The Nation Newspaper

Category: THE CEO

  • ‘Economic recovery plan, step in the right direction’

    ‘Economic recovery plan, step in the right direction’

    Nigeria Labour Congress (NLC) President Comrade Ayuba Wabba says that the Economic Recovery and Growth Plan (ERGP) unveiled by President Muhammadu Buhari was a step in the right direction. He said organised labour is optimistic that the policy will work, because it was comprehensive, with input from labour. The labour leader also justified the N52, 000 minimum wage being demanded by labour in the ongoing negotiation with the Federal Government for a review of the minimum wage. He noted that the challenge of low purchasing power, high inflation and cost of goods and services, among others, made the push for upward review imperative. In this interview with Assistant Editor CHIKODI OKEREOCHA, Wabba also spoke on why State Governors should be represented in the Negotiation Committee for the review of the minimum wage, among other issues. The Economic Recovery and Growth Plan has just been launched. From labour’s perspective are there reasons be optimistic?

    The Federal Government’s Economic Recovery and Growth Plan (ERGP) has just been unveiled. Are there reasons to be optimistic?

    Certainly. We were part of it. Let me tell you also that after the last rally on Good Governance, the then Acting President, Prof. Yemi Osinbajo, actually directed that the Economic Team meet with us, take on board our observations. Therefore, I can say that that document was comprehensive because we also made inputs to it. I think it’s a step in the right direction. No country can develop without a plan and a policy that will actually tell us the direction of government in all aspects and sectors of the economy. So, I think when you are planning it means also that you are doing what is right. So, I think we should give those processes all our support so that we can be able to deliver.

    Coming two years into the life of the administration, don’t you think the document came rather too late?  

    Everything in the document has a timeline including implementation strategies, including the committee to drive the process of implementation. So, I think it’s better late than never. Its better you start something than keep lamenting and nothing happens. We hope that the policy will work. But I think on the part of the NLC, it will work.

    Last week Friday, the Technical Committee for Palliatives and Minimum Wage finally submitted its report. Some labour leaders say it is the report of that Committee that government was using to delay the negotiation of the new minimum wage. Now that the report has been submitted, what is labour’s move towards achieving the new minimum wage review?

    That assertion is not true, because you realise that what brought about the Palliative Committee was the issue of the petroleum price. It was as a result of our demand on the table that the issue of minimum wage was accommodated and therefore, we mutually agreed that that same Committee, because of the effects that fuel price increase has brought to the challenge of low purchasing power, inflation, high cost of goods and services, we thought also that the minimum wage should be integrated into the work of that Committee. So, it was part of the demand we made and which was graciously accepted. The first step, as you said, is for that Technical Committee to work assiduously, because what also delayed the process was the fact that we wanted a comprehensive submission on the issue of palliatives particularly the issue of housing, transport and meal subsidy; all those allowances that have actually been affected by the fuel price increase. We want a comprehensive package that will also address that issue. It does not also limit itself to only workers; it is the Nigerian citizens. So, the first step is for the report of that Committee to be submitted, which has been submitted. And graciously also, we have agreed that all other processes will also be accelerated. The Committee that will also negotiate the minimum wage will also have to be comprehensive so that we won’t have hitches along the road. It’s going to be a 26-member Committee where the State Governors will be represented because they have actually been the problem militating against the review of the minimum wage. Left for the Federal Government there would not have been any problem. So, we want to carry along the organised private sector because the essence of the minimum wage is to make sure that the poor or the poorest of the worker is protected against exploitation. That the minimum is within which no employer of labour can go below. Many workers are being exploited. Many workers are being paid below 10, 000 and those are the issues we want to address. Once we have that in place, because the minimum wage is a constitutional matter, we are going to actually protect the most vulnerable group of workers and I think it’s better we follow the processes and the procedures. The basic issue that is affecting the minimum wage is implementation at all levels so, that is why in the wisdom of the Palliatives Committee all those critical stakeholders will actually be brought to the table and we drive the process effectively together. And I have seen also the commitment of government because we told them also that time is of the essence and I can see that even at the last meeting, the next meeting to hold two weeks after the submission of the report around 29th of this month. So, you can see that there is now new vigour to try to drive the process.

    How long will workers wait before the new minimum wage takes effect?

    As I told you it’s going to be a process. The NLC has submitted its demand, which I think this is not the first time we are saying this. It has been in the media severally. So, the process needs to be tidied up. First, that larger Committee, which will now submit those reports to the President, which is what, is going to take place next. Then, this Tripartite Committee has to be in place. It also depends on the attitude of other stakeholders because this has to be tripartite. The procedure as you are aware, all through history, has been through this process. The one we had in 2000; the one we had in 2011, all have actually followed this process. What we assure all of us is that labour will do everything possible to make sure that any other issue that will affect the process will not arise from us. We will also put all the necessary pressure that is required for this process to go through.

    In view of the current recession, is the N52, 000 minimum wage being demanded by labour still feasible?

    We need to be very forthcoming in doing what is right. Not only that, we need to also look at the feasibility because it doesn’t make sense if you go for a figure that at the end of the day, you have problem pushing it through. So, what we have done is that we looked at the totality of the issues, including the challenges we are going through at the moment and we thought that what we have done is reasonable. What is the value of N18, 000 when it was signed, looking at inflation, purchasing power and ability to pay? So, I think we have been reasonable in making such demand and we hope also that other social partners will look at it from the perspective of us being very committed and also being very nationalistic in putting up those demands.

    About three weeks ago, the Nigerian Employers Consultative Association (NECA) met and said NLC and other organised labour should consider 2018 to push for this minimum wage, not 2017 bearing in mind the situation of the economy?

    Well, NECA is entitled to its opinion. But I think what will drive the process is what is prevailing now. Workers presently cannot feed themselves because of the high cost of goods and services. Everybody has the right to his or her opinion, but the opinion of the workers is that a review of the minimum wage is legitimate both by law and practice. Five years cycle is legitimate and therefore, when we reach the bridge we will know how to cross it. Our opinion is also that workers have been pushed to the wall so, it’s time for the minimum wage to be reviewed both in law and practice because the cycle is due and inflation is biting very hard, high cost of goods and services is affecting workers seriously. Many workers cannot send their children to school, many cannot pay their rent, and many cannot even go to work regularly. Side by side with fighting corruption, if you don’t pay me to meet up with my bills we can’t fight corruption. What is the cost of living that will make me comfortable as a worker for 30 days with my family? All of us can reason and calculate all of these. All of you are workers and therefore, we can know all of these. So, let us be more reasonable. Workers should not be treated as slaves. Companies are still making profits. So, those are the basis and those are the issues we are advancing.

    May Day is three weeks from now. What should workers be addressing or demanding from government?

    We are going to as usual accommodate all the  interests of workers; not only workers, but also the interest of the Nigerian public, from social and economic angle to security angle, down to issue of strategic institutions like power. All of these will actually be accommodated in our address so that we can drive our country to the next level. All issues that pertain to development, because it is when the economy is doing well that citizens of the country will also do well. And side by side is the issue of good governance. All of these will actually feature in our May address. But most importantly, the welfare and wellbeing of the worker will be pushed to the front burner because if workers create wealth then they need better attention.

    What is labour’s reaction to recent revelations of corruption cases?

    We have been very consistent to say that the problem with Nigeria is man-made; it’s not an act of God. And it will take all of us including our leaders to address the problem. The problem of saying there is no money does not arise. In fact, there is enough for all to benefit. The problem is because few have taken more than enough. In fact, they have taken even for the generation yet unborn. This is the challenge of Nigeria. Therefore, when we canvass for good governance and also that the fight against corruption should continue you can see that things are actually unfolding. No country can advance without paying attention to good governance and fighting corruption. So, we remain very consistent as organised labour because we have been the worse hit. Workers have been the worse hit because our salaries are fixed, our allowances are fixed and so we are the worst hit. If there is any social instability we are the ones that are worst hit. So, I think it’s a priority for us and therefore when corruption is fighting back we should not relent. Citizens must continue to stand on the side of truth. And also workers shouldn’t be deterred because in every evolving process those issues do happen, but I think in the case of Nigeria, it is most unfortunate because it has proven very clearly that it is not about resources. We have more than enough; it is only that few people have actually accumulated this wealth to themselves and the majorities are actually poor. Our children are no longer being employed. There is serious challenge in the social system and these issues must be addressed, if not all of us will be seating on a time bomb.

     

  • ’Difficult operating system is blessing in disguise’

    ’Difficult operating system is blessing in disguise’

    Strategic initiatives by the Federal Government on the manufacturing sector are paying off, with organisations that have embraced the backward integration policy, which has boosted the country’s external reserves. Stakeholders see this as lending credence to the success of various government programmes targeted at the real sector. In this interview with OKWY IROEGBU-CHIKEZIE, the Managing Director of Euroglobal Foods & Distilleries Limited, Mr. Manish Uniyal, in Ota, Ogun State, says the CBN’s Foreign Exchange policy may have been a blessing in disguise.

    In the midst of economic challenges, what would you say are some of the key problems confronting the manufacturing sector?

    Key players in the industry had expected to see an improvement in the manufacturing sector, but that hope was dashed as economic indices showed that not much improvement was recorded in the real sector of the economy. Expectedly, major economic challenges in the sector were yet to improve despite positive steps taken by the Federal Government and its economic team to reposition the industry. Apart from the forex challenge, the manufacturing sector also faced high lending rate, high cost of power generation and declining household consumption, which resulted in real income depletion due to the surge in aggregate price index.

    What are other challenges that have hampered the growth of the real sector?

    The other challenges include the lack of properly-trained workers, a factory is only as good as the people that run it. There is a dearth of trained employees with managerial skills to manage a team and technical skills to operate machinery and build products with their hands. A major issue facing most businesses is that of electricity generation and supply. Every business will want uninterrupted power supply.

    The World Bank and International Monetary Fund (IMF) have predicted that Nigerian economy will recover from recession and grow by 1.7 per cent. Are there indications to support that claim?

    In our perspective and with the figures that we have seen coming from the World Bank and the IMF, Nigeria’s economy has recorded about one per cent real growth. That is a bit lower than government’s expectation, which is about 2.2 per cent growth for 2017.

    What are some of the opportunities available to manufacturers in the face of these challenges in the real sector?

    I sincerely believe that there are abundant and genuine opportunities as a result of government noticeable economic recovery plan that is slowly shifting emphasis towards made in Nigeria. There is also the difficulty associated with sourcing Forex, especially for companies such as ours in the Fast-moving consumer goods (FMCG) as a result of the paucity of foreign exchange. Though the paucity of forex has affected the majority of manufacturers, however,  local production is gaining momentum though sometimes scuttled due to lack of technical knowhow and capability gaps.

    For us the difficulties in importation have started providing business opportunities in some of the markets and product segments.

    Your firm seems to have done well despite the challenges. One can expansion in some of your operations, especially in the food, beverage and the agro allied segments. What has been your growth strategy?

    Our strategy for growth is very simple; we adopted a strategy of market expansion into untapped territories in Nigeria. We have restructured and expanded our sales team by continuous recruitment drive to cover new areas. In addition, we have consistently worked on product expansion and innovation. We launched four products last year and plan to launch three new ones this year. We, also leveraged the surplus capacities that we have and worked more on local components. Our organisation has taken full advantage. Besides, our lean structure enables us to move with alacrity and adapt to changing business environment. The board of directors and top management of our group are proactive in providing support, which enabled us to move fast.

    How have you position your company to key into the post-recession possibilities, and take advantage of the growth opportunities it may present?

    If you look closely, many companies and some in similar sector or our competitors have had to downsize or shut down their operation as a result of the current recession. They were forced to down size their workforce in order to control cost and navigate the tough environment. We have had no such issues as we have always been following a principle of lean structure and efficient processes to run our business. On the contrary we have been expanding into new areas and were on recruitment drive, even last year. We are quite confident as the effect of downsizing will be not there and we are nicely positioned to take early advantage of expected economic recovery.

    How have you been able to engage your customers, especially in this challenging period of rising inflation and declining disposable income?

    Most of the inflation in Nigeria is due to cost push as a result of the devaluation of Naira and over dependency on imports. We embarked on the philosophy of maximising local content in our products and passing on the cost advantage to our customers. Our price increase has been quite less in comparison to our competitors. We have also leveraged the synergy we have with backward integration. Most of our group companies supply us raw and packing material to the extent that our imports are now barely 15 to 20 per cent for raw materials. As a matter of fact, we have achieved 80 per cent local raw material usage in our production processes, which is remarkable.

    Secondly, we have come out with innovative products and unique packaging. This has provided value for money proposition for customers. For example, we were unique in the introduction of Golden Choco in slim can in the Malt drink category. One of our flagship brands, Power bitters, has unique blend and packaging that are not comparable with any other brand.

    Euromonitor ranked Nigeria as the 4th largest soft drink market in the world, and Euroglobal is a frontline player in that category with a number of premium brands. What are your strategies to remain competitive and improve on your market share?

    Our strategy is to remain competitive and work around three key principles. The first is to maximise local content and leverage the backward integration with our group of companies for our raw and packing material requirement. This, we believe, will counterbalance some of the negative effects of severe cost push due to naira devaluation.

    Secondly is to work on a thin,  lean and efficient organisational structure. This strategy has proven efficient with lean structures that greatly reduce our overheads. Thirdly is to expand into new untapped territories in the nation by expanding our workforce wherever required

    Your biscuit arm has also been innovative and competitive, especially in recent times. Are there plans to ensure sustainable growth and profitability?

    Yes, the section has been doing exceptionally well and it has been adding new products to our portfolio. We have forayed into wafers and crackers and their quality has been exceptionally good. This is in addition to leveraging the benefits of backward integration and depending on the group of companies for our raw material and packing material needs.

    Are we likely to see a new line of product any time soon from your firm to tap into the enormous opportunities in the food and beverage segment?

    As I mentioned earlier we are extensively working on three new products and these are going to be rolled out soon. We are very innovative as far as our products and services are concerned.

    Consumers of your products have complained about your product availability, which is a factor of distribution. What is your take on that and are there plans to improve distribution?

    Yes, this has been one area we are investing a lot of time and energy to improve. As mentioned earlier, we have been on a recruitment spree to increase our footprint in untapped areas and spread to new territories that were created last year and this year. We have also restructured our entire sales vertically with the creation of key focus area so that market penetration in existing area can improve.  Also, in order to improve visibility of brands, we have now formed a separate vertical strategy for our marketing function as earlier sales and marketing were intertwined into one.

    What is your factory’s installed capacity?

    We have an installed capacity of one million cases with capacity to produce different product lines spanning from Carbonated drinks in Can and Pet bottles to Spirit drinks in glass, sachets and pet bottles.

    What is your assessment of Euroglobal in terms of meeting installed capacity?

    We have good capacities to take care of our demand for the next two years. But at the same time we keep on innovating with new packaging and new product lines and we may  still go for Capex expenditure based on our requirements and future partnerships.

    How would you assess competitors in your various market segments?

    Our key competitors have been there for a while, maybe 25 to 30 years, and they enjoy good product equity and margins. We are relatively new. Its only around 7 years since we started production. We have world class production facilities and have expanded to 13 brands in quick time. We hope to catch up with the leaders in next one to two years

    What is your company’s competitive edge?

    It is simply product innovation, lean structure and efficient process and backward integration

     What are your growth projection plans?

    We have had an average Compound Annual Growth rate (CAGR) of 35 per cent in the last two years. We believe we can grow much faster than that in the current year and we have structured the same into the targets of the team. It is an organisational vision and we are running with it.

    What is your assessment of the first quarter performance of the Economy vis-à-vis the recession; would you say any progress has been made?

    The Nigerian economy, which was severely hit in 2016 by the drop in the crude oil price and production, is beginning to show some signs of positive outlook and recovery. The economy, which officially entered into a recession in Q2 2016, following the release of the Gross Domestic Product (GDP) figures showing two consecutive quarters of GDP contraction, is showing strong signs of recovery.

    The recovery seems to be coming on the back of the recent increase in crude oil price, the increase in crude oil production and the Central Bank of Nigeria’s (CBN) continued supply of foreign exchange to both retail and corporate users.

    The Purchasing Managers’ Index (PMI) report of the CBN showed that both the composite PMI and the production level in the manufacturing sector improved in March 2017.

    Although the Composite PMI in March 2017 at 47.7 points, was below the 50 point level (which suggests a decline in activities), it was an improvement from the month of February 2017 figure of 44.6 points.

    The index for the production level in the manufacturing sector at 50.8 points is, however, higher than the 50 point level (which suggests an improvement).

    The monthly rates of increase in both the Composite PMI and the Production level were the second highest in two years and the highest since January 2017.

    Analysts’ consensus is that the inflation rate will continue to trend downward in 2017. This means that the purchasing power of Nigerians should improve and stimulate demand for both consumer and industrial goods.

    The country recorded its highest level of external reserves in 16 months, $30.30 billion, on March 31, 2017.

    The average external reserves in  March 2017 stood at $30.2 billion. The increase in the crude production and oil price in the international market lent credence to a growing economy.

    What is your impression of some of the CBN policies as a manufacturer?

    I would say the apex bank has tried to stabilise the sector, but a lot needs to be done, no doubt. On account of the increase in external reserves, the CBN has been able to maintain an improved supply of foreign exchange through authorised dealers (the banks) to end-users.

    The expectation is that the current improvement in the macro-economic environment and the efforts of various stakeholders to promote Made-in-Nigeria goods should stimulate economic activity in the short to medium term.

     

  • Power sector problem: Cash not gas shortage

    Power sector problem: Cash not gas shortage

    Mr. Bolaji Osunsanya is the Managing Director of Oando Gas and Power Limited. In this interview with EMEKA UGWUANYI, he speaks on issues in Nigeria’s energy sector, what the company is doing, its short to long term programmes in and outside Nigeria to make gas available to commercial and industrial concerns, among others. He says the central problem of the power sector is lack of cash.

    The industry has witnessed low oil price in the last two years, how has this affected Nigeria’s oil and gas industry, and Oando Gas & Power in particular?
    Oando Gas and Power is on the gas side, so the declining oil price has affected it, even though not directly. It has affected it with a lag because as the associated gas is not coming, gas is invariably also not coming. So, we have had supply dislocations but not so much about price. Prices have not moved much because we are running a pricing regime that does not directly relate to the oil prices. It was a bit more cost-reflective regime to make all the members of the whole value chain move. We have moved gas locally from at least 75 cents in the early days to as high as $3 per 1000 scf. So, we had a stable regime in that regard. The only challenge we had was the dislocation that came about from the low gas prices and the restiveness that we saw.
    The power sector and industrial concerns don’t have access to gas supply despite the domestic gas supply obligation oil firms undertook, what is the way out?
    Two things are involved. If the application is for power, the first thing to be done is to create liquidity in the power space because there is no need bringing out gas if it will be consumed by somebody who the supplier cannot collect his money or who cannot pay on time. My advice is that more work needs to be done in the power reform space before we start looking at gas. We have proven that at the right price of between $2.50 and $3 per 1000 scf, gas will be available for willing power plants. There is a dislocation when you are looking for prices that are not cost-reflective. So, there is no plant that says to us that they will pay $3 or $4 that we will not wheel gas to. That is the truth; it is the illiquidity of the power sector that we need to make the focus first. If we will ask for efficiencies, an increase in tariff to reflect the alternative cost of fuels, I think that’s what we need to do. There is no need to be dancing around the issue. Today at N32 per kilowatt/hour (kwh), it is clear that the whole thing cannot hold, so we must take some tariff adjustments in the short term, encourage everybody to bring in gas to power, into the space and equilibrium will set in thereafter. Fix the power sector and gas will follow suit.
    Gas is the fuel of the future, how will Nigeria tap into it in view of its huge gas reserves in alignment with global expectations?
    When they say gas is the fuel of the future, it is certainly not the only fuel but it is the most prominent, efficient and most cost-effective fuel. This is probably what they say, and they think it would be a big part of the energy mix globally. By that they mean that about 40 per cent of your energy will come from gas and Nigeria being one that sits atop a lot of reserves, it is the expectation that we would be the first in that queue and the first to take advantage of that manifest. But the point to make is that gas as a resource must be explored, exploited, cleaned, transferred before it gets to the market. It is a chain and all that chain must be provided for. The ultimate is yields for the gas, whether it is for power or industries. Today, industry works because we have been able to sell gas to them at $7 and it is more than enough to incentivise everybody in the team. That is why we have not had any issues in the industrial segment but if you think that power in Nigeria is 70 per cent of that consumption, that is where the work is and we have to fix power to operate like an industry and gas will flow and will be paid for. And everybody will have it and we will be able to use it to achieve what we see in gas being the future, the propeller of industries, propeller of energy, and utilisation of choice. That’s where we need to go.
    When you say fix power first, what do you mean?
    Today, that value chain is illiquid; today, there is no assurance that the electricity distribution company (DisCo) will pay the electricity generation company (GenCo) and the GenCo will pay the gas supplier. There is no assurance. NBET pays six per cent of its invoices that will not go anywhere, you can almost predict that to fall down flat soon. I even wonder how the GenCos do it. They borrowed money to buy those plants. By now, they should be defaulting in those loans because 26 per cent of your collections cannot pay your loans, it cannot even service the interests. It is illiquid, it is not sustainable, therefore, we must fix it. A school of thought said, go back to the populace to pay more, let them go back to fix the inefficiencies that exist but is not a very strong argument. The stronger argument for me is let us pay the super profits first, pay the right tariff and let the market finally get an equilibrium and it will come down. I always give the GSM analogy as an example. When the mobile telephone first came, I struggled to pay over N100,000 but it was difficult but now they even give you SIM cards free. Let the tariff find its level and come down by itself. We are already paying the price by using petrol to generate power. It is the most expensive way to generate power even if it’s “I pass my neighbour” that you are using. So, if we take a tariff increase, force efficiency through, then we will be charting our way to stable power supply.
    How far has Oando Gas and Power (OGP) gone with the attainment of its short to long term plans and strategies?
    It is my pleasure to share the developments of our brand, and share our ongoing projects and our long term plans as a company. It is on record that Oando Gas and Power has been a foremost developer of gas infrastructure in Nigeria. We have to our name over 260 kilometres of pipeline built over the last 15 years. No other company comes close to that record and we have plans to even do more. We are certainly the pioneer developer of gas infrastructure, and not just gas infrastructure but gas solutions across Nigeria. We pride ourselves as portfolio developers. By portfolio developers, we move into assets, and exit from assets. About this time two years ago, we were talking about our captive power plants. I’m pleased to say we have agreed to divest from those power plants and will be moving the investments to much bigger footprints in the power space as we also expand our gas infrastructure plane. Today we have our footprints, largely Gaslink, which continues to grow. We only recently completed Greater Lagos IV, so now we have the pipeline from Ijora all the way to Bonny Camp. What that means is that we have crossed the Eko Bridge, the Cowrie Creek water channel, and we have our flange just in front of Bonny Camp. It means now that we can go over and beyond the 175 customer that we sell gas to, and can now continue to sell to people on the Marina. There are many stations in Marina that will be hoping to improve their energy source. Now that we have the pipeline solidly there, we will able to do that for them.
    We have continued to grow our business in Port Harcourt with the Trans Amadi grid. We are expanding that now with a 9km addition that will take us to the port area. Our primary target there will be the BUA sugar refinery, which will be a big consumer of gas. But more importantly, we are trying to expand the Rivers State grid not just to Trans Amadi but to the entire emergent industrial clusters in Rivers State. It will see us go to Chioba, Obagua and all the developing parts of Port Harcourt. The idea is that the grid in Port Harcourt will be akin to the grid in Lagos and it will be our intention to continue to do this in all the emergent cities in Nigeria. We want to establish ourselves as the foremost last man distributor of gas. It will be our vision and aspiration to take gas to all crannies of Nigeria. Two years ago I also talked about our experiments in virtual pipeline space. We have just completed the building of our compressed natural gas facility in Ilasamaja. The plant is fully operational and currently all the capacities have been sold and we are working hard on the logistics to truck this gas to the consumers. We currently dispatch well in excess of 16 trucks daily from that facility and they get as far as Ife and we cover Ilesha, Ibadan, and big customers who have industrial concerns that are far from the pipeline grid. It is our intention to take that even further but so far we have sold the capacity of the gas network services at Ilasamaja and will be looking at other virtual pipeline projects going forward.
    OGP, it was learnt, had a deal with Helios, can you talk on the transaction?
    We only recently brought in Helios – private equity fund – into our company. They hold majority shareholding in Oando Gas and Power today. Helios investment partners own 49 per cent of Oando Gas and Power. Two per cent is owned by a nominee of Helios and the remaining 49 percent is held by Oando Plc. In terms of touch and feel, it continues to be an Oando company but is largely invested by Helios. Helios is a big African based infrastructure fund. It has in the last few years raised over $3billion worldwide. They have a big retinue of partners that they constantly invest in their fund and we have been able to make a deal with them to sell part of Oando Gas and Power for $115 million. With that amount, Helios is the biggest shareholder in Oando Gas and Power. They have invested in us but we retained management, therefore, I will continue to be the CEO, the whole team is still intact as you knew it. Nothing has changed on the management side but certainly things have changed on the investor side. The good thing about Helios is that they are in two good worlds. We carry the benefits of our legacy ‘Oando’ and we then complement that with a very deep pocketed fund. It creates new growth areas for us. All the constraints in the infrastructure space that we suffered because the Group was looking at many other things, I think have been solved. Today, we are able to look at those projects knowing fully well that we have the backing of somebody who has a deep pocket in infrastructure fund not just for the fund but for the fact that they are focused on infrastructure and they have a very long term pricing. We are today getting capital that fits with the mix of what we are supposed to do in the gas infrastructure space. We are pleased at this, and at the right time we will be making the right announcements. Helios was also an investor in the downstream business with Oando. Oando is used to Helios being co-partners. They were investors in marketing with Vitol. It was Vitol and Helios investing in the downstream but in this case, it is Helios alone investing in Oando Gas and Power.
    Things have been growing but of late, particularly, in the last one year, we suffered some supply security challenges. It is related to the challenges that we have had as a nation with people blowing up gas infrastructure and pipelines. It has taken a toll on our supplies and it has also aggravated the need for us to look at alternative supply sources. We will continue to do that going forward. We are working with other third parties to see if we can sign willing buyer willing seller gas supply contracts. We are also looking at other alternative ways of bringing gas other than the pipeline. So, our mini LNG project and our FSRU (floating storage re-gasification unit) project would help us at least create alternatives and help in bringing gas to Lagos and other parts where we do business. So, there is a big part of our medium term plan that will be aimed at developing the virtual pipeline project. We have already announced that we are starting a mini LNG project in Ajaokuta but we are doing that in conjunction with the Nigerian Gas Company. It will be a 20 million standard cubic feet per a day (scf/d) gas plant and we expect by the end of the year, that development will be complete. We are currently working with our partners to do the front end engineering work. We hope to start construction in the next quarter. We will also be working on an FSRU project and for that we working with Helios and a German gas company but we will be looking at LNG boats into parts of Lagos, not just Lagos but West Africa to bring LNG into markets. That will help us diversify our concentration on gas only coming from the Niger Delta. We will continue to keep alive our gas processing aspiration. We have opportunities now not so much the way it was conceived when we talked about the central franchise area, but in specific cases where we will be doing gas processing for specific clients. We are looking at not less than 300mscfd gas processing facility somewhere in the south central.
    The big part of all of this is to create an appropriate financing strategy. Gas infrastructure is not something we can do organically when we are just reserving our profits. It will be too slow and will not take the land grab advantage. It is now clear we have to partner with people that have capital to have our programme going. That is what we have done by bringing Helios into the programme and Helios will take us to the other partners. So, we will be embarking on road shows to raise a significant capital at least a billion dollars in the first instance to get into this programme as we go along. It continues to be our aspiration that we will expand our last man infrastructure looking at those regional markets, and I told you we wanted to do reticulation in Benin, Togo and Ghana. It is time now and I think the opportunity is ripe. Their economies are opening and their affordability for gas and interconnected infrastructure is ready. The alternative energy sources are more expensive. I think the time now is ripe to go into those markets. In the next few weeks, I think we will be making a significant announcement of the gas supply contract into one of the regions. We are pushing that actively, we have created a team within our business development platform to face that region squarely.
    In the very short term, I think it is important for us to increase the volume of gas that passes through our system. We intend to raise it to 70mscfd coming from as low as 47mscfd in 2016. So we are looking for 25 per cent growth in the coming year. We will complete the two projects we have on hand in the Greater Lagos IV that I mentioned, that will be up for commissioning any time soon and the Central Horizon in Port Harcourt, the expansion of the first 9km will be commissioned by the Governor by the middle of next month. We will take final investment decision on the construction of the Ajaokuta 20 mscf/d mini LNG facility and construction will commence in that quarter and there is a good chance that by first quarter of 2018, that plant should be operational.
    In doing all these, did you take cognisance of the security situation and where should the gas come from?
    The gas will come from multiple sources. There is a possibility that it will come from the Nigeria Liquefied Natural Gas Limited (NLNG). But there is also a further possibility that it will be imported. The price benchmarks are the same, so there is no obvious advantage buying it from Bonny or from buying it internationally. We have diversified sources. There are spot cargoes floating everywhere just like NLNG also has spot cargoes floating. They have multiple sources for bringing gas. As you know, every gas trader is a potential supplier. Vitol, Trafigura and Geogas, they all have gas at any point in time and because the price is the basis, price is almost exactly the same, so where you get it doesn’t matter much. It is a commodity but there is also a preference to look at NLNG more from the logistics and the quickness of the turnaround. Like I said it is a commodity and we can go anywhere. About security, it is similar and almost equivalent to maritime security and today I think there are vessels that come in with little or no issues. I think there will be no significant issue importing LNG to any part of Nigeria. Since this is our business we will pay some special attention to ensuring that the vessels have safe entries into the ports and to their destinations.
    On the virtual pipeline, do you have the right infrastructure to ensure its workability because you need good roads, among others, to make it work?
    Virtual pipeline is an alternative way of carrying the same gas other than through the pipeline. So, it is not a big one as such and the options will include rail, road and even barges. All you are doing is transforming the same gas to a state either compressed or liquefied and try to use alternative transportation means to move them to the market. It is similar to what we are already doing. Currently, we compress gas in Ilasamaja, we wheel or transport it by road to as far as Nigerian Breweries in Ibadan. It is a 120km-130 km turnaround and we go there four to five times a day because of the utilisation. So, it is what we are accustomed to. There are challenges and logistics problems in transporting not from safety perspective but just to share logistics and the roads and I think that is where the strength of Oando being behind us comes into play. Oando will dispatch easily 800 to 1000 trucks at the peak of things every day. So, we have significant experience in logistics to deploy the technology and we have transport companies that partner with us. These are transport companies that have 200 to 300 trucks in their fleet. They know all the nuances of this business. We will ask them to also help us move gas.
    I noticed that your West African reach stopped at where we have West African Gas Pipeline facility. Do you intend to key into the facility and did you consider the re-gasification facility in those areas as you are dealing with virtual pipelines. What is also the cost of the mini-LNG project?
    Our aspiration goes beyond the three terminal points of WAGP. I started with those countries and cities because those are the countries we are looking at reticulating pipelines on the back of WAGP but as we go into the FRSU and LNG programmes, we will reach out to Senegal, Gambia and everybody on the region provided they have gas need. So we are not limited to the terminal points of WAPG. The floating storage and regasification unit is exactly what you have in mind, we will float LNG there and there will be module that will re-gasify it and we put it into a truck and then put it into a pipeline, and that is the overall model. Today, already we have with the bulk call and terminal company in Tema, Ghana, the right to do this in Tema. So as I speak we are redesigning Tema to take a pipeline that will be fed by both WAPG and by an FSRU when we eventually get there. The strategy generally given our experience here is never going to a market with one source, we have a diversified source that at least gives you almost 100 per cent availability. We will cover more than those three countries and those four cities. In terms of programmes, I gave a broad growth and that we are trying to raise a billion dollars as a company. And just to give you a fling of the cost, a mini-LNG programme will cost you about $50 million for a 20mscfd project. FRSU on the other hand will cost you about $300 million to $500 million depending on what the logistics requirements are. For instance, you need to do break water as part of your berthing arrangement for the vessel but that is very expensive. But for a plug and play as we are thinking in Tema and a location in Lagos, it will be about $300 million for the project.
    These OGP projects and strategies, what will be their impact on ensuring the nation’s energy security, and secondly don’t you think Helios investments in Oando are getting too much?
    Let me answer the last one first. Helios has raised over $3 billion and has done deals all over Africa, so they have a diversified portfolio. Nigeria is a big part of that portfolio. In Nigeria they have done a lot of deals. About 43 to 44 per cent of that portfolio was invested in Nigeria. In Nigeria they have done telecoms, downstream, exploration and production and they have only recently done fast moving consumer products. They have a diversified portfolio and I don’t think they are taking more than they can chew. They have about $1.6 billion invested in Nigeria, $115 million in OGP and about $200 million in the downstream, I don’t think that is a big part of their portfolio, so it will be too early to talk about them being overinvested. Central to energy security is the fact we need an energy mix that is not concentrated. It cannot be all about thermal plants. We must have a good energy mix as a country, so that even if there are dislocations, the other fuels will be compensating and I think that’s what we are pushing. We push gas and there are people pushing coal, nuclear, solar and other renewable. The most important thing is we have diversified energy mix. The more diversified our energy mix the more secure we will be.
    What informed your divestment from the captive or small power plants at a time the government seeks more investments in the power sector, does it mean that it is not viable to invest in the sector or are you having challenges?
    We see the sector as viable but don’t forget that when we did the captive power, we were doing it as a demonstration project. Two years ago, the power sector for us at a time was not clear. It was good that we did our power investment with bilateral counterparts that we could do business with. We found that window with Lagos State and we did our quoting and I think we demonstrated with 13Mw and that was what was possible in the power space. It will continue to be with the private sector because even the divestment was still with the private sector. What we did is that we just divested that investment and our intention was to put it in power but on a bigger scale and I think in the last three years also the power reform is trying to play out well. There are still challenges but it is better than what was obtainable three years ago. For the embedded, I think we can do some sizeable power plants. You will see our announcements with the two distribution companies (DisCos) in Lagos. We are trying to do something that will be significant and bigger. Those power plants we sold, I think we had 23Mw in Iju but our next announcements will be 50Mw and more.
    How will OGP raise the $1billion especially now banks are constrained and what do you intend to do with the $115million from divested interests in OGP?
    The $115 million that was paid by Helios was paid to Oando Plc, the owners of OGP. It was a share transaction. Oando Plc sold shares to Helios and retained some in OGP, so the $115 million has nothing to do with the $1 billion and the new budget. That was a share deal between Oando Plc and Helios. They have their own plans and issues to solve with the $115 million. The $1 billion we are talking about is what we think will be the requirement for the projects we scoped and it is our own equity requirement in those projects. We will need more than a billion dollars but as you know, so far we have raised about $400 million as OGP in the projects that we have done. A lot of these we have raised as project financing. We put the deal together, we go the bank and they give us money to implement. The scheme will still be similar but because of the scale of what we want to do, we want to be able to at least raise a billion dollar as our own equity and leverage that to about $3-$4 billion. If we do a central processing facility (CPF) of 600mscfd that will require a lot of money, so we are just creating capital for ourselves now and to be equity in those bills as we go forward. We need to be able to reach international funds to partner with us on this project. That is more reason we partnered with Helios. The fact that Helios is there means that we will be open to most of the development finance institutions (DFIs). Don’t forget it is the same institutions that put money in the funds, I see will put money in Helios. These are the same people we will fall back on to put in our own $1 billion to do the project. But because we are also part of their system they would have taken us through the mechanisms to get into that money easily. So that is the strategic side to why we did the deal with a private equity fund to prepare ourselves for that capital risk. The $1 billion is a benchmark. There will be a number of bourses. A lot of it will not be local because we have exhausted what is local. We have taken all that we think that can be taken locally and now know the capital raise will have to be foreign. We are preparing our platform to start to go there. In May, we are going on road show with Helios to see those partners to raise money for the projects we want to do.

  • ‘We have a defective economic structure’

    ‘We have a defective economic structure’

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

    How would you match Nigerian accounting firms with their foreign counterparts?
    Matching, if you say so, yes. Apart from the new generation accounting firms, the big ones are all born by the foreign ones. All the people who started accounting practice in Nigeria trained with those ones.
    When the Institute of Chartered Accountants started local training, it was moderated by England and Wales. If there is any difference between the local accountants and the foreign ones, it will be the difference in attitude and the environment.
    PKF in Nigeria or PKF in the United Kingdom (UK) or any part of the world is the same. The first black man accountant, Akintola Williams, trained in the UK. All the people who started this practice were recruited in the UK and transferred to Nigeria.
    Does it mean that Nigerian accounting firms can stand shoulder-to-shoulder with those of developed countries?
    Oh yes. I can say that confidently. When we meet at conferences, I know that we still command some level of respect.
    I asked that question because the government always preferred foreign accountants for its jobs?
    It is the mindset. During the privatisation era, we had an international project with experts from the UK. They came and we were taking them to some project sites. We went to Abuja and had meetings with stakeholders and were meant to go to the European Commission Office in Abuja, and some other parastatals. So, when we got to one office, the gentlemen who came from the UK suggested that we should go to a particular office. We did not book for an appointment there. Then it was suggested that we should go there, because when they see a white face, they will let us in. And that was what happened. Even the foreigners know their mindset.
    How can that mindset be corrected because it is injuring the local firms’ interests?
    It is. I think we have to believe in ourselves and in our ability. I am not saying the West is not ahead of us. Also, when the International Financial Reporting Standards (IFRS) was introduced, we sent people abroad to learn about it.
    How helpful is the IFRS in validating the audit report in Nigeria?
    The truth is that the implementation of the IFRS by companies is far below expectations, with many firms only carrying out pure desk conversions. The IFRS is a new world order, in corporate reporting, that is currently altering not only the financial accounting and reporting landscape, but also tax accounting/reporting, tax cash flows and tax distributable reserves.
    Despite the challenges faced in implementing the IFRS in the country, local companies should be praised given the level of improvement seen in reporting their operations. There is no doubt that developed countries are far ahead of Nigeria in the IFRS implementation plan. The truth is that there is still a lot of financial reporting that is IFRS in title in this part of the world.
    The IFRS main role is to ensure comparability of financial reports from different regions. To that extent, the IFRS has achieved that. But there are financial reports that are just IFRS in title, because when you dig deep into the requirements of IFRS you need systems that can produce certain information. Even the country does not have that type of infrastructure that allows very robust IFRS reporting.
    The fair value principle is used to report companies quoted in the stock market. Let’s take the capital market for instance, the IFRS reporting is based on fair value. In some other jurisdictions, you go to the market where the products are traded. If you want to sell anything in some developed countries, you just need to Google the product and the prices will show.
    We are not doing badly, but we are not there yet. We need to admit that some of these constraints exist, so that regulators can continue to improve and help the level of implementation.
    What level of implementation has local companies recorded in IFRS?
    Every company in Nigeria should be reporting their accounts based on the IFRS. Yes, they started with public interest companies, like banks and others. They are a set of standards, they are rules. To comply means you must have the skills, and resources to do those things required by the standard.
    Of course, if the law says you must do IFRS, you have to. To that extend, compliance is 100 per cent. IFRS is a system-based financial reporting standard. The infrastructure is a challenge. Some of them are not just lack of ability to implement those standards. The economy itself lacks some of those infrastructures. The principle of fair value is very important in IFRS implementation.
    When businesses become target driven, then people must begin to prove that the resources are accounted for. The fair value principle requires that every year, one must state the fair value of the material. Still, banks have been able to comply better than other institutions when it comes to IFRS implementation because they can afford to buy sophisticated software for the IFRS implementation. We are managing to make the best of a bad situation.
    What is it that we cannot get right in our leadership, as every time, leaders keep postponing developmental goals?
    The first things, is that our screening process is weak. It is non-existent. Because when you talk of leadership, you mean, effective leadership. An effective leader is a person that can translate vision, into reality. You need effective leadership to move from conceptualisation to reality. That is why I said it is our screening system that determines the leader. What are the qualities of a good leader? What characteristics should the person have for him to be adjudged an effective leader? Is he principled, is he a visionary, is he effective, does he have integrity? These things are important so that even within your own boardroom, a candidate’s name comes up, you must be able to tick the box, and say, I had a relationship with him in time past, in terms of integrity. I give it to him. Is he firm? We must be able to have those sets of values. Like this current leader, I think the main thing that goes for him is that he is not corrupt. But there must be some other things. But we need to go beyond those things, so that we do not have same of same all over again.
    Let’s talk about the economy. Is it where it is supposed to be?
    The straight answer is that the economy is not what it should be. The next question is why? The main problem with the economy is the structure of the country. Our economy is mono-product. Over 90 per cent of the government’s foreign exchange earnings comes from oil. Seventy per cent of total revenues comes from oil, that is the problem of the economy. Even me, the ethical rule of my practice is that if one client is generating up to 30 per cent of my income, I should not take that client because when the client sneezes, I shiver.
    So, what happens in the international oil market affects us. It is not whether we are competent or not. The second problem is our consumption pattern. I do not have the statistics to compute the percentage, but we are like 80 to 90 per cent import-dependent.
    The import-dependent mono-product, the relationship to that has affected the economy, because since mid-2014, oil process and other commodity prices have been down. Oil prices had at some point, dropped to $38 per barrel, about a third of our revenues down. That is what has put pressure on the exchange rate.
    The economy is sitting on three variables- Inflation rate, exchange rate and interest rate. What the monetary authority does is to manage the economy by trying to do something on each of them. When the interest rate has gone up so high, importers would need more naira to get the same amount of dollar. So, they may need to borrow, and that pushes up your interest rate. So, when your exchange rate is up, your interest rate is up and your inflation will go up and that is the first structural problem.
    The second one is where we would have gotten our cushion. Not just the oil prices that are down, commodity prices are also down. So, the only economy that can survive is an economy that is industrial. An economy that is producing and if you look at statistics 2015/2016, all the economies contrasted a little, from about 2.1 per cent of the Gross Domestic Product (GDP) to 1.6 per cent.
    Nigeria’s economy went into deep recession because we had no cushion. The only economy that survived was China and Japan. Why? Production. Even if you had visited Dubai five years ago and revisited two years ago, you will see that even construction work was stopped. Even Saudi Arabia was affected. For Nigeria, we are only interested in living easy life. Oil money comes, we spend it. And we spend it by just throwing the money back to the developed countries. We imported everything.
    What is the way out?
    We need to diversify the economy away from oil. We need a leader, who is determined to move the economy away from overdependence on oil. We need to do some kind of mass national orientation so that we begin to change our overdependence on foreign products. Then industrialisation. Can we begin to produce those imported products? We need to make life easy for people to do business in Nigeria. Key infrastructures that will drive the economy have to be privatised. Number one of them is power. Then means of transportation, roads, rail among others. Even Dubai today has Metro lines.
    How would you access the Central Bank of Nigeria’s management in the ongoing foreign exchange crisis?
    Number one, I believe that the Central Bank has too many experts and consultants it is working with that have information that is not readily available. As an informed observer, my view is that whatever monetary policy it wants to adopt, let it be consistent. We cannot change one quarter this way, another quarter the other way. If you are floating the currency, float it. You cannot have floating flexible exchange rate. Then you have a corridor you cannot go beyond. Half measures cannot work. If you want to control the exchange rate, let it be, if you want to have market determined exchange rate, let it be. People want to know where the Central Bank is going. Again, you cannot have a monetary policy in isolation of what you are doing with the fiscal policy. Somehow, the CBN and the Ministry of Finance must be talking. They must work together. All they are doing with the fiscal policies, in terms of taxes, taxation, and all that ultimately affects your monetary policy. What you are doing with the monetary policy will ultimately affect the fiscal policy. So, it is not when the implications are out, you will rush another policy to reverse the policy. That will be inexcusable.
    As a businessman, has this foreign exchange policy affected your operations?
    Yes. Even though I render services, but what affects my clients ultimately affects me. In 2016, my revenues were less than what they were in 2015. In 2016, for the first time, I have more management team coming to have meetings with me for a deduction in fees. It is either you do not want us to pay what we already owe you. I also have companies that are technically dormant, so, I cannot earn fees from them. It affects my members of staff. They go to the market and buy things. For the first time since 65 years of our operation, we did not have an annual increment in salary.
    It is taken as given in this office, that every January you will have a new salary package. For the first time, in my own working career, we did not have that. Honestly, I did not even see my workers agitate, which is fantastic about the level of understanding we have. It means they equally understand the state of the economy.
    Why did you think the blame was on the forex exchange crisis?
    My honest view is that information was not available. So, people are reacting based on emotions. The truth is that foreign exchange was not available. There was a time they released data, showing that the weekly foreign exchange bidding was $2.5 billion while the weekly revenue was $500 million. So, there is already a gap and they cannot use everything to fund the market. Some of the entities that left, left because of uncertainty. In a bad situation, businessmen will make money out of it if the right information is provided. If there is certainty, businesses will plan for it. But the managers of the economy were not putting the right information to the public at the right time. They delayed for too long before doing what the people expected. I think they have released the economy blueprint, which in itself will be studied by corporate entities.
    How can we address illegal foreign exchange hawkers?
    We need to reinforce discipline in the economy. I do not want them to chase people on the street. They need to remove any control on the official rate. If you are floating, float. Let everyone have access to the same foreign exchange. Once the gap between the official and parallel market rates is closed, there will be normalcy. Once the gap is no longer there, the issue of round tripping will be a thing of the past. The government should create other sources of foreign exchange inflow. There should be guarantee that investors can easily exit.
    Likewise, the Eurobond offer, which was oversubscribed, has helped to boost foreign reserves. The government needs to open up other revenue plans that are denominated in dollars. If the debate about selling national assets is that if you sell them, if it is in naira, it is not going to solve the problems.
    If you sell national assets and in the future similar problems occur, what will you sell?
    You have a problem, and you want to solve it, you better solve it. You see, you have a problem, solve it. Then, you need to do something to say this should not happen again. Another thing could happen.
    Do you realise that when something happens, the developed economies spend a lot of money to do investigations, even when they knew that thing has gone? Even in murder case of 20 to 30 years, they keep following it up. I am sure they do not want to just spend tax payers’ money, but to find out why it happened. An effective leader ensures that the problems do not reoccur. We need to take emotion out of it. If a business has a problem, you can sell some of the shares. You can even sell only 10 per cent of those assets. For you to control a business, you need 51 per cent.
    Why has privatisation of power not worked?
    They privatised only distribution. You need to generate power for them to distribute. We need to unbundle the laws on power. Even the small generations that state governments are getting have to be supplied to the national grid. They need to review the law. In Nigeria, it is still against the law to generate your own power.
    Speak to the Small and Medium Enterprises sector. Here we have several SMEs, still nothing is happening. Why?
    The ease of doing business in Nigeria is frustrating. The government knows exactly what to do, but they are not doing that. There are many bottlenecks from company registration to tax registration to even electricity generation. There are several factors that ensure that SMEs do not get off the ground. The mortality rate of SMEs in other jurisdictions is very high, but they still survive. Take for instance, if you register a company, you have to go through processing receipts, the day you open a file with tax authority, the next day, you are in trouble. The tax authorities will just swap on you. In short, voluntary tax compliance puts SMEs in trouble. But I think the government is doing something about that.
    The government has given N500 billion to Bank of Industry so that the young graduate who does not have money can start SMEs. But the ease of doing business has to improve and then the availability of funds. There is also the need to mentor SMEs on corporate governance and how to package a bankable business plans.They should not just get the money and keep it. They have to understand that regulatory compliance is key. We, at PKF, have to also help the SMEs on governance structure. We need to render free seminars to help the SMEs. Let’s begin to disabuse our minds about cutting corners. If you need licences, then you have to get them.
    Yours is an international accounting body. The rating agencies keep rating banks and the government. How are they impacting on the companies?
    The ratings are basically meant to help the company give assurances to people they do business with, either the lenders and others. It says that this entity is rated so much, which means the chances of not defaulting on its obligations is high, and all that. The objective is to give confidence and assurances to those that will do business with the company. When a rating is strong, it means that your international financiers will be confident; suppliers will release goods knowing that the banks will pay the bills.
    So, you have to initiate the ratings?
    It is a standard practice for some companies, but you have to submit yourself for rating and the agencies will give you the template.
    But can it be influenced?
    There is nothing in the world that cannot be influenced, lets’ not deceive ourselves. But top rating agencies always have control measures to guard against that. For instance, in my office here, if I send a team to go and audit, there is an engagement leader, a manager, a partner, who services that team. And behind that, there is a quality assurance department. And then there is an independent reviewer. If you finish, you send a file so that somebody can look at that. Then the person will want to look at the facts and the conclusion.
    Are there correlations between what you set out to do, and what you actually did when you were there, your findings and conclusions? You can say it can be tailored, but from my experience, even when you read through, you can know that it is too good to be true. There is an independent person that looks at it, the person has no contact with the client and the team. He looks at this against other independent information. The day any of those reports suffer credibility problem, the rating agency will be out of business. But that does not mean it is 100 per cent perfect.
    How much of these blames will accountants take?
    Everything. Because they are supposed to be the professional, that should be taking the professional stand. Yes is yes. No is no. If I run foul, I am the one that should suffer the licence, humiliation. So, accountants should be the ones putting things right.
    The xenophobic attacks in South Africa and the retaliatory effect on MTN Nigeria, does theey speak well for the two countries?
    No, they don’t. It will adversely affect their economy. The last time I had them send trainers here, or bring conferences here was maybe 2003 or so. Jos is 5,000 kilometres away from Lagos. Unfortunately, South Africa is doing this, which is not going to be good for their economy. It shouldn’t happen, but unfortunately, it is happening.
    There was a time I supposed to have a board meeting in South Africa, I was like can we do it through teleconference or we go to another place. Of course, I have to react that way. A big investor will also react that way. On the diplomatic level, we shouldn’t be doing retaliatory attacks on MTN because we are beyond that. As long as we are able to demonstrate that we are beyond that, then we are in a position of strength. Look at what is in the Middle East; you see that in whatever way you see it. Britain has handled it above emotional reaction. You won’t see the kind of emotional reaction you will see from a Russia or America of today. We must understand that it is in their psyche. Those people, since they were born, they have known nothing other than struggle.

  • ‘Our aviation industry is dead’

    ‘Our aviation industry is dead’

    That the nation’s aviation industry is in turmoil is an understatement–no thanks to the  harsh operating environment. While aircraft fleet is on a downward stream, some other operators are facing the cronic challenge of debts overhang. AMCON’s takeover of some of the airlines has brought with it the erosion of confidence among operators. In this interview, The President, Aviation Safety Round Table Initiative and Managing Director, Sabre Travels, Mr. Gabriel Olowo, expressed regret that an industry that started with great hopes has been virtually grounded by government policies and an unstable economy, including the negative impact of scarce foreign exchange. He spoke with a group of  journalists in Lagos. SIMEON EBULU was there.    

    What’s responsible for the high rate of domestic airline’s failure in Nigeria?
    Thirty per cent of airlines’ failures are due to mismanagement by the owners, while 70 per cent are caused by the government, including the harsh economic environment. In my 44 years in the aviation industry, I have seen airlines failing within a space of 10 years after starting operations. That means there is a common factor.
    The business of Nigeria Airways was government business. The problem of corporate governance has always been there. The Nigeria Airways was supposed to be repackaged and become a new carrier, but the then President said the government was not buying into the repackaging.
    The second generation airlines such as Okada Air, Oriental Airlines, Triax and Kabo among others all meant well. Okada said it wanted to prove to the government that it could do the business and it brought a Boeing B747, but that aircraft never flew and was left to rot. The investment was wasted. Its owner got a promise from the then second in command during the military regime, but we were looking at the airplane everyday as it was parked at the airport. It was initially planned to do Lagos-London-Lagos route. That was on the side of the government and this was the same situation for Kabo Air.
    Recently, the Nigerian Communication Commission (NCC) and the Minister of Communication intervened to prevent a telecommunication firm from being taken over by three banks over debt issues. But there was no indication that the Minister, or the Nigerian Civil Aviation Authority (NCAA) made any step to save Arik or even Aero Contractors. Why?
    The Nigerian environment is very hostile for business and our civil servants in the Aviation Ministry (now Ministry of Transport) are supposed to see to the advancement of the sector, ensuring that airlines succeed. They are supposed to measure their progress from year to year. They should tell us the number of aircraft in the last one year, the number of airlines that have increased their fleet over the years, the growth rate amongst others.
    So, if there is no growth, there can be no development. How come Ethiopian Airline took us over? How come South Africa Airways took us over? What is that Ministry doing? The civil service is the government. The President will talk through the Minister of Aviation, who is responsible for the ministry, even if the Nigeria Civil Aviation Authority is autonomous.
    How is the foreign exchange policy affecting the aviation sector?
    Foreign exchange is one that is highly volatile. It has always been like this in the last 40 years. In the early 1970s, I remember the exchange rate was N4 to a dollar. During the first coming of President Buhari, we faced the foreign exchange problem and the airlines were running with what was called “blended rate.”Various banks offered different exchange rates. Foreign airlines were faced with that, leading to about five of them exiting the country.
    I was working for a Brazilian airline- Varig, which also stopped its operations into the country because of foreign exchange issues. Most of them couldn’t repatriate their revenue due to scarcity of foreign exchange. Iberia Airline left; Varig, Scandinavian Airline, amongst others, all left. Since then a big vacuum was created. During Buhari’s first coming, there was trade with Brazil; we had counter trade with Brazil. Volkswagen Nigeria was relating with Volkswagen Brazil. We had Sakamori, we had telecom and pharmaceutical businesses from Brazil. There was huge economic exchange that time, but since the airline left, a vacuum has been created between Nigeria and Brazil in terms of business interaction. There was huge economic boost between those two continents then. Once aviation link is broken, economy is dead.
    As at 1994, exchange rate was around N22 to a dollar. Nigerian airlines were selling one hour flight ticket for Lagos-Abuja or Lagos-Kano at N2,200 and at the exchange rate of N22, that amounted to $100. Lagos-Abuja was $100 value in 1994, which was about 23 years ago. Today, the exchange rate has moved from N22 to N450. Today, an airline sells ticket for the same Lagos-Abuja at a baseline fare of N16,000, which amounts to $30. Do they want to kill the airlines?
    If I am in government, I will shut down the airline because this is showing your desperation for cash flow. And they call it promotion. What kind of promotion? Exchange rate will never make you earn the right tariff because people will not be able to buy the ticket. So, you decide to reduce the price, meanwhile your cost is increasing.
    The airlines in Nigeria currently are not charging the right tariff after 23 years. If people cannot fly, then do not kill them. If I am NCAA Director-General, I will shut any airline that charges less than $100.
    The current recession seem to have affected the airlines more? Do you agree with this?
    The airlines borrowed a lot and their borrowing has dollar content and you do all your sales in naira. So, how can you get the foreign exchange content? The CBN says N306, which is not available. You spend so much on training, maintenance, and distribution. You have to pay dollars for virtually everything. The dollar is not available, so, the operators have to go to the black market to get dollars at a higher rate than the rate he sold the ticket. How do you want that airline to service its debts? Because he has started, he cannot kill the business, so he keeps on struggling and he gets to a level that all the creditors gang up against him.
    What has happened to the airlines AMCON took over? What success has it made of them? What is the objective of taking over?The job of the receiver manager is to assess your assets and liability and make up his mind on whether you will revive it or kill the company?
    All over the world, when a business goes to receivership, he might decide to say since the company is bankrupt, they will keep the business running and make sure it does not die. They can set all the debts aside and pay when the business picks up, they can attend to other things. I do not think we have bankruptcy law in Nigeria and if that is the case, it behoves on our regulator to find a way to support our airlines, having seen how and why they are dying, which is as a result of direct and indirect contribution.
    If Richard Branson came here and failed, what are the factors responsible? Richard Branson is doing well in Australia, in the US and Europe, why did he fail in Nigeria?
    The Ministry of Aviation, NCAA and all stakeholders, if Richard Branson failed in Nigeria, then do not blame Nigerian airlines at all. When Branson was leaving, he said Nigerian politicians are carrier destroyers. They do not follow through an agreement, they cancel agreements. What is going to be the investor confidence?  The NCAA and the ministry, which are supposed to be government agents and decision makers should not have allowed AMCON to do what it did. They will ask AMCON their objective. An airline that went from 30 aircraft to nine and your eyes are wide open. Did the bad economy of the airline happen in one day? The aircraft would have been going for maintenance and not coming back.
    They are supposed to monitor the economic health of the airlines on a daily basis. The airline filled the forms and the NCAA has the right to make sure it is correct. When you are talking about capitalisation in this sector, it is not like the banks. Capitalisation is not liquidity. Our NCAA must be ready to see how liquid the airlines are. If they are not liquid, they must find out why and you must account for his problem of liquidity, and where he cannot account for it, you realise that revenue is not covering cost; you have a job to do.
    Nigerians are watching to see the development in the new management of Arik Air. What is the hope that they will be able to revive the airline?
    Personally, I have no hope in AMCON because its antecedent has not convinced me otherwise. The way they have been moving in the last three to four weeks, I see no hope. They took over Aero Contractors and I haven’t seen anything after that. They removed the CEO of Aero and sent him to the Nigerian Airspace Management Agency (NAMA), they brought in the chief pilot from Arik to Aero, all their postings have been haphazard, so I see no hope but I pray that they don’t kill the airline. The airline must not go under. It is not about paying off the banks, but it is an in-depth understanding of the cause of the problem. If there are priority allocations of foreign exchange to some sectors, even religion, this is a very sensitive sector for forex allocation.
    If the airline operator has borrowed with huge forex content, and it has gotten to such an alarming rate, then there is a problem. For foreign airlines, they reduce frequencies, they are cutting their expenses, their bigger operational base are not in Nigeria. So, all they do is sell here and move their money. So, they know how to handle their problems. The Nigerian airlines’ home is here. Somebody needs sympathy for them and that sympathy should be from our own government, our NCAA and the Ministry. I see no reason why we cannot call the airlines together and find a way to make them strong.
    If I have my way, I will merge all of them into one without killing their individual identity. The total aircraft for Nigerian airlines today is less than 30. South African airways has 53 aircraft, Ethiopian airline has close to 100. We can bring our airlines together and do a very robust schedule for all their aircraft put together. As a roster – the first airline will go for flight one, the next flight will be used as flight two. If the first airline does not go for any reason, the second airline can go, while the third airline can be used as flight three. The schedule will be maintained. So, you will be competing to do your flight because you are on the schedule and I will do 1, 000 flights using all the aircraft. I will use technology. If they can grow their fleet, they will continue to grow it to make it efficient. If you are going to position the aeroplane, we must have a standby. If you cannot position it in 30 minutes to take off, then the airline on standby will move in.
    The issue is policy. The NCAA just needs to ask for the airlines’ airworthy aircraft; we can have two strong competitors. This is to reduce competition and improve standard because NCAA will not take rubbish from any airline. That is what Imo Air is trying to do. Imo Air operated by Dana Air, that is the concept. It is done all over the world. If you go to the United States, that is what is done. American Airlines operated by different operators. American Airlines has robust schedule and it is not operated by American Airline aircraft, but aircraft under the supervision of American Airline.
    There are reports that the new management of Arik may have to reduce workforce by 70 per cent. What do you think will be the effect of this, considering the size of Arik?
    This will be suicidal. It will make manpower 60 per cent and money 40 per cent. If you fire Arik workers and you are thinking of a good airline tomorrow, you may be running into problems. Look at the workers in the industry, the people circulating today are those that came out of most airlines that have gone under. Manpower is key and if AMCON is serious about managing the airline, it should just retain manpower now. Keep the manpower because it is even the least cost.
    In Nigeria, each time there is crisis; manpower is the first they will cut, which is not supposed to be. Manpower should be retained because we need it again and again. When we were planning the restructuring of the now-defunct Nigerian Airways, we realised it had 6,000 workers, but just one aircraft. We said to ourselves, let us keep some of this 6,000. So, we looked at all the assets of Nigeria Airways, which included the engines, the catering department, water department, maintenance department, amongst others. After we did the forensic audit, we knew that from all the assets, we should be able to get six brand new aircraft. We said we would call Boeing and Airbus and offer them all the assets in exchange for six aircraft.
    We would put four for domestic and West Africa and two for international. Then Nigerian Airways would complement other indigenous airlines and we would not have too much competition in the domestic market. We then looked at the world average with regards to workforce per aircraft. In some countries, you need 50 to 100 workers per aircraft, in some airlines we have between 150 to 300 workers per aircraft. So, we did an average and arrived at retaining 200 people per aircraft.
    Since we would be able to get six aircraft from the assets, then that would give us 1,200 workers from the six aircraft. So, we bloated it and said we would take 2,000 out of the 6,000. So, our recommendation was to retain 2,000 out of 6,000 because we are going to start a new airline and we wanted  to go to the Nigeria Stock Exchange where we would float for the company for the Nigerian people and it would be the peoples’airline.
    The owners would be qualified, chosen from the Nigerian people and serious managers would be in charge, home and abroad. A Nigerian is the Director of Engineering in American airline. The man manages 800 aeroplanes. Unfortunately, all we said was not implemented and we learnt that the airline was shut down. So, manpower is key.
    What is your take on the national carrier proposed by the Minister?
    I am in haste and I want to see it quickly. I support it, but I will not agree it be called a national carrier. It should be called another flag carrier. If the kind of consolidation I am suggesting for the existing ones happen, we will have two big players to face a British Airways. With the kind of players we have, we cannot face a British Airways or a Lufthansa. We cannot even compare with Ethiopia Airlines. Commercial discussion here is not a joke.
    What is the level of consultation between the private sector and the government when it comes to issues that affect aviation?
    Aviation Round Table is an NGO, which is made up of concerned people in the industry. The best we can do is to talk and send the communiqué to the government to see. We discuss the issues and recommend the best ways to go about them. The communiqué goes to the President, the Minister and the media. We have reflected on almost every issue in the last one year, it is left for the government to implement some of the solutions we have proffered. What is driving us is to know how aviation can advance. What is making Emirates big? We are celebrating Ethiopian Airlines to Kaduna, but where is our own to celebrate? This is very sad. Ethiopian Airways came to run Air Nigeria for us and now Ethiopian is on top.
    What do you think should be the average number of aircraft by Nigerian airlines?
    In the Nigeria of my dream, an operator must start with an equivalent of a South African Airways, which is 50 aircraft, one operator. We must do equal services to the countries of all the foreign airlines. If Lufthansa does three flights, I will do three to Germany. British Airways will do seven and I will do seven. You will not let them do 21 and ask me to do 21 because they already have the market. I am going to deliberately reduce their market and give it to my people. I must make sure that our airline has what it takes before I will go to Britain to negotiate. They will tell you Heathrow is not available, then I will tell them Lagos is also not available.
    You have to give my own people Heathrow for me to give you Lagos. I won’t do open sky because I do not have the muscle yet. The muscles the foreign airlines have are stronger than mine. What kind of nationalism do I have? I went to negotiate air traffic to India for Bellview because our government said we cannot do London and other lucrative routes, I wanted to prove that we could do it as we have aeroplanes to do it and pilots. We had Airbus 300 and A800, which was the biggest at the time, sold at $52million. Those in the ministry said if we go to London we would disgrace the flag; they didn’t believe us. So, they asked if we could do India and we agreed, but unknown to us they had other plans. Stupidly, we took the business. When I went to negotiate Bilateral Air Service Agreement (BASA), the Indians I met were real experienced aviators. They said we could not come to India because they did not want to come to Nigeria. They held our aircraft at some point, so they put all the bills down and they asked us to pay the bills if we want to come to their country.
    So, we agreed to settle the bills. They went on to tell us that on our aircraft, they will give us 100 seats and we will be selling tickets as Air India. Those are commercial negotiations. How will you go and negotiate for Arik and you will not take Arik with you? What kind of ministry is this? When they take Arik officials, they tell them they are observers, they are not supposed to talk, we are the ministry and we should talk. Is it the ministry that will fly? Our industry is dead. How can a ministry go and do commercial agreement without an airline? Going forward, we need someone who understands the economics of the business. As the Minister of Aviation, you should understand where the money is coming from.
    There are some feelers in the industry saying foreign airlines are taking some of our best hands, meanwhile we have pilots with little experience that do not have anywhere else to go. Do you think it is a plus?
    It is a plus for us. What will a pilot do if there is no aeroplane to fly? If my aeroplane reduces from 30 to nine and my pilots are sitting down, they cannot fly. That was why they picketed Landover because pilots were rostered and there was no service for them. They are very delicate specie because if you want to hire them you have to be very careful, especially if you don’t have sufficient hours for them to fly. Let them go and get experience and the day I need them, I will go for them. The day we have strong two players with 50 aircraft each, then we will get there. Then, a Nigerian pilot will be cheaper; a Nigerian engineer will be cheaper. If I give a Nigerian pilot house in Ikeja, an expatriate will say he wants Ikoyi, with security.

                                                        

  • ‘How we are re-engineering port facilitation’

    ‘How we are re-engineering port facilitation’

    The Executive Secretary, Nigerian Shippers Council (NSC), Mr. Hassan Bello, a lawyer, in this interview with Maritime Correspondent OLUWAKEMI DAUDA, says port concession has yielded positive results for the country. He canvasses the need for a multi-modal transportation system and the establishment of a national fleet to boost the economy.

    What is your assessment of the port concession exercise?
    There have been some fundamental changes since the ports were concessioned. We are having more private sector participation in the industry unlike before when it was government alone. This is good for the industry because the government believes that the private sector will make more meaningful contributions to the maritime industry and this will spur the potentialities of the industry, which will, in turn, boost the economy of the country.
    Importers have identified multiple charges as one of major reasons for cargo diversion to neighbouring countries’ ports. Do you share this view?
    Freight has been stable for some time now, but the problem is the different local charges. Charges must be tied to services. You can’t charge for the service you are not offering. And then, there must be some kind of negotiations before coming to settlement. Tariff will always rise and fall, but there must be a way out. Tariff is important in competition and Nigerian ports are designed for competition. Unless we have that competition, we would have the risk of having private monopoly over what we have discarded, which is public monopoly. Nigerian ports must be efficient, effective and competitive among themselves and among the West and Central African ports.
    Why is it difficult for Republic of Niger and other land-locked countries to use Nigerian ports?
    It is a question of comparison. Niger Republic shippers would want to compare what Nigerian ports are offering in term of shipping and port charges. Shippers from Niger Republic want to know whether Nigeria is ready to give special berthing, storage or some concessions. Nigeria Customs Service (NCS) is very dynamic in this regard. Nigeria Customs has almost given Niger shippers everything that they asked for. The terminals have to negotiate with the shippers. They calculate every mile, whether it is more profitable to import through Nigeria or Ivory Coast. They have to determine which of the ports to patronise. So, it is a question of looking at the economies of scale.
    What is your vision for the Council as Economic Regulator of the ports?
    My vision is a collective vision of the council. It is a vision anchored on our ability and capacity to translate vision into reality. Our vision is, therefore, mind-mapping what is possible in our members of staff, in projects we intend to embark upon, in causes and in enterprises too. In essence, it is anchored on the following: intelligence for the mental; vision for the physical; discipline for the emotion and passion for the spiritual conscience.
    What is your plan for the economic and infrastructural development of the industry?
    We believe that our vision has to be economically relevant and therefore, has to relate with what happens in the economy of the country. Having being mandated to carry out certain economic functions, like advising the Federal Government on key policy issues on shipping, transportation and availability of transport infrastructure, the Council therefore, has an onerous responsibility. Our vision is, therefore, in tandem with the ongoing transformation agenda of the Federal Government by ensuring that our maritime infrastructures are improved upon at least, to make Nigeria one of the most powerful economic nations by the turn of the century.
    How do you intend to achieve this, considering the huge infrastructural deficit the country has?
    Truly, the country has a large infrastructural deficit, especially in the transport sector. We are saddled with providing this infrastructure, especially with the dry ports and container depots. We are also saddled with the provision of truck transport park. These two important infrastructures will go a long way in the long run. Secondly, to bring shipping to the door steps of shippers in the vast hinterland, thereby reducing the cost of shipping. Thirdly, to make these Inland Container Depots (ICDs) or dry ports the consolidation points for exports because Nigeria has to diversify its economy now or never.
    How do we achieve the diversification?
    Nigeria has to earn foreign exchange from its farm produce and mineral resources, which are competitive. Incidentally, these are not obtained at the sea ports, but in the hinterland and we need these ICDs to be the centre for exports. It is also important that they are recognised as ports of destination for imports and origin, so you can consign cargo to these ICDs. With this, the economy would get a boost and there will be industrial clusters around them like warehouses and haulage businesses and other ancillary industries.
    Is that the reason the National Assembly is collaborating with NSC on the ICDs?
    Yes, we need the support of the National Assembly and Nigerians to achieve this. ICD is a centre of international trade for Nigeria because cargo will be examined there. So, our landlocked neighbours will surely use them for their transportation. Aside these, ICDs will have employment content, as many people would be employed. Also, the objective of the Council is to establish truck transit parks at Lokoja, Onitsha, Port-Novo, Ogere, Mararaba and Ore. The purpose is to promote road transport security in transportation and cargo of vehicles to reduce theft and pilferage in transit and to help other landlocked countries. This will be done on Public Private Participation (PPP) basis. We intend to be an economic regulator as contained in the Shippers’ Council Act.
    What do you see as obstacle to the take-off of ICDs?
    There are delays in the take-off of the ICDs due to policy somersault at the early period of operation, given that the building of infrastructure was vested in the government before the advent of PPP. The Nigerian Shippers’ Council’s role was initially that of the policy formulation and in opening up communication with state governments and development partners. The state governments are to provide land free from the encumbrances of concessionaires. There is a timeline for completion of these projects. But unfortunately, when the PPP was being introduced, there were some serious gaps because the legal framework for the ICDs was lacking. Thirdly, the formation of these projects at the time was not put through proper scrutiny. By and large, inland container ports were the guinea pigs of the PPP and they suffered from pioneering challenges. However, with co-operation from the Federal Ministry of Transport, concessionaires and invigoration of the Council, the ICDs are back on track.
    Do you think port automation will solve the problems at seaport?
    It will solve the problems we are facing in the ports. Whatever we are doing at the ports must be world standard. Automation will block revenue leakages and create efficiency. The port must be linked with different modes of transportation to ease trade facilitation.
    What is the Council’s cooperation pact with the Nigerian Railways?
    We have a ‘Level Service Agreement’ with the Nigerian Railways Corporation (NRC). These ICDs are deliberately built to be near the rail lines. The NRC is aware of the placement of these ICDs at strategic locations and will surely patronise them. We are also in agreement with port operators so that they will assign specific areas to cargoes destined for ICDs.
    How ready is the Council to assume responsibility as economic regulator?
    We have a lot of work to do as we do not pretend to have all the answers, especially as it concerns the rail sector and inland waterways. But, what we are saying is that the Nigerian Shippers’ Council is the most adaptable agency to carry out these functions because we have the experience of economic regulation with the ports. I hope to work with the Bureau for Public Enterprise (BPE) for massive training of our staff so that we can execute the enormous responsibility entrusted on us. The change we want to make when the Act is amended must be one that is translated into specific plans and actions to convince stakeholders that there are possibilities, which will not create boredom or lack of efficient service delivery. The change will bring about dedication to duty, enthusiasm, self actualisation, while increasing channels of human energy.
    You are the Chairman of the Ministerial Steering Committee of the National Fleet. When do you think Nigeria will have a national carrier?
    National fleet is on the way. We are talking with developmental banks on the issue of financing. It is 40 per cent for Pacific International Lines (PIL) and 60 per cent for Nigerian investors. We are talking with some banks and we have gone very far. We need a sustainable national fleet. What we need is Nigerians participating in the carriage of their cargoes or other cargoes from elsewhere. Nigeria should be able to compete with other shipping countries. Don’t forget that there is what is called project cargoes. The country is building about $3 billion railway project from Lagos to Kano and who will carry those cargoes other than Nigerian fleet? We have many things going on in the power sector generating a lot of cargoes. As long as we have project cargoes from the Federal, state and local governments, the national carrier would be given preference to carry those cargoes. We have to look at the market and cargoes to make it sustainable.
    How do you think the government can solve the problem of access roads to the ports in Lagos?
    The Federal Government has been looking at the issue of access roads to the ports. The ports in Apapa have reached their capacities and that is why government is considering modern deep-sea ports. Nigerian Shippers Council (NSC), Nigeria Ports Authority (NPA) and the World Bank are working to find solutions to traffic in Apapa by bringing modern traffic management. This will have to do with reviving of truck bays up to the gate of NPA. Every day in Apapa there are 5,000 trucks and what we need is just 1,500 trucks. So, what are the 3,500 trucks or 70 per cent of these trucks doing there daily? You have got to have business at the ports before coming with your trucks. Carrying cargoes in the ports is a very serious business. Shippers’ Council has said no one should be coming with rickety truck to the port to lift cargoes again. So, there must be reform and restructuring in trucking. For you to come to the ports, you must have a company with a minimum of well-tested six trucks. We have talked with the various truck associations operating in the port industry.
    What is the inspiration behind the trans-regional shipping line, your Council and Sea Link were supporting?
    Intra-African trade is the lowest in the West and Central Africa sub-region within the Gulf of Guinea. It is less than one per cent of the total container trade in the world and this is very appalling. There are lots of market between demand and supply in Africa generally. In West Africa, the Economic Community of West Africa States (ECOWAS) was set up to encourage trade within the nations and this is what the Sea Link is supporting. This will be done under public private partnership (PPP) arrangement. I think three vessels will be deployed to the regional trade. We are talking about Sao Tome, Sierra Leone, Senegal and Nigeria within the region. We should concentrate on having our own trade and, most especially, we should concentrate on having our own vessels. It is when you have the vessels that you can control the terms of trade, including the freight, which is very important. We are going to be using three vessels in the beginning, but later on, as the implementation continues, you will see a lot of vessels coming in. The earnings from freight will have effect on the local economy of the affected countries, and we would also have the involvement of the institutions of those countries; for example the banks, the insurance and everyone coming together. It is an opportunity for employment and modern transport infrastructure and the opportunity to stimulate the economies of the African countries.
    Why did you introduce tracking note at the port?
    There is need to integrate the system because some very important stakeholders raised certain observations in order to make the International Cargo Tracking Note better. These stakeholders include the Manufacturers Association of Nigeria (MAN) and the shipping companies. So, we have to set up a technical committee with the shipping companies. We also met and held several meetings with MAN. We are actually engaging these stakeholders to make the International Cargo Tracking Note (ICTN) better in the sense that it would be different from all other shipping documents. Secondly, it should not add to the cost of doing business. Also, it is a trade facilitation project, which should ease ways of doing business in the port industry.
    As the port economic regulator, what strategies have you put in place to move the industry forward?
    Nigeria has a large infrastructural deficit, especially in the transport sector. We are saddled with the provision of Truck Transport Park (TTP). This important infrastructure will go a long way in the long run. The second priority is to bring shipping to the door steps of shippers in the vast hinterland, thereby reducing the cost of shipping. Thirdly, we also want to make these dry ports the consolidation points for exports, because Nigeria has to diversify its economy now or never. In the last 27 years, Nigerian Shippers’ Council has been making some efforts to create enabling environment for the interest of the various stakeholders in the maritime industry. Various stakeholders populate shipping industry and you need a fair play field. There should be equilibrium for the sector to thrive and the council is the umpire that oversees the operations of the maritime industry and advises the government on investments in that sector.

  • ‘Borrowing to service budget shouldn’t cause a stir’

    The Director-General of Debt Management Office, Dr. Abraham Nwankwo, believes that Nigeria’s successful outing at the Eurobond market should be reassurig enough that Nigeria is determined to come out of recession, and that borrowing to servive the budget should not cause a stir. He spoke with a select group of Editors in Abuja.  Deputy Editor, Nation’s Capital, YOMI ODUNUGA, was there.

    How would you describe Nigeria’s performance at the Eurobond market?
    I would say it was a success. We successfully transacted on the $1 billion Eurobond issuance on the 9th of February. It was over-subscribed. The level of subscription is nearly 800 per cent and we got it at a favourable price relative to our expectations and general predictions before we went to the market. We obtained that at a coupon of 7.875 per cent per annum which is very favourable considering that the bond is for a tenure of 15 years.
    The last time we went to the market in 2013 which was our second outing, that $1 billion outing was obtained for 10 years. This time, we decided it was important to have a longer tenure and the analyst felt it was a wrong time for us to be ambitious to look for a longer tenure, given that the global economy is not as bright as it should be.
    We also have our local challenges, particularly the fact that we are in recession. Nigeria should always move forward in spite of all challenges. We believe that Nigerians are resilient. That’s why in spite of advice from analysts, we insisted we will go to the market this time and opt for a longer tenure.
    The Nigerian team was well received by the international market. Our presentation to the international market revealed what our challenges are and the various measures the government has taken to solve the challenges. Investors were impressed with various government policies and this made the international community to want to invest in Nigeria for a long time.
    Let me emphasise that the success of the Eurobond goes beyond the raising of $1 billion. The success is more important to us because it is a source of pride to secure such bond at this difficult time in the global economy. So it means that, at this point, we need the confidence of Nigerians to develop ourselves and take advantages of opportunities nature gave to us and the human resources.
    In the shortest possible time, we should be relieving our people out of the present poverty. That is why the proceeds of the Euro Bond and other sources will focus on infrastructure so that we can generate goods and massive employment. With these infrastructure, the economy can be made more competitive such that most of what we import can be produced locally, and reduce pressure on foreign exchange demands. In addition, we will be able to export and generate foreign exchange from other sources. The euro bond success is a story of Nigeria’s commitment to a better future despite all temporary challenges.
    What impact will this have on foreign investment and how will it impact the ordinary man?
    Once more, Nigeria has demonstrated that it is ready for business and the international community has announced, unequivocally, its readiness to continue doing business with Nigeria. Having said that, it is important to look at the next action rather than what has been done. That is why we started this gathering on the FGN Savings Bond.
    Before we can escape recession, we have to bring changes and these changes have to be brought rapidly. Having concluded the Eurobond, coming soon is the FGN Savings Bond. The DMO has gotten the mandate of the Minister of Finance to introduce the FGN Savings Bond. As you know, since 2002, we have been issuing the FGN bonds, but these bonds are mainly for institutional investors or high networth individuals. These are the bonds issued every month mainly to raise money to fund the budget as appropriated by the National Assembly. However, we thought it is important to introduce a product to allow ordinary Nigerians to participate in the markets.
    There are Nigerians who have smaller amounts of money and want to contribute part of the funds to develop the country while they are expected to earn interest from such service. Therefore, It is very sensible for us to develop an appropriate product that will enable all Nigerians, not only the very rich but the moderately rich and averagely rich and any other Nigerian with as low as N5000 to invest in a government bond, earn interest from it, while helping to contribute to a pool fund that will be used to provide infrastructure for rapid development. In that case, you are helping the population to develop the culture of savings.
    As you know, the higher the culture of savings, the better the chances of the country developing. It is from savings, whether from individuals, companies or households that you would be able to gather resources that you can now use to invest for growth and development. And so, the DMO will soon introduce the FGN savings bond to deepen savings culture and diversify funding sources for the government. More importantly, to establish a benchmark for other issuers.
    We want to be able to introduce this savings product for the ordinary person so that within the economy, some financial institutions can also introduce their own products to attract savings from the ordinary people. In this way, the economy will be able to develop both from the public and private sector perspectives. That is why for this bond, we are thinking of as low as N5000 and a maximum of N50 million. That shows it will not compete with the FGN bond which you know pension funds are investing in it, big companies are investing and other firms are putting in their money in millions or billions. This will be a maximum of N50 million and minimum of N5,000. This means any of us can invest with pride that you purchase the FGN Savings Bond and the money you contributed helped the country to develop roads, railway and power. These products will have a tenure of between two and three years.
    When most people want to save now in the existing financial institutions, most time they are able to save for only one year, but we are looking at an elongated tenure as alternative.
    On this product, interest will be paid twice a year. The interest rate will be fixed but competitive and this will be announced by the DMO on the first working day of every month. Once this is announced, subscriptions, i.e investment opportunity will be announced for five full days. Nigerians are free to invest for five days and this will be repeated every month once we start. Every month, Nigerians will have the opportunity to invest in a product that gives them good returns but more importantly, contributing to fund national development.
    What would be the mode of subscription for the FGN Savings Bond?
    You can subscribe through accredited stock brokers, people who are already licensed and operating at the Nigerian Stock Exchange. The good story is that the brokers are more than 100 which means it will be easy for any Nigerian to identify his broker from any part of the country. It will commence before the end of the first quarter of 2017. So what I am doing is to give you prior notice and you can inform Nigerians about it. As you know, this is part of financial inclusiveness. This is not exclusive to those who are very rich. It is for all and that is what FGN Savings Bond will do.
    In due course within the first quarter, we will brief you about when this product will take off. By the time we finish with the Federal Savings bond, we will also brief you on another product. As you know, this is the regime of change, so from DMO’s point of view, we will continue with innovations that will push Nigerians forward in the right direction. The support that DMO is giving to the Nigerian economy is not conditional. It has nothing to do with staff welfare but commitment to show that it was during our generation that we revived Nigeria’s economy.
    Will the FGN Savings Bond always be a specific amount?
    The FGN Savings Bond will be issued as a way of raising money for normal appropriation. Assuming every year, based on budgetary process, there is a specific amount which government has decided to borrow from the domestic market. If you look at the 2017 Appropriation Bill, you will see that there is an amount to be borrowed from an external source and another amount to be borrowed from the domestic source. So this FGN Savings Bond will be issued as part of whatever has been approved for domestic borrowing for each year. So it is not a specific amount that has been earmarked as the Eurobond.
    It is part of whatever has been approved for borrowing from the domestic source every year. It will not need any special approval but whatever has been approved in the budget to be borrowed from domestic sources. What it means is that instead of using only Federal Government bonds, we have a third instrument which can be used to borrow from the domestic sources for the purpose of funding what has already been appropriated in the budget.
    Do you have any contingency plan for a continuously weak naira, especially when the Eurobond is in dollars?
    The amount to be borrowed is any amount that has been approved by the National Assembly. As you know, if you go into the external borrowing programme, there are various amounts to be borrowed from external sources in a particular year. So, if you look at 2016 budget, you will see that there is a $1 billion Eurobond to be borrowed. Other sources of borrowing include the African Development Bank (AfDB). In the budget, there was also an item to be borrowed from the World Bank. So, this $1 billion is part of the total external borrowing that was in the 2016 budget. So this $1 billion Euro bond is for the purpose of funding the 2016 budget. It is part and parcel of the various amounts approved for borrowing in the external sources in 2016 budget. So you can only borrow what is approved. You don’t borrow outside what is approved by the national assembly.
    With the recession, there are fears that Nigeria may not meet the payment schedule with dwindling fortunes of the naira against the dollar. What’s your take on that?
    On repayment, that takes me to an old issue and that is, everything Nigeria is doing currently, with regards to the economy, is with a view that in the next five years, we would have turned around this economy in a positive direction. That is why we talk of an economic recovery and growth plan. The whole idea is that, in the next five years. Nigeria would have really changed.
    So you will not be bothered about a change in the next seven years. Nigeria’s economy will be very strong and we will not be bothered about exporting just one product. Nigeria will be exporting about seven products, which include agro-allied and manufactured products and solid materials. In addition, in seven years, thanks to efforts the government and Nigerians are making, most of the goods Nigeria currently imports will no longer be imported. Rather, we would be into massive exports.
    That is all we are working towards. With this, Nigerian economy will be very strong, our reserves will be buoyant and the currency will be very strong as well.  That means we would be in a position that we would be exporting more than we import. Thus, we are comfortable to service our debt as at when due because we will be generating a lot of foreign exchange from various sources that are balanced, but not depending on a product that will give a shock again. By the next seven years, Nigeria should be free from external shock resulting from the collapse of oil. By then, we should have been wise enough to ensure that we do not import what we can produce locally.
    Are you not concerned about maturity of the bonds with regards to payment?
    Let me say we should not accommodate fear, whether in our personal life or in the economy. That is why we went to the market. We do not fear. Secondly, whether we opt for this $1 billion Eurobond or not, we have to service our debts as at when due. We do service our debts as at when due and we have never been in default. .
    Also, this $1 billion Eurobond is to fund the 2016 capital budget. There is nothing ambiguous about it. When you study the budget, the provision for debt servicing is right there. It is not new, it is just another service for expenditure. There is nothing special about it, it is just another item of expenditure and if you go to the budget, you will see 1000 heads and sub-heads of items of expenditure. Debt service is just one of them. The way government meets other expenditure obligations is the way government meets debt service obligations.
    There is nothing sacrosanct about it. Rather, borrowing is one of the means to resource the funding of all the expenditures. It should not be mystified. There is no special issue about debt servicing. In any case, when you borrow money from someone, you are free to owe him for one day and pay interest for one day and give back the money, then you stop paying interests. If you decide that after one day that you want to use the same money to solve another problem the next day, because each day you are holding the money, you are more or less borrowing it afresh. If you hold it for 30 years, it means you are using the money for 30 years. So you have to decide how long you want to use the resource.
    Financial experts have questioned the choice of Eurobond as there are cheaper sources of borrowing in the market. What is so special about Eurobond that Nigeria opted for it?
    Why Eurobond! You source bonds from a basket of sources. There are concessional sources, bilateral sources, capital market sources and each has its peculiarity and its applications. They all have limits. So when you look at your total needs, you have an idea the maximum you can get from these sources from a particular point in time. You make sure you maximise what you can gain from the cheap sources and you move on to other sources. Invariably, no one source can satisfy your needs. So Nigeria looks at all these possible options and thinks about what is there, where optimal combination from all the sources can be used to solve these problem as it goes along.

  • Annuity feud: PenCom, NAICOM must return to drawing board

    Annuity feud: PenCom, NAICOM must return to drawing board

    Director-General, Lagos State Pension Commission (LASPEC), Mrs Folashade Onanuga was one of the experts who started the implementation of Contributory Pension Scheme (CPS) in the state. In this interview with Omobola Tolu-Kusimo, she speaks on the feud between pension and insurance regulators over life annuity payment and why state governments should embrace the CPS to clear their pension liabilities, among others.

    Since the implementation of the Contributory Pension Scheme (CPS) started in Lagos, how has it fared?
    The Scheme was enacted in Lagos State in 2007, but it did not start operations until February 2010. According to the Act, we must have the pension commission that would oversee pension matters in the whole of Lagos State. Consequently, the state pension bill that was signed into law on March 19 stipulates that the CPS must be coordinated by the LASPEC. So, the commission came into being by the virtue of the CPS of the Pension Reform Act (PRA) 2004, now replaced with PRA 2014. Even the old scheme, which is the pay as you go, must be supervised by the commission. So, in Lagos State, we have two sets of retirees and we have been able to separate them.
    Some are under the old pension system, while others are under the CPS. Before we commenced with the CPS, an exemption period of March 31, 2010 was given to some workers, who may want to retire. This is why you cannot see anybody going into the Pay As You Go Scheme anymore because the exception period was over as at March 31, 2010. If you were in service before April 2007, there was a certain aspect of your entitlement that ought to be paid up by the government, which is called accrued right. This commission ensures that the accrued right is credited into the RSA account of the individual.
    Let me also state that we have two sets of retirees under the CPS: those with accrued rights and those without accrued rights. The set with accrued right are those who were in service before March 31, 2007, when we started, while the set without accrued rights are those recruited from April 2007. For those who have accrued rights, we still have a lot of work to do because a major part of their entitlements is under the old scheme, which is to be paid into their accounts as accrued rights. We have to look at their employment record to be sure that the entitlement of somebody, who has worked in Enugu State before coming to Lagos is captured and so we still have to request for the establishment part. But it takes a little bit of time to ensure that we pay them their dues and pay correctly. For those, who joined service after April 2007 till date, if they leave service today, their money is already sitting in their account and they can start to draw their pension from the following month. All we need to do is to issue a clearance letter to enable them access it and they are free. I must note that these set of people are the easiest for us to handle in Lagos today.
    The issue of ghost retirees has been a challenge. What is the experience in Lagos?
    The issue of ghost retirees cannot happen again in Lagos and this is the beauty of the CPS. Unlike the Pay As You Go entitlement, which is pension gratuity and obligation paid by the state to individuals. In the new dispensation we don’t pay to any individual, but into the RSA accounts of workers. It then becomes the responsibility of the PFAs to pay entitlements. So, the issue of ghost retirees does not arise as it has been totally eradicated in Lagos.
    Let me also say that the CPS has been running in the country for about 12 years and there has not been any incidence of fraud recorded because of the way it has been created. You cannot open two accounts because we maintain a database of all retirees with PenCom. This is one of the successes that we have been able to record in the state and even in the country at large. So, in terms of paying entitlements, we have made payments till date. We’ve been paying pensions in the past, but there has been an increased tempo in the last one year. Before this administration we used to pay pension in terms of accrued rights on a quarterly basis, but since the government of Akinwunmi Ambode we have been paying it monthly. The accrued rights are paid into the RSA managed by their PFAs. So, in essence the state government is totally removed from the process of paying retirees for life. Under the CPS we don’t have any business with pensioners. You cannot come to Lagos and say you want pension increase. It won’t happen because we don’t pay you pensions. It is the responsibility of the PFAs to pay pension. Lagos State’s obligation is to fund your account and it is left for your PFA to invest it and earn you good returns. The government will also continue to maintain its liabilities until the last pensioner dies.
    How many workers are still under the Pay As You Go scheme?
    We cannot envisage when the last person will die until it happens. We have different agencies in the state under the old scheme. We have Teachers Establishment Pension Office (TEPO) with over 6,000 retirees. We also have the main stream and local government retirees. In all, we have about 13,000 retirees under the old scheme and what that means is that government will continue to pay them pension. If pension increases from the federal government, it has to be domesticated in Lagos State. The fact that the Federal Government has increased pension by 53 per cent does not automatically mean that Lagos must also increase it. It has to be domesticated and must be in line with the resources of the state. If we have money we may even pay more than that, but the fact remains that whatever is done at the federal is not automatically binding on any state.
    In terms of increases, yes, Lagos State has been increasing pension packages like we just did with the 15 per cent and six per cent. But the new one that has just begun at the federal level is yet to be implemented in the state. But we are currently looking into it. We want to have something that is adequate and commensurate, taking into consideration inflation and the state of our economy, and of course, the power of the naira. All these are being looked at for the Pay As You Go pensioners.
    What is your advice to other states that are yet to join the new scheme?
    Like I said earlier, it is very important for you to be sure of a project before you start it. Some started the CPS and could not implement it because they did not get it right from the beginning. Lagos is a model state because once we start a project, we don’t look back. We are able to take a futuristic look into what we are going into. Some states rushed and started to contribute 18 per cent, but they got stuck in the middle and could not continue. In Lagos, we are not like that and that’s why we are a model state. The Federal Government started it in 2004, but we did not implement it until 2007 when we were convinced we could fund it. Since then, we have not stopped. We have put in place features such as ICT infrastructure to ensure that once your salary is paid, contributions are deducted and credited to your RSA account. The government from the very first day, based on a lot of discussion, was made to understand that the CPS is based on commitment and it was ready to be committed to that course.
    Under the old system, pay as you go scheme, all the liabilities fall on the government and that is why majority of them still have pensioners as far back as 2010 yet to be paid. They keep on loading the liabilities on the government without making provisions for it. At the end, the government is tied to the employees for life.
    All over the world, the Pay As You Go has been acknowledged as very expensive way of funding retirement liabilities and a lot of countries are going out of it. So, for you to stay in the old system, it shows that you lack understanding of what is going on globally. This means you are not thinking of a solution, but compounding your pension problem. If the people that introduced us to it are moving away to something that is more affordable, why should we stay and be stucked?
    So, I think there is need for more education of major stakeholders, because with all due respect, they are just creating a mess for themselves. In Lagos today, we can sleep with our eyes closed. Yes, we may have funding challenges because the liabilities of the CPS are huge. Apart from the contributions to RSA accounts, the accrued rights obligations are huge. Our past service liabilities in terms of contribution is about N200 billion. On a yearly basis, our obligation is about N15 billion and we have budgeted for it.
    Like I said, where there is an understanding, there will be a way. In terms of people, who have their entitlements under the old scheme, we have determined their liabilities. We know that it will be x billion naira and the government, having been made aware, is already looking for funds to provide for it. People say we are getting it right, it is not just because the fund is available, but because of the commitment. There are so many things contending with state funds today but the state government understands the fact that it has to invest in its workers to get their commitment to the business for which they have been employed. This year, for instance, accrued rights is about N16 billion. If we take into consideration the funding percentage, which is indicated in our law to fund accrued right which is a paltry five per cent of the salary, it is nowhere near the N16 billion that we have for funding accrued rights. Governor Ambode is aware of this and what he has done is to inject additional 6.5 per cent so that there won’t be a gap.
    How much has the state paid till date under the CPS?
    In terms of contributions, we have paid nothing less than N70 billion as at December. We have paid almost N21 billion accrued rights in one year and this is just to tell you how huge our funding obligation is. We had a few obligations in the past, but like I said we are still a lot better than other states. It is the fund that was injected with the normal funding obligation that has been clearing our backlogs.
    How do you monitor the PFAs taking these contributions from you?
    There is need to understand that the PFAs don’t take contributions, but they invest them. These contributions are with the PFCs, so there is no risk with the PFA. If a PFA goes under today, it means nothing under the CPS because the funds is sitting with PFCs, who have no other responsibility than to hold the pension fund assets in custody while they give report to PenCom. The PFA cannot ask the PFC to transfer funds. Our business with the PFAs is to ensure that they grow the funds because they are the ones, who invest and on paper.
    LASPEC meets them once in two months to know how they are investing the funds. PenCom has given them investment guidelines to follow. For instance, they can’t do more 35 per cent in money market, 30 per cent in corporate bonds and state bonds 10 per cent and 100 per cent in treasury bills because treasury bills are secure. For us, we want to know whether you are a risk lover or a risk neutral person. In which case, if you are a risk lover, you will take risk and the risky aspect is with the equities and so if you go the higher mark, we will know that you love taking risk. There are some that are risk averse and there are risk lovers. It depends on them but our own is to monitor them that they are not jeopardising the assets of our people because in this new scheme, if an individual loses fund, he will bear the brunt.
    That is why we must monitor the PFAs to ensure that you are a risk neutral person. We also want to be sure that they are paying our pensioners on time, giving regular information on the RSA account, create awareness and other responsibility that they are mandated to carry out over our contributors and retirees. One of the other things that we did to aid out the pension payment process was that we issued a flyer detailing the two benefit modes, which are the annuity and programme withdrawal.
    There was a circular from PenCom, directing PFAs not to transfer funds for annuity purposes to insurance companies. At present, some retirees are stranded because their funds cannot be transferred to insurance companies. What is your take on this?
    This is a burning issue now and very technical. In my own view as a neutral person, the annuity business is risky, totally different from the fund management business of PFA. A PFA is a fund manager. An annuity service provider is into the business of risks, which is insurance. It is about whether this person will die early or at a longer period and as such, they are two different businesses. The PFA, who is just managing your money, is in the business of saying I am investing it for you and whenever you die, your relatives will have a balance, including the return on investment to receive. I am just managing your fund.
    The other one, which is insurance, is saying the money you bring to me to pay your monthly pension, with is no longer your money, is premium. This is because what you are doing is entering into a contract with insurance, that for as long as you live, the insurance company will be paying your pension. So, what you are bringing into the company is consideration for the promise to pay you pension for as long as you live and that is why it is no longer your money, but premium.
    Insurance is a pool of fund and the annuity fund, just like motor insurance, goes into the pool. There is a guarantee period for those that will die under 10years. But for those that died after 10 years, nothing is paid to their dependants. However, if they live for 100 years they will continue to collect their pensions. The pension element is there on both sides. If the contribution from the PRA is what gives rise to the contributions to buy annuity, then it means PenCom must put an eye on it.
    This is because there is a difference between myself as an individual going to an insurance company that I want to do annuity, that is, I have come on my own. My money can remain with the insurance company. But if it is the CPS that wants to ensure that pensions are paid as and when due, then the PFAs should keep the money with custodians. If an insurance company is taking annuity from the RSA, in my own opinion, PenCom must put an eye on the disbursement of that fund because the individual did not come willingly.
    We have had instances where insurance companies collapsed and people drawing pension got their pensions stopped. So, to secure the benefits of people, who take annuity, I am strongly of the opinion that the fund should be paid to custodians to secure it. You can’t secure the one with the PFAs, which is programme withdrawal, and leave annuity hanging. However, PenCom needs to note that it does not have control over annuity fund. It only has control over programme withdrawal funds with PFAs.
    NAICOM is represented on the board of Pencom. So, NAICOM regulates the insurance firms and Pencom regulates the PFAs. The body representing insurance, that is well verse in the insurance industry, should be allowed to regulate annuity while the funds are kept with custodians. There is no way they will make headway if they don’t get this area right. NAICOM must let PenCom know the way insurance operates and the latter should accommodate it within the ambit of custodianship arrangement.
    So, was there a lapse in the law from the beginning?
    It is not a lapse. It is because people don’t understand the two businesses very well. The fund must be strictly regulated and if it is regulated from contribution point and is not being regulated up to the point of payment, then there is a disconnect somewhere. It is crucial for us to note that if an insurance company goes under, it will put the annuitant at risk.
    But what happens when PFCs that are subsidiaries of banks go under?
    The PFC is just a custodian and subsidiaries of banks. The money transferred to them is not held in physical cash. They only execute investment instructions, which state where and who to invest with. For instance, Oceanic PFC has gone under, but there is no outcry because they are not holding physical cash. This ensures that the PFAs do not do hanky-panky that we are noted for in the country. I think it is a war between the insurance and pension industry, but it is very easy and that is why they need to seek opinion. I think it is just about the two industries understanding each other’s business very well. Insurers must understand that this fund is not coming to them by their own effort, but from the RSA account. PenCom cannot say they are regulating PFAs and leave the other leg. But the funds must be there only for annuity purposes and then the regulator, who supervises them, must monitor the way they invest it and that it is separated from the companies’ funds. PenCom has to stay away from regulating the annuity business. They just have to go back to the drawing board. There must be a separation.
    What are the things to be done to boost retirees’ welfare?
    We are looking at our retirees having identity cards that will allow them to have access to free medicals in government hospitals.
    We will also be having a programme called Retirees’ Day Out with the governor very soon. It is a maiden one.

  • Foreign investors wary of Nigeria’s forex situation

    Foreign investors wary of Nigeria’s forex situation

    The courier and logistics industry contributes five per cent to the country’s gross domestic product (GDP). The Group Managing Director/CEO Red Star Express Plc, Sola Obabori, says with insecurity, poor state of road infrastructure, insurgency in the Northeast, and kidnappings in the Niger Delta, driving growth in the sector will remain tough even in the foreseeable future. He says the diminishing investment in the aviation sector with consequences of delays, cancellations and shutdowns all combine to further weaken the supply chain process. LUCAS AJANAKU met him. 

    What is your assessment of the courier and logistics industry in the last one year?
    The industry is managing to ride above the economic storm as it has done in previous business cycles. Because of the low entry barriers, we have over 290 registered courier companies in the country and in between the top 10 companies in the country, there is a turnover of over N100 billion yearly. Our industry oils the wheels of manufacturing, distribution and service provision across the various service sectors and it is, therefore, not immune from the economic disturbances. Nigeria has always been import-dependent for decades. Refined oil is supposed to be what we produce in sufficient quantity to cater for our local needs but we are still importing it. Most high profile manufacturers import raw materials, which will continue to put pressure on our foreign exchange requirements and for players in our industry with foreign affiliations and obligations, we have the same scenario to contend with. The year 2016 witnessed one of the most unpredictable forex situations in the country with adverse consequences on organisations and household spending, but, above all, we have managed to navigate the curves.
    Investment valued at over N300billion from 293 operators came to the industry in 2014, according to Mrs Omobola Johnson, former Communications Technology Minister. What is the situation now?
    Investors are being wary now because of the forex situation and other reasons. If you offer services today or invest today and you are not sure of being able to repatriate your profits, you will have to think twice. The news was in the public domain that some foreign airlines insisted on charging in US dollars as a response to their inability to source for forex through the banking system. However, for long term investors, some of which we are witnessing lately, there’s been a couple of new entrants in recent times which is a signal of some trust in the capacity of the country to overcome the current challenges.
    The industry is said to be contributing less than five per cent to the GDP. Why is it so and what are the steps to take to improve this?
    Quite a number of factors are responsible for this. Chief among which will be insecurity and poor state of road infrastructure. With insurgency in the Northeast, Niger Delta and pockets of kidnapping here and there, driving growth in our sector will remain tough even in the foreseeable future. The typical average in most countries in terms of contribution of the logistics industry to GDP is mostly between 8 and 16 per cent. Most of these countries are 24/7 economies as compared to a 9-5pm economy that Nigeria is. The situation here will improve when the state of road infrastructure gets better and people feel safe travelling overnight, then, there can be faster turn around times for road truckers connecting points of importation or production to points of consumption.
    In addition to that is the diminishing investment in the local aviation sector with consequences of delays, cancellations and shut downs all combine to further weaken the supply chain process. We are witnesses to the pressure being faced by that industry lately with acute shortage of foreign exchange to support their operations and maintenance obligations, let alone allow foreign investors repatriate their profits, if any. Quite a lot of intervention of the government will have to continue in this arena as a catalyst for growth.
    We hope that as the railway projects are being expanded and become more functional for movement of passengers and goods as obtainable in countries with better results, the contribution of the logistics industry should also get better in Nigeria.
    To what extent can the reform in NIPOST be a catalyst to the rebirth of the courier industry?
    We are aware of the government’s desire to separate the regulatory function from the operator’s function which has been going through some legislative process for some time. That will be a welcome development, when completed,as it will conform with global practice while presenting a levelled playing field for all and sundry. The Nigerian Broadcasting Commission (NBC), the Nigerian Communications Commission (NCC) both provide us with good examples of what has been well executed before now.
    Some of the roles of the regulator usually centre around licensing of new entrants, setting consumer protection conditions, universal service access conditions, accounting guidelines for operators and many others which in some ways are being enforced by the Courier Regulatory Department (CRD) of NIPOST and other government agencies at the moment, while the customers and the vagaries of the economy define who survives and who disappears from the marketplace.
    e-commerce is taking firm footing in the country. Is this not a threat to conventional courier business, such as Red Star?
    My response would be that the world remains in a permanent flux. As new developments occur, they come with diverse opportunities. The evolution of e-commerce is not a threat but the new face of opportunities. With the deepening of the internet access and better payment systems, both young and old can do a whole lot of buying and selling from the comfort of their homes. In advanced economies, the online sales have far overtaken the brick and mortar shops in sales volumes and revenues at lesser costs.
    Red Star is a major delivery backbone for quite a number of the large e-commerce organisations. One of our key initiatives is the ‘SME1000’, which is a project targeted at small and medium organisations who are being supported with delivery services at low costs. That helps to avoid all their concerns regarding meeting their delivery timelines while they focus on building robust trading platforms.
    Stakeholders in the industry represented by Nigerian International Air Courier Association (NIACA) and Association of Nigeria Courier Operators (ANCO) were rooting for an independent regulator for the courier industry, how would this improve the fortunes of the sector?
    As previously stated, this is the normal practice in other places. In Ghana, for example, they established the Ghana Postal and Courier Commission as far back as 2003. The functions of the Commission include promoting and encouraging the expansion of postal services for the social and economic development of Ghana; promoting an efficient system for the delivery of mails countrywide in a manner responsive to the needs of mail users; promoting fair competition among persons engaged in the provision of postal and courier services and protecting licensees and consumers from unfair conduct of other licensees, among others.
    Also, it will enhance the collaboration with sister regulatory agencies, such as those of Ghana, thereby helping to work with governments in removing some of the trade barriers and boosting trade along the West African corridor.
    The issues of dumping of mails, underpricing and outright quackery bedeviled the industry in the past. How would you rate the level of confidence level the public reposed on the industry?
    I guess you would have also read that the CRD on a continuous basis does a lot of sanitisation exercise by withdrawing licenses of erring companies and shutting down many offices of illegal courier companies in order to protect the public. The issue of quackery is not synonymous with the courier industry alone.
    Everywhere you turn, you see them – in the medical profession, in the real estate environment and so many others. The laid down procedure for would-be industry player is clear in terms of licensing fees and personnel requirements and depending on resources available, you can position your business appropriately rather than being on the wrong side of the law.
    With the appointment of a new Postmaster-General, what are the expectations by the industry, especially by those on international courier operations?
    We believe this will go a long way to help address a lot of the issues being raised. From his profile, he is a man with vast public and private sector experience and we believe he will consult widely in order to bring positive changes to our industry.
    Companies that engage in international business like yours have decried the consequences of forex impasse on their operations, can you estimate/quantify the losses recorded by the industry in the last one year?
    Well, the Central Bank of Nigeria (CBN) will be able to put a figure on the estimated impact of the dollar scarcity and the impact of the terrible erosion of the value of the naira. By the end of 2016, the dollar that exchanged for N198 to the dollar had been pushed to between N496 and N500 in the parallel market, which is where the ordinary man can source his forex for his small to medium business. In simple terms, that is more than 100 per cent devaluation and you can confirm that by checking the prices of vehicles in the car lots, the cost of tickets for international travels, the cost of foreign tuition for students and even the cost of energy, which have more than doubled in the last one year. If you have a dollar denominated loan or periodic remittances in dollars, you will be needing more than double of the naira amount you needed just about a year ago. Many of the big conglomerates have given profit warnings to the public while some have declared outright losses.
    Recently, the shareholders confirmed your appointment as GMD of Red Star Express. How has it been since then?
    My appointment was done in April 2016 and was ratified at the Annual General Meeting last August. Thus far, I will say it’s been very well and we are hopeful that we can have landmark business opportunities, despite the global and local challenges we are all witnessing in this new season. I came in with a new management team and we are geared up to deliver on our mandates.
    Let’s look inwards. How is Red Star positioning itself in the market?
    We have become more innovative with the unbundling of our activities to allow each business maximise its growth potentials. We have four business divisions focusing on the four segments of our business. We have the Express, Logistics, Freight and Support Services.
    Red Star Express operates our overnight domestic services and holds the licences of two of the world’s largest delivery companies, FedEx and TNT.
    Red Star Logistics is the haulage arm with trucking capabilities for manufacturers, importers and we run several warehouses all over the country for large and small businesses.
    Red Star Freight handles air and sea cargoes while Red Star Support Services is the outsourcing arm of the group, with several premium services to virtually all the financial institutions in the country.
    Red Star will continue to seek ways of strengthening the fundamentals, supporting export expansion opportunities for Nigerian businesses into over 214 countries served by our international networks and ensuring value is not only preserved but enhanced for our investors on a long-term basis.

  • How to improve local content for optimum value creation

    How to improve local content for optimum value creation

    Coming from an international oil company, many would expect that he will have bias for the segment. But the Nigerian Content Development and Monitoring Board (NCDMB) Executive Secretary/Chief Executive Officer (CEO), Mr. Simbi Wabote, has promised not to compromise on local content development matter. In this interview with Assistant Editor EMEKA UGWUANYI, Wabote unveils his plans to create value and empower more indigenous firms. 

    What new strategy do you have for the NCDMB?
    When you have a new helmsman in any establishment, the first thing people will want to know is what difference you will make, and what your strategy for going forward is. I’m an engineer and worked for Shell for 25 years and rose to the position of a director. One thing my engineering knowledge teaches me is that you have to plan before you enter into execution. While we will focus on some quick wins to ensure continuity and to maintain the relevance of NCDMB, I think the first thing we need is to first of all take stock of how we have been able to implement the Act for the past six years and ask ourselves how well we have fared. Based on that stock-taking, we will set a baseline and pencil down the things we will pursue in the next four years that I will be in this position. First of all, we will continue the quick wins and, secondly, take a strategic look at how the Act has been implemented in the past six years and begin to strategise on the areas to strengthen, and the things we need to do that will change the face of the game. That, to me, is the strategic approach, which I will follow during my tenure. I’m sure the review of the Nigerian Content we intend to do will be very short and work is already ongoing. After that review we will set a very clear strategy direction, but in the short term, we will build on some of the successes that we have seen in the implementation of the Act. Some of these are the development of the pipe mills that we promised Nigerians that we will develop in-country, the development of our oil and gas parks to encourage manufacturing, and also the encouragement of local businesses to set up shops to manufacture for the industry. We will also look at the research and development (R&D) agenda that we have within the Act. A lot of work has been done, stakeholders had been engaged and some kind of regulation has been agreed on in terms of research and development. We will make sure we get quickly into the implementation phase. But like the Minister of State for Petroleum Resources, Dr Ibe Kachikwu, charged the Board, it is to think deep on the things we want to bring about in Nigerian Content to change the face of the game. So, our ambition will be very big, and robust, and the conscientious execution of that ambition.
    What is the worth of the Nigerian Content Fund? How much has been disbursed and how many companies have benefited from it?
    This is the question that bothers the minds of key stakeholders because the Nigerian Content Fund is what they started contributing since 2010, when the Act was enacted. I must say that the fund has grown over the years. There is about $600 million in that Fund. I mean functional dollars. As far as I’m aware, this Fund has benefited about six Nigerian companies that have tapped into it for capacity development. But I must say it is not directlygiving money to the six Nigerian contractors, it is about guaranteeing some of the loans they got from the banks because we are not a funding institution. So, we guarantee the loans they got from the banks. Not so much has been expended from that fund for capacity development, and part of the strategy of this new Board is to come out with a very transparent process with which genuine Nigerian contractors involved in the oil and gas sector will have access to the Fund. That is the strategy we will develop in the shortest possible time, to bring about transparency because most of the Fund contributors are asking questions about the Fund and we are not oblivious of that. We will make that position very transparent as soon as possible. One important thing, again, is the establishment of the governing council of the NCDMB, which was inaugurated on November 18, 2016 by President Muhammadu Buhari. That will bring corporate governance principles in the management activities of NCDMB and also support us in terms of the strategy we wish to deploy for Fund management.
    What will the board do about the upstream companies that don’t contribute to the fund?
    While the people who contribute to the Fund worry about the Fund, there are a lot of Nigerian companies that are not meeting up with the contribution as enshrined in the law. So, this Board will look at strategies with which we will make them comply with the provisions of the Act. Such companies might not be contributing out of ignorance or not understanding the implications of not doing so, and the mechanism to do those contributions. We are looking at those processes and within the shortest possible time, we will reach out to all those companies that are not contributing to the Fund and make them comply with the laws of the land. But having said that, I think it is also important to give them comfort that the Fund will be judiciously utilised for what it is meant.
    Some operators complain about the cumbersome process of accessing the Nigerian Content Fund. What will you do to ease access to the fund?
    I think it is not about the cumbersome process, but it is about the fact that there is no transparent process in accessing the Fund. I don’t think people have applied conscientiously for that Fund to do business with because the process is not clear to them, it is a bit opaque. That’s why I said this Board would bring about transparency and by the time we finished with the strategy, it would be published in various newspapers and other news media. Stakeholders will be engaged in the process we will follow to access that Fund. So, I don’t think people have really submitted their applications or shown their intentions from what I have seen. Probably there is no clarity and no understanding of the process to access the Fund, but we intend to bring about that transparency within the shortest possible time.
    There has been heated debate over the review of some of the provisions of the Act, and what constitute a Nigerian and an indigenous company. Can you throw more light on these issues?
    Like any legislation in this country or other parts of the world, it calls for review from time to time. I know there was an attempt by the House of Representatives to review the Local Content Act. In the process, all stakeholders decided to make their input of what they think the Act should look like, having operated it over time. I think one of the contentious issues with regard to the proposal for review is the ownership of equipment by indigenous companies. The Act stipulates 51 per cent ownership by Nigerian or indigenous companies because it was used interchangeably, but the proposed amendment, which I think at the moment, has not progressed too far, want those ownerships to be 100 per cent. I think the Board does not align with that position because we believe that in a global environment, you need to continue to encourage foreign investment in the country, partnerships, formation of consortium, businesses to distribute their risks in a way that if there is a downturn in the economy as it were today, the fall in oil price, no one company bears the total brunt of the impact. It is also a world that believes in interdependency and Nigeria will continue to collaborate and work with foreign countries and companies to enhance our capacity in local content.
    Can you explain more the 15-day approval limit to ensure reduction of the contracting cycle time?
    Contracting cycle time is of great concern not just to the international oil companies (IOCs) but also to NCDMB and some of our sister regulatory agencies because it increases the cost of doing business and it delays investment decisions. The Minister of State for Petroleum Resources charged all agencies in the oil and gas industry to ensure that they reduce the contracting cycle time as much as possible. In fact, he gave a benchmark of six months as a turnaround time for contracts. I think all the agencies are working on this to come out with a strategy with which they will reduce the contracting cycle time. One of them that NCDMB will adopt is to give a timeline within which if what is required of us is not received by the operators or project promoters, which is within 15 days, the operator or project promoter should consider that the item has been approved. I think we are drawing a line in the sand. I think that is a bold step and all my colleagues within the Board are aware of this and are working conscientiously to ensure that the turnaround time is drastically reduced for those items that are within our control. But it is not only NCDMB that gets involved in the contracting process in the oil and gas industry. We are working with other agencies to understand where the challenges are, but, on the other hand, we also challenge the project promoters and operators to also keep their house in order. We have also seen that the bulk of the delay is also on their part. For instance, when I took over office, I received a letter that NCDMB has approved six months earlier for a particular operator but the operator was asking for a further review. I’m sure once the operator gets that approval, the story might not get to the public that it was their fault but the operator might push the delay back to NCDMB.
    Many agencies as, you said, are involved in this contracting cycle job and all of you work for the government, from the Board to NAPIMS, I mean multiple regulators. Can’t one agency do the job?
    It is important to clarify the role of the different agencies. NAPIMS is not a regulator. It is a joint venture partner with oil and gas operators, hence they hold a critical stake in the business that the operators undertake. They have joint operating agreement, which they have negotiated with the various operators, on the role they play in the contracting cycle. But NCDMB is a regulator, it regulates NAPIMS. In every country, there are different arms of government that undertake different activities. It is the same government that set out regulations to check some of their activities. An example is the Central Bank of Nigeria (CBN), which ensures that banks’excesses are curtailed. In the same manner, the NCDMB ensures that local content is adhered to in the oil and gas industry.
    The indigenous operators complain about the award of jobs to foreign firms and influx of expatriates into the oil and gas industry and these are where Nigerians have capacity. How do you intend to tackle this?
    Local content is not a sprint, it is a marathon. It is not something that will happen in a year or two or even in five years, it is a continuous process that needs focus and tenacity to ensure that it is implemented. A lot of steps have been taken in terms of local capacity development to replace expatriates that come into the country to work. The media should also portray to the world efforts and achievements recorded by Nigerian Content. Today, most of the IOCs are being managed by Nigerians. This was not there some eight years ago when expatriates were the managers. In addition, about 90 per cent of employees of these IOCs are Nigerians. So, a lot of progress has been made in that area. Most of the owners of the oil blocks (oil mining leases) are Nigerians. This never existed seven years ago. A lot of progress has been made in various areas. So, what I mean is that Rome was not built in a day. We will continue to push the boundaries, do anything we can to improve local content attainment in the oil and gas industry. I think we also need to look at the positive side of it and not think we can eliminate expatriates within our midst overnight. Don’t forget that I came from an IOC. I know within those IOCs a lot of Nigerians are outside in various countries giving their expertise to those countries. So, from where I came (Shell), there are more Nigerians outside the country than expatriates in the country to strike that balance. I think the media should also look at the other side of the development because we also need Nigerians to go out to acquire the technical knowhow and knowledge, come back and make inputs to further develop the country.
    Nobody is contesting your competence, but coming from the IOC, there are concerns you will have sympathy for IOCs when there are issues. What will you do to strike a balance here?
    It has not just been a concern outside this wall, even my members of staff are also wondering on whose side I will be, having come from the IOC. But I think I’m first a Nigerian before I worked for the IOC. I also managed local content from the company I’m coming from for eight years, both locally and internationally. They know my antecedents; where I stand on issues that concern Nigeria and on issues that concern my employer then, which was Shell. I believe passionately in the benefits of local content, which I think Shell as an organisation also saw the benefits. This is so because I believe in the long run that local content will reduce the cost and ensure the security of supply. For example, today in the Niger Delta where you have all the militant activities going on, it is Nigerians that are working there. If we didn’t build local capacity, I think most of the oil companies would have packed up by now. Secondly, local content secures the life and properties of investors because there is no security you can get that is better than the community people. The benefits of local content are enormous. Shell is really pushing for the benefits of local content hence, they allowed my voice for local content to passionately exist. Now I’m working for the government to further enhance the development of local content in the oil and gas industry. I believe in the administration’s drive to create jobs and develop capacity; therefore, I cannot compromise on local content because I came from the IOC.