The Nation Newspaper

Category: CEO

  • ‘CBN should force down lending rate’

    ‘CBN should force down lending rate’

    The central bank plays a vital role in a country’s economy. It shapes the direction to go and so, some believe, it must dictate the economic pace. To the Director-General/Chief Executive Officer, West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, all the Central Bank of Nigeria (CBN) needs to do is to ‘force’ down interest rate and banks will follow suit. In this interview with DANIEL ESSIET, he says if the CBN makes that move it will aid the growth of small and medium enterprises (SMEs).

    what kind of policy will you recommend for Nigeria to boost industrial growth?

    Our share of global trade is very meagre; it is about 0.5 per cent of world trade. It is an unequal trading phenomenon despite the several global policies to boost trade among nations. Nigeria must be strategic on how she wants to benefit from world trade. China closed its borders for a considerable period of time and had selective engagement with some countries while she was developing her domestic economy. When she opened up, the world was amazed. It is unstrategic to completely liberalise. What Nigeria needs is guided trade liberalisation. There is a robust industrial policy for the country, the problem is its implementation. In fact, every regime comes up with an industrial policy but implementation remains a challenge.

    Imported goods are far more cheaper than their locally produced counterparts. This is obviously a great challenge; what kind of balance can be struck in this instance?

    It is important to encourage local producers; the cheap imported goods are of inferior quality because generally, imported goods of high quality will be more expensive due to the associated costs. We need to create incentive to local producers; we need to support innovations and empower those with ideas to transform such into products.

    Sustained growth will not happen without structural transformation which entails broadening of the production base from primary commodities focus to manufacturing and knowledge based services. What is the place of agriculture in this?

    Structural transformation implies movement from primary commodity production to industrial/manufacturing and then to services culminating in a knowledge-based economy. The process does not mean that agriculture will be neglected; rather, agriculture would be modernised to play the role of not only feeding Nigerians but producing goods for exports. Few people will be engaged in agriculture but with scaled up production. Agriculture will utilise modern technology rather than depend solely on nature and increased acreage. Agriculture will become a business and run as such.

     

    How best can policy makers’ attention be drawn to economic transformation?

    The Nigerian project is for everyone and not only for policy-makers though they are at the point of conceptualisation and formulation. It is crucial to drive into the heads of policy-makers and the leadership that if this nation remains backward, we will all suffer the consequences. Therefore, it is our interest to make it work. Having said so, I am aware that we do not need a crowd for a change; but a committed few determined to make a difference even if they have to die in the process. How committed are the policy-makers? How many of them understand the Transformation Agenda of Mr President?

    Many Nigerians are rooting for the implementation of quantitative easing by the central bank. How effective is this measure?

    I have always argued that lending rates are too high; no one can borrow at 25 per cent to invest and pay back; the cost of fund is just too high. At some point, the apex bank was concerned about inflation hence the need to sustain or even raise the Monetary Policy Rate (MPR) which is now 12 per cent. The prevailing lending rates seem not to respond to the MPR; however, they seem to respond to a negligible extent to interbank rates. Now, we are told that inflation is now single digit (about eight per cent) and it may remain so for a while. Consequently, one problem is solved so why not direct attention towards lowering the interest rate. I do not buy the foreign exchange argument in the sense that external reserves come mainly from exporting crude oil; its price and output are exogenously determined. We cannot rely on the market because the banking sub-sector is oligopolistic – few banks control the sector; sets the cost of funds and others follow or they collude. How come in spite of all the reforms, there are not that many new banks. In a market economy, the government can force competition by breaking monopolies and oligopolies either through the price angle or the quantity angle or both. It is high time the Central Bank of Nigeria (CBN) ‘forced’ down lending rates and the banks will adjust. It is only low lending rates that will stimulate the real sector thus grow the economy and generate the much needed jobs. Remember, teasing the banks will not help; afterall, prices (lending rates) are always sticky downwards. The shock therapy was given to banks concerning public deposits and they adjusted.

    I am always in support of cutting interest rates. Negative real interest rates would imply that the system is awash with liquidity. However, in reality negative interest rates suggest that there is inconsistency between savings and investment and it is not healthy for the economy. It is always better to have positive interest rates.

    Can austerity measures be the panacea to current imbalances in the economy?

    Why do you need austerity measures when there is an Excess Crude Account and the Sovereign Wealth Fund? Better still, why not borrow in the domestic market if it is for financing capital projects? A fiscal deficit/GDP ratio of four per cent is generally acceptable. My take is that exceeding the threshold to finance capital projects which are crucial for development is in order.

    On several occasions, you have mentioned the need to provide more credit to small and medium enterprises (SMEs). What is the situation report now?

    SMEs are growth drivers; unfortunately they do not have access to credit despite the various policies and programmes enunciated by government. This is an area government should tackle with all seriousness; let us ascertain why SMEs are not having access to credit.

    Unemployment continues to ravage the country while the alleged economic growth has failed to lift the ordinary man on the streets. What is your take on this?

    The unemployment situation can be called a national crisis; the official rate is about 24 per cent and higher among youths; moreover, it is projected to keep increasing. When unemployment becomes a crisis, only government can provide stop gap measures and not the private sector. Programmes like SURE-P and YOU WIN are stop-gap measures and may not be sustainable if they are not incorporated into a national plan. The revitalisation of the housing sub-sector would generate a lot of jobs. Fortunately, this year’s budget is on job creation, so let us see how it goes but my worry is that the inclusive growth model which government is implementing would not generate the needed jobs because it is a modified form of the trickle-down effect. This approach takes too long and in the long-run, we are all dead. It is perhaps good for economies that have structured welfare programmes.

    People say economic development is hyped up. How can inclusive economic growth be achieved?

    The government should stress inclusive development; growth is only a necessary but not a sufficient condition for development. A country may grow and yet not develop. To develop, a country must be doing well in terms of employment, quality of education, the provision of health services, provision of food and accommodation, human rights, gender equality and tendency towards structural transformation of the economy. Unfortunately, our policies and programmes are stressing growth and thus indirectly downplaying the role of the state in the development process. All countries that have leapfrogged from underdevelopment to modern societies have had and utilised optimally the state sector, including the United States of America (USA). Hence, fast-tracking development must include government’s intervention in a qualitative sense in the areas of knowledge building, education, technology, access to credits markets and security.

    According to official figures, the inflation level in the economy isn’t too crushing but the reality on ground is that people are not living well. What is wrong?

    Yes, the official data is that inflation is single digit, that is, about eight per cent. This should translate into citizens being able to buy more goods and services. However, the facts on the ground do not support this situation either partly due to the lag structure in the economy or the quality of the data. Yes, Nigeria is a consuming economy, consuming what she does not produce; about 85 per cent of our goods and services are imported from Europe and America while our exports, mainly crude oil goes to the same sources. There is of course a mismatch. We should be producing for exports while having enough to consume domestically. Part of the problem is the incentive structure, policy inconsistency and reversals. Thus, potential investors are unwilling to take risk.

    In the light of this, should the CBN ease monetary policy?

    It is about time to lower the Monetary Policy Rate (MPR) and see the impact on lending rates; the mopping exercise is always on-going to address inflationary pressures. Let me state that though it is not within the mandate of the CBN, the fiscal side of the economy is also very critical. While it is assumed that monetary and fiscal policy coordination is important, an uncontrollable fiscal expansion would render ineffective monetary policy. Hence, for monetary policy to be effective, fiscal prudence on the part of the government authorities is essential.

    Could the rise in bond yields and longer-term interest rates affect economic outlook?

    The rise in bond yields shows that there is confidence in the economy; it suggests that investors perceive that present government policies and programmes particularly those targeted at creating an enabling environment for investors are sustainable.

    The CBN has done quite a bit regarding its oversight functions. It is better to over-regulate than to be sluggish in regulating. One good plus for the apex bank is the determination to ensure that the principles of corporate governance are strictly adhered to by banks. Its tight monetary stance has helped to cushion the effect of large spending and dampen inflationary pressures on the economy.

    Do you see another round of banks’ recapitalisation soon?

    I do not think it is necessary for now to have another recapitalisation. After all, the CBN has allowed three categories of banks: global, regional and national banks. In addition, there are microfinance banks. The main issue is to create incentives for banks to decide whether they want to be global, regional and national. We need new banks hence raising the capital now may discourage potential investors.

    Should the CBN reconsider its choice when strong public opinion comes to its attention?

    There is nothing wrong in the CBN weighing in and considering public opinion on certain matters. However, it has to do so in the best interest of the overall economy. For example, during the cash-less policy debate, the CBN took into account public opinion by commencing the exercise in Lagos as opposed to its earlier decision of covering most of the country.

    What is your take on cross-border banking supervision?

    Banking supervision is very important; in fact, there is cross border banking supervision that was initiated by the Governor of the CBN and it is working well. There is a plan to have a West African Central Bank. But I cannot say when it would be realised. Governments in the region are working very hard towards a monetary union.

    What can the government do to win back the confidence of Nigerians?

    There seems to be apathy by citizens about the government. It has arisen out of several years of neglect and oppression of the Nigerian people by various governments. The people are tired of promises. Hence, the people no longer trust or have confidence in anything government. The present administration can select and implement two or three things to regain the confidence and trust from the people. First, is to restore the quality of the public school system at all levels. No serious government allows the public school system particularly the primary and secondary levels to deteriorate. The critical mass of citizens that would proceed to acquire various skills and those that would progress to various tertiary institutions are groomed at this level. Quality public schools would not negate the existence of private schools; they would complement and compete among themselves. I always tease some of my friends to visit the primary and secondary schools they attended and see the extent of decay. Restoring the public school system would make Nigerians feel that the government is ready to deliver. I will not even talk about public universities, starting from the first generation to the fifth generation – the recent strike by the Academic Staff Union of Universities (ASUU) exposed once again the emptiness and shallowness of our universities in terms of facilities, quality of staff and so on.

    Second, it would be necessary to revamp the health care delivery system in the country. A situation where the very rich go to India, Egypt, Tunisia, USA etc for medical check-ups and treatment is unacceptable. There was a time in this country when medical centres were as good as most hospitals abroad. We call education and health human capital formation. Therefore, ensuring the qualitative growth of human capital formation would restore confidence and trust in government. Third is addressing the epileptic power supply in the country. Fortunately, the administration of President Goodluck Jonathan seems to be on top of the situation. He must be given credit for unbundling the Power Holding Company of Nigeria (PHCN) as well as making progress towards the privatisation of the sub-sector. I am sure it was not easy given the vested interests particularly from those who trade in generators. Our economy is generator-driven and no economy develops under such scenario. Once Nigerians begin to experience uninterrupted power supply, they will have trust and confidence in government. Hence, tackling the public school system, provision of health and power will signal the seriousness of government.

    What is your assessment of the Transformation Agenda?

    As you know the Transformation Agenda was partly derived from the Vision 20: 2020 economic blue-print which in itself is a kind of perspective plan. The agenda contains all the elements that could transform the economy if properly implemented. The agenda stresses growth and not development. It is anticipated that once you grow then development will follow. This is neo-liberal and neo-classical thinking and it would take us nowhere. In the agenda, the economy was to grow double-digit to get to the Promise Land but that is not the case. The contribution of manufacturing to GDP is at five per cent; no economy gets transformed with such a figure; in terms of targets that were set, the economy is far from achieving most of them. But the point is: Are we making efforts at achieving those targets? Most government officials particularly ministers would say yes. My position is that the people in the final analysis would determine if the agenda is working or not. However, the performance of the economy when compared to 2012 has been marginal; poverty incidence has increased while the rate of unemployment remains very high (24 per cent) and is increasing.

    Are we going to be one of the largest 20 economies in the world by 2020?

    There is nothing wrong in dreaming. The vision is like a dream; where the nation would like to be by 2020. But you can work towards it. The blue-print has conditions; it was conditional. For example, the country must grow at double-digit for 10 years or so; manufacturing must contribute about 25 per cent to GDP as a start; there would be industrial clusters all over the country; power supply would be constant and uninterrupted and so on. I hope the vision and the inherent planning of the economy has not been abandoned. I say so because last year’s budget 2012 and 2013 made no reference to the plan or the vision document. Are they still following the plan? If they are, then I hope the capital component of the 2014 budget is derived from the plan, that is, it is rolled over.

    What are your views on the 2014 budget?

    Normally, I like to comment on budgets when they are formally presented and examined by parliament. I do not have the details. However, based on what I have read so far, I do not like the title and thrust of the budget which is Job Creation and Inclusive Growth. The inclusive growth model will not generate the number of jobs we are looking for. This model reduces drastically the role of the state (government); unemployment has reached a crisis situation and only government can make an impact. The private sector cannot. It should have been captioned: Job Creation and Inclusive Development. The macroeconomic fundamentals are within acceptable range especially the deficit/GDP ratio; it seems to stress infrastructural development. I will examine the budget fully at some point. I hope Parliament would carry out its oversight functions during and after the appropriation bill is passed into law.

    Outlook for the year

    The outlook for the year would be better if the privatisation of the power sector is completed so that the economy can have a near constant power supply. This would allow potential industries to locate in the country and create jobs. It would reduce the cost of doing business in the country. In addition, the on-going efforts at revamping the rail system should continue unabated. The slogan for 2014 should be jobs, jobs, jobs.

     

     

  • ‘Sanusi’s impending exit won’t affect key policies’

    ‘Sanusi’s impending exit won’t affect key policies’

    In a few months, Central Bank of Nigeria (CBN) Governor Lamido Sanusi will leave office. Will his exit affect banking policies? United Bank of Africa (UBA) Group Managing Director Mr Phillips Oduoza, in this interview with Capital Market Editor, Taofik Salako, does not think it will. The banking institution, he argues, is now so strong to withstand such a leadership change.

     

    Profile

     Institutions attended University of Lagos (UNILAG); Harvard Business School, USA.

     Qualification B.Sc (Hons), First Class, Civil Engineering, University of Lagos; MBA, University of Lagos; AMP, Harvard Business School..

     Previous position Executive Director, UBA; Executive Director, Diamond Bank; Deputy Managing Director, Reliance Bank..

     Present position Group Managing Director, UBA.

     Experience Over 27 years.

     

    There were several regulatory changes in 2013, how did they affect banking ?

    Yes, 2013 was a very challenging year for financial services institutions globally but especially in Nigeria. It was the first year we witnessed regulatory induced reduction in income lines and also regulatory induced increase in some funding costs came into operation. First, the Commission on Transactions (COT), which used to be at N5 per mille maximum, was reduced to a maximum of N3 per mille. As you know, COT is a major component of the income lines of banks. The second was the N100 that was charged by banks for Automated Teller Machine (ATM) usage when a different bank’s customer uses another ATM. This was also eliminated. In fact, not only that it was eliminated, if you don’t have many ATMs you will end up, as a bank, bearing that cost, because the debits were not going to the customers but to the bank. Significant portion of our deposits comes from savings deposits especially for banks like us that have been around for a very long time. And then savings interest rates increased from a maximum of one percent to 3.6 per cent minimum and that was a substantial cost for us.

    Most of these regulatory induced costs happened in the second quarter of last year. By third quarter, another major one came in. The cash reserve ratio for public sector deposits, was increased from 12 per cent to 50 per cent, meaning that for every N100 that you generate from public sector you must sterilise 50 per cent of the amount or keep N50 at zero yield. That was a very big cost for banks and for UBA.

    How did we deal with this as a bank? The first is that our African operations came into play immediately. All these initiatives basically affected the Nigerian market and they did not apply to the various African countries where we operate. UBA operates in 18 African countries outside Nigeria, so we intensified our activities in these countries. The income losses that we suffered in Nigeria, we try to make from our 18 African countries where our subsidiaries operate. So, the first strategy was to increase revenue from the various African countries. Luckily for us, we had finished the first phase of our African expansion by last year, and had entered the consolidation phase. Therefore, we deployed more resources; we made some changes at senior levels in the various African countries. We intensified activities in the area of remittances and intra-African trade and the non-interest income arriving from these activities were very substantial though not enough to completely cushion the impacts of all these changes in general.

    The second thing we did was to start ramping up on our electronic banking services. Electronic payment generates revenue for us arising from the card usage (point of sale usage) and other income associated with that. Card usage also reduced our costs as customers migrate transaction from the banking halls to electronic space. Serving customers using electronic banking, is just a fraction of what it actually cost you to serve the customers using the banking hall. So, increased electronic banking by our customers did two things for us, significant reduction in our operating cost and an increase in the income level.

    Our strategy number three was the strategic shift that we made from investment in government securities, in treasury bills, and related instruments, into quality asset creation. Our risk asset portfolio last year increased significantly as you are going to see when we release our 2013 full year results. We are focusing basically on emerging sectors, like telecommunications, the power sector oil and gas upstream, agriculture. UBA is probably the biggest lender in the power sector under the new power sector reform and we are going to do more this year. Agriculture remains a very big area for UBA. Today, it actually has about 7 per cent of our portfolio compared to the industry target of 4 percent. These were some of the strategies we adopted to cushion the impact of the crunch that we experienced last year.

    Would you then say it is more profitable to run banks outside Nigeria?

    Not really, it is quite profitable but I cannot say that it is more profitable. Today, Nigeria has the second largest economy in Sub-Sahara Africa. So, the Nigerian market is very huge and with the almost concluded rebasing of the GDP, will even be bigger, overtaking South Africa as Africa’s biggest economy. So, Nigeria still commands about 75 per cent of the bank’s total revenue with other African countries contributing about 25 per cent. However, going forward, our African subsidiaries will continue to increase the proportion of their contribution with a target of achieving a 50/50 between Nigeria and other African countries.

    One continuing debate is the high interest rates being charged by banks, why do we continue to have such roof-top rates?

    I also want a lower rate. But when you look at it, you find that banks are an integral part of the economy. The actual reason why interest rate is very high in Nigeria is because of infrastructure that are not there, the deposit rate may not be as high as you will think but the additional cost that go towards the generation of that deposit is very high. As we speak here, UBA has about four generators that run simultaneously. Each of them is 1,500 KVA. So this office alone is generating six megawatts. It’s a mini power station. Diesel consumption alone is extremely high. Each of the branches that UBA has is using has two generators. One is the main generator while the other is for standby. We have cards all over the world; we cannot afford to go down for one second. People are using our cards in Japan, South Africa and America. Therefore that infrastructure has to be there. If you go to our offices you will see a whole lot of security people that are in place. We have to pay for that.

    So all these are costs that if you have to remain in business you must bear. This is why interest rate is very high. The cost of taking care of the cash is also very high. If you go to the banking hall, you will see how the note counting machines break down every day. So you either replace them or get the people who repair them. You have tellers lined up. This why we are pushing cashless banking. As cashless banking takes firm root, you will find out that the cost of handling cash will go down significantly impacting positively on interest rates.

    If you compare the financials of the Nigerian banks with those of other emerging and frontier markets, the cost to income ratio of the Nigerian banks are in the 60s. Some extreme ones are in the 70s. All the other emerging markets like Turkey, like Malaysia and co, their cost income rations are in the 40s. So, if we are able to deal with all these cost elements, I can tell you that the interest rate can come down to single digit.

    What is your view on the power sector reforms?

    We regard the power sector reforms as a revolution just like what we have experienced in the telecommunication sector. The overall impact on the economy is going to be very significant. It will have a multiplier effect on the economy. Small and Medium Enterprises (SMEs) are going to benefit significantly. I believe that, starting from this year- 2014, we are going to start reaping the full benefits of the privatisation of the power sector.

    The supports to the power sector from us as a bank reflect our commitments to long-term financing. We believe these will provide steady cash flow and income for the period of that funding. Some of loans have five years, and some others are seven years tenor, and so over that period, the bank will continue to enjoy that revenue especially with the opportunities in the downstream end of the sector.

    UBA’s market consideration is trailing its peers in spite of commendable fundamental performance, do you think the market is under-pricing your stock?

    The market has not bought completely into our growth story. In 2011 when we cleaned up our books, we declared a loss which was very strange in this environment. I remember in 2012, I went to the stock exchange, met with stockbrokers, financial journalists and other players in the market and I addressed them. I told them that this is what UBA is doing. We were going to clean up our books and it was fallout of the 2008 crisis. The offshore banks did that, HSBC and other reputable international banks did that? In Nigeria, we were not doing that and we said no, we operate in major financial centres, we operate in London, we are monitored by the Financial Regulatory Services Authority(FSA), we operate in the New York and we are regulated by the Office of the Comptroller of Currencies, (OCC), we have a representative office in Paris. In addition to that, we operate in 19 other jurisdictions in Africa; therefore, we are not a Nigerian bank. Regulators in 22 countries are looking at us and we must do what is right and what is called the best global practice. So, we are going to write off all the loans- the ones we sold to Asset Management Corporation of Nigeria (AMCON), the ones that appeared to be distressed, we are going to write them off and then take them once at a go.

    When we presented that, people asked us, why do you want to do this? They told us we could write it off over a period of time but we said no. We insisted we had to do that. We believed that once we clean our books, we would now start the path of renewal. Stakeholders on the Nigerian Stock Exchange (NSE) were initially alarmed. So, some people started selling their shares and UBA shares dropped to a low of N1.65. But some analysts saw the wisdom our decision and they started buying gradually and the share price of UBA moved from N1.60 to what it is now, in the region of N10. In the subsequent first quarter, UBA made a profit, second quarter, we made a profit and everybody started picking their shares. In 2012, UBA had the most appreciation in its share price in the stock market among financial services institutions and we closed 2012 with a return to profit.

    In 2013, the share price sustained its upward momentum and by December 2013, UBA has also seen the significant appreciation in the stock market. I believe the same thing will repeat itself in 2014. I also believe analyst will see UBA from a new perspective in 2014. Analysts will recognise that the bank’s growth has been sustained. If anything at all, the balance sheet is getting stronger. The profit margin is showing a significant improvement over and above competitors. So, I believe that an upward review of the bank’s rating is going to take place. Our current pricing is based on people’s memory not on our performance and prospects.

    Investors also lost a lot of money during the financial crisis, so a lot of them have not come back to the market and may not come back to the market for some time. There is definitely going to be an upward movement in our share price because our current performance shows that we are a bank to invest in.

    Now, how is your balance sheet like?

    The balance sheet of the bank is very robust. At the beginning of 2013, our loan-deposit ratio was about 38 per cent and that was about the lowest in the industry. We had substantial portion of our investments in government securities, treasury bills, bonds and associated instruments. So what we did was to gradually move from investment in securities into asset creation. UBA is one of the banks that have significant headroom to create risk assets. So even in 2014, we are going to see further increase in the risk asset book of the bank.

    The good thing about our risk assets creation is that we have created very top quality loans. Because before we made that strategic shift, we had to realign our risk management framework. The non-performing loans, NPL, for UBA remain one of the lowest in Nigeria. The previous year, for Nigeria, it was under one per cent and for the group as a whole, it was under three per cent. And this is within central bank’s limit of five per cent. So, we have lots of headroom, we have top quality risk assets and if you recall sometime in the past, we cleaned up our balanced sheets, realigned our positions and came up with a very decent book.

    Nigeria will appoint a new Central Bank Governor soon, what are your expectations?

    I’m not sure who is going to emerge as the new CBN Governor but whoever emerges, I do not think we are going to see a reversal in the key policies. These policies are working very well. For example, Nigeria is the only country among the emerging markets that has not suffered major currency depreciation for a long time. The inflation rate has been brought down to single digits. I don’t see any easing of the monetary policy rate. The cash-less policy has been very good and I believe it is something that should be embraced by all.

    This year, the cashless policy is going to roll out in all the states of the nation. I also see some flexibility in interest rates. One of the reasons why I believe there won’t be any easing in the monetary policy is because we are going into the election year. The pre-election spending is inflationary in nature and you will not ease the monetary policy when there is so much liquidity in the system. If anything at all, I believe we might experience some further tightening of the monetary policy. It is possible that the cash reserve ratio is going to go up further, not only for the public sector deposit but for also the private sector deposits and I believe that the CBN will continue to use its reserves to defend the local currency.

    There has been so much emphasis in recent time about UBA’s Project Alpha, what is this initiative really about?

    Project Alpha is our focused strategy for industry leadership across Africa, and it is a multi-year programme. The key elements of the project include; focusing on low cost deposits which are non-public sector, focus on customer appreciation and rapidly growing our customer base. We are also focused on intra Africa-trade, using our platforms in Africa to drive trade across Africa. We are focused on the remittance business and we are also focused on creation of third party quality risk assets, and customer service delivery is another aspect of the project.

    What we have done is that, having laid the components of project Alpha, we are focusing the resources that are required in delivering on the project. UBA is probably the only bank in Nigeria that has an executive director that is in charge of customer service and human resources, I don’t think there is any other bank that has that. So, we believe that for us to deliver on project Alpha, we must have people that are well motivated and well equipped with human management skills. A particular aspect of this is talent management and that is why the bank is attracting very good people and we are using them to drive Project Alpha. The second is customer service; we have seen the need for the re-alignment of our customer service delivery. Since 2013 we have been able to achieve some key parameters and by this year-end, we will achieve more milestones. In the next three years, we should be through with all the major milestones as mapped out in Project Alpha.

    Do you plan to further expand within Africa?

    Thanks, that is a very good question. When we started the Africa expansion, we decided to have a phased programme. We have just concluded the first phase which was to cover the key strategic markets in Africa. The only exception is Angola which is supposed to be a part of that phase but which has not been actualised. We are still reviewing our interest and strategy for Angola. However, we can we can say that we have completed the first phase of the expansion. We are now in the consolidation stage, which means you are not going to see further expansion from us across Africa for now until whenever we enter into the second phase, which is still far in the future and I probably will not be the one that will drive that expansion.

    Is there any plan to raise new capital this year?

    We do not have a reason to raise capital. When we raised capital, we use it to expand our presence in Africa and because we have completed that phase, there is no need for raising capital at this particular point in time. We will rather continue to consolidate our play in the various African countries and expect the revenue to come from these investments. Currently, we are expecting to crystallise the benefits from our investments in Africa.

    Your cost-to-income ratio appears quite high. What is responsible for this and how are you going to address this going forward?

    It is true that the cost-income-ratio is relatively high and I will explain why it looks so. The amount of money we have invested in Africa, if we were to bring that capital, put it in treasury bills, our performance today is going to be totally different. However, it is an investment in the future which is not pricing into our share price yet because investors are not looking long term. Fourteen of our African subsidiaries are making profit out of 18, apart from Nigeria. When all of them start operating at full steam starting from this year, the contribution will be totally different altogether.

    At the same time, we are writing off investments and amortising, and so we are bound to experience the current seemingly high cost-to-income ratio. We have recognised the expenses but the income will come in future. Already the cost-to-income ratio has been coming down. Don’t forget that in 2012, we closed with cost-to-income ratio of 78 per cent. First quarter of 2013, we came down to 65 per cent and in the second quarter, it had come down to 62 per cent and it has continued to reduce. Our ultimate objective is to come to 50s. It’s going to happen, very soon.

  • ‘How to combat terrorism, money laundering’

    ‘How to combat terrorism, money laundering’

    Terrorism and money laundering are twin evils. But how can Nigeria, despite being delisted from countries identified as jurisdictions with significant deficiencies in Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) campaigns, tackle these problems? It is by building systems, says Head, Inter-Governmental Action Group Against Money Laundering in West Africa (GIABA) office in Nigeria, Timothy Melaye. In this interview with COLLINS NWEZE, he insists that intelligent and influential people are behind money laundering.

    One of the key issues your organisation addresses is terrorism financing.

    Nigeria is faced with this problem believed to be funded externally. How relevant is your organisation in this matter?

    Well, you see, who would have thought that terrorists would blow the World Trade Center in the United States of America (USA) or would have thought that the Kings Court Station in the United Kingdom (UK) would be blown up by terrorists. There were cameras; there were digital information; there were intelligent gathering and all of that. Recently, there was bombing in Boston.

    So, the issue of terrorist activities is borne out of the fact that there is increase in evil people. Evil people plan evil every day. When out of 600 plans, that one that succeeded will make news more than those 599 that were averted. That is the case with terrorist activities. Of course, GIABA did not state in clear terms that it is fighting terrorism. No! Our work is issues of combating the financing, and in this case, certainly, there is funding.

    If somebody drove a car, he did not bring the car from the road. Probably, he used money to buy the car. Even though cases have shown that some of them were snatched, or stolen, but either we like it or not, there are funds involved in terrorism. Some of them carry AK47 rifles, you can’t buy such from the street, it costs huge sums of money and with this of course, and there are issues of finance.

    You cannot fight terrorism. It is just like if you want to kill a fish, just drain its water and leave the fish inside. In no time, the fish will not survive. So, what we are trying to do is to identify the means of draining the resources from those who finance terrorism.

    If you really want to kill a fish without your bullet, obviously, you have to drain out the water from the pond. What we are doing is just working virtually and systematically with member-states to ensure that all of these are done, and those people doing this will no longer have a hiding place.

    Nigeria was delisted from the list of non-coooperative countries. What does it mean to be non-cooperative; does it mean that it is cooperating or no money laundering is going on in the country?

    Like you know, money laundering is a derivative crime. What do I mean by a derivative crime? It is not a crime you commit directly now. You must have committed criminal offence to get illicit wealth before you can lander it. So, it is a crime you are deriving from another crime that has existed before. So, you cannot stand here and nobody anywhere in the world can say there is no money laundering going on here or there. No! Every country is trying to ensure that it is minimised. The people who are involved in money laundering and other proceeds of crime are intelligent, articulate, have access to resources and sometimes, influential. So, if they say a country is complying, that means a country is meeting those recommendations; putting in place the structures that I have mentioned. That means, your jurisdiction has built the structure that will protect it from money laundering.

    As I am talking to you, what if somebody is buying jewelry with stolen money? That means money laundering is taking place. He just goes into a jewelry shop and they tell him this gold will cost N20 million, and he says oh! No problem put it in my bag.

    They tell him another one will cost N16 million and he says no problem, and picks it up. Because he knows that is the treasure he can hide his money, because jewelry, especially gold, anytime you want to sell it, you can just take it back to the market and resell your thing. He has cancelled the source of the money. He has made it to appear like clean money. That is what money laundering is all about.

    And it will be reintegrated into the system. Now, we are saying that the jewelry seller should pay the money into his account. And when they see money in his account, he will say ‘ha you don’t know it was the jewelry that I sold?’ The origin has changed. So, what will they do? So that is what happens in many nations.

    When we say that a country is complying, and it is enlisted on public statement, that means that the country is complying with the regulations, putting up necessary structures; the laws, awareness, and implementing them. Banks are following the Know Your Customer (KYC), due diligence and other things required from them by the regulators.

    The awareness is created, and all the offences are criminalised in law. And money laundering itself is an offence in the law. So, when you have all those things in place, that means the country is cooperating. It is putting up structure so that its domains, its territories, are not a haven for those who launder money and finance terrorist activities.

    The CBN took some key policy actions close to the time GIABA and FATF team came to Nigeria for on-sight inspection. There was a change from Wholesale Dutch Auction System to Retail Dutch Auction System and enforcement of other anti-money laundering rules to ensure that Nigeria was delisted from the list of non-cooperating countries. Why did the CBN go that far?

    Well, I can not speak for Nigeria because I can’t say that I am directly working for GIABA or for the Economic Community of West African States (ECOWAS) and what we do here is to talk for the region. So, I cannot speak specifically for Nigeria, what they did and why they did it as at the time they did it.

    But I know that in Nigeria, both the government and the operators have shown commitment towards ensuring that the country complies with those standards. So, of course, for you to comply, you have to put up what is required of you. The country did not just got into the list. The country was in the list before it came out in 2004. Of course, Nigeria Mutual Evaluation Report took place in 2007 and was adopted in 2008 after the adoption, the GIABA and FATF expected Nigeria to make some significant progress in case of follow up report on that mutual evaluation and the gaps required to fill.

    And when those gaps were not filled up sufficiently, as at the time it was expected, that was why Nigeria went back to the public statement. So, what the country needed to do if it wanted to come out of the public statement, the gaps that have been identified had to be filled. If you see a lot of policies coming up, the policies are intended to fill those gaps and if they didn’t fill it, they will still be on a public statement.

    By the time you finished filling these, it doesn’t matter whether you will fill all of them at once or five years or 10 years, the longer it takes, the more the country will degenerate from the green list to black list to all kinds of things like that.

    So, the country therefore, would have done what it needed to do to get out of the list. Whatever it has done would have been as a response to the fact that the country is working hard to comply with all necessary regulations.

    A lot of laws were passed, bills were sent to the National Assembly, those laws will enhance the policies of the banks, the policies of designated non financial sector, and all kinds of issues would be put in place. Now that the country feels that it has addressed those challenges that have been identified in the Mutual Evaluation report, then, it would be presented to the plenary session of the FATF.

    Why doesn’t the acronym of GIABA match its full meaning? I ask this question because it means Group Inter-Governmental d’Action Centre le Blanchiment d’Argent en Afrique de l’Quest.

    That is the English name but, the acronym actually, is a French acronym as the Intergovernmental Action Against Money Laundering in West Africa, does not synchronise with what we have on the acronym as a GIABA.

    This is because GIABA is an organisation that is formed by the Economic Community of West African States (ECOWAS). And ECOWAS, of course, has membership across all West African countries, and there are 15 ECOWAS members that formed ECOWAS.

    So, because it also has English speaking, French speaking and Portuguese speaking, since the name is always called in English, we prefer that the acronym be in French. It is a way of creating sense of ownership to all the member states. However, most documents of the organisation come in English, French and Portuguese to represent the combination of the whole components.

    ECOWAS established GIABA in the year 2000 because of the need to see issues relating to money laundering and terrorist financing to be addressed within the region. After the establishment of GIABA in the year 2000, they were setting up process and all of that. The initial mandate of GIABA was to work assiduously in combating money laundering and terrorist financing within the region. They are to ensure that people do not have access to launder the proceeds of crime within the region. That was the core mandate of GIABA as it was given by it statutes.

    In essence, all the work we do revolves around this mandate. Working with all the member states.

    Two other countries, Sao Tome and Principe have also joined. Though Sao Tome and Principe is not member of ECOWAS but it is a member of GIABA, because GIABA has more opportunity to add more members that would address issues concerned. This country made GIABA members to be 16 instead of 15 ECOWAS countries.

    What is the relationship between GIABA and Financial Action Task Force (FATF)?

    The FATF is the global standard setting body for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) while GIABA, is an associate member of FATF.

    This gives GIABA the opportunity to be part of every decision making at the FATF. In terms of relationship, GIABA is also what they call the FATF Style Regional Body. What they mean by FATF Style Regional Body (FSRB) is the body that covers this jurisdiction.

    For instance, there are over 180 countries that have signed into the FATF, and Jurisdictions. FATF will not be able to cover all these countries effectively and so they have SRBs that manage the jurisdictions. For instance, GIABA is the FATF SRB in West Africa. So, the role of FATF is being played by GIABA within West Africa.

    For instance, they conduct mutual evaluation which is the peer review mechanism to assess a county’s performance in terms of plans to fight money laundering and terrorist financing.

    In conducting mutual evaluation, what are the issues always considered?

    The mutual evaluation exercise is usually to check, in the whole form of it, a country’s compliance with the recommendations. FATF has what it calls “40 Recommendations” it used to be 40 plus nine, but after the revision, it was revised to have 40 recommendations that comprises money laundering, issues of terrorist financing, and proliferation of light weapons and weapons of mass destruction which they call proliferation financing.

    Also, countering the finances of proliferation of weapons of mass destruction or light weapons. So, these are the key issues that are addressed in those 40 recommendations, and what countries needed to do to prove standards.

    Mutual evaluation is to identify gaps that countries have based on these recommendations.

    For instance, the recommendation is talking about the enactment of adequate legislation, laws that will combat terrorism. In a lawless society, it is criminal to be law abiding.

    So, it is to make sure that all the member states have adequate legislation, laws that combat money laundering because criminals will be looking for countries where laws do not exist to go and operate, so even when you catch them, there is nothing you can use to prosecute them.

    What we do for instance, is to ensure that all countries have adequate legislation. You remember that sometimes ago, in Nigeria they said had anti money laundering law but did it have law against terrorist financing?

    So, we look at all the issues of legislation, we look at financial institutions. What role are they playing? Are their platforms available, readily confirmed? Do they prepare transaction report? Do they remit to transaction report, and were those reports well processed? What roles do they have to play, and their impact in terms of moving finances/ money from one country to another?

    So, all are those areas that we are looking into. Customers due diligence, the customs, the immigration, movement of cash and goods and all the other areas, even the designated non-financial businesses and profession; could be somebody who deals with the issues like property. If someone wants to launder money through property and he decides not to take the money to a bank, he can approach a property firm and decide to buy 20 duplexes in choice areas. He is laundering the proceeds of crime. He is not taking the money to the bank, but he is making transactions and payments and the money is going into property.

    Later, when you ask him where he got the money he would say, you don’t know that I am into property business? I have been buying property bit by bit and now I even have over 40 properties. I have 200 houses, and I am into estate. And he has successfully hidden the source of his estate wealth. So, we will be looking at designated non-financial businesses and professions.

    That could be the hardest part of your job?

    Yes! And that is because we have a very large informal sector. Informal sectors where things are not going through formal processes. For instance in Nigeria, they have what we call Special Control Unit Against Money Laundering (SCUML). For you to operate in any business, you have to register with them now as a regulation body.

    May be Bureau de Change, may be estate agents, may be law firm, may be accounting firm, and all of those things, because if you want to buy a property now, you will need a lawyer who will do the agreement. You need an estate manager who will make all the perfections and check the papers. All of them now are compelled to register with SCUML If you register with SCUML, any transaction you do within certain threshold will be reported as suspicious transaction. For instance, if I come to you and I work as a civil servant, and I say, I want to buy 200 houses, it is a suspicious transaction.

    My salary as a civil servant may be at that time, just N200,000 and I want to buy a property of about N250 million. It is a suspicious transaction. You will go ahead to do your transaction but, you report it to the financial intelligent unit. It is their work to investigate, to identify, and to know if it is something to be looked into or not so that no stone is left unturned, no loophole is created in the system.

    If it is jewelry or you sell cars, all manner of things, same procedure will be followed. And if you are caught not reporting when you should, then you know that you are aiding and abetting. The law covers not only the perpetrators of the crime but also the people who knew but conspired not to report it.

    When the SCUML policy was introduced, many non-governmental organisations (NGOs) kicked against it. Is the policy still being implemented?

    Yes, it is being implemented. A lot of organisations subscribe to it including non-governmental organisations and faith-based organisations. You may have your grudges but you have to subscribe to it.

    If you say you don’t like traffic lights, that will not make you not to obey traffic lights. If you break the rules, there are sanctions. Fine, it has been spelt out that this is the process to go. Fine, some people may not like it and would prefer to hide their identities, maybe they don’t want to be part of it, but the day they are caught by law, they will pay for it. Recently the SCUML implementation deadline was extended to allow more people to take part.

    People are already keying into the SCUML policy because it will get to a point that you would want to do your business as an agency and they will ask you to produce your SCUML registration certificate.

    Banks will begin to demand that for you to open an account, you must provide SCUML registration certificate. By the time you want to open an account and your account officer says that you must produce your SCUML registration for that to happen, then you will know that it is very important. And overtime, they will find out that there are no options and they will have no other choice but to go and register.

    So, these are the kind of processes that are being put in place and this is what will help. And you know also that there have been reductions on the volume of cash people can carry. So everybody is compelled one way or the other, through processes and systems, to go into the banking system.

    You want to just carry your money around, to go and pay N5 million and withdraw it when you need it, the bank will demand that you explain why. There is a limit to what you can take now. If you are taking outside of it, it is something that can be reported. If you are taking more than the threshold, they will charge you and also report it. A follow up is going to be made on that personality, to find out if there are any issues of money laundering or any form of terrorist financing going on there. So, these are some of the issues.

    It is not about the noise, it is not about the media, it is not about the type of things people want or people don’t want. It is about putting structures and systems that will make it work.

    For instance, if I drive a Range Rover and the traffic light stops me but nobody sees me, if I beat the traffic light, I will just go away, as far as, there is no police in the front that is going to stop me. I have beaten the traffic and I have escaped it. But, if I beat the traffic in London, I am not supposed to see the policeman there, I will just beat the traffic and go, so, in the evening, they will just bring the fine bill to my house if I am a first offender but if I am a second or third offender, sometimes, it is even possible for me to go through legal processes.

    So, these are the systems that we must put in place. Systems that will not allow you to see the police but will chase you when you beat the traffic as it is done in London or in New York city. The systems are what we are trying to build because, every cars that is driven in UK is registered with the owner’s phone address, emails with residential address of the person who registered the car. Whoever is driving the car, the camera is there to pick its number plate and the owner will be identified. If you are not the one that drove the car when it contravened the law, you will provide the person that drove it because records are there. So, it is not because people want to obey laws but because there are systems to check people’s excesses.

    Every country, every nation has excesses. There are criminals everywhere. What we are trying to do is to put the systems that will work and will not allow criminals to go undetected. If the criminals know that they no longer have a hiding place because they will be detected, that will reduce the number of people that may wish to go into criminal activities.

    So, if I know that it doesn’t matter whether everybody is seeing me or not, as far as I passed it at the wrong time, the camera will see me, all I need to do is just to be there, and once the light passes me, I will move. When the system is there, you will know that when you break the law, there is something that will find you and bring you out to face justice.

    What we are trying to do now and I think the Nigerian government particularly, is making effort to help us. The CBN and other financial regulators are working on those systems, and as soon as they are in place, you will find out that the proper structure to combat money laundering and terrorist financing in this country and this region will b e minimised.

  • Housing could be social, but it is a business venture

    Housing could be social, but it is a business venture

    Tokunbo Ajayi was appointed Managing Director and Chief Executive Officer (MD/CEO), Propertygate in August 2008. Before joining Propertygate, he served as the Executive Director, Enterprise Division of Crown Realties Plc, a property development company in Nigeria. At Crown Realties he occupied various positions, which included Group Head corporate services, General Manager and Secretary, Board of Directors. With more than 20 years experience in real estate development, he has acquired extensive knowledge, skills and experience, spanning property development, investment, finance, construction, marketing, property management, legal services and general management. He told SEYI ODEWALE that housing could be government’s social responsibility, but it is a serious business venture.

    Talking about Public and Private Partnership (PPP) in housing delivery, how has this helped in ameliorating problems with housing provision?

    I would say, to an extent, taking into consideration places like Lagos, Abuja and other cities in the country, that it has recorded about 70 per cent success. Against this background is the question of if we don’t have PPP where are we likely to be by now? If you remember, the state was in the business of providing housing and in terms of quantum, the state could not do much just as we did not see anything spectacular in terms of quality. But when government tried to bring in public, private participation into housing, you could see that it has greatly revolutionised housing delivery. In Lagos for instance, all these HFP developments, Victoria Garden City (VGC) and many others along the Lekki corridor and even on the mainland of Lagos, are as a result of PPP. What we have now could be likened to an explosion from the private developers. And how did we have that? It is because Lagos State government allowed it. I know also about Abuja, where a mass hectare of land was given to developers under the private estate developers’ scheme. By this, their participation has not only uplifted housing delivery to an extent, the built environment. So, I will say that it’s been a very positive development.

    Going by this, one may ask what business has government in housing delivery.

    Well, I think before now the thinking was that government should be the provider of virtually everything for the public, but that thinking has changed substantially, not only in the global perspective, but also in the developing nations like Nigeria. That explains a lot of changes you have seen in the privatisation programme. Government is more of an enabler of good environment for private sector to thrive and government is to concentrate enormous energy of the provision of public infrastructure and other things that we know could be difficult for the private sector to provide. Housing could be social, but it is also a business venture. The private sector is better enabled to do that. And I think that is what governments of various states and at the Federal level have seen that is making many of them divest from housing provision. Even when they have parastatals doing that, they do it like a private concern. So, it is no longer a social thing. Government can now find a way of making houses accessible to others through policies and other measures. Going into businesses such as provision of housing by governments is like running an enterprise. And governments all over the world are not design to do that, even in communist China; it’s the private sector that is driving China now.

    What is your assessment of built environment and the construction industry?

    When you talk about the built environment, you are talking about the totality of real estate, construction, infrastructure and others. I will say we have made some strides, but we still have a long way to go, notwithstanding the gains made. If you look at our environment, you will see that it is still plagued with a lot of environmental issues. In the areas of provision of infrastructure, many governments are trying, but there is so much to do as we are extremely far behind. If you take for instance, Lekki corridor, the corridor is said to be a major developmental asset not only to Lagos, but other parts of the country. But for about 15 years now there has not been an alternative road to Lekki-Epe road, the only major road to the corridor. You see congestion and traffic gridlock all the time. Even if the road is extended, it can only do a little because what will naturally happen is that a lot of people will move to the area. If you look at areas designed long time ago, that have network of roads, you hardly experience traffic gridlock. But along Lekki corridor traffic gridlock is giving the area a different look. For instance, if you are caught in the traffic when you are almost getting to where you are going, you cannot do anything about.

    Perhaps the topography of the area did not help in constructing alternative routes?

    No, I don’t think so. Roads can be constructed on water and the area is not even on water. It is because the roads were not built and you don’t expect the private sector that is providing primary infrastructure expected from the state, which adds to the cost of providing housing by them, to go and provide these basic infrastructure. Note this, if they do this it will add to the cost of delivering the houses and there is a limit to which they can go. There is also the problem of non enforcement of physical planning. If you go to any civilized society you would not see people building shops anyhow. It is not just possible. These things desecrate the environment; they kill property values. You see people building houses thinking that they will be their source of income, but people just come and build shops and all what not, in locations that are hitherto, sought by people, nobody would want to go to such areas because of the blight created by the indiscriminate shops and shanties built here and there. Another thing is that such environments would harbour miscreants and create serious security issue.

    This again will make most people to reconsider their living in such environments. Consequently, the value of property in those locations would drop and the owners of such properties would be impoverished. So, in a regulated society you cannot put even a table on the road or anywhere without permission, but here you can do it and get away with it. All these things have serious implications. One of the problems Lagos State has is population. A lot of people come into Lagos, but why? I know the government is concerned, but I don’t think the government has seen the linkage between this environment and population influx. People don’t come to Lagos because they want to see Bridges; they come to Lagos because they believe it is where they can make a living for themselves. If you can move into a city and start work almost immediately, then you will see that a lot of people will be interested in coming there.

    If anybody comes into Lagos today and starts selling recharge cards what value does that add to the state? When you are looking at those coming into the city you ask about the quality of those coming in and what they are bringing into the society. Those people will create more problems for the city because the income they are going to make from such activities can hardly make them get by. As a result they are hungry, homeless, and they become threats to the society. But when you don’t have such opportunities, you will ask yourself what are you doing in the city when you can stay back in your village and help it grow? So, it is a win, win situation for everybody. But when you come into the city and have it desecrated and added no value to it, what happens? Erroneously we think adding value is about numbers, if that is true, the most populous city should be the richest in the world. But it doesn’t work that way. Unfortunately we are carried away by sentiments saying that if we move those people from the streets, what are they going to do?

    But in a way government has a responsibility to put our people on the right path. A guy selling recharge cards on the road, putting a table on the road to display his wares may probably not have more than five thousand naira worth of things to sell. Ask yourself where would that lead such a fellow in life? That kind of business is not sustainable.

    Before now, people engage themselves in various kinds of skills that helped them to make a decent living for themselves. In construction and real estate sector I know that a lot of services of artisans are needed. And they are well paid compared to somebody who stays on the street. People can learn that and become somebody and be useful to themselves and the society. But a man who sells on the road side can hardly become anything in the future. But again, because we always want populist policies, which in the real sense are not sustainable, we always have issues with them.

    Again if you chase somebody selling planks and reinforcement iron along the road people will make noise saying you are pushing away poor people from earning a living. But a man selling those things is not poor. The value of those iron rods runs into millions. They take advantage of the state to put their stock on the road. When you have things like this you cannot have a useful environment. The built environment is also connected with the way it is financed. When we get to financing you will get the picture. If a place is not well financed, then you have a very big problem in the society. These are some of the problems affecting our built environment. In a nutshell, government must invest in a massive infrastructure

    Sometimes I see it as unfair, while it is good to develop certain areas, but at whose expense? For instance, if I look at the massive improvement in infrastructures in places like Ikoyi and Victoria Island (VI), I say they are nice, but many of those who work there and do not stay there also pay taxes. Where they live have you provided infrastructures for them?

    There should be a balance where you provide infrastructure across board for people to feel governance. You cannot go to London for instance, a put your shop anywhere it’s not possible. So, why can we not do that here? You cannot develop a property without an approval. Once we have infrastructures in place then we can begin to have a more presentable and tidier environment.

    Is there any hope for a medium or low income earner to own a house in the city?

    The Lagos State government then was interested in developing the neighbourhood and I can tell you that around 1994 to 1995, the state government was giving a hectare of land for about N100,000 to private developers because they believe that they would be able to do mass housing for people . But as at two years ago, a hectare was going for N65 million, this is in less than 20 years. I can tell you that those given the land as private estate developers to do housing schemes then, did not help matters. They allowed it to stay for long for it to increase in value. However, it is what you buy that you produce. That is one of the problems. Again, you see land in the hands of speculators, which also is a dangerous dimension.

    However, whichever way it was done, you see land ending up in the hands of people who are not developers. So, when they had those lands, many of them held them back, thinking that they will make enormous money from it, so they are holding it. Consequently, economic activities are tied down, so everybody is losing. And for developers too, when eventually you are compelled to buy, start point of land alone is very expensive. And by the time you factor in the costs of infrastructure and because of the kind of development you have along the corridor, those ones have set the benchmark and you don’t want to do something below that because people will compare you to others. Now when you have that cost of producing infrastructure, then you have the cost of providing certain primary infrastructures, which ordinarily should be the responsibility of the state. A combination of all these would give you an expensive product.

    Then you talk about cost of funding, by the time you put all together, you would realise that cost of houses are high. If you want to buy a plot of land in Lekki Phase I, it’s about N120,000 per square metre and for a thousand square metres; that is N120 million. What can that do for you? And maybe you get a loan of N500 million, the cost of land alone per unit is about N40 million to N50 million, you have not built the house and have not provided infrastructure. So by the time you do that you have a very expensive product. That explains why houses are expensive.

    The shocking thing, we can be very funny here, we pride ourselves in things that should not be considered as things of pride. People accord much recognition to Lekki corridor as being expensive, money is money, when you take the value of this product and compare them to others abroad you will see the difference. If you buy land for about N150 million, that is about $1 million. If you have $1 million you will have property anywhere in the globe in choice areas, but if you compare that neighbourhood with the one you are spending exactly the same amount on you will see the different as clear as the difference between light and day.

    Some of the places you have here do not have street lights, the roads are not good, you see shanties around and you are still going to spend a million dollars on them. For people who have lived abroad they find it extremely difficult to part with that kind of money. And when they do, it’s because they don’t have a choice. But that is not the way it should be. This tells us that the prices are off the mark. A property is as good as its environment.

    What is the way out?

    The way out is a loaded question and I will attempt it from every angle. From the environmental angle, I think various governments are expected to perform their constitutional roles with the provision of primary infrastructures. Let me quickly say that when things are not going right we usually put the blame on either the Federal Government or the state governments. But the reality is that about 60 per cent of our roads are actually under the management or control of local governments.

    But there is no enough funding for local governments to do that?

    That is one of the things we need to address, because if we don’t address them they are not empowered to provide roads. But they are constitutionally required to do that because those roads are under their jurisdiction. But the question is: how many of them do that? So, how do we ensure that this is done? This has to do with the demand of the public. As long as we keep quiet, nothing will happen. But the moment we begin to agitate for what should be done, we will move closer to a perfect situation. And when we start to perform our obligations as responsible citizens by paying taxes, government will be able to do its job. It is also a matter of demand and supply. Why are people coming to a particular location and prices of houses are rising? We talk about Lekki, prices of houses are not high in Lekki because it is Lekki, it is the demand on Lekki. The people coming to Lekki, where are they coming from? Why are they relocating to Lekki?

    The simplest answer is that in life people want progression. The man is relocating from either, Mushin, Agege or Ajegunle where because of poor performance at the governmental level, those environments have been allowed to decay. Again, because of change of status he wants to move out of those areas. He then asks himself, where do I go? He cannot afford Ikoyi or Ikeja GRA, but he can try Magodo, Omole GRA or Lekki corridor. So as long as people are coming there the prices of houses will continue to rise

    But if there is urban renewal programmes and environments like these are made worthwhile for people to begin to live in them and if roads and drainage systems are provided and everywhere is cleared of shanties, people will be encouraged to live there and not relocate.

    For instance, when Oshodi was cleared nobody ever thought that the place could that beautiful. So if places like Bariga, and other areas that have shanties are fixed, people will ask questions like why do I need to go to Lekki? This will reduce considerably, the volume of people moving to other areas as prices of houses in where they are moving to will come down. For instance, people in Lekki/Ajah axis are moving to Lekki Phase I because they are reacting to traffic gridlock around VGC and Ajah round about. VGC in terms of ambience is much better than Lekki Phase I, but Lekki Phase I commands premium value than VGC because people are locating there. The cause of this, you will agree with me, is infrastructure-road network.

    Abroad most environments are the same, some places maybe top notch, but most places are the same. That is one of the things to be done to solve the problem. Talking about policies to aid real estate development, you then ask yourself when you are giving land to people, who are you giving land to? Are you giving land to speculators or people in the business of real estate? This is because some people have been given land in Lekki for the past 20 years or more and if you ask them for the land they will ask you to bring billions. And if you say you don’t have that much they will tell you to live the land there. I think it’s proper for government to ask those given the land for over 20 years what they have done with the land.

    Can’t individual developer approach government for land?

    It’s possible, because the one my firm, Propertygate built on, which is Alexandra Quarters, is a direct allocation from the government. And I’m aware that some of the developments along the corridor are like that. But there are also quite a number of lands allocated to non real estate developers. I’m aware of lands allocated indiscriminately to people and the moment they got the land, they came to developers to say that they had lands for sale.

  • ‘States are insincere on minimum wage’

    ‘States are insincere on minimum wage’

    Minimum wage is a thorny issue. Whenever it comes up for debate, emotions run high. The ongoing debate is the decentralisation or otherwise of the minimum wage. The Nigeria Employers Consultative Association (NECA) is against the idea. Its Director-General, Mr Segun Osinowo, speaks on this and other issues in this interview with TOBA AGBOOLA.

    With less than three months to the end of the year, how will you assess the economy’s performance?

    Each time you go through the newspapers, you will read about government celebrating its achievements and government will back it up with statistics. They will tell you that the Gross Domestic Product (GDP) increased to 6.67 per cent, that the inflation rate is under single digit, and so on. These are laudable statistics from government, but the question is, how has it translated to the welfare and well-being of the citizens? How has it positively affected the life of an average Nigerian? What impact has that made in terms of reduction in the level of poverty? How has it improved health facilities or how has it created new jobs? I think we should challenge government on those parameters. Government is about governance and it translates into welfare of its citizenry.

    The rate of unemployment keeps growing; what is the way out?

    When you meet with government officials at an event, when they mount the podium to speak, they will tell you what they want you to hear. They will tell you in the next one year, government will create one million jobs, two million jobs. When you meet them one year after, they will still repeat what they said one or two years back. That is not the way it should be. The issue of unemployment has not been addressed.

    Today, a huge population of our youths are unemployed. This is, indeed, a scary reality- a ticking time bomb, which, if we fail to defuse as quickly as possible, may erode whatever semblance of social harmony and stability that is left of our polity. We are, of course, not short of initiatives at all fronts: Federal Government, state governments, agencies and ministries, employers’ bodies, United Nations’ (UN) agencies, and so on. However, the outcomes seem to have been very miserable. In terms of quantity and quality of jobs created, we are merely scratching the surface. While the various initiatives are commendable, I believe we need to go back to fundamentals of our economy where big issues such as diversification of the economy, backward and forward integration, policy coherence, policy consistency and cross-sectoral local content policy will be given the pride of place and execution impetus.

    The second issue is what I will call the consciousness of government to be responsible to its mandate. However, I want to commend states such as Lagos and Akwa Ibom.

    For instance in Lagos, thousands of jobs have been created. In the area of refuse clearing on the street, the issue of traffic control, all these do not require any special skill and thousands of jobs have been created. That is a government that is conscious of its responsibilities to the people that voted it to power. Thousands of jobs have been created in Lagos State and I give kudos to the state government for that.

    If government can focus and sustain diversification, forward and backward integration, good governance, the issue of unemployment will be a thing of the past.

    There have been agitations for decentralisation of the minimum wage. What is your take on this?

    The question we should ask ourselves is: What is wrong with the current system of minimum wage? This is what we have been using for long. So, why the agitation now?

    Minimum wage should remain in the exclusive legislative list in order to allow room for employers, whether in the private or public sector, to pay wages above it if they have the ability to do so.

    There are certain things we do in this environment which when exposed to the outside world will make us an object of ridicule.

    The point is that there are other countries that have minimum wage but do not have the kind of problems which we are having. So why are we having problems with our national minimum wage? Is our national minimum wage itself the problem or the process of arriving at it?

    The United States of America (USA) has a national minimum wage and all the states in the USA equally have their own minimum wage. The only difference is that the state cannot legislate on its own minimum wage below that which the federal has legislated. So, for us, we do not see any problem with the current dispensation. I want to say that the states are not being sincere in their disposition and attitude on the issue of the national minimum wage because they had the opportunity to be part of the process to influence the national minimum wage but some of them were absent. They had the opportunity to influence the process and the outcome.

    I think there is deceit on the part of those who are agitating for the decentralisation of the minimum wage or probably some level of ignorance.

    So, we still need the national minimum wage. The only thing is that we should be looking at the least-enabled employer or least enabled entity in determining what that minimum should be and the least able should be part of the process. This explains why in the last committee that was set up to negotiate minimum wage, we had representatives of the small and medium scale enterprises (SMEs).

    I find it really difficult to understand the premise for the advocacy that the national minimum wage should be taken out of the exclusive list of the Constitution. National minimum wage is national minimum wage and should be as minimum as possible in order to allow room for employers, whether in the private sector or in the public sector, to pay way above it if they have the ability.

    Industrial unrest has become a common feature, with strikes and threats of strikes becoming the order of the day. This is hurting the economy. Why is it so?

    This is greatly affecting both the private and public sectors because it is an everyday occurrence now. The major one happening now is the Academic Staff Union of Universities (ASUU), Non-Academic Staff Union (NASU), resident doctors. In fact, we are beginning to lost count. The question we should ask ourselves is what is responsible for this unhealthy situation. We have compromised the health of the economy and the productive sector.

    We are undermining the productive potential of our country if we cannot guarantee industrial harmony. Industrial harmony is equivalent to social harmony. This is extremely important for promoting productivity and economic growth. This is because strike simply amounts to loss of productive man hours.

    Government has not demonstrated its responsibility well enough to respect the agreement which it signed with the various unions.

    This is because quite a number of past strikes had to do with the failure of government to honour agreements which it willingly signed. The second issue as to why there is a high incidence of strike in the public sector is the failure of the parties involved to respect the structure which they have agreed upon for engagement.

    I give an example, the current structure of collective bargaining in Nigeria is anchored on industry-wide collective bargaining, and just as we have industrial unions in the private sector, we have sectorial unions in the public sector.

    In the private sector, it is the industrial unions that negotiate with the employers but in the public sector, the employer is the government. The third question is, why are those unions in the public sector not engaging their employers in collective bargaining on a regular basis?

    One reason for that is quite unlike in the private sector where you have procedural rules of engagement that is very clear as to when you are going to negotiate, in most public sector organisations, you do not have rules of engagement. This explains why the workers will just wake up one day and demand say 40 per cent increment in salary from government.

    If the rules were well-structured, they will know that there is a time when they can do that and when that time comes, there will be no reason to engage the government. Thirdly, and this cuts across and not restricted to only the public sector, the structure is not supposed to stand perpetually.

    The structure comes out of the dynamics in your environment and your strategic objectives. The current structure we are operating has been in existence since the 70’s and there have been a lot of changes in our economy. Whether you are talking about the public sector or the private sector, that is where the reform issue comes in.

    I think the time has come for us to really ask this question: Is the current structure we are operating really the best? Is it in line with current realities? Now, I give you an example using the ASUU.

    The national secretariat will want to meet with the Federal Government and negotiate terms and conditions of employment for all universities in Nigeria wherever they are located. I think there is something wrong with that structure.

    We need to tinker with the structure of bargaining that will make ASUU to negotiate on common terms and conditions of employment for all university lecturers with Federal Government.

    This is because the ability of one state to pay is different from the ability of another state to pay. The nature and working environment and values differ from state to state. So we need to give more powers to the federating units to determine how this should be done.

    In the same vein, the power to determine what should be applied in the universities should be in the hands of the unions within the universities while discussing with their real employers which is probably the governing council of say the University of Lagos.

    Until we go back to tinker with that structure, we will be enmeshed in this kind of crisis. Because now ASUU is talking with the Federal Government and whatever they agree upon, ASUU will want state governments that had not been part of that negotiation with the Federal Government to implement.

    Therefore, we expect a tinkering of that structure which will allow the state governments that are going to pay those lecturers to meet with the unions within their state and agree on what will be appropriate.

    Can you enlighten us on what NECA is and your activities in the last one year ?

    The starting point is for us to understand what NECA stands for. NECA is the umbrella organisation of employers in the Organised Private Sector (OPS) of Nigeria. We provide a platform for private sector employers to interact with the government, labour, communities and other relevant institutions in and outside the country for the purpose of promoting harmonious business environment that will engender productivity and prosperity for the benefit of all. We cover social policies and labour policies of government. We analyse and advise. In other words, we are an advocacy group.

    In the last one year, we have been partnering with some of the government’s agencies. For instance, we are in partnership with Industrial Trust Fund (ITF). We partner to promote technical and vocational education.

    Concerning your advocacy role and advice to the government, what has been the response from government?

    Every advocacy has an output which will either be positive or negative. I will say the output is not commensurate with the input. That is, we are not getting enough response. We don’t actually control what become of that engagement. There are times where by the government’s move completely from different direction which we don’t understand. Why should that be so? For instance, government will tell you that the private sector is the engine of the economic growth which adequate attention should be given. Government is not paying enough attention to this. I think government should pay more attention to the sector.

    You said NECA is in partnership with Industrial Training Fund (ITF) and Nigerian Social Insurance Trust Fund (NSITF). What is it all about?

    Yes, NECA is partnering the ITF to develop skilled middle-level manpower capable of meeting today’s maintenance needs of industry.

    The NECA-ITF Technical Skills Development Project is a joint initiative designed to promote the availability of middle-level manpower with appropriate technical and vocational skills to meet the identified maintenance needs of industries.

    The objective of the project is to promote a public-private sector model in technical and vocational skills training, contribute to capacity building, and prepare participating youths for life-after-school by raising their awareness of entrepreneurship and job creation.

    Also, our partnership with the NSITF is to promote a safe workplace for employees.

    The philosophy behind the initiative is to encourage a safer workplace that would reduce the susceptibility of employees to work.

    We have both agreed to work out modalities that would ensure the successful take-off, implementation and administration of the Employees’ Compensation Act (ECA) signed into law last year by President Goodluck Jonathan.

    The Act, which replaced the former Workman Compensation Act, makes provisions for adequate and timely compensation of employees in both public and private sectors of the economic who suffer any form of accidents in their workplaces As I said, the focus of the initiative is to promote a safer workplace for employees in the country.

  • Cash-less has raised retail payments to 20%

    Cash-less has raised retail payments to 20%

    Varied reactions have greeted the recent United States government’s shutdown and its impacts on the global economy. Central Bank of Nigeria’s Deputy Governor, Operations, Tunde Lemo, said although the effects may not be immediately felt, it has long-term implications for the Nigerian economy. He spoke on the effects of e-payment on transactions and other issues on the sideline with reporters at the just-concluded International Monetary Fund/World Bank meeting in Washington DC. SIMEON EBULU was there. Excerpts.

    What are your concern on the recent US government’s shutdown with respect to Nigeria?

    We should not exaggerate the effects of the fiscal face-off in the US and its effects on the global economy, particularly, Nigeria. The United States of America is aware of the implications of a default, which is highly unlikely.

    Talking directly about the possible impact on our economy, it doesn’t have a direct impact on the Nigerian economy because we are a sovereign country and our monetary policy, our fiscal policy, they are not tied to the US policies. Except that if they are unable to resolve the problem in good time and the rating in the US drops, it can snowball into a recession, and if that happens, it may affect commodities’ prices, and that is perhaps the only channel where Nigeria’s economy, like any other economy, may be affected. It may affect commodity prices and so the trade flows, the income flows may be impacted, apart from the fact that about 70 per cent of our reserves are denominated in dollars, and if there’s significant depreciation of the dollar, then that means that proportionately, the value of our wealth will go down.

    What are the Nigerian financial authorities doing about our bonds?

    Well there’s not much we can do at the moment because investors are holding it, except that if there is any spike and investors are cutting back, then there may be some value depreciation and even at that, it is the investors that will take the heat and not the Nigerian government. The bonds are not due for redemption.

    So, we could be impacted in two ways, namely commodity prices may be affected and that may affect the revenue flow of government and secondly, the reserve that is heavily denominated in dollar may shrink in real terms in value like that of other economies. But that is very unlikely in the light of recent developments on the issues at stake.

    Will you contemplate keeping more of Nigerian reserves in Chinese currency?

    The point is, you will not because of little hiccups like this begin to take very far reaching decisions that may affect a lot of other things. Of course Nigeria, like several other countries are becoming more and more bullish on Remimbi but we would need to make progress slowly. We already have an approval to invest up to 10 per cent of our reserves in remimbi. We have commenced the investment, the bulk of which is in Hong Kong. We would begin movement to mainland China because we got a quota but you cannot overnight because of what is happening in the US now, move all your reserve to China. Don’t forget the reminbi is not yet a convertible currency, although it would be at some time in the future.

    The second point we need to note is that you may not have enough instruments to absorb the transfers because if everybody in the globe begins to swing to Chinese remimbi, there will be no instrument for people to buy because it is not as if the market is liquid, or deep enough for that kind of transaction.

    It is just that this has confirmed our decision that strategically, we would need to begin to diversify the basket of currency of our reserves.

    There’s concern in some quarters that the stock of Nigeria’s domestic debt is rising. Shouldn’t there be some restraint?

    I don’t think you are right to say there is no fiscal restraint with respect to government borrowing which is why if you look at our borrowings, relative to the GDP and compare with our competitors, its still very low. But in Nigeria, we like to look at things in absolute terms. But don’t forget that the Nigerian economy is very huge and today we are talking of the American economy that runs in trillions of dollars.

    In Nigeria its just a little fraction of our GDP that is being borrowed and that means that we still have the fiscal space. But that is not to say that we should be unmindful of government’s borrowing because I think government is doing that pretty well.

    Part of what they are doing in that direction of course, you will hear from the Minister of Finance at the press briefing soon. But we will continue to collaborate with the government and we do not see any need to worry

    What’s the MoU with China on investment about?

    The agreement is for us to invest in mainland China. There is a need for Nigeria to have a bilateral agreement, indicating how much you are investing, when to exit, and when to increase your holding, .that is part of the reason we say the remimbi is not yet a convertible currency. That agreement will determine the tenure of the investment, the time to pull out, but this is an agreement that is beneficial to all parties.

    How is the government addressing leakages in the system?

    I think that we need to put things in perspective. The difference between previous loans and what we are seeing now is that most of the loans are project tied. If you look in the economic literature you will always find out why countries borrow. If you borrow for capital accumulation to enhance your capacity to produce higher capital in future of course, you will get better return. The nature of the government finance today is that there are some mega projects that if you wait, the money you need, you may not be able to achieve them because it is like a moving target, you will not be able to get there at any rate which is why you need to borrow to bridge a gap. You borrow so that as the stream of income improves, you begin to pay back, but then you can see the things you have achieved in terms of infrastructure that are strategic to wealth creation, like electricity, roads, railways, hospitals and so forth.

    Those things are the projects that can enhance the productivity of the economy and the people, because today, we are talking of the major impediment to our development being structural constraints. Today we don’t have good roads, we don’t have electricity, education and schools for our children and when you compute what you need to put those things in place, you will then need to wait ad-infinitum to be able to earn those revenues. But you could be smart and borrow to provide, and as your revenue stream begins to improve you then begin to pay back.

    It is even better when you get the borrowing at concessional rate, you need to take the money to fix those infrastructure and then pay later. However in doing this, you need to be mindful of the terms of such loans and I am impressed by the numbers that the Minister of Finance gave with respect to the loans that Nigeria took to finance certain infrastructural projects.

    Some of the loans came at zero-interest, some are pretty long term and came with basically no stringent conditions, and these are smart ways we can finance our development needs.

    It does not then mean you will continue to borrow until the loans become too heavy. What is important is that we would constantly look at the size of Nigeria’s economy, things that need to be fixed and then of course that such loans are used for capital accumulation and not for consumption.

    And so far I have not seen any of our present borrowings going into consumption and for me, I believe that is the right thing to do.

    What’s your reaction to the saying that our politicians are mopping up the dollar?

    First, I don’t think it is right to demonise politicians. But our role as regulators of the Nigerian financial system is to fix problems where we see them. We only discovered that gradually we were beginning to dollarise the economy. Nigerians were importing dollars without approval of the regulatory authorities because people are now beginning to prefer dollars to our local currency, the naira.

    We discovered that besides Angola that imports about $24billion dollars per annum,, Nigeria happens to be the next importer of dollars in Africa and we felt that the trend would not help our economy.

    The reason was our currency is fundamentally misaligned which was the reason we brought the idea of N5000 note but unfortunately we threw the baby and the berth water away.

    Let us not cry over spilt milk because had we implemented the N5000, there would not have been need to dollarise as much as we are doing today. We then decided to pull back a bit to say we already have other channels like electronic payment scheme which we can use to improve our spending habits.

    From Whole Sale Dutch option (WDAS), we moved to the retail (RDAS). Under the WDAS, banks, could on their own bid for dollars and pass over to their customers. Today they have got to have all the customers with detailed documentation of their need showing the total sum on demand at every auction to be able to get allocation. We experimented and that has eliminated the element of speculation because the demand fell drastically.

    We have been able to tighten the noose around bureau de change because of their peculiar mode of operation because it was convenient for anybody wanting to do any form of round-tripping to go through the bureau de change by avoiding the official channels that will not allow them to do that. We are monitoring and we discovered that demand has dropped drastically. There is however a little bit of spike in the interbank and parallel market but we believe this is the normal process of adjustment, but over time they would converge. There may not be a 100per cent convergence anyway, so long as the difference between the BDC and parallel market is tolerable we believe we will make progress.

    When there is a new policy the tendency is for people to say let us hold back something because we don’t know how bad it is going to be, and that leads to a spike in rates. However when they observe the trend is stabilising over time, they will then offload and begin to operate in line with prevailing market trends.

    There was this allegation by the National Assembly that banks inflate their operating cost. Is it true?

    Well since it is an allegation, we will wait and have it proved because we can’t speculate on that.

    I’ll be surprised if any Nigerian bank will deliberately inflate operating cost to pay lower taxes. What I expect is that they will post better performance to get better patronage. The point is, it is an allegation, which I have not read myself, but if there is strong evidence that this is happening, we will not hesitate to investigate and address it. We have examiners and there are several other ways we can get information on how the operators are. We have told banks not to play funny games, because they know the repercussion. They also know the present CBN management has zero-tolerance for unethical practices. We can say whoever is doing that will be doing that at its own peril.

    Many users of the cashless system complain of challenges in accessing funds from Point of Sales (POS). What’s the position?

    For the e-Payment system. we can say we still have challenges but I would not agree with you that most of the PoS terminals are not working..

    Let me give you some statistics on the study done by Financial Derivatives. that the company is not in any way connected to the CBN because it has been very critical of the CBN. They are likened to be very credible.

    Prior to the introduction of the electronic payment system, only about two per cent retail transactions were settled electronically. If you visit a typical supermarket or retail outlet, just about two per cent of what happens there were settled electronically. But as at 2-3 months ago when they conducted that study, we ratcheted that number from two per cent to 20 per cent. Yes we can say that 20 per cent is still low because in developed countries, the numbers are up to 70 – 80 per cent but I think we should celebrate the rapid improvement from two to 20 per cent within one and half years of its implementation.

    Besides the challenges of connectivity, the banks in Nigeria have moved from a little over 5000 terminals in January of last year, to over 200,000 POS terminals, 77,000 of which are in the Lagos area. Don’t forget that we rolled out to six other states across the country on the first of July, including Abia, Kano, Abuja, Anambra, Ogun and Rivers. In those geographies we have had rapid growth in POS deployment.

    How are you addressing connectivity problems and attitude of desk officers?

    On connectivity we have challenges about bandwidth of the telecommunications service providers largely because of the rapid deployment of the terminals. We spoke to the service providers on the need to improve bandwidth which they did and we saw improvement in the Lagos area. We have started talking to NICOMSAT, and they did a test-run in Lagos area and we are satisfied about their proposition. So within the next few weeks, you will notice improvement in connectivity in Lagos area at least.

    However, the human element is there. The reward system in those supermarket is such that an average staff in the shop goes home daily with N1500 and he will be lucky if his take home monthly is up to N45000. So based base on the commission he gets, by the fact that you leave him with 50k or N40, he does not like that machine that will not allow him access to the tips he gets from customers because the pos is electronic, there will be no opportunity to collect free left over cash. So on that bases he will not like the machine to work. So what he does he does is to sabotage the system and tell you it is not working. I went a supermarket and tried to transact using the pos but the attendant told me it was not working but by the time I introduced myself, he smiled and the machine started working.

    In one of our meetings with the merchants, we have told them to build-in some reward system that will still allow the attendants access to the free change they get from customers even as tips without compromising the standard of service. When we do that, you will discover that these thing work.

    There appear to be frequent policy changes at the apex bank. Why is it so?

    We respond when we see a pattern, a particular behavior among customers, some of which may be bank induced, but many are induced, in most cases by the customers.

    What’s your reaction to the burgeoning autonomous forex market the CBN Governor promised to address?

    The CBN is not a law enforcement agency. We deal with the supply side, and once you deal with the supply side, then you’ve dealt with 90 per cent of the issue. The rest of course we can’t do, because we are not a law enforcement agency, and the Governor of the Central Bank does not have power of arrest. We have the extant laws which show that this shouldn’t happen, which is why we are appealing to the law enforcement agencies to work with us so that we can be able to deal with this matter.

    You’ll recall that when we identified the 20 Bureau de Change that did not succeed in convincing us about the details of their transactions (mark my words, I have not demonized them, it’s just that I’m not satisfied with the documentation that I saw), and then we passed them over to those who will investigate further, and in the event that any of them has any case to answer, then they would be the ones to take it up.

    So, to answer your question, the Governor is right, and that is basically what we are doing, to deal with the supply side, then we would have dealt with 90 per cent of the case, with the hope that the other relevant government agencies will do same, so that we’ll no longer have this situation.

    There’s one disturbing trend today in Nigeria. The lower denominations of our currency have virtually gone out of circulation. Even the banks don’t have them, and the ones available are so dirty and mutilated. Why is this so?

    If you come out to say, I can’t find the N5, N10 and the N20 notes, my answer may be, there’s nothing to do with those currency denominations any more. But I can tell you that if I open my vault, you’ll see a lot of that denomination in the Central Bank of Nigeria, and they are available to commercial banks. Commercial banks are not asking for it because their customers are not asking for it, that is one.

    Two, about mutilated notes, our apologies. I think I must have said it several times apologizing on behalf of the Central Bank to Nigerians that we had delays in reprinting existing generation of notes and I gave the reason. This time last year we contemplated changing the face of the Nigerian currency, the entire family, unfortunately, because of the issues around the coinage of those three denominations you talked about and the inclusion of the N5,000 note, we have to put a halt to that, and because of that we have to go back to the drawing board. That was the time we should have replaced the old notes, but we held on to that hoping that we will now print them in new seals.

    But because that was not going to happen, we lost about six months, which was why we saw those mutilated notes, but the good news now is that from September, we’ve started taking delivery of the reprinted old notes, it’s getting better. We now see the emergence of crispy notes from Central bank.

    There’s also scarcity of N100, N200 notes?

    We are also taking delivery of that. What we try to do was to take delivery of lower denominations at first, because those were the ones that were really very badly affected. Don’t also forget that because of the issues that we had in the Mint, we closed Lagos Mint for a few months, which has been reopened, and they largely produce the N100 and the N200 notes, and they are going to raise the level of production now that they have resumed.

    Is the CBN still engaging Securrency in printing our notes?

    You did not quote me correctly. Yes, I said polymer notes, we are taking another view, not because it didn’t last long, but because the ink fades early, the subscript is still as strong as ever. But you are also right in saying that the disposal was a major issue.

    We are not working with Securrency, indeed the company has since sold their interest to another interest. You’ll remember that Securrency was indicted for corporate governance flaws, and so and they have since moved on, and so they are out of the stage.

    Don’t forget Central Bank of Nigeria does not deal with producers of substrate, we deal with printers of notes and currencies, we deal with the mint and other foreign currency printers. These other printers are the ones that deal with Securrency and the like, so Central Bank of Nigeria, at no time dealt with Securrency, and we don’t intend to deal with producers of substrates.

     

  • Banks ‘re holding too much treasury bills, bonds, says Sanusi

    Banks ‘re holding too much treasury bills, bonds, says Sanusi

    Central Bank of Nigeria (CBN), Governor Sanusi Lamido Sanusi, says he is confident his policies will stand the test of time even after his exit from the apex bank. The CBN chief who spoke in Washington DC, USA to a cross section of Nigerian reporters during the just-concluded International Monetary Fund/World Bank meeting, emphasised the need to strengthen our institutions, among other isues. SIMEON EBULU, Deputy Business Editor, was there. Excerpts:

     

     

    Why CBN put a halt to dollar payment

    You know the interesting thing about our country is that, we try to be an island in the world.

    If you are in the UK and somebody transfers money to you from the US, in what currency do you get paid in London? You get pounds. If you’re in Japan, you get paid in the Japanese yen. There’s no where in the world and because you get a transfer that you insist on being paid in that currency. The Central Bank did introduce this policy of asking banks to pay in dollars, because there was a time that the banks used to cheat people and pay them in a rate that was lower than the exchange rate. Now we’ve said it very clearly that the exchange rate must be the interbank rate at the date of the exchange and the banks must display that rate in their banking halls.

    I don’t see how we are going to continue with a policy that is not consistent with global practices. We can’t continue importing dollars and basically saying that we don’t have confidence in our own currency. It’s like the argument that we should disburse the Federal Accounts Allocation (FAAC) in dollars. Tell me one country in the world that basically distributes its resources in foreign currency, why should Nigeria be the only one, why are we different, why is it that if you send money to someone in Nigeria, who is going to spend it in Nigeria, he should not be paid in the local currency?

     

    The thinking here is that it is just a small transaction of $500, $1000

    Then let them tell us one country in the world that allows it. It’s like all you journalist that write we should distribute FAAC in dollars. But just tell me one country in the world that basically distributes its reserves in foreign currency. Why should Nigeria be the only one? What is the logic and why are we different? If you go to Ghana you get paid in Cedi, and in the francophone countries you get paid in cfa. So why should your uncle or aunty living in Nigeria and who would spend naira, should not be paid the naira equivalent of the currency you sent, insisting on being paid in dollars. It is not right.

     

    On realtors that seek payment in dollars

    First of all, it is illegal. Anybody that refuses to accept the naira as legal tender, is committing an offence. I don’t think anybody would want to do that. What I think they might do is index their rents in dollars and use the exchange rate and accept the naira, but anyone who says I will not accept naira for payment, saying I want to be paid in foreign currency, is committing an offence.

    On Maritime operators that deal in foreign currencies

    They are covered by law. The law allows them to receive their duties in foreign currency

    On his exit stance

    First of all, I think no particular individual should make himself indispensable. The institution is far more important than the person managing the institution. I believe that people should be able to build institutions that believe in your vision and you are comfortable enough to walk away from the job. This is because nobody will be happy to have his legacies wiped away after he has left. So if you are comfortable to walk away from the job, it means you have built the right institution that has been sufficiently influenced by the thinking and strategies you have left behind.

    I think that the CBN has established itself as an institution that is strongly committed to price stability and nobody in the system would be prepared to play with that system. The Central Bank has committed itself to protecting depositors rather than shareholders and management of banks. It is committed to strong corporate governance and I also believe that the Central Bank has equally proved its credential as a bank committed to development with selective interventions. We have also proved ourselves as an institution committed to payment system transformation and financial inclusion.

    These are broad strategic thrust that the Board of Directors of the bank has committed itself over the years to formulating. We have four Deputy Governors who were part of the policy formulation process who are committed to sustainability if this vision, and I do not think that the movement of the Governor would change the direction of our vision.

    I also think that once you set a standard, the market expects you to sustain the policies, the depositors and other stakeholders expect you to maintain a certain standard. This is not saying it is going to be easy, but it is important you choose a Governor who would continue to defend the independence of the Central Bank.

    But I don’t think the solution is for people to set up institutions that once they are not there, things will begin to go wrong. We should actually endeavour to build up systems where we can watch from a distance the foundation we have laid being built on, by our successors.

     

    On sustainability of his policies after his exit

    Institution building is an on-going process, and I will give you an example. The CBN Act of 2007, established the basis for a truly independent and an autonomous central bank, so that justifies all the regulations we’ve had, all the resolutions, including the establishment of the Asset Management Corporation of Nigeria (AMCON). AMCON is an institution for the resolution of banking crisis, and ensuring that the banks continue to play long after I’ve gone. A number of the resolutions we’ve had revolve around the code of corporate governance, transparency, these are institutional issues.

    An institution is not a building, it’s a set of rules around which systems operate. But I have made the point over and again, even President Obama said it here that Africa does not need strong men, but strong institutions. No matter how strong an institution is, a weak leader will make it weak. So we need to focus on the institutions and the individuals that run the institutions.

    Institution building is an on-going process and the CBN Act of 2006 actually established the basis for a truly independent Central Bank. So all the regulation and institution we have built are aimed at sustaining the achievements we have made.

    The Asset Management Corporation of Nigeria (AMCON) for instance, is an institution that ensures banking crisis resolution and the Act establishing it aims at ensuring that banks will continue to meet their obligations regardless of their level of solvency. Of these we have had regulation about code of corporate governance, transparency and these are institutions we have built to stabilize our banking industry.

    Remember that an institution is not a building, but a set of policies and rules around which systems operate. Even President Barrack Obama has said it that Africa does not need strongmen but strong institutions. So no matter how strong an institution is, a weak leader will make it weak, so while there is need to build strong institutions it is equally important the we focus on individuals that run the institutions so we can get the best out of the bargain.

     

    On borrowing

    I’ve heard this thing since 2009 that Sanusi has criminalised borrowing, I have not criminalised borrowing, but there’s criminal activity that can be cloned as borrowing. If I’m a bank MD and I set up a Special Purpose Vehicle without my name, and I get my staff to apply for loan, and I approve that loan, and take that money and buy a property in the UK without any intention of paying back, until after three years, somebody comes out and discovers, that was stealing money from depositors. It wasn’t a loan, it was never a loan. But if I come and borrow to do a business and the business goes bad and there’s a loss, it’s not a crime and I think people should make that distinction.

     

    Stability of Nigerian banks

    When we had a problem I came out to tell everybody, this is the level of capital, this is the level of non-performing loans, this is the level of negative capital. You know that AMCON is there and have put in a lot of money to capitalise the banks. You know that banks have excess liquidity, I’m even complaining that banks are holding too much of treasury bills and government bonds. What do you want me to say about the state of banks!

     

    On the economy

    This is how everyday, there is a story out there saying Nigeria’s economy is weak and the Finance Minister has to come out to say, Nigeria’s economy is not weak. Everyday, you force your Finance Minister to have to come out and tell the world that the economy is not weak, but you are telling the world your economy is weak. And it is not the way to analyse an economy. In fact I’ve never heard anyone say an economy is weak, in economics, it does not make sense.

    You have a growth rate of over six per cent, this growth is coming from agriculture, from whole and retail trade and services. We have been growing at that rate even though in the oil sector, there’s negative growth. That is resilience.

    No economy is perfect, the United States today is riddled with its debt crisis, it is 25 per cent of the world’s Gross Domestic Product (GDP). Nobody will say today that the US economy is weak. It’s on a growth trajectory, certainly not as robust as pre-crisis, but certainly better than anything they’ve seen since 2008. Yet they do have a huge deficit problem. These are challenges you discuss intelligently as an economist, but to make a blanket statement that the economy is weak, it could induce capital flight.

    I don’t think policy makers should come and say we don’t have problems. Corruption, oil theft and leakages, these are problems which people should talk about, but that is not the same as saying that an economy is weak.

     

    On the 2013 IMF/ World Bank conference.

    I think in the last few years that we’ve been having these meetings, the focus has been on the European financial crisis and financial systems. This year, there is a tremendous amount of focus on what is happening in the United States, the budgetary impasse. You know the possibility if they fail to reach an agreement, and chances of the US being forced into what is equivalent of a massive austerity programme if it defaults on its obligations, not necessarily a default on treasury bills, or bonds and some of its obligations.

    But I think there will be some prioritisation. But as things stand, I don’t see the US defaulting on treasury bills, but they can default on some of their domestic obligations.

    No one knows exactly how the markets are going to respond, but the real challenge for us in the frontier and emerging markets is what will be the impact on currency and capital flows. The government shutdown is more of domestic issue but the debt ceiling is the one that affects us because we hold our reserves in dollars, and we have invested in US treasury bills and bonds. And if there is a spike in those yields, we suffer a capital loss on the assets that we are holding and therefore we do expect the US government to resolve the matter in the interest of the global economy. (It was resolved last week)

     

    Impact of the US fiscal stand-off on the naira

    The naira is doing fine. Last week we traded at N160 .1 to the dollar, so we are still within our band of N155 plus+- three per cent which is the prevailing exchange rate. If you look at the other currencies in the emerging markets from December till now, the Indian Rupee, the Ghanaian Cedi, or South African Rand or the Brazilian Rea, you find that most have lost anything between 10-20 per cent. But the naira lost a maximum of 2.3 per cent, and is actually backed to being within the range. So it has been stable and we have done that without losing much in terms of our reserves. We have tried to increase the rate at which banks lend to each other and to customers, but that is the price you pay to maintain stability.

     

    Containing US fiscal tapering and China’s slowdown

    Well there are a number of issues you should look at when appraising recent developments in the USA. While the development in the US might affect frontiers and emerging markets, they don’t affect all of them in exactly the same way.

    And you could see that emerging markets were affected far more heavily than the frontier markets, so the crash in the capital markets of Brazil and Asian markets was much more deeper than say, Africa and the rebound was even stronger. So in terms of volatility, there is a variation depending on the depth of the market.

    Secondly you would notice that countries that had current account deficit were affected far more than countries with current account surpluses. We do have current account surplus in Nigeria so there is a general understanding that we were better prepared to absorb some of the shocks than most of the countries that have current account deficits today.

    Even when we had pressure on the naira, that was not coming from a major reduction in capital flows . We did have a slowdown in capital flows and you would expect that if yields go up, that will not be too good for the current rates, because people will pull out of emerging markets, investors will pullout of commodities and then there will be depreciation in oil prices and there will be reduction in capitalisation. But I don’t think that given where our rates are and given our commitment to stable currency, we are as badly hit as some of the countries we are competing with for capital.

    We have strong growth but it remains vulnerable until we put in place strong measures that can make it sustainable

     

    SMEs

    The CBN does not lend to SMEs, but what we have done is to set up a N20billion MSMEs fund, and that fund is premised on our recognition that the micro finance industry which started as a scheme for the poorest people, has been too commercialised that those for whom the institutions are set up, are actually paying the highest rate of interest.

    They are actually paying unacceptable rate of interest and all over the world, people who borrow from microfinance banks finally end up in debt traps they often find difficult to exit from. So what we are doing with the fund is providing the micro finance institutions with long-term low interest financing that will enable them provide low interest lending to the poor.

    So, a poor man in the village who wants to borrow N150,000, does not need to pay 48 per cent interest to the lender or even the 22 per cent that the banks are charging. But he can borrow at nine per cent and by so doing, you can make it more developmental because no bank can lend to you at the rate the the MSMEs’ fund can lend to the poor people.

    In doing this, we have tried to bring the state governments into the picture so that they will know that if the CBN is giving money to an institution at between three-five per cent, it is not giving them money to lend to the poor at exorbitant rates. So it becomes possible for the agencies of that state government to monitor the interest being charged borrowers by on-lending institutions.

    What we have realised in the CBN is that if you bring enough of the interested parties in lending to the poor, especially agriculture, you achieve results. We, therefore, tried to bring in the ministries, the farmers, bankers, the SMEs and all other stakeholders to a common platform to share knowledge and avoid duplication of responsibility, and you find out you will be making a lot of progress.

     

    Financial Inclusion

    First of all, I would like to say that Nigeria was a founding member of the Alliance for Financial Inclusion and therefore we were always part of the international collaboration on this effort. We are the one that forced Mexico, and a member of the G24 to make sure the financial inclusion became a priority in the agenda of G24. From there it became a major element of global governance, so we have directly or indirectly played a role in bringing this to global limelight as far as financial inclusion is concerned.

    Locally too, we have been playing major roles in promoting financial inclusion because one key aspect of financial inclusion is financial literacy, working on the capability of people to act in enlightened manner as far as financial decisions are concerned. We have launched a financial inclusion strategy in Nigeria, we have also launched a Financial Literacy Document Steering Committee which has me (Sanusi) as chairman, with the CEOs of other regulatory agencies, including the Securities and Exchange Commission (SEC), Pension Commission (PENCOM),National Insurance Commission (NAICOM), Nigerian Deposit Insurance Corporation (NDIC) and also representatives of the Ministries of Information, Finance, Education and Communications, as members.

    The whole essence of that is to ensure that we build financial literacy in our education and enlightenment curriculum so that people have enough literacy to protect them.

    You have seen what we have done with cashless Nigeria which is still part of financial inclusion. The Micro Finance Fund is part of financial inclusion. Our focus on women empowerment is still part of financial inclusion. So we are far ahead of many countries even though we are not presently where Kenya is, as a country. But I can say that many countries are far behind us in the area of financial inclusion

     

    Relaxing the Monetary Policy Rate (MPR)

    I will only relax monetary policy rate anytime we feel the conditions are right to do so.

    If you look at the CBN Act, our objectives are very clear. We were given responsibility for price stability, protecting external value of the currency which is exchange rate stability, maintaining the reserves of the country and for financial system stability.

    It is very easy to call the shots from the sidelines. Supposing today I decide to lower the interest rate, which means printing more money and a number of things will go wrong. May be the interest rate goes up and naira gets weak. When a portfolio investor suspects he is going to lose money as a result of weak naira, he will quickly pullout his investment.

    We have stability we often take for granted. In 2009 when I became Governor of the CBN, the stock market had lost 70 per cent of its value, many of the banks were about to collapse, the official exchange rate was N145, and at the Bureau De Change (BDC), it was being sold at N190. It is very easy when you have established stability for people to start screaming that you are holding exchange rate too tight.

    People want a stable exchange rate, low inflation, low interest rate. but I am not a magician.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

  • ‘Nigeria’s economic growth is not real’

    ‘Nigeria’s economic growth is not real’

    With the price of oil going down, the times are indeed “tough”, as observed by Mr Valentine Ojumah, Managing Director, FBN Life Assurance Ltd. In this interview with OMOBOLA TOLU-KUSIMO, he dissects the economy, saying: “the bottomline is things are tight”.

    Many insurers have not submitted or got approval for their 2012 International Financial Reporting Standards (IFRS) account as required by the National Insurance Commission (NAICOM) nine months into the year. What is the problem?

    For us at FBN Life, we submitted and got our accounts approved on time. It was approved in July. Insurance companies in the country have some challenges. I am not sure what the problems of those that have not submitted are, but I am just concerned that it’s taking them this long to address whatever those problems may be. We had our own challenges too, but we are able to surmount them very quickly. As you are aware, the introduction of IFRS as a standard for our financials began this year and it is new to us. Under the old guard, things were done differently and I would not like go into the details now, but things have definitely taken a new turn. There were a lot of conferences, seminars and discussions held between the regulator and insurers even before it started. But the information emanating from those occasions were not exactly uniformed. To me, it’s not surprising that it is taking this long. It was later on, that we had to do a lot of changes, meetings, discussions before we eventually got it right. It is a new development for us in the industry and other industries generally, thus the reason for the delay. I am not surprised at the delay in getting approval of the accounts from NAICOM. What is a surprise to me is the fact that several companies out there have not even submitted their accounts for considerations by now. I am really surprised and wondering that if as at this month, they have not submitted, at what point will they get it done.

    The perception of the public about insurers is that they are not sincere in claims payment as they look for excuses not to pay. What is your view on this?

    For us at FBN Life, I can tell you that we do not play games with the insured. It is not possible in our office, especially because life insurance claim is straight forward. It is either the person is dead or he is alive. The only cause of delay is the question mark on whether the person is dead or alive. It is not possible for you to dispute or increase the claim because it is already documented. The only thing that takes time is inability to provide enough information to prove that the person is dead. Life insurance money is very straight forward.

    It may be possible to find excuses in general insurance but no serious insurer will avoid paying genuine claims.

    What does the insured require to get compensated for life insurance?

    The insured will require proof of death. We will also ask for last attending physician certificate just to know the cause of death. Often time, the cause of death is not a critical issue, but proof of death is critical. However, the law requires that you report all deaths to the National Population Commission (NPC) and it will issue a certificate of death. But in cases where we suspect forgery, we will take a closer look at the document submitted to us.

    How long does it take you to verify a claim?

    As I said, in most cases it is straightforward. We will do self-independent investigations in cases that we have doubt. The truth is that there are problematic cases but we try our best to address it as quickly as possible.

    How has the enforcement of ‘No premium, no cover’ policy impacted on business?

    The ‘no premium, no cover’ policy is one of the best policies by NAICOM. Right now, what you see is what you get. Business, on the other hand, has been fantastic. It has never been this easy for us in the industry. Almost every one of us has discovered that it does not make sense writing a trillion naira business and collecting N400 million. Before now, insurance was being taken for granted by the corporate bodies; it was never a priority. The number of debtors that we accumulated in the industry was ridiculous and it affected our profitability. What this regulation has done is to make sure that if you buy insurance; be prepared to pay for it and it has started impacting on the companies positively and improving our bottom line. So, as far as we are concerned, we have one of the best policies to come out in the insurance industry and there is no going back.

    You are an advocate of enforcement of various policies by NAICOM. How do you view enforcements in the industry?

    In terms of enforcement, I believe it has improved from what it used to be. There were a lot of policies and guidelines set up by NAICOM in the past that suffered enforcement. But now board members and management of insurance companies know that enforcement is being taken seriously by NAICOM and it is no longer a case of take it or leave it, but a priority which you must be carried out. I think the new NAICOM, as I like to call it, is far more exciting than what it used to be.

    But are operators fully complying?

    It is hard for practitioners because they are used to the regime of sit back, and suddenly someone is saying you have to agree or you face the consequences. I believe they have recognised that there is no going back and I think it is great.

    Following the recapitalisation in 2007, the industry has only been able to generate a premium income of N300 billion. Some observers believe this is not too good. What is your take on that?

    If they say the figure is small, it is because the economy is small too. Growth opportunity in this country has not encouraged insurance, especially retail business where penetration is low. Going into retail as a business is not a child’s play, it requires a lot of hard work and the benefits don’t come overnight. It takes a while before it starts showing. I know that several insurance companies have recognised that retail is good, but not everyone is ready to put resources in it.

    What about micro insurance?

    Micro insurance is also a way to go because a large proportion of our population is poor and that is why micro insurance should be vital.

    Are you exploring that now?

    Micro insurance is not essentially new; calling it micro insurance does not make it new. If you are paying small money for a small benefit, isn’t that micro? We started selling micro insurance products the day we started business because we have a product of N5,000. We have even reduced it and today we have products as low as N2,000. So micro insurance as a term may sound new, but a lot of people have been doing things in that area in the past. It is just that today, many banks realise that is the way to grow the industry.

    Does this mean that many insurers are not ready to invest in micro insurance?

    I am saying a lot of people are not prepared to put in the investment that is required because such investment means getting the benefit in future and a lot of Nigerians want the benefits now. That is why a lot of people say they can’t give their money to insurance because they are looking for an immediate return. So I think we have a lot of work to do. The good thing is that you can see the insurance industry is actually growing. There are new investors coming into the industry, particularly international investors and they must be seeing what we Nigerians have not been able to see.

    What is your view on the economy?

    The times are tough. The price of oil is going down, Central Bank is tightening its belt on commercial bankers, privatisation of the power sector is on and a lot of other things are going on. But the bottom line is that things are tight. We are going through a period of tightness. Inflation is good, but in my mind, there is no real growth. There are just too many people out of job. What the government is doing, which I admire is that they found that they could do a lot for the Small and Medium Enterprises (SMEs) and they have created funds for this. There are a lot of positive things I must say, but these are things that are probably going to have effect in the future and not today.

    What is the ripple effect on the industry?

    If there is growth in the economy, the insurance sector will be one of the direct beneficiaries. A lot of people take insurance more seriously than they used to in the past. So, I am certain in my mind that the future is bright for the business.

    FBN Life got its fresh licence just before the ban on issuance of new ones by the Federal Government. What is your opinion on the ban?

    The government gave reasons for its action and I think they make good sense. Would you not be happy to see large companies in the industry that can compete fairly well in the world insurance market? Are you happy to see the retention capacity of the industry at the low level it is today with the majority of risks in the oil and gas, aviation and other high technology and high value risks reinsured abroad?. I totally agree with the ban.

    With the ban, the Federal Government has encouraged mergers and acquisition. What would be the impact of this action on the industry?

    Mergers and acquisitions are better than forced closures and cancellation of licences, among others. It helps build capacity, size and strength. I would expect most investors and companies to take advantage of this new policy posture of the government. Ultimately, this should lead to the reduction in the number of players but will increase local capacity, lead to higher retention per risk and enhance the size and strength of the surviving players. This will be a welcome development for the industry in Nigeria.

    How have you been coping in the market considering that you are the youngest?

    We have been able to penetrate the market through hard work. I have a very strong team that knows the right thing to do.

    Do you think that the FirstBank brand contributed to your rapid acceptance in the market?

    FBN Life Assurance is a limited liability company licensed to transact life assurance businesses in Nigeria. The company is jointly owned by FBN Holdings Plc which holds 65 per cent and the Sanlam Group, one of the largest financial institutions in South Africa, which also holds 35 per cent. It officially commenced operations on the September 1, 2010. Drawing from the knowledge and experience of our owners, we intend to play a significant role in the development of the insurance industry in Nigeria. To achieve this, we are anchoring our operations on product innovation, efficient service delivery and prompt claim settlement. So, you are right to say the brand contributed to our success. We are working under a brand that is very acceptable across the whole of Nigeria and this must have contributed to our success in a short time. So, there is no question about it. I can tell you that leveraging or using the name to underwrite insurance was intended.

    How would you rate your company on solvency margin, administration,computer based, capital base and human development?

    If solvency margin is rated one to 10, we will be rated 10 and that is because we are very solvent. Sometimes last year, we asked our shareholders to pump in additional capital and this has made us to be very liquid. Our shareholders fund is currently above N5 billion, so we are very liquid for claims settlement. This is one of our cardinal selling points; we meet the customers at the customer’s time of needs in an efficient and timely manner. We are making our claims, completing our claim price, closing our claim price and making sure money meets the customers within 48 hours. The customers are not very used to the situation where they get their money very quickly but we have consistently shown them that we can do it. We take it very seriously because it’s been a good selling point for us. We also take the training of our staff very seriously, remember that when we started, we started with very young people, people whom we can easily convert to be FBN Life people and not work for other people because we know we are going to do things differently. As such, it was important for us that we keep the people who have the ability to change and not people who are stocked with the way they have been doing things. We will do a lot more to enhance our growth because the level of knowledge, exposure and experience is critical to the future of any business.

    You informed the public sometimes ago that FBN Life will begin general insurance and was looking at acquiring an insurance company. At what stage is the deal now?

    We are in the process of acquiring the company and at the appropriate time, announcement will be made by the owners of the business.

    What is your future outlook?

    We have seen a lot of opportunities in the retail market and we want to develop it. We want to deal a lot more in distribution channels because we see a lot of opportunities in that area as well. We think that alternative distribution models are the way to go because they offer low cost insurance policies to majority of the population. These are the two main thrust of the company going forward and obviously very challenging because they are new areas, but they are future growth areas of the company. It is important not to ignore the insurance brokers because they have been the traditional partners of insurance companies and also remain the main distributors of at least 90 per cent of corporate insurance programmes nationwide. So, they are important and we are partnering with them, making them our friends and using them as models to change things that can be changed as far as the insurance industry is concerned.

  • ‘Banks shouldn’t drive mobile money’

    ‘Banks shouldn’t drive mobile money’

    Two years ago, the Central Bank of Nigeria (CBN) introduced mobile banking.The banks were charged to drive the process, but over 50 per cent of the population seems unaware of the initiative. Deolu Ogunbanjo, president, National Association of Telecoms Subscribers (NATCOMS), believes the initiative would have been more successful if driven by the telecoms firms as done in other countries. He blames the Federal Government for the low patronage of made-in-Nigeria hardware and software and also speaks on mobile number portability, weak regulatory environment among other issues in this interview with LUCAS AJANAKU.

     

    What is your assessment of the telecoms sector after 12 years of liberalisation?

    The sector has been quite interesting; it has also now given the nation an increased Gross Domestic Product (GDP). It is the second revenue earner to the nation and the economy. Beyond that is the fact that telecoms has also touched many lives, created jobs and will continue to do so. Many youths are do one or two things around telecoms. ICT is continuously strengthening, if you also look at all the various appendages like putting up submarine cables. In fact, it has done a lot for the economy and it is still doing a lot. So by and large also to the individual that is Nigerians, it has helped to save lives, it has done a number of things. Many things are also built around it. Many businesses going electronic, the government is also going electronic, political campaigns are also going electronic. So, it is a whole load of great things that have come about through the telecoms sector.

    But 12 years down the line, low quality service has remained a pain. Must subscribers resign to fate?

    I agree with you completely. In the last few days, we marked the 10th anniversary of the nationwide boycott of mobile phones in the country. That took place on September 19, 2003 when we asked Nigerians to switch off their phones. As early as that time, we were looking at poor quality of service as well as ensuring the service providers do per second billing. We actually had to go to court in February 2002, but when a number of things were not running well in the court, we had to tell Nigerians to switch off their phones .Ten years after, we are still not there. Still on this poor service quality, in 2007, individual subscribers with Celtel (now Airtel) and MTN were given N175 by the Nigeria Communications Commission (NCC) to cushion the effects of poor quality of service. That is six years back. The situation has not improved, we are still battling with poor service quality and it is very unfortunate.

    Are we going to continue like this?

    Certainly no! The operators need to expand and grow capacity fast. They need to look at infrastructure positioning everywhere. They are also saying they have challenges, such as insurgents attacking their base stations as well as some individuals just not ensuring that they accommodate their masts here and there. Again, for the government, multiple taxations/regulations continue to be a nightmare for the operators. The government could also just wake up and slam arbitrary charges on the facilities of operators. For instance, five or six years ago, operators pay per mast between N10,000 and N20,000 but today, they are paying hundreds of thousands of naira per mast. Again, this is eating into expansion plans. Beyond that is the fact that they are also looking for soft loans from multilateral institutions, donor agencies, interventionist agencies and others to finance infrastructure positioning. Also, the Universal Service Provision Fund (USPF) is there. The operators should make use of this but to cap all these, I will advise that they go public and get listed on the exchange so as to serve the interest of the people. For instance, the average Nigerian is interested in their being quoted publicly so that they could buy their shares, and of course, if they want to expand and put the mast on their roofs, compounds and even farms, they will be willing to accommodate them. Again, since the World Health Organisation and the International Commission for non-Iodising Radiation Protection have said it (BTS) is harmless, it is final; because they are the only two bodies that can tell us whether it is harmful or harmless .They have said the safety level is so good. S, I will advise they go public and it is also a way to empower Nigerians aside all these reality shows such as Project Fame, Nigerian Idol, X factor, Who Wants to Be a Millionaire and all that. Allowing Nigerians to part-own in the telcos is much more empowering because it will touch so many lives.

    Sector analysts say the regulatory environment is weak. They allege that the directives of the NCC are hardly complied with. They cited the dominant operatorship issue and wonder if steps have been taken to enthrone a competitive environment.

    Over the years, and this is the 12th year, the NCC has always been slow in implementing its policies. For instance, it started imposing fines on the operators for poor quality service only this year. That was the first time the operators were fined. Before then, it gave subscribers N175 in 2007. It took the NCC 12 years to muster the courage and fine the operators. Incidentally, the NCC is what I can describe as slow and steady.

    But the fines don’t go to the pockets of subscribers who are the victims of their inefficiencies. Should it be so?

    Quite honestly, fines in the telecoms sector are not the best. When the Liberian telecoms authority was to impose fine on its operators, I cautioned the regulator that fines were not the appropriate panacea. Fines should not be the solution for telecoms operators’ misdemeanours. But if it is going to be applied at all, since it is the average subscribers that suffer forv their inefficiencies, they are the ones that should be compensated directly.

    Even when they say they have compensated the subscribers, how do we know if it is genuine or not? The computer is subject to manipulation.

    Good point. It is true that the subscribers don’t know. The subscribers are being short-changed daily. Look at the data bundle plans. People will subscribe for N1,500 bundle plans and somehow, two-thirds, that is N1,000 will just go before you blink an eye. So, again, there is no consumer management process, procedure and resolution in place. So, what is happening is that at times, subscribers get frustrated. Yes, they have a case, they will call their customer care service centres and all they get is an assurance that it will be attended to. That is why NATCOMS is heading to court to ask for a compensation of N5,000 per subscriber. In actual sense, over the last 12 years, the individual customer has lost more than that. We are only being modest. We will also ask the court to put in place for subscribers a consumer management process and resolution platform. We will institute the court action in the next few days.

    Are you asking the court to compel the NCC to put that in place, or how do you mean?

    This is borne out of the fact that out of the subscribers who complain to the various network customer care centres, only very negligible few, may be between five and 10 per cent end up getting their worries addressed. What about the remaining 95 per cent? So, we want a process whereby whenever such guilt arises, that is, it is due to the operator’s fault, either they just remove your ‘credit’ or your data service inappropriately, what we are saying is that if the network operator refuses to compensate or refuse to return the ‘stolen’ data, we are pushing for timeline when these issues should resolved. For instance, if it is not done in seven or 14 days, then there is a central body which should handle it. There is nothing like that here. Unlike products, for instance, if I see flies or cockroach in a bottle of beverages, I can take it to the manufacturer and ask for a replacement. I may even be given another one or two crates as compensation. There is nothing like that in the telecoms sector. Subscribers are suffering.

    Looking at the sector, 12 years after, how well has indigenous capacity taken control of the sector?

    To some extent, for instance we were quite glad maybe because at least at that time, we went to court on per second billing some of the operators were saying it is impossible until 2005, which was two years after but when Glo started in 2003 August, it started with per second billing. That was good. It was a demonstration of what indigenous ownership could do. In any case, it was called competition and the following year, they had to follow suit otherwise they will lose subscribers. Beyond that is for the fact that some of us will still like the telecoms companies to be domesticated.

    Some indigenous companies have been complaining that things they could handle in-country are farmed out to foreign firms, leading to capital flight. Are you satisfied with the level of participation of local companies?

    Quite honestly, I am not satisfied at all because many departments in the industry are being outsourced. That is the new grammar in the telecoms sector and it is extending fast to many sectors of the economy. When they are outsourcing some key department, they outsource it to foreigners. That is not right. They should make use of local engineers, We have a lot of them that are competent. Outsourcing is a challenge bedevilling the industry now. Nigerian engineers and a lot of business men are suffering currently because of this. It is alright that through expatriate quota, they could obviously bring in for instance, the Indian firm, South African firm, or the United States of America firm. They could bring some of their people to work here but that should not totally jeopardise the interest of labour in Nigeria. By outsourcing everything, Nigerian business men are suffering. In fact, pretty soon we may have to take it up with the Association of Licensed Telecoms Companies of Nigeria (ALTON), NCC and the Ministry of Communications Technology.

    How much do you think a well developed telecoms sector can bring to the coffers of the government?

    An unquantifiable lot! In fact, from what we saw in 2012, Nigerians spent N1.2 trillion on recharge cards. Simply put, that is N100 billion a month. You can imagine what that is to Nigerians’ pocket and to the nation. Beyond that is the fact that for every call made, there is one little percentage that goes to government through the NCC. That again may not be known to members of the public but it will run into several billions of naira. Beyond that is the kind of jobs it has created and still creating. Submarine cables are here and there, and so many other things being done by the telecom sector. That is why it is the revenue earner for the economy next to oil and gas.

    The Central Bank of Nigeria (CBN) introduced mobile money about two years ago to support its drive for cash-less economy. But uptake has not been impressive. Could it have been any different if it was telco-led?

    In most other countries where mobile money has been successful, it has usually been driven by telecoms operators. But, in Nigeria, the CBN has chosen to drive it through the banks and that is why it is not picking up as it should. In Ghana, it is being used to pay for virtually everything. They have embraced it. In Kenya, it is wonderful, it is working so well and it is driven by telcos. In fact, everybody knows Mpessa across the world. It is a model, it is wonderful in Kenya. Everybody, the villagers the rural women know about it. In fact, that is why phones are selling so much, you just must get a phone to catch up with mobile money in that country. But here in Nigeria, it is appalling the way it is. There are so many issues surrounding mobile money. Many companies are suffering because it is being driven by the banks, it is unfortunate. Why must Nigeria’s be different? It should be driven by telcos as it is with other nations.

    It is argued that telcos control over 100 million customers and the fear is that the economy may have inadvertently been handed over to them if they are to drive mobile money services.

    Nonsense! What is happening in Kenya? Are there no banks in that country?

    But you cannot compare the population of Nigeria with that of Kenya.

    But Ghana is working too. They have a population of between 20 and 30 million. The banks are still there. There are still some transactions that they do. Mobile money should be done by telecoms operators, it will be much embraced. It will be less cumbersome. Because the quality of service is not there, that is why even mobile banking is suffering. It is not picking up as expected and it is ruining a lot of businesses. If it is driven by the sector that should have driven it, I am of the opinion that if it is driven by the telcos, mobile money will fly.

    The Federal Government has launched the National Broadband Plan to run from this year to 2018, with ambitious targets. What are the success factors of the plan?

    The launch is the right step in the right direction. The government has directed the Communications Technology Minister, Mrs Omobola Johnson to ensure that broadband is taken for granted. People like Ernest Ndukwe, an engineer, Titi Omo-Ettu and other distinguished Nigerians are in the committee set up to drive broadband penetration in Nigeria. It is a wonderful thing. In fact, it should have been launched four years back because we are now talking about 120 million active subscribers and that is serious. It is quite a number we should have started four years ago.

    A lot in voice has been achieved. Data service is the next frontier to be harnessed. Glo 1, MainOne, West African Cable System (WACS), SAT 3 and NigComSat R have varying capacities. But services are nothing to write home about. Why?

    I wonder why there is so much problem with data services. The reason they are giving is that all of them (submarine cables) are still almost being concluded or not yet concluded. They also blame the development on the dearth of middle and last mile infrastructure that could take the dormant capacities from the seashores to where they are needed. The Federal Government should intervene in this respect because cheap and speedy internet access should be a fundamental human right.

    But Glo 1and MainOne landed a long time ago. What are they still concluding?

    Yes, there are still other appendages that should go along with it but the good news is that most of the internet service providers (ISPs) have now started what they call long term evolution (LTE)

    But the spectrum for LTE has not been given to any operator, though some can upgrade from where they are.

    Some of the ISPs have now started what they call LTE. Spectranet, Cobranet, Swift and others say they are doing LTE.

    Perhaps all that is sort of being tapped from all these cables you have mentioned but it can be better, it is at the low end, perhaps when LTE has started maybe we will start enjoying good data quality services.

    Software development is being pushed by the government to create jobs for young start-ups. There are challenges like patenting and others. What are the success prospects for incubation centres?

    It has worked perfectly in India and that is why India is growing by the day in software technology. Here in Nigeria, the government should put in place soft infrastructure, such as ensuring that there is a registration council for patent. So, let the Communications Technology Ministry start that now. Maybe an arm of the Nigeria Copyright Commission or its department to be set up for software developers so that once, it is an intellectual property. I am sure that nobody will steal it. I can now develop and register it with the NCC ICT branch or let the Communication Technology Ministry establish that, maybe a department under the ministry to start that. That will make sure that Nigerians are confident and they will want, at least go the whole hog just as India has done.Our youths are gradually getting interested in software development technology, so they should be encouraged. Look at multi-level marketing software, you have a lot of them in India but here, there are some of them that can do it, but they still don’t know the wherewithal yet because they are being threatened that they might lose it in case they develop it.

    The National Information Technology Development Agency (NITDA) says the directive to ministries, departments and agencies (MDAs) to patronise indigenous Original Equipment Manufacturers (OEMs), be it software or hardware, is still in force but foreign brands of PCs adorn their offices. Why?

    Enforcement and monitoring are the answers. The MDAs should take the leadership position in this matter. You see government is hypocritical about it. Omatek and Zinox have been tested in the last 10 years. They are doing very well so why can’t government implement policies they also are part of? There should be a definite policy that all government MDAs, public institutions must buy made-in-Nigeria software and hardware.

    But they are said to lack capacity

    That is news to me. They have the capacity. They also have to fight that if they know the officer of government, the minister or the director or permanent secretary that said that, they should take him on and ensure they engage him and if that his is comments and it is not true of cause they advance further reasons to government why they should patronise made in Nigeria. How would we grow if government won’t even buy from us?

    Mrs Okonjo-Iweala even advised Omatek to look inwards and stop looking up to government for patronage.

    Every stakeholder in that sector should come together. Omatek should ensure that it complained to all industry stakeholders. The same thing for Zinox and other manufacturing outfits in Nigeria to ensure that they bring everyone together and actually make lodge a formal complaint, through the ComTech Minister to Mr President. It will become a thing of the past and government must patronise them. But if government is not patronising her citizens’ products, who else is going to do that? Or is it because they just don’t want because they want to probably keep enriching other nations? They have to patronise made in Nigeria products Omatek and Zinox products have been tested

    Getting the major telcos listed on the Nigeria Stock Exchange (NSE) has not been easy. Don’t you think coercion will be needed to do this?

    If you look at the McGregor’s theory X and Y, you have to make things happen either by persuasion or coercion. We want to try persuasion because there is no law that actually compels any telecoms operator to go public. Local content should go beyond just engaging Nigerians in particular percentages. It should also be that the moment foreign firms achieve a particular level of stability and turn over, I think they should be made to go public. Nigerians are dying to invest and buy telecoms shares because parts of their livelihood. Beyond that is the fact that the power sector also will be privatised very soon. Nigerians will insist for them that, maybe in the next 5-10 years, they (investors that bought the power firms) must go public. This is because power is everything to Nigerians. So, the telecoms sector must be persuaded once they attain a particular level of stability and turn over, they should go public. Only last week in Britain, account number portability was introduced. What this means is that if I have money in bank XYZ and I am not satisfied with the services it is rendering me, all I need to do is to port out of that inefficient bank and still retain my account number. So multiplicity of account will not be an issue with us again. There are about 25 million bank accounts in Nigeria. This just happened in Britain. We must turn Nigeria to a consumer concentric nation.

    Customer care continues to be an issue. When subscribers call their lines, they are compelled to listen to unsolicited music and kept waiting for ages. What is the problem?

    The customer care lines are there but will only attend to between five and 10 per cent of customers who actually have pressing issues and concern. All the operators are guilty of this. I think it is deliberate on their part to continue to frustrate their customers. Out of every 100, to continue to frustrate between 90-95 per cent of subscribers who wants to complain against their operations. But Nigerians must also demand a process and that is what we want to do. It takes too long for customers to get redress if they ever do. A lot of them drop the idea of getting justice along the way because they feel the efforts they are putting into it is not worth the while.

    So, there has to be a consumer management complaint process and procedure/resolution. We are saying there has to be a time limit or else a process where maybe there is an NCC desk or an NCC mini consumer court or a telecoms consumer court to quickly manage this. ,If for instance you see a bad product, you quickly take it to the manufacturer and it is addressed with dispatch. In telecoms, what happens? They just keep wasting your time.

    Do you think the Standards Organisation of Nigeria (SON), NCC, Customs and the Consumer Protection Council (CPC), which are charged with protecting customers, have lived up to their mandates?

    The agencies have not lived up to expectations of the consumers. They still lack the will to implement their mandates. Subscribers have crossed the 120 million mark, there has to be a process in place that must take care of consumer complaints and compensation. It has to be resolved within a specific period of time. That is what is lacking. The CPC is just not there for the consumers. Maybe out of every one million cases, maybe CPC will treat only 10 in telecoms. Imagine 120 million subscribers. It is so overwhelming, so they has to be a process in place and subscribers keep buying credits, they keep investing and you are not getting the value for the money. Must we continue to groan? No, there has to be a consumer process in place that will adequately cater for the compensation aggrieved of subscribers.

     

     

     

     

     

     

     

     

     

  • ‘How govt, bad managers killed Nigeria Airways’

    ‘How govt, bad managers killed Nigeria Airways’

    Why do some airlines die young? Med-View Airlines Managing Director Muneer Bankole blames it all on lack of technical know-how by the owners. Even, the Nigeria Airways, he says, was killed by government interference and incompetent managers. In this interview with KELVIN OSA-OKUNBOR, he urges the government to assist operators develop routes that will boost the growth of states where there are airports.

     

    Over the years, many private airlines have come and gone. What are responsible for the high mortality rate of airlines in the country?

    The major factor is that many people come into the industry to invest without sufficient knowledge of the business. They come into the sector without understanding the business environment. Some operators came into aviation business from other sectors without sufficiently studying the airline environment before dabbling into it. The other factor is the aircraft type that most operators use for their operations. The owners of the business who are not managers need to understand that element or component of the business, which, in my opinion, is key. If you do not understand the components of an aircraft as an owner or manager, you could have serious issues when people are advising you on what to do. It is very important for people to get this mix right from the start. This is important because it is a key factor in the cost analysis of running an airline.

    Consider the cost of aviation fuel and the charges you have to pay to service providers. You must understand how these costs will impact on the running of the airline to ensure profitability. If you are not abreast of these developments, it may be difficult to successfully run an airline. You must be adept at handling engagement with industry stakeholders on issues that impact on the business. If you fail to get this business mix right, the airline may not run efficiently. It is not enough to have new aircraft in your fleet but you must ensure that your technical personnel are well-trained and carry all stakeholders along to run the business.

    At what point in the running of an airline business should the government come in?

    The government could be of assistance to domestic operators in many ways. One significant area is aircraft acquisition. Operators have had meetings several times with government officials on how to access the window of assistance in acquiring aircraft to boost operations. The intention of the government is very clear on how to assist domestic operators; but there are many factors standing on the way of achieving the objective. The government is creating a conducive environment for domestic operators to get aircraft directly from manufacturers, train personnel on such aircraft and encourage the manufacturers to establish aircraft and simulator maintenance facilities. We are looking forward to how this assistance will materialise, because it is a key area that will help our business.

    That is on one part. The other area is more waivers for aircraft spares importation. If this is achieved, it will reduce the cost of doing business. Government needs to come to our aid in reducing the costs of aircraft maintenance and spares. Another area government can assist domestic operators is on the high cost of aviation fuel. Aviation turbine kerosene is too expensive in Nigeria. The government could intervene to bring down the price of aviation fuel.

    The Nigeria Civil Aviation Authority (NCAA) is planning to carry out technical and economic audit of domestic airlines. Do you subscribe to this?

    This is one of the best things to happen to the industry. It is high time the regulator carried out serious audit on the airlines to ascertain their health, rate those that are fit to remain in business. It is a good initiative; it will promote air safety and put domestic airlines in good stead to carry out their business. For us at Medview Airlines, safety is the greatest asset in the balance sheet of any airline. As your operations are adjudged safe, you continue to grow the business. The NCAA has approached us; we have filled the forms, the audit is ongoing and we are confident that it will improve the industry in many respects. The economic audit of domestic airlines is appropriate, too. It will help to establish the status and technical standing of the airlines. We have filled the forms; we are cooperating with the authority to achieve this. It is a healthy development for the industry, it will help to measure the performance of the airlines. For us, it is a test for airlines to know its position. There are no more hiding place to hide. It is good to know what is happening to the airlines; it is a forensic test for domestic airlines. At a point, it is good for you to know the strength of your operations technically and financially. This is is very good, it falls within the ambit of the economic regulatory function of the NCAA. It is the best way to go. All airlines must know their rating. It is a good test.

    It is argued in some quarters that there is proliferation of airlines in the country. Do you agree with this?

    I disagree. Given that the population of Nigeria is estimated to be over 170 million. We are yet to have the number of airlines that befits our status as a regional power block. There are not enough airlines in Nigeria yet. There are just five domestic airlines doing fairly well in the industry. We need more airlines to stimulate competition. The airspace is wide enough for all operators who know what they are doing. You don’t rate the aviation industry by the number of domestic carriers. The important thing to note is how viable the existing operators are. The number of domestic airlines in Nigeria is too poor compared to other African countries.

    Mergers, acquisition and consolidation are options for airlines to address their liquidity problems. What is your take on this?

    For now, some operators are considering either merger or consolidation. The whole idea is to ensure stronger airlines or, at least, a platform where operators could come together to examine issues that are common to them, and seek solutions. In fact, the managing director of Dana Air has called for a meeting of domestic operators to explore areas of commonality. This is a good proposal for the industry and I think it is something we could work on to improve the system. The idea is for domestic operators to forge a common ground to resolve operational and related issues that will move the industry forward. We are optimistic that it would come out strongly. His proposal is not that airlines should come together to become one strong player. It is just a window to assess issues of commonality with the airlines. It is a good window for all operators to meet and discuss issues affecting the industry. This is expected to be a robust window for all of us to examine areas of common concern. I think it is good being the first time domestic operators will be coming together to forge a common front for sustainability of the business.

    The Federal Government is remodelling some airports. Do you think this is necessary?

    This is a good initiative. It is coming at the right time to bring back life to some of our old airports. But my belief is that the government needs to assist airlines to develop routes. Development in the aviation industry is beyond just building or renovating airports. We need to make the airports more viable by attracting domestic airlines to operate into them. Through this means, the economy of the states where such airports are will grow. Remember air transport serves as a catalyst for socio-economic development. That, for me, is the way to go. We are connecting major airports, including Lagos, Abuja, Port Harcourt, Yola, Maiduguri, Jalingo, Enugu and others. Our plan is to ensure that all airports in Nigeria are linked to national and international routes. From the point of view of Medview, we think if smaller airports are developed, government could earn additional revenue. We are testing the ground in new routes to know the challenges of passengers and design tailor-made strategies to meet their needs.

    How can the high cost of doing business in Nigeria be addressed?

    We are appealing to the government to come to the assistance of airlines in the area of high cost of aviation fuel. The way out is for government to have a meeting with airline operators and fuel marketers and the regulatory aviation agencies to resolve this challenge. It is having a huge impact on airline operations. With this kind of scenario, how will domestic airlines survive? If you compare the margin at which some airlines in other countries are buying aviation fuel with that of Nigeria, you will discover that it is extremely difficult for airlines in Nigeria to survive because of the crushing cost of aviation fuel. The margin is too wide. There is need for urgent stakeholders’ engagement to resolve this issue. It is a real threat to the survival of domestic airlines.

    What’s your take on the charges for aeronautical services rendered to domestic carriers?

    This is another serious element that affects the economics of airline business. It is one key area to consider. It may not amount to asking for too much if there is harmonisation of the charges because domestic operators almost pay five per cent of the ticket value to every aviation agency. With such multiple charges and low fares put in place by domestic airlines to encourage air travel, it is difficult to operate profitably. We have been talking to the government to harmonise the taxes we pay to either the NCAA or NAMA. The value added tax and other charges, including landing and parking to the FAAN is killing. My proposal is that the government should bring all aviation agencies together to consider how to possibly reduce the taxes or harmonise them. That way, domestic airlines will be encouraged to remain in business. The agencies collect five per cent of the value of passenger ticket as sales charge, in addition to landing and parking fees. This is too much for airlines. The agencies could try to limit the taxes while government subsidise the other taxes and charges. This would make domestic operators to have a conducive environment to operate profitably.

    Why was the collapse of airlines common in the past?

    Many airlines in Nigeria collapsed due to incompetent management put in place by the owners of the business. Consider the case of the former national carrier, Nigeria Airways Limited. It was the incompetent management put in place by government which owned the airline that contributed to its collapse through undue interference. The people put in place to run the airline did not have background knowledge of the industry. This inevitably led to the demise of the airline. Only a few government-owned airlines in Africa have survived. Take the case of Ethiopian Airlines. The airline is running with the right model by putting the right people in place to return the airline to profitability. It is important for owners of airlines to put the right management in place to ensure the profitability of the business. Undue interference by owners of the business has not helped airlines’ survival.

    Do you consider government’s policy in the industry appropriate and service delivery by domestic airlines adequate?

    We have the right policy in place, but it could get better if there is proper implementation. Not just what is on paper, but implementation.

    The service delivery level should be improved by meeting the needs of passengers. By doing that, airlines will attract enough patronage. The strategy is to give value back to the passenger.

    The belief is that an investor with technical knowledge is best suited for the business than investor-owner. Do you agree?

    First, we need to understand the full terminology as it relates to the business. For us at Medview Airlines, we see ourselves as a mix of the classifications. Whether you call us owner manager or owner investor. We understand the intricacies of airline business. That puts us in a vantage position, and we are operating in an environment we are familiar with. The fact that I have knowledge of the aviation sector as it relates to airline business gives me some level of confidence in handling technical issues that would arise. Following that, no pilot or engineer can pull the wool over my eyes on issues concerning aircraft or the business. We are on the same page as far as running the affairs of the business is concerned.

    Where do you fit in this classification?

    In this sense I now qualify as an owner investor, who is not just bringing in the funds to run the business, but also understands all that is required to keep the business running. I would concur that the best model for running an airline business is to have adequate knowledge of the industry because you are abreast of the intricacies of the business, which would help you in taking critical decisions. If you have adequate knowledge, your vision of how to take critical decisions in contributing to the growth of the industry will not take too much time to manifest. This is very important because airline business is very volatile and in such volatile environment, you need to be very insightful in taking critical decisions about when, why and how you invest your money in the business. You need serious background knowledge of the industry as an investor owner and airline manager. This airline business is highly capital intensive, so serious decisions making is key to remain in the sector to run profitable operations.

    What are the specific areas you want government’s intervention?

    As it is done in other parts of the world, including Saudi Arabia, the government facilitates how the national carrier gets aviation fuel at a relatively reduced rate. That then helps the airline to reduce operating costs. If the cost of aviation fuel is high, it will impact negatively on airline business as we are experiencing in Nigeria. The other factor is that most of the fuel marketers are investing huge money in the business of aviation fuel supply and they want to recoup their investment in a short term. The suppliers of aviation fuel will not give us any window to delay payment for the product because they too are getting loans from the banks to run the business. This puts domestic operators on the edge.

    Imagine getting a loan from the bank to do business to pay over 24 per cent interest rate, that is too high. Another way government can be of help to domestic airlines to see how it could influence reduction in interest rates from the banks to make loans repayment easier for us in running in the business. In some parts of the world, including Saudi Arabia, the interest rate facilitated by government for their airlines is about two per cent which is very friendly. It is just like service charge. That will help operators to run the business conveniently. So our challenge in running the business is high interest rate regime. If operating costs are lower, airlines will charge lower fares and more people will be able to fly.

    What are your niche areas?

    Medview Airlines has done well because as a technical person in the industry owning the airline, I am fully involved in its operations. I have been utilising the operational model of owner manager and at the same time investor owner. This mix of strategy has helped the airline to grow. Everyday I am the airport with the support of the personnel to see the operations through in every sphere. Whether in terms of aircraft acquisition, procuring aviation fuel, coordinating the crew, the marketing personnel, insurance, catering and ensure that the right maintenance fir the aircraft is in place. I am able to achieve this because I know what is required technically. Not just providing the money as the owner manager, but looking at all possibilities to see the business grow as an investor. I try to give managerial direction on how the airline can be sustained profitably. This is only achieve able if you know the technicalities involved in running the business. Another strategy is to ensure the personnel show total commitment to allow the business grow. This is a good strategy when you get fully involved. As an investor manager or owner, the welfare of the personnel is key.

    What is required to run a successful airline?

    To do well in this airline business, as a serious operator, you have to have a good grasp of the technical knowledge of the industry, not just being a graduate of any discipline. You need to be fully equipped about the dynamics and intricacies of airline business. That is one key requirement to run this business profitably. You must have knowledge on the rudiments of the business. If some of your personnel want to play you out, you call them to order because you have knowledge of the industry. But, if you do not have the knowledge done personnel could propose wrong ideas to you that could ruin the business.

    What is your strategy of keeping the business going?

    As an airline we have been reaching out to passengers in far flung places. We bring the airline closer to the people in places like Jalingo, Yobe, Maiduguri, Enugu, and other places. We are reaching out by opening offices in six geo- political zones in the country as a truly Nigerian carrier. We have signed agreements with some state governments in done of these areas to help develop the routes. By this strategy, the airline is getting closer to people. Our strategy is that all routes in Nigeria must be developed. One of the ways of achieving this is to partner with the relevant authorities to make air travel convenient and affordable. In some of the states in the northern part of the country, the governors are even asking how they could be of help to open up the airports. Our belief in Medview Airlines is that there is no airport or route that is not viable, but you need to do a detailed business plan to develop the route to make it attractive.

    What motivated you to go into airline business?

    To invest in any business, be it air transportation or any other business, the potential investor needs to understand the dynamics of such an industry. When I say dynamics of such an industry, I mean full understanding of how such business operates. If you as an investor has such understanding, of the policies, the issues that shape development in such an industry, you have conquered the first major challenge of avoiding the collapse of the business. Many people, call them investors, come into the aviation sector without a full understanding of all that is required to run the business. This is in terms of getting the right personnel, acquiring the right aircraft to keep the business running, securing the right partnership with other stakeholders, including banks or other financial institutions and support services providers to get the business running.

    Though a lot of people think airline business is very profitable, they invest a lot if money initially and are not patient to watch the business grow before they start expecting huge returns on such investments. Adequate technical knowledge of aviation business and the operating environment would guide you to run a profitable airline. A lot of people moved into the airline industry from other sectors of the economy without adequate preparation and not very detailed business plan, thinking they could do magic, and you could see that the result as such ill-preparation has led to the collapse of many airlines.