innovation is happening, businesses are becoming more efficient. All of these are the reasons we need to be more patient about the long-term effect of this business.

    How will you define the NSIA mandate?

    The law requires us to manage three funds. The first is the Stabilisation Fund, which has to provide daily liquidity for us to give to the government whenever the government needs stabilisation.

    That fund is not designed to earn a lot of money. It’s not long-term. We’ve invested in a way that it yields daily liquidity. That fund in my opinion will earn, somewhere roughly two per cent, or less.

    Returns and  duration are correlated. The longer the duration, the higher the returns. Essentially that‘s how the fund is structured. We’ve tried to push the returns higher while maintaining the requirement for daily liquidity as defined by the law.  We have put 20 per cent of the fund there.

    The main returns will come from the Future Generations Fund and the Infrastructure Fund. The Future Generations’ Fund, in many ways is where we expect to see significant returns. There, as at the end of March, we have committed 50 per cent of the Generations Funds to various assets.

    And the Future Generations Fund is 40 per cent of the SWF. It is a wealth with five pool of assets in the following categories.

    Essentially, how have you deployed the fund?

    First of all, we invested in Hedge Funds. Hedge Funds are businesses that are designed to try and protect you in a market downturn, as well as maximise returns in the market upscale.

    Those Hedge Funds have done very well. The best performing Hedge Fund we have in the first-three months of the year, returned 12 per cent, which is remarkable.

    The worst one was down 2.8 per cent, but all-in-all, our Hedge Fund strategy is up, quite significantly. On a blended basis, we are up somewhere around seven per cent.

    The markets have been in our favour. So we expect the Hedge Funds to continue to do well. We have invested in four of them. 25 per cent of the Futures Generation Funds is with Hedge Funds.

    Given the volatility in the financial markets, what safety nets have you put in place? What is the profit margin you are targeting?

    The steps we have taken at the top level, is to structure the Futures Generation Funds in a way that will allow us to cover US inflation rates, plus another four per cent, that will give us, roughly another five-six per cent expected returns, and don’t forget, we are programmed to earn this annually. So over a period of five-10 years, the Fund will actually grow significantly.

    And the way we have done this, is to invest 25 per cent of the Futures with Hedge Funds, 25 per cent with private equities, which is long duration. But most private equities will return the money anywhere between three, four times the value of the money over a period of 10 years.

    We have also invested in public markets, public equities. We are yet to make investments in commodities, which we will, we are yet to make investments in hard assets such as real estate, which we will. These are the steps taken to find the asset classes to put the money in that will give us this fort of returns.

    All escrow?

    Some escrow some local, but mostly escrow, mostly external. So, 20 per cent in stabilisation, 40 per cent is generation.

    Into which sector have you invested the balance?

    The remaining 40 per cent is infrastructure, which we have started to invest locally. This is Nigeria infrastructure.

    The Infrastructure Fund will be long duration. The first investment we’ve made is the Second Niger Bridge, which is on-going, work has continued. It is a four-year construction period. Two years of initial operations and then we start earning returns after six years. But over 25 years, the expectation is that we will earn somewhere about 15 per cent a year return from our investment.

    Something we have also signed up to is Eagle Hills. One of the projects we are evaluating is the Centenary City, which is a whole Economic City. We are also evaluating other related projects in Lagos, and other parts of Nigeria as well. Again we anticipate earning about 10-15 per cent a year from those kind of investments.

    We have also made commitments to invest in agriculture and we anticipate to earn over 20 per cent a year.

    What informs  your investment decision?

    There are four things that guide our investment strategies.

    Number one, is it a national priority, and that has been very important in making us focused and we have put this constraint on ourselves as an early stage-guide. We have small capital and we will want to use it wisely.  Somebody came and wanted us to invest in his water park. I said Water Park is a good idea, but not a national priority.

    Number two; is the regulatory and legal environment conducive for private investment, number three, can we attract private co-investors and four, can we earn a reasonable return?

    The minimum specified return for us in infrastructure is, US inflation rate plus five per cent, so we are looking to earn  seven – eight per cent, in dollars. These are the four immediate guiding factors.

    What are your areas of core interest?

    For now, we are focusing on five areas, which are power, agriculture, healthcare, real estate, which is in commercial and affordable housing, highways and motorways.

    More recently, we have been given money by government to invest in gas infrastructure. Gas was what we wanted to do later on, but the government said gas is priority right now, and they have given us $200million to work outt opportunities to invest in gas.

    In motorways, there are three projects we have evaluated. The second Niger Bridge, we have already announced. We are working with Julius Berger on the Lagos-Ibadan Expressway  and we have been in discussion for a long time on that. The government will be in a position to make a pronouncement on that very soon. There is one more project in the Northern side of the country. We are still in the early stage of discussion on that.  We have set up a subsidiary vehicle, the NSIA Motorways Investment Company and some of our staff are mid-wifing it.

    Once the national tolling policy is a place, we will  become more active in this sector.

    There are many things to do and I hope that when the primary client, the federal and state governments make these projects for PPP participation we will be there.

     

     

     

     

  • ‘Economy can’t grow without steady power’

    ‘Economy can’t grow without steady power’

    Electricity, it is said, is essential to the development of a country’s economy. Where there is regular power supply, according to Alhaji Munir Abubakar, Managing Director of the Nigeria Social Insurance Trust Fund (NSITF), jobs will generally be created. In this interview with TOBA AGBOOLA, Abubakar urges the government to invest in infrastructure to drive the economy.

    Profile

    Institutions attended Ahmadu Bello University, Zaria; University of Pittsburgh, USA.

    Qualifications B.Sc (Administration).

    Previous positions Executive Director (Admin), NSITF.

    Present position Managing Director, NSITF.

    Experience Over 25 years.

    What are the primary objectives of the NSITF?

    The primary objective of the scheme is the protection of citizens against problems associated with disruptions. The scheme also protects against changes in their income status which could expose them to poverty, suffering and indignity.

    The SITF/NECA safe workplace intervention project and Claims and Compensation Manual of operations (CCM) are now concluded and the NSITF management now exploring strategic alliance with established government registered vocational and rehabilitation centres across the federation with a view to outsourcing that aspect of the implementation of the Act. It is the effort of the NSITF and the Nigeria Employers Consultative Association (NECA) to ensure safe workplace intervention project as well as maintain interactive sessions with participating employers. The management will continue to explore the option of moral suasion for the time being, rather than sanction.

    Can you throw some light on the importance of Employees’ Compensation Act (ECA) 2010 to employers and workers?

    The enactment of the Employees’ Compensation Act (ECA), 2010 which repealed the obsolete Workmen’s Compensation Act (WCA) of 1942, is of immense importance to Nigerian workers as the scheme has achieved tremendous success considering that as at the end of last February, over 12,043 employers have registered from the Organised Private Sector (OPS), while about 4.2 million estimated employees are covered from that sector. Under the scheme, the Federal Government has so far paid for treasury funded MDAs from 2011 up to December, 2013 and the number of employees covered still being reconciled and the computerisation project to provide e-operations for the fund has reached advance stage. The number of employers that had keyed into the scheme is continuously increasing by the day.

    What is the fund doing to ensure the scheme’s implementation in accordance with the law?

    All our efforts are aimed at ensuring accountability and transparency in the operation of the ECS. We also make sure that administrative cost of managing the Employees’ Compensation Scheme (ECS) does not exceed the International Labour Organisation (ILO)’s benchmark for Social Insurance Scheme. The NSITF has also inaugurated the Independence Investment Committee as provided by Sections 62 and 63 of the Employees’ Compensation Act (ECA 2010).

    What is the compliance level by employers in the private and public sectors?

    A reasonable number of employers in the public and private sectors of the economy have registered, although, not all of them have fully complied yet, but appreciable progress is being made in claims and compensation payment. In the same vein, it must be said also that virtually all the commercial banks in Nigeria have been authorised to collect ECS contributions on behalf of the NSITF, making it possible for employers not to be restricted to any bank across the federation. Moreso, defaulting employers are regularly served with demand notices for payment of their one per cent of their total emoluments as provided in the Act, and they are complying now; some via additional legal letters.

    Most employers claim they are not fully aware of ECS. Is there any awareness programme?

    NSITF’s enlightenment campaigns via sensitisation programmes and seminars across the country in collaboration with employers’ and employees’ organisations are on. This is done with appropriate flyers, pamphlets and booklets on ECS. They have been printed for wide distribution to all stakeholders. Alongside that are radio jingles in Pidgin and English which are on air; video versions on the television are underway with human capacity development for staff. There are local and overseas trainings, seminars; workshops are also ongoing, and remarkable progress is being made.

    How would you assess the progress so far made by the fund?

    The scheme is working out strategies to train more field workers to step up implementation. No fewer than 935 applications for settlement of claims by employers have been received, while the fund had settled over 567 in 2013, apart from some having one issue or the other that hindered the settlement of their claims. The NISTF is moving away from the orthodox role of the voice of employers to providing social responsibility such as providing technical and vocational skills for the development of the youth.It is  ensuring improved safety at work as typified by the NSITF/NECA safe work intervention and providing shelter for members and employees through a partnership with Federal Mortgage Bank.

    Also, existing offices nationwide are at various stages of completion, after inspection of the offices in collaboration with the appropriate agencies of the Federal Ministry, in line with the provisions of the Public Procurement Act. New  offices have been opened in Yenagoa, Bayelsa State, Aba in Abia State, Lafia in Nassarawa State, Jalingo in Taraba State, Mararaba and Zuba in the Federal Capital Territory (FCT), in Abakaliki and Awka. Modalities for the assessment of employers, preparatory to the statutory review of contribution rates are being worked out, while consideration of other social products/ services additional to the scheme have started with NECA’s capacity building programme .

    What are the challenges affecting the operations of the scheme?

    The public awareness of the ECS is still a challenge  as the scheme’s features and benefits are not yet fully understood.Under-reporting of occupational accidents/diseases to pre-empt corporate negative image and/or evade full compliance with the provisions of the ECA.The improper documentation with respect to claims affects the genuineness of medical health providers and practitioners from where stakeholders get medical bills.This is part of the earlier challenges experienced, but it is currently been addressed.

    Operational challenges in claims and compensation administration, particularly the slow pace of processing still being experienced in the area of confirmation of degrees of disability by the medical team has affected the automation and provision of other infrastructures, in view of the need to follow due process in procurement, following the provisions of the Public Procurement Act. Another aspect of the challenge is in securing collaboration with as many institutions, bodies, or organisations, local and international which are relevant to the effective implementation of the ECS. Social security culture in Nigeria is still posing some constraints to seamless buy-in to the scheme. The culture of compliance with legislations that require parting with money among employers and employees; the tendency for evasion of compliance by some employers using flimsy excuses, or playing pranks, affects the public perception of the efficiency and/or effectiveness as well as trustworthiness of NSITF as the implementing agency; based generally on past failure of public institutions in Nigeria also forms part of challenges of the scheme.

    How can unemployment be tackled?

    One thing I think the government can do to jump start the process of turning around the economy is the provision of infrastructure. I believe when there is regular power supply, jobs would be naturally created because the Small Medium Enterprises (SMEs) will spring up from every sector of the economy and millions of Nigerians will be employed. For instance, if there are one million new SMEs employing at least five people, then, five million would have been employed. And that is what constant electricity generation can do in any economy.

    What is your take on Federal Government’s crusade against corruption and the enthronment of quality leadership in the country?

    The Federal Government has established many institutions to fight corruption. And in doing this, government has done well, but beyond establishing these institutions, the government has put in more effort  to ensure a more open and transparent governance in such a way that will involve the people more and enable people to express themselves in a way  that the government begins to represent the true yearnings of the people. The anti-corruption agencies are institutions that serve as  benchmark to measure the activities of other agencies.These agencies look up to  them in measuring standard of public conduct. Our call is for all the anti-corruption agencies to work together through mobilising people more in the fight against corruption and we hope to see a lot of partnership between the agencies and the civil society in achieving the objectives of the anti-corruption war.

    The civil  society groups in the country have important role to play in bridging the gap between those in leadership position and the people given their privileged position. They can influence the policy implementation by going back to the communities to educate them on ways to checkmate the leaders. Apart from labour unions, the civil society groups can enlighten the local communities on how to ensure that their leaders should be accountable to them and sensitise the people on how to influence their leaders so that decisions are made in their interest. The CSOs at times, are able to mobilise the people against any policy that is not right and in most cases, such policies are dropped. The CSOs also have the responsibility to ensure that the executives work closely together with the implementing agencies and also with the legislatures that have the responsibility to appropriate the resources that would be used for the MDGs projects. I am aware that majority of the CSOs contributes immensely to projects that would transform the rural communities in the country and   continent where even the government presence is felt.

    What is your assessment of the recently concluded International Labour Conference (ILC)?

    The recent  International Labour Conference  in Geneva was a success. I am very much impressed with it. The most interesting aspect of the discussions has to with social security and the aspect that dealt fully with workers’ welfare. The discussions and decisions  made  were far better than the previous years’ because of the added values on the issues of protecting workers’ right, migrant workers’ right and the aspect that has to do  with the informal sector. Now for us in NSITF, these discussions made and the resolutions reached would in both short and long run boost our efforts to ensure that the issues of workers’ compensation and all other issues that have to do with workers’ welfare in Nigeria are well taken care of in line with the international standard.

    Are you saying that the discussions and resolutions’ made at the conference are in line with the mandate of the ILC for Nigerian workers’ welfare?

    Yes. It is almost the same. First of all, let me say social security protection is a little bit different but have the same goal. Social security protection is over 100 years in existence but there is no harm in starting late. I keep on saying the issue of welfare of workers is not debatable and we are putting all resources at our disposal to make sure the issues are addressed. Nigeria is at the forefront of addressing social protection floor initiative banner issues in Africa.

    And that is why we are putting every effort in place to get all issues surrounding it stabilised. Do not forget that most countries that are developed give unemployment benefits to the unemployed and with the social protection policy in Nigeria, we shall get there. We are aware that Nigerians are already yearning for these benefits and what we are doing in NSITF is to ensure that we take care of workers’ welfare in line with social protection floor initiative banner in the areas of shelter, clothing and all other aspects of the policy. It is obvious that we have to start from somewhere and we shall surely get to th right destination.

    What is your message for the employees?

    I use this opportunity to call on the employees to complete the necessary compensation claims form and submit  appropriately for processing and payment.Equally where injury is involved   the particulars of the injury or occupational disease on the prescribed ECS Form (duly completed by the hospital/clinic where the employee received treatment. This is because the employees have it as an implicit obligation to monitor through their union representatives the compliance status of the employer.

  • ‘Nigerian banks can fund huge projects’

    ‘Nigerian banks can fund huge projects’

    Oil and shipping are, by nature, money spinning businesses that require huge funding. This is why many believe that Nigerian banks cannot participate in those businesses. But to outgoing Managing Director of Skye Bank Kehinde Durosinmi-Etti, this is an unfounded fear. Nigerian banks, he tells Capital Market Editor TAOFIK SALAKO, can finance such big businesses.

    You have been in the banking sector for nearly three decades, how will you assess banking then and now?

    It’s been very transformational, a lot of things have happened, we have moved from three-bedroom flat banks of N5 million share capital to banks with several billions share capital and with branch network of more than 500 to 800 branches. So, it has been very transformational. A lot more people have come into banking. The banks have better capacity to finance projects and also to help retail consumers. Information technology has also been key to that transformation and it is not just the banks, the Central Bank of Nigeria (CBN) and the industry as a whole. Electronics channels that have come up in the last few years have changed the face of banking, ATM has been very good, we have seen improvement in risk management and corporate governance but we have seen banks’ failures too. In the past four years, we have seen many transformations too; we have seen the emergence of Asset Management Corporation of Nigeria (AMCON). Today, you can rely on banks.

    What is your opinion about the regulatory environment?

    The regulatory environment is good, it has also transformed with several requirements now to safeguard the sector. The Central Bank in particular has been in the forefront of ensuring the soundness of the financial system and therefore it ensures that banks meet up on all requirements, all regulations and keep us in check-whether you are having the right amount of capital, whether you are strong on risk management, strong on corporate governance, they want to see that banks are strong on a lot of things. There is the competency framework, making sure that the right people are put in the right places, people who have the competence. They are also ready to ensure that people that go into banking behave like bankers in the sense of probity and to see that where people have erred, they do not work in the banks anymore. They have been able to get banks to get up and meet up globally.

    Some people are of the opinion that Nigerian banks are over-regulated. What is your opinion on this?

    Well, if we talk about that, there is a reason. First of all, I don’t believe that the industry is over-regulated. In America, Europe, we have much higher levels of regulation, a bank like Citi Bank in New York will have like 300 resident regulators from at least five different regulatory bodies and they are resident there permanently.  So, if you finish with one regulator, you are being reviewed by another, so there is real-time regulation. In terms of regulation, I don’t think we are being over-regulated, what happened recently was that the CBN brought a new guide to bank charges and this really reduced the tariff and it is affecting the banks. The banks are adjusting. It might be harsh, I may not agree with everything but I see the reason behind it and really, the reason behind it is financial inclusion-bring down charges so we can bank more people. If we bank more people, even if you are making less fees, you will compensate on volume, some of those changes may be a bit too much but the banks and the Central Bank are still working out something so we can rebalance some of these changes. It is a good thing but the question is: can we sustain it?

    Some watchers say Nigeria is still under-banked. What is your view on this?

    We have over 10,000 banks in the United States (US) alone. In some countries, they have four main banks. It depends on the growth level. What we still have is a handful of main banks and then you have specialists, those that are known regionally, some might be strong in the North; some might be strong in the South. If you look at our population with the number of banks, you will see that the country is not over-banked; there is still room for growth in the banking industry.

    Some analysts have touted lack of financing capacity as main challenge in the Nigerian banking sector, is it true that Nigerian banks can’t undertake large-scale financing?

    Skye Bank and many Nigerian banks are truly capable of large-scale financing and that has been shown by all the privatisations that you have seen recently. There are other several examples. In the shipping industry, we are the first to finance PSV (Platform Support Vessel), local content of about $140 million, which is used at the Agbami Oil well. We are also the first to structure a transaction for refinancing of another vessel through an export credit from Norway and we are the guarantor bank for the same company in a transaction worth about $130 million. So, Nigerian banks, individually and collectively, are capable of large-ticket transactions.

    What is your reason for leaving Skye Bank when you have the opportunity for a second term of another four years?

    When I took this challenge, I set goals for myself that by the time I was 49, I would stop working for anybody and I am 52 this year and I feel that you should give me time to do things for myself. So, it’s just personal and from day one, I told the chairman at that time and some of my board members and colleagues that I am only going to do four years, so that’s why I am going. I am sorry to go, it’s sad, I have enjoyed the time I have spent but that’s what I have set my mind on. I know it’s not common but I have done it a few times so it’s common with me. Look at it this way, I did it the first time I left after two years for personal reasons. I did it the second time. I stepped down because I felt the other person was able and also competent and I offered to step down. I don’t hold on to anything in terms of power, position and all the things that go with such an office, it means very little to me. What’s most important to me is, I have been given the opportunity to serve, and so I have done creditably and honourably.

    Talking about your stewardship, how has it been in the past four years?

    Well, I took over at the point of global financial crisis; we had our national crisis as well then. AMCON came after that, so the industry was going through crisis. All the banks had a lot of toxic assets, so at that time, banks were making losses, we too were barely scraping to make profits.   So if you look at our ratios then, they looked terrible. But in the past three and half years, one has grown the balance sheet of the bank by about 80 per cent and a lot of the indices have improved. Capital adequacy was quite low at the time; today it is about 20 per cent while the required industry ratio is 15 per cent.

    What would you be remembered for?

    I will be remembered for a lot of things that we did to ensure that we have an open access system that is acceptable, we have had an open management system and we have strengthened the whole framework whether it is corporate governance, risk management, credit processes and staff welfare. We ensured that the people were well motivated by instituting a system for good compensation and welfare for the employees. So, all that ensured a fair and enjoyable environment that ensures that we work hard and work well to meet up on our corporate goals.

    What is the single achievement that you think is the highlight of your tenure?

    Well, one thing I did, I reduced the number of loss-making branches from over 100 to an average of 12 to 13; and I did that in two years.

    As you retire, what is your message to the bank?

    Well I will like to thank them for giving me the opportunity to serve and urge them to continue to support the new management of the bank the way they supported me; the board, the staff and shareholders they supported me very well over the years and they should continue to do that. I give the new management a strong endorsement, I am sure that they will not disappoint. To the shareholders, they should stand behind the new leadership and I am sure that there will be continuity, there will be continued growth, they will continue to get returns they are getting; the bank is poised to do better.

    What can you say about your successor, Mr. Timothy Oguntayo?

    Timothy Oguntayo, right from 2006, has worked very closely with me, I have been his direct supervisor for most of the last eight to nine years and he has got all round competence both in commercial banking and merchant banking. He started his career in United Bank for Africa so he’s got strong commercial background. He has the thinking of an investment banker and the skills of a commercial banker and nothing can be better than that and he’s got great, sound judgement which is key to decision making. He is experienced, he is a people’s person, he gets on well with people, he’s got good leadership skills, he has the attribute to lead so he can ensure continuity and move the bank forward. I have no doubt that he can move the bank in the right direction.

    After nearly three decades in banking and 10 years as chief executive, what will you be doing next?

    I have been in banking since 1987. I went in as head of accounts and computers in Nigerian American Merchant Bank which was a middle management position. I moved to Midas Merchant Bank in 1990, I rose to become CEO of Midas Bank in 1995 and I left in 1997, after almost two years. I left on my own volition. I came back into banking in 2002 as the CEO of Eko International Bank, and I stepped down after guiding the bank through the turbulent consolidation then. I thereafter became the deputy managing director of the emergent Skye Bank Plc following the consolidation exercise. I have not fully decided on my next step. I am only going on a long vacation after a long time working.

  • ‘How to stop illegal bunkering, oil theft’

    Nigeria loses billions of dollars daily to illegal oil bunkering. How can the problems be solved? The President, Liquefied Petroleum Gas Association of Nigeria (LPGAN), Dapo Adeshina, says it is by stakeholders teaming up to fight the ‘powerful’ oil bunkerers and thieves. Government, he tells Akinola Ajibade, in this interview, must harness the nation’s huge gas reserves to drive the power sector.

    What is the consumption level of Liquefied Petroleum Gas (LPG) popularly known as cooking gas in Nigeria today?

    Nigeria’s LPG consumption is very low compared to other countries in the West African sub-region. LPG consumption is in thousands of metric tonnes, not millions in Nigeria. We produced 158,000 metric tonnes in 2012, and hope to surpass it in 2013 whenever the figure is released. This is insignificant, considering Nigeria’s population of over 160 million. The problem was compounded by the recent face-off between the Nigerian Liquefied Natural Gas (NLNG) and the Nigerian Maritime Administration and Safety Agency (NIMASA). The crisis affected deliveries from NLNG, making it difficult for people to access LPG during that period. The country needs to consume at least five million metric tonnes per annum to compete with other developed markets.

    What is the worth of the LPG market in naira terms?

    To determine the worth of the LPG market, we need to look at the size of the population vis-a-vis the number of people using the cooking gas. Research has shown that larger percentage of the population use kerosene, and firewood for cooking. Based on this, it would be difficult to say precisely the worth of the market. Giving a figure to determine the worth of the market would be subjective, and that is not good for a sensitive industry like oil and gas. We need to get more people into the LPG value chain to maximise its potential. We need to produce five million metric tons to achieve this objective. This would enable us compete with Indonesia and other developed countries.

    Would you say the awareness level about LPG is low in the country?

    Though the awareness level is high, two factors are responsible for the low consumption of LPG in Nigeria. First is the purchasing power of people. An average Nigerian has a very low purchasing power. This made him to be economical. He asks himself questions before buying a particular product. For instance, he would ask himself questions such as: How much is it going to cost me if I use cooking gas? How much is it going to cost me if I use alternative method? In economics, price determines the movement of demand and supply. Nobody would see something cheaper and go for the expensive ones. Nobody would see something that is available, by-pass it and go for something that is not available. Many people prefer to buy a bottle or five litres of kerosene for N100 or N600, to buying a 12.5kilogramme cylinder of gas for between N12,500 and N15,000. If you do simple calculation, you would realise that it is more economical to buy a 12.5kg cylinder, fill it and use it for two months. Cumulatively, gas is cheaper. Secondly, there is a misconception that gas is dangerous. Many landlords do not want their tenants to use cooking gas because they believe it is highly inflammable. They don’t know that LPG is a cleaner and better fuel, compared to kerosene which is more dangerous to health. They do not know that kerosene is an aviation fuel, and that it is not good for one’s health.

    But even some elite do not use cooking gas. What is responsible for that?

    I do not agree with that. Go to highbrow areas,, such as Ikeja, Ikoyi, Victoria Island, Lekki and others, you would see that the elite use gas a lot. Also, people use gas in the areas where the poor and the uneducated live.

    Can you quantify the loss by the LPG sub-sector in the crisis between NLNG and NIMASA last year?

    The loss was relative because stakeholders incurred losses too. Individuals, gas plants’ owners, NLNG lost in one way or the other. It took some time before normalcy returned to the sub-sector. Channels were blocked and re-opened after the crisis. Vessels waited for days before they were cleared, discharged their content and went back to load. There was a long queue at the terminal. At a point, the LPG tanks were empty. A vessel is dedicated to LPG and it comes from NLNG base in Rivers State. At the Petroleum Products Marketing Company (PPMC) jetty known as NOJ, anytime LPG vessel gets there, the Premium Motor Spirit (PMS) and aviation fuel are given priority. So, LPG vessel had to wait outside, resulting in the payment of demurrage. The demurrage runs into millions of naira. It took two months for normalcy to return to the sub-sector.

    Can you put a figure to it?

    I don’t to like to bandy figures that are not correct. But considering the number of vessels that waited for days to load and discharge, it was a lot of money. A vessel is supposed to load, discharge and reload. When vessels wait for days at the terminal, their owners pay millions of naira as demurrage. It is a running cost. It is difficult to quantify.

    The Liquefied Petroleum Gas Association of Nigeria (LPGAN) comprises about 200 operators. Why has the body not looked for alternative source of procuring LPG other than the oil marketing companies?

    Oil marketing companies are not the major stakeholders in the gas industry. NLNG services 95 per cent of the gas market. Before NLNG was established, refineries were supplying the product. The refineries were unable to meet up to expectations due to certain problems. This made the regime of former President Olusegun Obasanjo to mandate NLNG to supply the domestic market with LPG. NLNG exports the bulk of the LPG. It supplies the bulk of the LPG market. Another area where LPG comes from is Niger Republic. But there are issues bordering on specifications and the needs of the Nigerian market. The Nigerian specification is 95 per cent butane and five per cent propane. What is coming from Niger Republic is 50 per cent butane and 50 per cent propane and that is not acceptable.

    Can you expatiate on this?

    LPG is made up of two properties namely; butane and propane. Because we are in a tropical climate, butane is best suited for us. The other climate uses higher propane content because of the vapour pressure. That lapse was highlighted to us by one of our members last year. We have approached the Standards Organisation of Nigeria (SON) for a review of the product. The review has been done, We are waiting for SON to tell us the outcome of the review. Typical specification is 80 per cent butane, 20 per cent propane. That is what is allowed in terms of the mix. NLNG supplied 95 per cent butane. We are in a butane country.

    A lot of gas is being wasted through flaring. How can Nigeria reduce wastage and conserve enough gas for export?

    Nigeria is the second largest gas flaring nation in the world, after Russia. What we are flaring can power the whole of Africa, if the right policies are put in place. We do not need to flare gas since there are other areas it can be channelled into for revenue generation to the government. For instance, the power firms are battling gas shortage. We are producing less than 6,000 megawatts (Mw) of electricity. We are hovering between 4,000 Mw and 5,000Mw. We have been targeting 10,000Mw for sometime now. Have we achieved it? The answer is no. Instead of flaring gas, we can channel the product to the power sector for a more productive use. We need to come up with what I can call Third-Party Gas Agreement. Through this, there should be an organisation that intermediates between the government and the NLNG on the use of gas. The organisation plays the role of a third-party in the gas value chain. The organisation would be involved in natural gas processing and sale to the government for onward supply to the power firms. Also, it would strip the liquid and use it for LPG for domestic market. The idea would fast-track the gas utilisation project and further generate money for the government. A lot of money would be generated at both the domestic and international end of the gas market for Nigeria. It was not economical to do all those things years back. This is the time to do and take a cue from Qatar, a country that is getting the bulk of its revenue from gas.

    Is gas flaring part of the problems in the power sector?

    The sectors of the economy are inter-dependent; one needs the other to survive. What is considered waste in one sector can be turnaround and useful in another sector. It is true that gas is being flared; it is also true that there is no infrastructure in place capture the gas. To take the gas to where it is needed requires processing. This is the problem. What has Nigeria done in this regard? Nothing. Infrastructural facilities such pipelines, pressure stations, central processing facilities (CPFs), gas stripping plants, and others should be put in place to foster the growth of the gas sector.

    Given the enormous challenges in the power sector, do you think the country will ever achieve energy sufficiency?

    We are a blessed nation. We have 170 trillion proven gas reserves. We have got energy resources. Harnessing the resources for optimum performance should be the next thing on our agenda as a nation. We have privatised the distribution and generation aspects of power. Fortunately, the one with the biggest investment is with the government – the Transmission. We need to invest in a whole lot of transmission lines, sub-stations to make the sector work.

    The Nigeria Petroleum Development Company (NPDC) plans to increase natural gas production from 410,000 standard cubic feet per day to 600,000scf/d by 2015. What are the benefits to the economy?

    The idea is a good one. Yes, NPDC has taken some oil fields from Shell and other major oil companies through divestment process. The company has the capacity to enhance the growth of the gas utilisation project through the fields it took over from the International Oil Companies (IOCs). I’m sure the company has arrangements with ‘Off-Takers’ that would help in taking the gas to wherever it is needed. Through this means, NPDC would be able to invest in gas and help grow the power stations that have suffered gas problems. It is even more attractive for NPDC to invest in gas, giving the fact that the power firms need gas for growth. Now the firms would be struggling to get gas at a market value for growth. Before now, gas was heavily subsidised. What the Power Holding Company of Nigeria (PHCN) was paying for gas was not attractive. NPDC would derive greater incentives from the fields it has taken from Shell.

    United States has just discovered Shale Gas. To what extent can the development affect Nigeria’s earnings from natural gas?

    The development would not affect Nigeria in the short term. The reason is because it would take sometime for US to develop its gas infrastructure and make it a good source of generating revenue. The long-term effect is that Nigeria would be forced to look for other markets to deepen her revenue base. We are going to become a net exporter, and not a net importer of natural gas.

    Is it not high time Nigeria looked for other gas buyers?

    I’m sure NLNG for example, is looking in the direction of Asian market for more buyers. A lot of demand is coming from China, India and other countries. I’m sure NLNG in doing something along that line. I’m not sure the Ministry of Petroleum Resources, the NNPC and others are doing something about it. The stakeholders need to move fast to prevent the issue from having major effects on the economy.

    The lOCs are divesting from the industry. What are the effects on the country?

    The effects are many. First, the IOCs have started sacking their workers. This means more people would be in the labour market. Secondly, Nigeria is going to lose a lot of revenue because the major oil companies generate money for the economy.

    Domestic operators contribute about 10 per cent to oil exploration. Do you think they have what it takes to take over from the IOCs?

    We have to start from somewhere. If you don’t try, you don’t get. The 10 per cent was not overnight, it took some time. There is nothing impossible. You need to sustain your efforts, do more investments. Funding is the major issue. Technology is available. A lot more JVs would take place. It is not impossible. I foresee a situation where many local oil companies would partner with foreign companies that have the technical and financial capacity to engage in deep-offshore projects. The reason is because deep-offshore projects require huge funding. Billions of dollars, not millions of naira is needed to play in that segment of the oil and gas industry.

    How can crude oil theft be stopped?

    The government, security agencies, oil companies and other stakeholders have important roles to play in this regard. To steal crude oil, you don’t use small vessels. The vessels are bigger vessels. When the vessels move, somebody should be able to intercept them. We are losing huge revenue to oil theft every day.

    What are the implications of oil bunkering liberalisation introduced by the Federal Government?

    Bunkering in the real sense of it means you are fuelling ships. You are the petrol stations for ships. It is similar to driving to the filling station to fuel your car. It is the same situation; you are fuelling ships for them to power their engines- that is legitimate bunkering. However, there is illegitimate bunkering. This involves stealing of crude oil, and selling it outside the country.

    Is there any link between the government and people involved in illegitimate oil bunkering?

    The people that engage in illegal oil bunkering are looking for money. Mind you, money and power go together. That is why we need to let all the stakeholders come together and agree on how to stop the illicit trading of crude oil.

    Is the 40,000 megawatts of electricity target of the government feasible?

    How to meet the target of 40,000 megawatts should not be our concern now. Our concern is how to meet the needs of increasing population. Do not forget the fact that the population size keeps increasing. This means that the demand for energy would increase as well. Lagos is highly populated and can as well take the entire 6,000 megawatts which Nigeria is producing. As the infrastructure gets better, more people would come to the grip. That is why, planning is important. The whole value chain needs to be looked at. We are supposed to be adding 5,000 mega watts to the national grid periodically to bridge the gap.

  • ‘Economic diversification will ensure stability’

    ‘Economic diversification will ensure stability’

    For years, Nigeria has been solely dependent on oil as its major revenue earner. Successive leaders have been paying lipservice to diversifying the economy. In this interview with Daniel Essiet, Director-General, African Centre for Supply Chain Obiora Madu believes the time has come for the government to grow the Small and Medium Scale Enterprises (SMEs) subsector as the engine of the economy because of its ability to create jobs and foster stability.

    How has Foreign Direct Investment

    (FDI) helped in growing the gross

    domestic product (GDP) and aiding job creation?

    Nigeria is the biggest beneficiary of Foreign Direct Investment (FDI) in Africa. FDI inflows have been growing enormously over the last decade from $1.14 billion in 2001 and $2.1 billion in 2004, reached $11 billion in 2009, according to United Nations Conference on Trade And Development (UNCTAD), making the country the 19th greatest recipient of FDI in the world.

    Nigeria’s most important sources of FDI have traditionally been the home countries of the oil majors. The United States is present in Nigeria’s oil sector through Chevron and Exxon Mobil with an investment stock of $3.4 billion as at 2008. That is the latest figure available. The United Kingdom (UK), one of the host countries of Shell, is another key FDI partner. UK FDI into the country accounts for about 20 per cent of Nigeria’s total foreign investment. As China seeks to expand its trade relationships with Africa, it is also becoming one of Nigeria’s most important sources of FDI; Nigeria is China’s second largest trading partner in Africa, next to South Africa. From $3 billion in 2003, China’s direct investment in the country is reported to be worth about $6 billion. The oil and gas sector receives 75 per cent of China’s FDI. Other significant sources of FDI include Italy, Brazil, the Netherlands and France.

    Experts are canvassing reduction in government size and expenditure. What solutions would you prescribe?

    Governments everywhere face pressure to provide public services better, faster, and cheaper than before. Lean methods have been used by governments of various sizes across North America to meet this imperative. This method has particular promise for public-sector organisations because it doesn’t require lengthy planning and implementation cycle. It strives to make the best use of the talents and ideas of those who work in the process and focuses on the value that public services create for the citizens and how to maximise that value.

    Governments want to deliver better education, better healthcare, better pensions, and better transportation services. Governments know that the impatient electorate expect to see fast change. But the funds required to meet such expectations are enormous. The need to get value for money from governments at all levels is, therefore, under the spotlight as never before. But cost-cutting programmes that seek savings of one to three per cent a year will not be enough and in some cases may even weaken the quality of service.

    In the past two decades beginning from the 1980s, there has been growing realisation among some public servants, politicians, activists and academics around the world regarding the inherent weaknesses of government bureaucracy. From the industrial states of Europe and the United States to the developing and underdeveloped countries of Africa, Asia and Latin America, bureaucratic dominance is often viewed not as a solution to the problems of public administration, but the source of these problems.

    Lean is a management culture that emphasises the centrality of the customer as well as accountability for results. The main objective of implementing Lean is to achieve more transparency, more efficiency and more quality as well as reduction of expenses.

    What do you make of the export outlook this year?

    The outlook for export this year is not going to be different from last year’s. In fact, the media have reported some decline in revenue from non-oil compared to 2012. However, with the flurry of activities in the agric sector, we are likely to see a surge. The unfortunate thing however, has been that we continue to export raw agro-produce and this does not pay us. Our manufactured export is low for obvious reasons.

    President Goodluck Jonathan in his message to a recent non-oil export conference made it clear that if the country must achieve its set goal of becoming one of the top 20 largest economies of the world, it must embrace manufacturing and the non-oil sector, and that the country must develop the non-oil sector with resources from oil.

    The sustained volatility of world oil prices, the global tendency towards a diversified export based economy and the urgent need to expedite the process of economic growth has made it imperative that we either focus on non-oil export or we regret it.

    How are Nigeria’s exports doing in the global market?

    In terms of agro-produce, tropical crops grow in the tropics and those who leave outside the tropics have no choice but to buy. But that notwithstanding, we have acquired for ourselves a reputation of unseriousness, particularly in executing export contracts. This has adversely affected the level of interest in our export products. The result is that people ship products from Nigeria and label them as either Ghanaian or Burkinabe products. A typical example is in shea butter.

    What sectors of the economy benefit the most from export trade?

    When you mention export, everybody’s mind goes to the traditional agric produce but, indeed, so many sectors in the country are exporting without people knowing it. However, let me talk about the not-too popular export of services.

    Trade in services refers to the sale and delivery of an intangible product, called a service, between a producer and consumer. Trade in services takes place between a producer and consumer that are, in legal terms, based in different countries, or economies; this is called international trade in services.

    The International Trade Centre in Geneva has said by 2050, 80 per cent of workers around the globe will be working in the service sector and that services account for approximately two-thirds of the world’s economic activity. Trade in services contributes over 20 per cent of world trade and over $1.3 trillion annually. Currently, over half of the world’s workforce is employed by service firms, which also create most of the new jobs. The contribution of services to Gross Domestic Product (GDP) in many of the countries is well over 50 per cent and in some cases, as high as 70 per cent. Furthermore, new information and communications technologies are increasing the tradability of services. Trade in services is expected to represent half of all world trade by 2020.

    A survey of the services sector in Nigeria, I conducted for ITC in 2006 revealed that 42 per cent of its trade performance is traceable to the services sector. Identified sub-sectoral activities with high export potentials include engineering,telecoms, healthcare, catering, tourism, architecture, accountancy, courier, business and management consultancy, among others. Emerging markets were also identified in business advocacy both at the public and private sector levels. It is doubtful, however, if the nation is aware of the potentials of this sub-sector and its ability to contribute immensely to the country’s economic diversification agenda. Nigeria’s tourism industry, for instance, is a big gold mine that is yet to be excavated, the same goes for our film industry with our home videos making waves in homes around the world and yet no coordinated approach to ensuring its official exports.

    What are the challenges to export market development?

    The challenges are mainly policy failures. This is why our export has not progressed in spite of the interest shown by the government. There are other challenges within the sector. This includes absence of relevant support structure. This issue is vital. The export sector is large and needs so many hands on deck in the chain. This means that if any section is not working, others will be affected. It shouldn’t be only the concern of the Ministry of Trade and Investment. You notice that inadequate attention is paid to the small and medium scale enterprises in our export policies. As a strategy, globally SMEs are supported because they offer considerable potential for exports. However, in spite of a deliberate policy of providing support to SMEs adopted by many countries, this potential is yet to be fully exploited. This assertion was made by the ITC. It said there seems to be insufficient awareness on the part that can be played by export development companies towards coordinating the SMEs and channelling their exports. This observation is as relevant today as ever, particularly in Nigeria. A close study of our export sector shows clearly that we have never considered training in international trade important. Perhaps because our importers open letters of credits and receive their goods and our exporters seem to be “doing something”, we erroneously jump to the conclusion that we do not need training. Nothing could be farther from the reality. All countries that are serious with export, place a lot of emphasis on training because the quality of a nation’s export output is a reflection of the quality of her manpower. If we can possibly quantify the losses incurred and the image problem created by lack of training in this sector, then we will appreciate the importance of the need to quickly address this situation.

    Do you see any export potential in our film industry?

    It is doubtful, however, if the nation is aware of the potentials of this sub-sector and its ability to contribute immensely to the country’s economic diversification agenda. Nigeria’s tourism industry, for instance, is a big gold mine that is yet to be harnessed, the same goes for our film industry with our home videos making waves in homes around the world, yet no coordinated approach to ensuring its official exports.

    In the face of unfavourable developments in the international oil market, which is likely to be with us for some time to come, Nigeria must seek alternative exports or face the unhappy consequences of constantly reduced foreign exchange earnings.

    The export industry is an exceptionally dynamic sector. Consequently, it requires a system of proactive and future-oriented strategic policies and measures, which will have to be constantly reviewed, adapted and improved to ensure its effectiveness.

    What is the precondition for effective export promotion?

    Exporting is an important factor of economic growth, therefore, export promotion is a critical consideration for economic development of each country. As a public policy component, government-sponsored programmes must be developed to promote export. Promoting export activity, particularly by traditional exports and new export products, is essential for progress in this area. Currently, the government is the principal provider of export assistance to the business community, but the government alone does not have all the resources, the staff, the expertise, or the communication channels needed to wage such a broad-based promotional campaign. For this reason, the government needs to develop broader and deeper partnerships with the private sector.

    Export promotion is a high economic priority for virtually every country. While facilitating the expansion of existing export product lines is an obvious concentration area. It is in the promotion of new export products, and the exploitation of new markets that can provide special help to home enterprises. For developing countries, external markets pose several kinds of problems.

    First, home exporters do not know the basic environment in foreign states, and do not have the capacity to invest in exploration, much less pay consultants to advise them on entry strategies. Associations of exporters at home confront a like problem, though on paper they should be able to carry out market surveys and the like. Secondly, foreign regulations on safety and environmental standards, and other norms laid down by potential markets are little understood by home exporters, and pose real non-tariff barriers (NTBs) to entry.

    Also, home exporters lack credibility with potential foreign customers, and this becomes a chicken-and-egg syndrome, making it difficult to break this cycle of unfamiliarity.

    Overall, the economy has managed to navigate the financial crisis relatively well. We expect economic growth to accelerate. However, as the economy recovers, we face different challenges which were at the centre of the crisis.

    In terms of manufacturing, the outlook is said to be slow. What is your take on this?

    An economy with consumption mentality will face the same challenges we are facing. The real sector is not working. Where are the manufacturing companies? Are SMEs growing or dying? If any economy is not growing, forget about the GDP and look at the reality on ground. Who will employ the army of half-baked graduates that you churn out yearly? As we speak, the few companies that are still afloat are groaning under terrible conditions that affect their competitiveness – ranging from infrastructure to human capital challenges occasioned by the half-baked graduates coming out of our tertiary institutions. The universities were shut and as soon as they resumed, examination were administered. What do you expect from such a system? We must address both the hard and soft infrastructure to help our industries to survive.

    What advice would you give policy makers to help the economy and exporters?

    It is imperative that SMEs policies have an export orientation at the point of conception. This would culminate in the entrenchment of a wide-spread export culture in the country. Experiences of industrialised countries have proven that SMEs are the pivot of exports because they account for at least 60 per cent of export activities. With SMEs at the centre of exports, repatriation of proceeds is monitored and guaranteed. It is in recognition of this type of advantage that UNIDO has supported the Federal Ministry of Trade and Investment in establishing and organising the Aba leather products-cluster. This strategy should be extended to other products. Nigeria is no doubt one of the most promising countries in Africa and its potential as a net exporter of agro industrial products, manufactures and services has never been in doubt and will continue to attract high interest from the international business community.

    Results from the two major interactive stakeholders fora organised by the Federal Ministries of Commerce and Finance have indicated the preparedness of the private sector to accept the challenge of driving the economy. This acceptance is however, predicated on the ability of government to provide the enabling environment. Nigeria is no doubt one of the most promising countries in Africa and its potential as a net exporter of agro industrial products, manufactures and services has never been in doubt and will continue to attract high interest from the international business community.

    In an economic environment characterised by changing technology and market trends, how do SMEs’ export firms cope?

    Access to finance has been singled out as one of the major challenges impeding the survival and growth of SMEs in Africa. Significantly, few SMEs owners, who apply for finance, get it. The ability of SMEs to grow depends on their potential to invest in restructuring and innovation. All these investments require capital and, therefore, access to finance. Against this background, the repeated conception of SMEs about their problems regarding access to finance is a priority area.

    Lack of adequate credit for SMEs is traceable to the reluctance of banks to extend credit to them owing to, among others, poor documentation of project proposals as well as inadequate collateral by SME operators. Developmental policies weigh in favour of large firms and sometimes foreign-owned firms leaving SMEs in distressed and vulnerable position.

    The problem of access to information may be attributed to the inadequacy of SMEs-support institutions. This points to the need for supportive policy to encourage the establishment of documentation centres and information networks to provide information to SMEs at affordable price.

    What is the most cost-effective and quickest method to stimulate the economy and support job creation?

    Successful employment creation hinges on a triple E – Education, Employability and Economy. That means that we must strategically deal with the three issues before we can achieve a substantial success in our employment generation. What is the quality of our education? Who is to blame for the quality? If you train soldiers for previous wars, can they fight the present ones, not to talk about the future wars? The answers to the above questions will address the first two Es on the economy.

    Also the SMEs hold the ace if there is a deliberate effort to help them grow.

    Some time ago, when the minister of Trade and Investment was in Finance, three sectors that have the capacity to generate the largest number of employment were identified.They were Business Process Outsourcing (BPO), Construction and Entertainment. It was unveiled and some meetings held but as soon as he left, nothing was heard of that again. The South African government identified BPO and Tourism as their target for economic growth and employment generation. You fly into South Africa, from the airport everything speaks to you about these two sectors. This policy sommersault of changing what the predecessor started, will lead us nowhere. We need to get strategic and show seriousness from the top and pursue our dream to a logical conclusion. Grow the SMEs if you wish to grow the economy. Show consistency in policy implementation. As much as we do not want quick fixes, let us go for low hanging apples that will give us good results in the short run. Declare a state of emergency in our education sector and overhaul the education system to address current and future challenges.

     

    cated on the ability of government to provide the proverbial enabling environment. It is, therefore, in recognition of this that recommended solutions need to be vigorously pursued via the vehicles of the attached specific projects. In doing this also government must accept and act on the fact that a lot of financial investments must go into the creation of the necessary support structures towards making trade the hub of the nation’s economic development and growth. Nigeria is no doubt one of the most promising countries in Africa and its potential as a net exporter of agro industrial products, manufactures and services has never been in doubt and will continue to attract high interest from the international business community.

  • ‘Syndicates behind banks’ fraud’

    ‘Syndicates behind banks’ fraud’

    Security is giving banks, regulators and customers’ headache. Taiwo Otiti is the Country General Manager for IBM West Africa responsible for business operations and growth strategies in Nigeria, Ghana, Sierra Leone and other emerging markets. He speaks with COLLINS NWEZE on steps banks must take to secure their customers’ transactions and avert loss.

     

    Profile

    Institutions attended Carleton University, Canada; Loughborough University of Technology, England.

     Qualification BSc (Physics); MSc (Computer Science).

     Previous position : Group Head Information Technology, First Bank of Nigeria.

     Present position: Country General Manager for IBM West Africa.

     Experience: Over 21 years.

    Despite improved standards set by global payment companies, fraud is still on the rise; what is responsible for this?

    If you look at the fraud levels, they may not be issues of standards. For instance, in personalisation, if you don’t follow procedures, there could be a collusion. There are cases where a card is tagged to a corporate account, which should not be. Remember, that in current accounts, there should be a different account set up for the cards.

    For company accouts there should be a limit on the card. How can you have a debit card attched to a company account? It does not make any sense. There should be monitoring tools that set the rules.

    If this kind of thing happens in a bank, it has to raise the alarm. There are different kinds of rules, but a lot of the frauds you see are based on collusion. So, those are internal fraud.

    But we still see a lot of card scheming within the banking sector?

    People schemed cards when magstripes were used which allowed fraudsters to clone one’s Personal Identification Number (PIN) at the ATMs. It was common then but it has disappeared. What we are seeing now is more of internal frauds.

    Now, fraudsters can get a card legitimately, to perpetrate frauds within banks. This they do by moving money from an internal account in a bank to another, which the criminals had already set up and attached a card.

    We have seen syndicates work with internal staff of banks to do that. The easiest way is to get a normal card, open an account and get someone internally to transfer funds into the account and you start using it through the ATMs.

    What if a fraudster decides to face the cashier?

    What triggers a cashier is when he looks at the account history. You haven’t been using this account, how come suddenly a big money drops in? This will prompt the cashier to look for where the transfer came from and then other questions will follow. But if you have been running the account regularly, an illegal transactions may not be suspicions.

    What determines the type of banking software a bank adopts. Is it cost, security or reliability?

    When you want to choose banking software, the first thing is look at the aims of the bank. What does it do? Trade in finance, treasury among others. We also have some banks saying that if you use your savings account more than three times in a month, you lose interest. You need to consider the people in treasury, retail banking, commercial banking, branch operations, and so on in choosing banking software. Then, there is a requirement document done on them. There is back-end accounting software. You also need to look at the issue of local support, among others. Cost is also a part of it.

    At what point does a bank feel it is secured?

    There is certain level of security in banking software but it is not everything. You have to secure your software. Also, the way you deploy the banking software determines how it works. Centralised banking software is often more secured than a decentralised one. When you talk of decentralised, it means every banking software is working, but they must come to the centre. But decentralised means if one branch is offline, you can still carry on transactions. Also, you have to know how to secure your network, ensuring that both the head office and branch networks are secured. You have to ensure that nobody brings strange objects that can monitor or infiltrate your passwords into the office.

    There are lots of fraud alerts by banks, especially on internet banking. What is responsible for them?

    That is correct. But it is very simple to decode what the fraudsters are doing. What do you need to do a transaction on the web? They can compromise you by putting you on a key logger, which means the only thing they don’t have is your token, after getting your password.

    So, they can send you a mail asking you to generate a token, and you would be unwise to oblige them. Remember, each time you generate a token, the system in the bank is waiting for an instruction from the fraudster. So, if they have compromised you, maybe they have put you on a key logger, seeing all that is happening on your laptop, the only thing they don’t have is your token. If you supply that detail, they will use it to defraud you, but they can only do one transaction at a time.

    At what stage is the ongoing adoption of Payment Card Industry Data Security Standard (PCI DSS) certification in banks?

    What I know is that the adoption of Payment Card Industry Data Security Standard certification (PCI DSS) is ongoing in most banks. But there are different levels of compliance which include access to the premises, inscription levels that are needed to be there, and the processes.

    Apart from that, since most banks have some Visa and MasterCard compliance levels, they have to also conform to PCIDSS standards. For card issuance standards, personalisation standards, including how banks deliver the PIN to customers, are important. So, they have to conform to Visa and MasterCard standards. On Visa and MasterCards, banks must follow a procedure in storing the cards. Those who manufacture and issue the cards also have a standard to follow.

    There is also a personalisation standard. When the cards are manufactured, there are people who personalise them on customers’ behalf. The Unified Payments, formerly ValuCardm has certification to do that. So, there are various standards which come to bear, so, you have to conform to all those standards. Apart from that, there is also a process standard that you must adhere to, including how the staff that handle the cards will separate their duties. So, not everybody takes it from one end to the other.

    But separation of duties is very key when you are dealing with the cards. It is listed in the Visa standard that you have to adapt those standards. And those standards are verified by the international bodies before they give you the certification to do certain things like personalisation, or manufacturing the cards, how customers get the cards, whom you address the PINs to, among other things.

    The bank can also choose to add additional things to these specifications, but those additions have to be agreed on. Actually, even in the payment engine, there are also standards. There are financial banking standards for how the cards are manufactured.

    Do global payment companies give Nigeria a special consideration in setting these standards?

    The standard for Visa in Nigeria is the strictest in the whole payment system worldwide. I was at the board of Unified Payments when Visa first started in Nigeria. The Visa stipulated a very, very high standard for Nigeria and that is why the V-Pay standard came to be. The V-Pay was originally meant for Nigeria, but it was later opened up. So, apart from that, payment engines of each of the banks must have hardware security modules. This allows them to exchange keys per-second. So, initially, it is physical, but later, you have to start changing the PINs. The ATMs for instance, also has PIN standards and encryption methodology that conforms to certifications.

    For Point of Sales (PoS), it is a bit different. They have things they put into the POS that encrypts transactions. The magstripes is slightly different from the chip-based, each has its own standard. The beauty of the chip-based is that no password is ever transmitted. In the magstripes, passwords are transmitted. So, that is why the magstripe is vulnerable.

    What is the level of risks involved?

    The risk is that the magstripe can easily be cloned unlike the chip and PIN. In case of the chip and PIN, if at all they are cloned, you will only be able to do one transaction. This is because in every transaction, the keys are regenerated based on your standards. In a chip-based, the ATMs never send the passwords because the passwords are authenticated, based on the hardwares.

    while in operation, the magstripe actually takes your PIN, bundles it into a message format. That is subsequently passed to the network to your switch which goes direct to the bank. It can also be passed through the Interswitch, MasterCard or Visa, to their issuing bank for verifications.

    When you say that the keys are regenerated in chip-based, what does that mean?

    The fact is that when you put the first key in the hardware security modules which are tamperproof; when you tamper with them, they stop working. Those are attached to the payment key, from where a key will be generate, normally those keys don’t come in one. They send you one part of it, and one to another person. Once the two keys are imputed, then the machines will start talking to each other. Without that, the payment switch in the bank will never talk to Visa or MasterCard. Both the Visa and MasterCards have their own key sets. There is a key for every single payment system. For the ATMs, you have to generate keys for those ATMs to be able to talk to your payment switch. So, whenever there are ATMs, there is a procedure.

    What success has been achieved with the several stages and technology layers in banking security?

    The beauty of it is that it has made it nearly impossible to have human interventions. If you look at the card issuance processes and other issues, a lot of people are adapting straight-to-processes, using lots of workload tools, which are taken to the card management system, and secure approvals. We try to take away a lot of human intervention. Otherwise, where there is collusion, that’s where we see a lot of fraud.

    Nigerians can now get cards they can use not only domestically but anywhere in the world. The banks have reached understanding with Visa, MasterCard and others on how to do collaterisation on issues like settlement risks. We are also looking how to manage disputes. Off course, there are issues like dispute resolution. There are rules on dispute management that have to be followed.

    Why is it that only a few of the banks have secured PCI DSS certification?

    There are chains of things you have to do to pass PCI DSS. There is access control, how the premises should be, how the doors should be fortified to secure facilities, among others. The Central Bank has stipulated that banks meet certain standards. But the PCI DSS does not guarantee you a Visa or MasterCard Standards, but it is preferable to secure Visa and MasterCard Standards before going for PCI DSS certification. These compliances are there to secure the end users’ transactions. And various banks are working on that even as the Central Bank has set compliance deadline for banks.

    Let’s talk about the e-clearing system in banks. The Central Bank is talking about cheque truncation, how safe is the process?

    The e-clearing plan has been on for a very long time, but the Central Bank thinks that we are not ready. The issue with cheque truncation is that you would see the images on the cheques but not the physical instrument. You can see the images and the physical instrument if there are indications of fraud.

    Imaging will hasten the process, but there are still things you have to look at. For instance, when someone does something with the instrument, how do we respond to it?

    We also heard that some banks are working on branch clearing. You cannot do clearing at the branches, you still need to go to the central processing with the help of the Nigeria Interbank Settlement System (NIBSS).

    It means that clearing instruments can be batched up and one goes to the clearing centre, to process your instruments, and then have the schedules, which you now exchange with the banks. So, that converts it into the image and also does the schedule. The bank responds after the transmission, after an agreed period, which before was two days, but I think they want to make it one day, but they haven’t been able to achieve that.

    Between those two days, you must return instrument if for instance, the account doesn’t have balance, or the instrument looks dodgy, and all that. Often there are processes in the bank where who issues the cheques is verified. So, that is called cheque confirmation. But in all, Nigeria is not the best to go truncation.

    What is the cost to the bank?

    What you have to do to ensure that you have your clearing captured in a bank, is that itb will help you stop a lot of fraud. This is because, when you found out that there is a fraud, it could be from the branch level you collated the document. But between the branch and sometimes, central clearing, someone has removed the instrument, put an identical instrument with a different figure, or something else.

    Now, if you carry that to the central clearing, the two images can then be compared, and the Micro Ink Character Reader (MICR) line. The reader system can be programmed to drop the instrument, if it is not confirmed. The MICR line is different from what we got from the bank, and investigation commences immediately.

    Making things electronic can also help detect fraud, but you also have to think of where things can drop off and fraud comes in.

    Banks don’t exist in isolation, we have regulators. What role can the Central Bank play at this time?

    You know the regulator is trying to regulate standard, they are part of the people that do the MICR sign. So, Central Bank is part owner of NIBSS, also are some of the banks. So, NIBSS is in charge of the cheques and settlement engine, so they have to comply with the set standards.

    The Central Bank also issues drafts, and cheques of their own. This means that they have to also comply, and agree on the MICR standard. The Central Bank and the banks always look at the standard, every two years and adapt new things based on what they are seeing in the market, or in compliance with international standards.

    For instance, if you are talking about the Nigerian Uniform Bank Account Number (NUBAN), standard numbers for cheques, which are not more than 10 characters, that already existed in the United Kingdom. It makes life easier when you want to do funds transfer. And when it goes to bank transfer, how does the bracket system pick it up? Remember we used to have 13 numbers.

    The problem with that is that the MICR line can only take 10. So, we need to be writing schemes to be able to adapt the numbers in those days.

    Several bank customers have sworn that they will never use the PoS and ATMs because of delayed remittances and security of the network. How can those fears be addressed?

    Remember that we are to conform to international standards. Even if you go to developed economies, you do not get instant credit at the merchant level. The problem here is education. There is need to educate the merchants.

    They have to understand that credit and debit card transactions are operated differently. A Point of Sale (PoS) transaction belongs to the bank, as an acquiring bank for that merchant. So, when you debit an account that is presented by that customer, and you credit the bank, the bank has to go, look at the PoS identity, whom does it belong to, and then credits its customer. So, it is not that it cannot be done, but we need to conform to international standards.

    What role does IBM play in the whole arrangement?

    Funny enough, you don’t see us play physical roles. If you look at the systems that perform those roles, including the PoS, you will see the IBM. We do softwares that manage those transactions. For instance, Visa and MasterCard run our software and systems. We also develop middle layers security.

    IBM provides key software tools in PoS. We are also into fraud management systems. We are also into airlines payment, and ticketing software at the airports, including capital market payments. At the global level, we are into storage and analytics.

     

     

  • ‘The poor are not benefiting from pension’

    ‘The poor are not benefiting from pension’

    The pension fund is now over N3.8 trillion, but it can become bigger, if the informal sector participates in the scheme, says Managing Director, AIICO Pension Manager Limited, Mr. Lounge Eguarekhide. He tells OMOBOLA TOLU-KUSIMO, in this interview, that the Contributory Pension Scheme (CPS) will be enhanced, if the government raises the pay of low income earners to enable them cover basic needs and still have something to save.

    How is the Contributory Pension Scheme (CPS) different from the old one?

    The Pension Reform Act (PRA) 2004 establishes the CPS for all Nigerian employees in the private and public sectors. The CPS is absolutely a revolution. I used this word very emphatically because if you look at how people accessed pension in this country under the former arrangement, the defined benefit scheme, you will discover it is, indeed, a revolution. Under the old scheme, government retirees or pensioners were paid pension on a specific calculation after retirement so they know what they will get but it was not well funded by the government. Most pension arrangements in the private sector were also not funded and so you would have pensioners waiting in long queues or there was no record of what their pension is. Most times, they cannot even access the pension because there is no money.

    With the current arrangement of the CPS where it is contributory, the pensioner pays a certain amount which is deducted from the pensioner’s account and it is marked by the employer. The total contribution required is a minimum of 15 per cent. The employer is expected to contribute minimum of 7.5 per centand the employee 7.5per cent. The employer could choose to contribute the entire 15 per cent or could choose to weigh the percentage contribution from the employee. But there is a contribution that happens every month and that contribution goes to a Pension Fund Administrator (PFA) of which AIICO is one. The PFA does not actually receive the money. It goes to a Pension Fund Custodian (PFC) who then informs the pension administrator that money has been contributed for its management by its contributor, and the pension manager goes and invests the money in approved investment areas or sectors. Now this shows that there is a separation of roles, the contributor appoints the PFA, the PFAs appoints its custodian and all of these activities are supervised by one regulator, PenCom. It wasn’t this way in the past.

    I would like to say that PenCom has done a very fantastic job since the inception of the PRA 2004 because we have had a structured contribution management, well supervised investment management, adequate regulation and to cap all that off is that you have a very organised process of the contributor accessing their benefit at the time the benefit becomes due. The contributor is notified by the PFA six months before retirement and is advised to prepare his or her document. Once these documents are prepared, the documents are sent for approval to PenCom at the point of retirement. This should not take more than two weeks if all the documents are intact and the retiree gets paid. The retiree gets paid every month and not later than the 24th of every month. There are no long queues because your money goes straight to your bank account. It is very organised and that is in my view, a revolution when you compare it to what it used to be.

    What does the 2013 Pension Reform Bill pending at the National Assembly seek to address and what is your take on it?

    My view on the pension reform bill is that there is no process that cannot be improved. We all have our imperfections as human beings and as long as we live on this earth, there will always be room for us to improve. One of the areas the bill seeks to address is a situation where the pension Act can be more far reaching.

    A good example is the current Act; the PRA 2004 which describes private sector contributors as employers that have a minimum of five employees. The Act says that you can join if you have three or less employees. They are trying to draw in participants in what is largely described as the informal sector.

    The regulator has also tried to see whether the percentage contribution from employer and employee can increase because many times people have said that the benefits are not lucrative for the retiree. But in my own view, that complaint is misplaced because if you had only eight years to accumulate your contributions, the benefit of compounding would be much less than if you have say 20 years.

    In my view, I think it is still early days and if people give it time, they will get more benefits. As manager of the funds, we will be able to invest more in instruments that will generate more improved return as time goes on. The bill also tries to address the transition arrangement between the old defined benefit scheme and the new one by putting all of those transitory departments directly under the supervision PenCom in a very active way. The bill is ambitious also by prescribing that states and local governments sign up to the CPS compulsorily. But I don’t think that is democratically practical and I don’t know how legal it is but I am also not a lawyer so I cannot really tell if it will work or not. The PRA 2004 is for the federal civil servants and those in the Federal Capital Territory as well as private sector organisations that have a minimum of five employees each. Now, the Bill describes the federal civil service in the FCT, private sector employers of minimum of three and also includes all states and local governments.

    There is an outcry from the employers as a result of the proposed increase in contributions in the new bill. What is your view on this?

    I think that we should take things slowly. If we have people contributing 15 per cent, 7.5 each and the compliance rate is at best 50-55 per cent if at all and you now try and increase the rate, what do you expect to happen? It will increase non-compliance. It has been expressed during the hearing on the reform at the National Assembly and most people are of the view that we should maintain the rate and just try and drive compliance. For employers who choose to go beyond the minimum 15 per cent, they can do collective bargaining and decide voluntarily to do a higher rate rather than make it compulsory and then make a lot of people fall under the non-compliance bar.

    Expectation is high among operators to get the informal sector on board just as PenCom gets set to release guidelines on it. What are your plans on the informal sector?

    I don’t think that the informal sector is a question of guidelines but a question of reality. I have said this to my management team and at a forum where it has been discussed with PenCom, listening. I have also expressed my views in writing. I think that our economy is very weak. People don’t get paid very good salaries. So just talking about the informal sector by using numbers would not work. The popular analysis is that there are 80 million workers and only five million have signed up while the remaining 75 million have not signed up. The way it works is that people will buy what they need and if they don’t need it you can’t force them to buy. The fact that you don’t have the so called 75 million people subscribed to pension arrangement means that it is either they are pressured, they do not have a need for it or they do not believe in it.

    In my view, more than 75 per cent of this 75 million earn subsistence income such that they can’t start a savings programme. It does not make any logical sense for somebody who earns N18,000 and has to pay rent and send his children to school to subscribe to a pension plan. I don’t think that we need to reinvent the wheel. I think that what we need to do is to drive compliance from the formal sector. There are a lot of things that need to be done for the informal sector to fully come on board. If you look at the Indonesian and Asian model, you will discover that they have driven compliance by incentivising the contributors that if an informal sector participant makes a contribution, the government matches it either 100 per cent or even 200 per cent. So if a vulcaniser manages to put up N2,000 as contribution to pension, the government matches it with say N2,000 and in some cases N4,000. So it is in my interest to find a way to contribute so that I can get access to a price. If that incentive is not there, there is no value for me because with the little money I earn, I have to take care of so many responsibilities. Until you actually improve incomes such that disposable income can cover basic needs and still leave something to spare, I think it is an illusion to think that the number of subscribers from the informal sector will grow. Now, that is speaking very broadly but if we narrow it down, I think that we can segment the informal sector in more details. I think we have many small organisations that do not fall under the CPS now. We have small businesses such as consultants, lawyers, accountants, little enterprises maybe tailors who are fairly organised. They have to find a reason to contribute to this. This is what we the operators are trying to figure out in association with PenCom.

    I think that the number that we will be looking at beyond what we have signed up on the informal side will not be more than another one or two million. That is on the private sector side.

    What is the level of compliance by the states?

    I think there is also a huge market, reasonably huge, we have about seven states, maximum of eight that have subscribed fully to the CPS. The other 28 have not subscribed so what is going to happen to them? Should they not? I think that if they do the numbers properly, they will find out they are short changing their workers if they do not subscribe because gradually your pension liabilities continues to grow and if you don’t fund your pension liabilities, one day the chicken will come home to roost. That is number one.

    Number two; it is an incentive for serious minded state to subscribe to the CPS because in states where they have subscribed to the pension, they found out that in trying to make provision for workers’ pension they will solve the problem also of ghost workers because you have to register to collect your pension and once you register, a ghost cannot have an account and access the pension. So in many cases where there have been registration and maybe one should not be saying this because all sort of things happen in the civil service but once you register under the CPS and payroll is organised such that you make payments to people who have registered, you find out that you have streamlined a lot of the waste in the system. People who are not registered on the payroll in truth are cut off and they have reduced the liabilities of ghost workers just by subscribing to the CPS. If you ask some of the states where the CPS have been embraced. They will tell you that it is an added benefit they have been able to get.

    What does PFA entail?

    I think that people do not have the clear understanding of what this business is. This business is a specialised assets management business but it is broader than an assets management business because we also have to do administration.

    There are lots of support services that you have to invest in and the income you get from managing pension is probably a two-line item. You get your management and administration fees. The business is a game of numbers and skill and until you achieve the minimum economic scale, it can be an absolute nightmare, but that is the reason Pencom introduced the minimum capital of N1 billion so that minimum quality standards can be met by licensed operators and I guess the hope was that if the minimum capital was increased, it will induce operators to combine their business as it made sense but most people have decided to increase their capital to see whether they can carry on and see what happens when contributors are allowed to transfer their account among PFAs because the smaller PFAs believe they can serve some contributors better than the larger PFAs that have a lot of customers and perhaps are not able to perform as far as service delivery is concerned. My experience is that there is often a flight to safety, a flight to size; a flight to more durable structure. I believe this is why the prescription for N1 billion naira recapitalisation by PenCom came up. There were 25 licensed PFAs but today we have 19 and it could shrink even further.

    Are there merger and acquisition talks among the existing 19 operators?

    People would combine their businesses if they find that it makes more sense to have stronger entities than to have control of smaller entities that are not able to deliver service.

    What are your limitations?

    I think that our biggest limitation is really the fact that the investment environment in the country is not right for some of the things you will like to do as a pension operator. It is important to note that pension money is not high risk money. It is money that you must have ready to pay the contributors when their time falls due and so you must invest it very carefully. You cannot take PenCom money to go and build the road that you have no idea how the money is going to come back. But we are human beings who live in an environment and would want to see the improvement of our environment and with pension fund money being long term money, the tendency is to think that it will be used to propel the infrastructural development but it has to be done in a very structured way. I think that as operators, we would like to see infrastructure bonds from government guaranteed for starters. This will make us to know that the user of the funds and the investors can get used to the processes that are required such that once we get more comfortable and we can see budgets coming off the table, we are encouraged to do more.

    The pension money is not supposed to go in one direction and not come back. There were certain projects which I will not want to mention right now that a lot of monies invested on and lost. That can easily happen to pension and these are the greatest challenges we find. As it is, we are limited to money market investment and largely Federal Government bonds. Fixed income is simply a factor of the environment in which we work. We would like to do a lot more creative investing in a secured way but we can only do that in an environment where contract is well respected and the objective is well understood. We want to do a lot real sector investing but the environment is not right for it right now. These are our limitations.

    What are your limitations in the capital market?

    My background is in stock broking, so if anybody would have an understanding of what goes on in the capital market, I would certainly be the one.

    Yes, there is an increased interest investing in the equities market. I think that this year, most pension fund administrators have increased their exposure to the equities market and you will see that the index dipped 47 per cent last year but you need to ask yourself: Where are the new companie? Where should we be investing our money? It comes back to the same real sector debate. We need to have new companies coming on the assembly line. That is how value is created. I started stock broking over 20 years ago and the companies leading the market are still the same Unilever, Nigerian Breweries or Nestle. We haven’t found new champions. Okay, maybe we have got a Dangote here but we need to find a lot of smaller companies that are growing, such that if you invest in the equities market, when it was small, you can grow with it as it matures. That is what happens in a capital market. Look at a company such as Apple, for instance where an investor bought Apple at a time when it was small and grew. That is what you invest money on. You don’t invest money just because you are passionate about a sector. You invest money because there is value to be created and it is that value that we are looking for. I think that it is early days, and what we need to understand in the financial services sector in this economy is that there is a process of development and until you are ready, don’t come out. The pension funds are accumulating and what this means is that people who have genuine projects and genuine development aspirations can have access to it. It means we are beginning to get a pool of long-term funds which can be accessed, but it must be accessed in a structured way for structured objectives.

    You put money in a venture,venture brings good return, the person who provided the money is happy, the person who set up venture goes on to something bigger, then creates employment and for us it is an added advantage because we create employment, we manage new pension accounts, so it is a virtuous circle but we have not gotten there yet. So, we have to proceed cautiously and it will take time. Let us look at the pension funds as being with us for beyond my life time, beyond your life time, beyond our children life time. It is a facility that is supposed to help this environment grow not only for infrastructure but to provide for people when they can no longer be actively engaged in employments along with other added advantage. It can also fund development.

    What are your projections for this year?

    I think that the processes are stable. The regulatory environment is still stable even though there’s been a transition in the executive management of pension commission. The pension industry has continued to grow from strength to strength. I think that the investment return is going to be a lot better this year than it has been over the last two to three years. Compliance has improved because PenCom has appointed recovery agents that have done some work in improving compliance to the CPS. For this year, I think we are going to see some of these consolidations but the distraction of elections would probably slow things down on the government side. So, we are not likely to see a lot of recruitment on the government side; rather hopefully with recovery in some of the sectors, particularly the new electricity management we have, we would see growth in pension account 2014.