The Nation Newspaper

Category: THE CEO

  • ‘Nigeria needs a land bank’

    ‘Nigeria needs a land bank’

    The scramble for land, especially in the urban areas of the country, is a do-or-die. To former President, Nigerian Institution of Estate Surveyors and Valuers, Chief Charles Olumide Adebiyi the solution to the problem lies the creation of a land bank. In this interview with SEYI ODEWALE he speaks on challenges facing real estate, insisting that local governments should be involved in providing shelter for the people.

     

    Do governments, at any level, haveany business in property development, especially, housing?

    What you called property is land based. And land in Nigeria and most other places, is under the jurisdiction and control of the government. To that extent, we can say that property, real estate, whether it is housing, commercial or industrial, because it requires land to be allocated and government is in full control of allocation and pricing of land, yes government has business in property and real estate. The extent to which government has business is what we may define. Now the cost and value of any product depend on the cost and value of inputs for making that product. If real estate is a product made out of land together with other factors of production such as capital, labour; all of them added together, the cost of real estate will depend on the cost of all of those factors together with the entrepreneurship that was brought about to combine them together.

    To that extent, government is an important and critical part of the business of property or real estate as you may wish to define it.

    Whoever goes into real estate business has the mind of making money…

    Yes, everybody who goes into business has to make profit otherwise, he will not survive.

    But a government that tries to be populist may not have the mind of making profit in real estate if it ventures into it?

    There are certain areas of the economy where profit is not the essential factor. Social housing for instance, may not necessarily require profit making. It is an economic activity that probably requires taxes to be applied to subsidising the production, distribution and allocation of that kind of product. And you know that the scope of real estate is very wide and it cuts across the entire spectrum of the society. From the rich to the poor, all of them must have access particularly, in terms of housing, to one form of housing or the other.

    In terms of the other aspects of real estate, it may not necessarily be one that is all encompassing across the social spectrum. But for housing, everyone must have one form of housing or the other. So, government is under obligation to ensure that, somehow, every citizen has access to some form of housing. It may not be full ownership, but some form of housing, shelter ought to be provided. There are different types of shelters that can be provided. Some people are provided with hostels; some with camps, depending on who they are, whether they are itinerant people, but some people are permanent in some urban places. There will be urban housing; there may be rural housing; there may be housing for those moving round. For instance in the United Kingdom (UK) and other places, people buy Caravans and take them to Caravan sites and plug their houses there for the time that they are going to spend there. There are holiday houses; there are all kinds of houses. Government cannot be separated from it, because it regulates nearly every aspect of property or real estate.

    But government often gets consumed with trying to provide houses that it ends up not doing anything at all?

    Government must also look at its own resources, look at the people targeted and rationalise how best to do it. Government cannot be providing subsidised housing for the rich. Government cannot be providing subsidised housing facilitation for the near-rich. Government has an obligation to facilitate some form of housing provision for the poor.

    But the so-called subsidised houses do not get to those intended?

    That is the problem you face in a system where the methods and organisation of things are in trouble. It is not only in terms of housing, there are many things we try to do in our country that are targeted at certain people in certain areas, but never get to them. From fertiliser distribution to all kinds of goodies, people often do not get them. This is because of those in-between, who cream up the profits that are involved there. That really is a political issue. If government has the will and the people are alert and aware of what is happening, then I think some control can happen. But the trouble is that many Nigerians are not aware of what is happening to them in the economy, even in politics. Their so-called leaders are the ones who decide for them and they are silent. All those who talk about Nigerians say this, Nigerians say that, are not representing the people. Most of the time, Nigerians are not saying anything, they are not even aware of what is going on.

    Is this deliberate on the part of the people?

    Now if you have the illiteracy level of nearly 50 per cent across the land, although different from region to region, you can expect that the level of awareness will also be low because knowledge is power. Without the knowledge of what is going on, like the Bible said in one of its chapters that: “My people perish for lack of knowledge.”

    It is important that people are aware of what is going on and know what their rights are. Once people are aware and can see what government is doing, that there is transparency and openness, then they will be able to contribute and tell government what they really want. Everybody must be able to analyse what people want before they provide those things for them. There must always be needs assessment before you do anything. But if people do not know what they want, if they do not know about themselves and do not understand what is going on, then a group of people will corner the decision making process. That is inevitable with a society like ours; that is why education is important; mass education is very important for people to understand what their rights are.

    There have been instances of where government appeared to be genuine by selling land to people to develop, perhaps on site and services scheme, and later took the land from them, citing frivolous excuses.

    I don’t seem to understand that.

    I will give you an instance. The Abesan scheme in Aboru, Iyana-Ipaja, Lagos people, we are told, bought the land on site and services scheme and the land was later taken from them…

    Abesan is a complicated case. I think it is a situation where Federal Government was first involved and the state government later came into it. Then there was a tussle, largely between the state and the Federal Government, and I don’t know how it was resolved.

    People don’t seem to trust government again, especially on land matters…

    I agree with you that there are many things we could do, but because of lack of trust we are not able to do them Not only in primary issues of land allocation and acquisition, but also on issues relating to developing property, bringing people together to undertake investment in property. It is possible in other places like real estate investment trust; securitisation and so on. It is possible to do many things and make supply available. It is very difficult in Nigeria because of lack of trust. There is lack of trust between the people and government; there is lack of trust among the people themselves in terms of what people say they will deliver; the ability, the willingness and truthfulness in delivery. That is a major problem and it is also one of the things we need to examine very closely.

    Is government providing an enabling environment for private sector participation?

    It depends on the government you are talking about. You know government has three tiers with different powers and jurisdictions. So, we have to examine what the Federal Government is doing, what it has been able to do and what it should really be doing. Sometimes in the past, I used to think that Federal Government was not placing sufficient importance on issues relating to land and urban development. I used to think that the government was so concerned with petroleum and somethings spinning money for it that it did not bother too much about land. You can track it and look at government budgets over the years and see what was on at the federal level. It may be like a federal thing, but it is not important for it to get fully involved in the area since power over land now vests with the states. Then we need to ask what the states are doing? Some states are doing absolutely wonderful, while some others are not just concerned. May be it also depends on pressure that is imposed on those states. Lagos State for instance, has no choice, but to place a lot of emphasis on issues relating to land and its development; allocation of resources relating to land.

    But there are some states that are not worried. May be they have low population and there is plenty of land. I always thought that the distribution of jurisdiction for the facilitation of land related matters is not balanced. I think that the local level should be more involved in doing some form of housing facilitation. Out of whatever allocation it has, I have always been of the view that local governments must have a kind of compulsion to provide a certain number of housing facilitating, either in terms of site and services or in terms of actual production of housing. No matter how small, at least, once a year.

    But some councils claimed to have been shortchanged by the states in their monthly federal allocations.

    That is one of the problems. I have always thought that if those responsible for allocating funds among the tiers of government know this they can restructure in such a way that the little given to them can be utilised. After all, there is a certain amount of distribution that is granted to the states or local governments from the petroleum equalisation fund. You can see the critical need, the critical nature of housing that we have, and we must not pretend that we don’t have it. And this is going to take a long time to solve. It is going to bring its own crisis later on, beyond the ones we are talking about. No matter how small, each of these local governments has to provide, at least, five units of housing a year. They should get into the habit, which will later become a culture of ensuring that they have local government council housing. Whether they sell or rent to those who need them is another issue. But it has to be done.

    Perhaps the pressure on land in Lagos is responsible for the preponderance of litigations. For instance, some people after buying their land and perfecting the papers are again asked to repurchase the land because a court judgment changed the ownership of the land in question…

    It is because of the historical nature of our land tenure system. Even before the land use Act came, we have already had complicated land tenure system, where even amongst us, there had always been rivalries and arguments. One cannot say that all the problems were brought about by the Land Use Act because if you recall, you would know that the nature of our settlements and the way, we were urbanised in the Southwest, had always been one characterised by disputes over land. In certain cases people claimed to have the original ownership and certain people would come and were granted the use of the land. They eventually became those claiming ownership of such land. And maybe nothing is said for a long time, and generations after generations, some people will come and because of the terrible state of the economy, start controversies on such land.

    To solve that issue, which I see as a big one, we need a land bank. I don’t know whether we can reach that point of technical capacity of setting up one. To reach that point would have meant setting up a land bank. At some point in time, whether in the past or present, of course, something was done by the Geographic Information System (GIS).

    What we would have done was to set up a land bank in which everyone, no matter who they are, will be invited to bring what they consider to be their land ownership; its history, and geography-survey and there will be an agency that will verify these claims, articulate and decide on what to do. Sometimes it may be for solving a problem between two aggrieved parties.

    What is essential is information on land to solve whatever riddles surrounding it. I think that is why states like Lagos have been doing programmes on GIS. But we need the technology because of the overwhelming nature of data that we have to capture and the capacity of the people who would do it is not there. So, it is going to take some time and most governments are not even aware of what we are talking about.

    For land to be properly managed, you need a very viable land information system. It requires a technology that is new and not widespread. Even professionals in our field and other land related professions do not have that capacity. We are still talking about how to enlarge capacity building for land information system, which will make for good management and effective allocation and distribution. Until we are able to do that, we will be nowhere because we are acting out of ignorance.

    If these things are in place, judges’ jobs will be easier because there will be a bank for all the information on land.

    Mabogunje used to talk about land registration, which in my view would have improved the economy, because the land that is registered is given a kind of certification, there is a kind of value attached to it, even if the value does not increase, but it can be ascertained and used in securing assistance or as collateral. The percentage of land that has come under the ambit of what we are talking about is very small.

  • ‘The odds are against manufacturers’

    ‘The odds are against manufacturers’

    In Nigeria, the real sector economy, which is universally regarded as the engine of growth, is in dire straits. But the Managing Director of the Bank of Industry (BoI), Ms Evelyn Oputu, who is at the centre of reviving most moribund firms, in this interview with TOBA GBOOLA, speaks on manufacturers’ constraints, how to address industrial deficiencies, financial inclusion and the extinction of the middle class. Excerpts:

     

    Can you tell us your experience now as BoI chief and what it was like before you mounted the saddle?

    The journey has been interesting and quite challenging. I came into BoI with a lot of views and ideals and I needed the staff, myself and the major stakeholders to believe in the dream. How I was going to do it, I had no idea. But I came into BoI with that dream.

    As you know, I was an investment and commercial banker. I grew up both in the pre- and post-independent Nigeria. I saw a beautiful country. I am proud to be a Nigerian. I grew up when the values were high, when we held up our heads so high anywhere we went in the world. At that time, we were courted with respect, having five- to 10-year visas to most countries. We were the beautiful bride. And the oil boom came, thus even making us richer and better as a people. Then came the civil war and things started changing.

    But, all of a sudden, I saw visibly our people changing and I couldn’t just accept that a people can change overnight. And that we were different from what I thought we were when I was growing up. And that it will take us as individuals to change this space, having it in mind that nobody is going to come from outside to change it for us.

    As regards what I wanted to do in a career, I chose banking at that time because I thought it would impact on every aspect of life.

    But, specifically for BoI, when I came on board, I came with a mindset of having seen the two sides of the divide because I finished my career in banking, having retired as an Executive Director at FirstBank. I immediately went into manufacturing and farming. I wanted to be a productive member of the society. I saw that we had moved away from being productive people to being rent seekers. People generally prefer to sell rather than produce. Whilst growing up, I saw a lot of people who were producing, no matter how little it were. So, I said we all complain a lot and that I should do what I believe we should do. So, I went into manufacturing myself and really found out why people don’t go into it. Truly, it’s quite daunting. But I said to myself that if foreigners could come here and stay in it, then I will do it myself.

    So, with that experience of banking and manufacturing, though it was on a Small and Medium Scale Enterprise (SME) level, I knew that was the place to be. So, I came into BoI with a vision that my people are still a good set of beings and what we need is to give them the opportunity. It’s only in appearance that there is inequality in the system. It doesn’t exist. It’s only a small percentage of the population, and that happens everywhere. There is no reason everybody should follow that small percentage. If more people can come into that space, we can change it. And the change will only occur if we, as a people, are responsible and take over our collective asset. I also believe that the middle class had become completely eroded. When I was growing up, there was a middle class. And people were decent. If you wake one day and suddenly discover that you have been disenfranchised, and can’t get a job, there is an anger that comes with it. And it is that anger that pushes people to do unpleasant things. If one can take away that anger, you see the beauty of the person come out, would continue to lend massively to the SME sector because it remained the engine room for growth.

    There is no doubt that the industrial sector is not contributing meaningfully to the economic growth. Its contribution to the GDP is very low. What is the reason for this?

    It’s not industrialisation essentially that is the problem; rather, It is the environmental problem. Specifically, lack of good infrastructure. It is really difficult to be a manufacturer. It’s daunting. All the odds are stacked up against the manufacturer. In the first place, like I said, the backbone infrastructure is not there to support them. Even if you manufacture, you have to become almost a local government, providing yourself with water, power and roads and, to add to that, you have all the agencies coming to you for the collection of one form of tax or the other, just because one is trying to create jobs.

    And one may have to ask him or herself, why am I doing this? Because if one is a trader, the entire inventory can be in the boot of one’s car, and nobody knows. The imported goods are not too expensive, if one knows how to buy them right. So, at the end of the day the question is; why am I doing this? Because the same set of people you are trying to help are the ones giving you problem.

    So, for someone who is looking at the cost and benefit analysis and those who don’t have the patience to wait that long, it’s just so much easier to be a trader. So, we all became traders. And if you take trading out of it; if you know some in an institution, one could become a contractor. So, contracting and just rent seeking positions became more interesting, especially at a time we became de-industrialised as a country.

    Also, it should be remembered that the naira was very strong at that time. And again the thought that why should one bother when one can live well as a trader or contractor; why then be a manufacturer, taking all the troubles that I will describe in terms of infrastructure, just the basic things and the lack of conducive environment makes it less attractive. And you can’t blame either side. But anyone who is not so mindless and who thinks his roots will understand that if we toe that part, in no distant time we will become slaves in our country.

    So, how do we address these and what is the bank’s role?

    To address this industrial deficiency, we have done a lot to bridge this gap. Remember that in 2006, when we started the paradigm shift, we said we were going to allocate 85 per cent of all of our resources to Small Medium Enterprises (SMEs).We chose that sector because apart from the known academic facts that SMEs are the engine of growth in any economy, in terms of the units of investments because that is where most of the jobs are created anywhere and that is also where you find a lot of Nigerians playing.

    No nation can really be anything or grow if the nationals do not own the productive assets in their country. That was the most important thing for us at BoI. And when we said SMEs, it was not just any SMEs. The paradigm shift was hinged on some factors, with particular emphasis on products that utilise local raw materials.

    So, if we had 10 people competing for funds, priority will be given to those that utilise our local raw materials. Why did we say that? If one utilises local raw materials, it is not just you now producing; you encourage someone else to produce.

    I told you from my own experience, that I had to buy my own generator and borehole. But fortunately because I was in Lagos, I didn’t have to construct road because I was at an industrial estate in Lagos. Lagos has industrial estates. It was less difficult for me than it was for other people. Also, I had to train my own staff. Again, there is lack of training for our people. But all the same, it was an interesting but challenging area of business.

    However, the bank would continue to lend massively to the SME sector because it remains the engine for growth.

    Sometime ago, you unveiled BoI’s strategic plans to set up a micro-credit fund to address the funding needs of micro-enterprises. Can you shed more light on this?

    Yes, this is in continuation of our drive to deliver our mandate. We identified some gaps in terms of funding, capacity building and mentoring among other challenges facing a segment of potential entrepreneurs who are either unserved or under-served vis-a-vis access to finance and other developmental support services.

    So, the bank, therefore, is desirous of achieving financial inclusion by reaching out to the vulnerable Bottom of the Pyramid (BoP) group with a view to improving the quality of their lives. The approach is to set up a dedicated micro-credit fund for lending through microfinance banks.

    It is estimated that 70 per cent of the Nigerian population regarded as the rural poor are at the Bottom of the Pyramid (BoP) and they are largely engaged in subsistence farming and sedentary activities. It is this group at the BoP that the BoI intends to serve in a new funding scheme in order to convert opportunities and potentials into realities.

    The bank will be partnering with the Small and Medium Scale Enterprises Development Agency (SMEDAN), the Association of Local Governments of Nigeria (ALGON), Organised Private Sector (OPS) and the Federal Institute of Industrial Research (FIIRO), among others to achieve the objective.

    Achieving financial inclusion at the BoP requires revolutionary changes through a well structured eco-system consisting of development agencies such as BoI, large corporations, SMEs, Civil Society Organisation/NGOs.

    The collective activities of the eco-system will lead to co-creation of ideas and innovation which reduces investment needs and risks as more share in the investment as collaborators in a participatory process.

    What are the challenges and how did you address them?

    They are enormous and as you addressed one, another one springs up. When you surpass one, a new one comes on stream and ceases to be a challenge. It becomes difficult when you think you can’t. But one of the problems we have is getting people to buy into the vision of wanting to re-create the middle class. Trying to get people to understand that it is only when the middle class is re-created and the SMEs strong and also getting people to understand that we need to get strong institutions in Nigeria. Our target was to ensure that BoI becomes a strong institution that they can rely on because without institutions in a nation, what then are we doing? So, that was one of the challenges initially but I am trying to get quality people to stay focused in the bank. Getting all of that was at first difficult but fortunately for me as I went along, more of the staff in the bank bought into the dream. And that is why I said I do believe in Nigeria as a corporate entity because we are good people.

    Another is our inability to have sufficient funds to do what we want to do. But then it is normal not to have enough resources. One has to continue to be creative to be able to manage that situation.

    Most times, people complain that the problem with Nigerian products is the quality. But I say to them that countries that have quality products started one day. We all have to bear it and stay with them and actually let them know where they are getting it wrong.

    The problem is that we want them to believe that we have the money and can afford to go elsewhere to get the quality product we need. But it doesn’t work like that.

    To move forward, we must change our attitude as Nigerians, not just a section but all of us. We must recognise that we are all connected. If we realise that we are all connected, our attitude and ways of doing things will change. The Nigerian factor is a human factor, and not a Nigerian factor. It is a factor of I want it now and today. What I will call the fast lane approach.

    How have you managed the intervention funds?

    There are two legs to the questions and I am going to separate them. There is the Central Bank of Nigeria (CBN), federal and state governments’ interventions.

    The state government is the one we started. Everybody lives in a state. Though there is the Federal Capital Territory (FCT) supervised by the Minister. But apart from this, everybody comes under a state. So we approached these state governments, saying the citizens pay taxes to them and as such, they as state governments should be responsible to them because they voted them into power.

    So, we explained how it was going to work. They will give us some funds and we will match it. And when we match it, we would lend specifically to the citizens of just that state.

    For instance, we approached Ogun State, telling them the comparative advantages they have in the state. They have adire, ofada rice and sugarcane. In fact, they have a lot of products.

    What we did was to tell them to send us their citizens who are natural entrepreneurs and have difficulty in accessing funds to be able to become entrepreneurs. And this is how it works. If a state gives us N1 billion, we match it with another N1 billion. And if they give us N500 million, we match it with same figure. For those who run small businesses such as the medium size ones, we insist that they meet all the criteria to have access to cheap funds compared with the 17 to 20 per cent interest rate from the commercial.

    How far have you gone with the re-capitalisation of the bank?

    The President did say that the bank should be recapitalised up to N750 billion in realisation of its mandate. We have made recommendation that the capital should be opened up so that International Finance Institutions (IFIs) can come and invest. The process is on-going. And sometimes it takes an unusually long time for that to materialise. I won’t call it the Nigerian factor but rather the human factor. Yes, the President has approved and recommendations made that the equity be opened up so that we can use our balance sheets to borrow from the international community because in terms of the strength of the balance sheets and operations of the bank, it is strong. It is just the strongest decision in an investing class. That decision has been made. It may take time and it may not.

  • ‘Most banks’ frauds are insider-related’

    ‘Most banks’ frauds are insider-related’

    Taiwo Otiti is the Country General Manager of IBM West Africa. The Information Technology (IT) expert, who is responsible for the firm’s business operations and growth strategies in Nigeria, Ghana, Sierra Leone and other emerging markets in Anglophone West Africa, speaks with COLLINS NWEZE on the cash-less economy, how the company is helping banks, telcos and manufacturers in strengthening their ITs to check fraud, among others.

     

    What is your view on high prevalence of fraud and security of information technology (IT) which remains major concerns among bank customers and operators in the country?

    I was the first to put in automated teller machine (ATM) in the former Societe Generale Bank of Nigeria (SGBN) in 1999. I also wrote the book: Tragedy for Payment System in Nigeria. So, I am versed on the issue of security in e-payment system.

    When we started deploying ATMs, it was in what we called mag-stripes. That was riddled with a lot of fraud because those cards can be cloned. By 2006, when we set up Interswitch, we started with mag-stripes. And later when we brought in ValuCard, we implemented chip and pin-based system. All the other schemes later moved to chip and pin, including Interswitch. Mastercard also came and they all became chip and pin. Then, the Central Bank of Nigeria (CBN) mandated in 2005 that we should all go chip and pin. So, every card in Nigeria is now chip and pin.

    Therefore, it is difficult for people to scheme; that is, putting something on the ATM that can steal your secret codes.

    How have you been able to check that?

    We have been able to put anti-scheming devices on ATMs. We have also reduced the stealing of cards. I think the next level is that most of the frauds are internal to the banks themselves.

    So, people are priming cards on customers’ accounts and giving them to fraudsters to use. Those are the risk areas. The cards origination, processing and delivery process need to be intact. A lot of banks look at that. We also play in areas where we put intelligence that can tell you what is going on in your database. In terms of consultancy for security, we are also very high; we are actually one of the best in the world on that. In terms of assets that mitigate security, we also play number one in that space.

    So, what you are saying is that internal fraud is where the biggest challenge is?

    What I am saying is that most of the frauds are insider related. We also have issues on internet banking where people are stealing people’s Personal Identification Number (PIN). We also got tokens. We also see people going around visiting sites where the tokens can be cloned. They originate and ask you to put your PIN. They take the PIN and originate transaction on your account by stealing some of your identity. A lot of internet banking providers are talking to IBM on how to secure their customers’ internet banking applications. We have been able to show them how to tunnel and stop anti-scheming devices. We also teach them how to add infrastructure to stop all these types of incidents.

    IBM has been involved in information technology (IT) processing in banks. Can you tell us how you have been integrating banks’ IT during the banking reforms?

    IBM has been involved with banks long before the reforms. We had the first generation of banks in the country running on IBM platforms. We were here when there were 126 banks; that later came to 89 banks and subsequently reduced to 25 banks during the banking consolidation of 2005.

    We also put unit boxes in Zenith Bank around 2002 to 2006. And then the biggest, was when FirstBank of Nigeria centralised its operations in 2001. We were able to put in what we call regattas into FirstBank. It is the highest-end unit boxes. FirstBank was among the first to install such boxes. They are also putting what we call Storage Area Network. We basically run FirstBank’s banking software on our enterprise platform. We have a history of running very high volumes. FirstBank was the biggest bank then.

    From then onawrds, we started taking more market share because when people realised that IBM provides IT solutions at lower costs, many banks began to subscribe to our services.

    Did you gain more market share after the banking consolidation?

    After consolidation, we actually raised market share by 50 per cent. Between 2010 and now, we have taken another 20 per cent, which takes us to about 70 per cent share in the enterprise boxes that run the banking applications.

    There were several reasons this happened. We tied relationship with many of them. We also have close relationship with independent private vendors, who are the ones that own the banking applications. Finacle of Infosys and also Flexcube which is owned by Oracle. We have very tight relationship with P24, which is by Terminals. We have a service competent centre, which we built for them in France. Based on that, we have a lot of benchmark and experience in using these applications efficiently in our boxes.

    That also gave us a lot of market share in the industry. Apart from that, IBM basically runs a lot of the biggest banks in the world. We are not only putting hardware in, but as a master of integration, we also have integration software.

    So, from payment system coming to your swift network, to your automated clearing house, to your workflow that runs your businesses, we have software and assets that deal with all of that.

    Does this mean that the cash-less policy of the CBN is bringing more business to your company?

    Invariably, we are gaining part of it in terms of capacity building for some banks. We are helping many of the banks to integrate into the cash-less economy. We are helping them in implementing some of the things they are doing.

    After South Africa, Nigeria is next as far as Africa investment is concerned. Is it the same investment that IBM is spreading across the continent? What are your plans for Nigeria?

    I think you have to understand that Nigeria has the biggest population in Africa. The economy is becoming more diversified. We have Gross Domestic Growth (GDG) of about seven per cent year-on-year. What that tells you is that Nigeria is moving forward in the right direction. We are diversifying away from just only oil into agriculture, minerals, gas, liquefied natural gas. We have started to see a lot of work in the privatisation of electricity. So, that automatically tells you that the country is moving in the right direction. So, if you don’t invest now, you are going to be playing catch-up.

    Recently, IBM organised a conference on Small and Medium Scale Enterprises (SMEs) in which International Finance Corporation (IFC) was involved. What opportunities do you see in that subsector of the economy?

    I think, SMEs no matter what economy you are looking into, are the backbone to the economies. For what we are doing with IFC, which to us is a social service to the society where we operate, it will help those SMEs on how to do business and manage them properly. We are actually putting in the SMEs Toolkit to help them manage their businesses properly.

    We also do mentoring. We are nurturing SMEs to help them grow. We are doing a lot of that work. We are looking at how to operate in an environment and help the environment grow. Our calculation is that as those SMEs grow, they may need some of our tools. Some of our staff also take their time out to mentor these SMEs to help them grow.

    Banks avoid lending to the SMEs’ subsector because of the high level of risks involved. Will that not work against your interest in that subsector, especially when funding becomes a major challenge?

    I think, economically, in the short term when you train SMEs to know how to run their businesses properly, with cash-less banking, so many data will start going to the banks. Then, the banks would start using analytics. What you will find is that the data will assist you in understanding what type of risks you are about to take on a particular SME. So, you know their behavioural pattern and how much money you can lend to them in terms of risk.

    Therefore, we are just at the infancy of what we call big data. We have the data, and then you look at the data and that will allow you do better loan origination in that SMEs. Remember, we have put a credit bureau and you can check the amount of loans these SMEs have taken in other banks. So, you can now determine how much loan you want to send to these SMEs.

    Pure system remains one of your flagship products. How are you deploying it into meeting clients’ needs in the African and Nigerian market?

    Pure system is what we call a converged system. In the olden days, we used to sell unit boxes to clients, also unit servers, storage, and management software. In a converged system, we put all those things together. We have not just put them together, but actually engineered the system. So, everything becomes a system, which works seamlessly together fitting into the server. We monitor applications inside the boxes and automatically managing your workload, network and user experience. Before now, different people manage your unit boxes, unit servers, storage, and management soft ware. But now, these can be managed together under the Pure System.

    Also, lack of resources has created a situation in corporate IT globally where $2.5 trillion or 70 per cent of the global IT budget is spent just making sure the companies’ infrastructure works. For more than 100 years, IBM has provided organisations with the advances in technology to help transform their work and meet the needs of clients.

    As a result, one in five projects never sees the light of day and there is a backlog in IT of more than 18 months. Pure System is a new class of expert integrated systems designed to help businesses address the complexity of enterprise IT. It is the result of $2 billion in Research and Development and acquisitions over four years, an unprecedented move by IBM to integrate IT elements, both physical and virtual.

    What is your strategy and view about the unbanked within the population?

    You have to understand that it is not only the banks that deal with the unbanked within the population. Telcos, manufacturing among other sectors, are also involved. Our view is to put something that brings everybody together. It will look like a supply chain environment. And also managing the data that allows you understand the products that are selling well. So, we are talking about bringing integration and analytics together to help the banks render services to this group of people.

    The issue is how to bring everybody together using the right technology and agent network. We have the tools that can do that. We are talking to all the parties to see how we can work together.

    How widely used are IBM technologies?

    All the big banks in the world are connected to platforms. Also, a lot of the independent big organisations build their software on top of some of our assets. That gives us a lot of leverage in marketing our products. For instance, Finacle runs on our application servers. If you are going to buy Finacle, automatically you have to buy our application servers.

    P24 for instance is database independent, so they can run our Oracle or GB2. That also helps us to sell some of our database products. We have a lot of assets that are involved in risk management such as operational, market and credit risks. We have a lot of assets in those orientations. We also have the  International Financial Reporting Standard, which is about relating your books in international way as stipulated by regulators. So, we have a lot of assets. Also, when it comes to analytics, we have a lot of assets, which are segmented into various industries, such as banking, retail, telecommunications, manufacturing, and other sectors, and they give us a lot of leverage. So, we have a lot of assets that are prewired for those type of industries and that gives us a lot of leverage.

    There are other things, such as our being able to take client’s needs from consultancy to delivery. We are also go-partners and biggest delivery shop for SAP and Oracle. We do consulting for you in terms of what are your business process, and how are you going to fit them into either SAP or Oracle applications? And we also implement it for you. We are also very wide related to other products.

    The cash-less policy of the Central Bank of Nigeria (CBN) is supposed to have a lot of impact on how banking is done in terms of service offerings. What opportunity do you see in this policy as an operator and in the banking industry?

    In terms of the banking system, remember, the cash-less economy makes it easy for you to have much more transactions, especially high volumes. So, that automatically is related to us. So, cash-less economy is the integration of many things from Automated Teller Machines (ATMs) to Point of Sale (PoS) to serve that you are originating from various channels, such as mobile banking, internet banking and all that. But the beauty of all that is that we have the integration organisations’ point of view. We can give you integration to integrate everything.

    I was one of the committee members who wrote the 2012 Payment System Framework for the CBN. We also understand the basis of cash-less society where it comes from channels, such as ATMs or the back-end infrastructure, such as the automated clearing system, all the way to interSwitch. We also have the picture of banking the system that integrates all that, which we also run in Europe, Middle East, Asia, America, among others. A lot of big banks also run those framework. A lot of things we do,ww for instance, help our customers in what we call the enterprise architect engagement on infrastructure or data. We are doing all that for the Central Bank too.

    The African market is seen as the next investment frontier. What is IBM doing to tap into the opportunities available in this market?

    All the way to Sub-Saharan Africa, to South Africa, there is a lot of more governance in government. We have moved away from the era of coups to that of democracy. Governments are becoming more stable. There is a lot of more investments coming into our region. We are creating middle class in the whole region, and middle class means growth because they are the ones who consume things.

    All large corporates that have international clout, that is what they want. Africa is the last investment frontier. We have invested in Asia, India, and now Africa is the next area everybody is investing in.

     

     

  • Unclaimed dividend should revert to firms

    Unclaimed dividend should revert to firms

    The Chief Executive Officer, Partnership Investment Company Plc,Victor Ogiemwonyi, in this interview with Tonia Osundolire speaks on the prospects of the economy, the capital market and several emerging issues

     

     

    What is your assessment of the Nigerian Stock Exchange (NSE)?

    The activities at the Nigerian Stock Exchange (NSE) are better. The management has shown competence. We can see that many things are happening and there is gradual recovery too. NSE has come up with some good initiatives, which has been well executed. This calls for praise for the management. We have to give credit to the interim administration of the NSE for the painstaking way they went about recruiting the new management. There are few areas where some things would have been done differently, but we have to give them a pass mark so far.

    Where are the areas you think things could have been done differently?

    The rapid disengagement of some of the old experienced members of staff could have been handled differently. But that is history. The important thing is that things are working well.

    How can the capital market be further deepened?

    The market needs deepening. This means having more securities listed on the Exchange. We also need different types of securities and of course more liquidity. Current initiatives, such as the newly launched Alternative Securities Market (ASEM), the retail bonds trading initiatives as well as the new listing requirements are some of the things being done to deepen the market. Of course, the market making and short selling programmes are all part of that too, because they help to create liquidity. But we also have to be gradual about it, so we don’t create unintended consequences. There are a whole lot of other things we need to do to further deepen the market.

    You said there are a lot of other things needed to deepen the market. What are you referring to?

    For instance, deepening and broadening the market will translate to more activities in an expanding prosperity loop. Any growth on the funding side of the equation, whether as a result of increased internal allocation or because of external inflows, which is not matched by a comparable increment in absorption capacity on the asset side will, ultimately, result in price inflation like a price bubble. A classic case of “too much money chasing too few goods” as we saw in 2007/2008. This would drive many investors to invest in shaky ‘private placement issues‘.

    We could also introduce some derivatives like “options” since these will enhance risk management for investors. But we will have to be careful not to do things that will bring unintended consequences. We cannot be introducing complex derivatives into a market with anemic underlying assets. Our focus now should be on creating or expanding the number of tradable instruments available under the basic asset types such as equities and bonds. Our goal should be to have a market with a thousand stock market listings. This is why the recently launched Alternative Securities Market (ASEM) is a step in the right direction. Our SMEs are ready and waiting to be taken to the next level.

    We must also realise that markets exist to allocate and manage risks, and there is no better weapon in the risk management arsenal than diversification. To broaden our markets is to expand the range of diversification opportunities available to investors. Success in doing this will manifest in an increased market size.

    Looking at the performance of the market, what do you think is responsible for the dearth of Initial Public Offerings (IPOs) in the market?

    The IPO market will come back when confidence fully returns. The issuers of IPOs don’t want failed issues and are waiting to see the market fully return. Investors are worried that they will lose money again. We have to be more patient; the IPOs will come back once it is clear that the recent gains will stay. We have a lot of volatility in the secondary market now, because of the tentativeness of investors. They go in and quickly come out with whatever profits they can get.

    Your response can be interpreted to mean that confidence is yet to return to the market. So, what can we attribute the recent growth recorded in the market to?

    Confidence is not a light bulb you switch on and off; it takes time. We are doing all the right things now to restore investor confidence. There are a few more things to do. The planned campaign the market operators and regulators agreed on is still pending.

    Look at the New York and the India Stock Exchanges. They are not only back, they are at record levels. But it took a long time in coming. The recent growth, as I explained before, is realistic because it is starting from a low base after the last market crash.

    What is your take on the position of SEC on unclaimed dividend and what solution do you recommend?

    Unclaimed dividend has become a recurring issue. The truth is that we will not overcome it unless we completely go e-dividend. The proposition to turn the outstanding balances to an agency does not have my support. I believe the company paying the dividend should have it back to be invested in the company for the benefit of owners of the business. We should let the company use it for its business as long as nobody shows up to make a claim.The company should be made to make a disclosure of the amount outstanding on their unclaimed dividend account and report this at every Annual General Meeting (AGM). The liability to pay it back to anyone who makes a legitimate claim should be made indefinite. That is, let the company that made the profit keep it until the rightful owner shows up.

    What do you think the registrars can do to reduce the value of unclaimed dividend?

    The registrars will have to be more efficient. For instance, they can make efforts to find the rightful owners for dividends by occasionally publishing them in newspapers. Yes, I know they publish them now in the annual reports, but many don’t even get the annual reports. Publishing it in local newspapers will give the names more prominence. Even those who miss it will be alerted by their friends and relatives.

    Do you still consider the demutualisation of the NSE necessary and what change will it add to the capital market?

    Demutualisation is not optional; this is the way of the future. Every Exchange will one day be demutualised. That is the best practice going forward. It will ensure that everyone has a chance to have a piece of it and the governance will be better since it will have to meet the same standards that all quoted companies are subjected to. The accountability to shareholders will ensure it will always aim to make money and still run on best practices.

     Some said the performance recorded in the market is cosmetic. Do you agree?

    I don’t know how the stock market performance can be categorised as cosmetic; stock market goes up and down all the time. The performance is not great yet and can be seen as too rapid for now, but we are also coming from a very low base after the crash. We have to understand that the index went all the way to 66,000 points in March 2008; we are just little over 35,000. Look at the Stock Exchanges around the world, most have fully recovered and, in some cases, are setting new records. The New York Stock Exchange has just done that. The stock market sometimes does not always reflect the economy accurately, but you can discount the fact that it reflects the optimism of those who invest in it. Just ask yourself, if the market is doing as well as it is doing now, what will happen if our infrastructural problems gets better? Unless you are totally pessimistic about the future of Nigeria, in that case, I don’t share your view. I may be wrong but the future of Nigeria looks bright to me despite all the problems. The foreign investors investing in our market are not stupid.

    There has been clamour for the government’s intervention to ensure listing of some firms in key sectors of the economy, such as the telecoms and oil and gas, among others. What is your view on this?

    I must confess I was a proponent of this at some point, but I have since changed my mind because these things cannot be forced. I believe a good incentive package, such as lower taxes for listed companies and a rapid privatisation programme will do the trick. Just two weeks ago, I wrote that the divestment of the oil majors from their onshore wells should be seen as an opportunity to indigenise our oil industry by bunching all the assets to be divested together to be acquired by Nigeria Petroleum Development Company (NPDC) and floated on the stock market as an independent company from Nigeria National Petroleum Corporation (NNPC). The comparative advantage in this model cannot be the same, even if all the pieces now being acquired eventually come to list on the Exchange. Bringing it to the stock market will make it to have broad ownership and will find all the money it needs from investors on the stock market who will buy the shares. It will be accountable to its shareholders and, because it already has producing wells, it will be attractive to investors. It will also be a way to solve the community problems by writing into its articles that 10 per cent of its profits will be used to fund its community programmes. That also means there will be no more government funding. The NPDC will be established as a proper development agency funded from this company and will be run as a subsidiary development company, such as Mubadala the United Arab Emirate (UAE) firm that runs the Emirates institutions.

    Why are the oil majors not listed in the market despite the fact that they are major drivers of the economy?

    I think my short answer to that is: Why don’t we start with the NNPC?

    What do you think can be done to woo companies to list on the NSE?

    Companies will come when they feel the market is more stable. If the government is giving incentives for listed companies it will also help. More than anything else, the government needs to crank up the privatisation programme. A major privatisation listing will bring the market back quickly.

     In the medium to long term, what is your preview of market outlook?

    I am always bullish about the stock market because I know that the problems we talk about in Nigeria are also opportunities. The moment the economy gets the right boost with better infrastructure, the market will take off. Imagine what will happen when we get our energy problems solved and we find a way to put all the young people to work, the sky will be the limit.

     

  • ‘Banks not most profitable institutions’

    ‘Banks not most profitable institutions’

    Over one year after its introduction, how has cash-less banking fared? It has done well, says Mr Tunde Lemo, Deputy Governor (Operations) of the Central Bank of Nigeria (CBN), who is responsible for driving the policy. In this interview at the sidelines of the World Bank/International Monetary Fund meetings in Washington D.C, United States, last month, he tells Group Business Editor AYODELE AMINU about the hitches in the policy’s implementation and how they are being tackled; consolidation in banking; the credibility and sustainability of banks’ profit, among other issues.

     

     

     

     

    By the first week of July, the next phase of the cashless policy is expected to start in some states; how prepared are the CBN and the banks? Are you anticipating any shift in that date?

    Well, first and foremost, there is not going to be any shift. Recall that we started this programme actually in January, last year and we are only just continuing. We are only just moving to Phase Two, so we have learnt all the ropes in phase one in cash-less Lagos and we believe we are ready to roll out to other six locations in Nigeria. We are actually working in collaboration with the Bankers’ Committee. We have a subcommittee headed by the MD/CEO of UBA, who is the cashless champion among the banks’ CEOs and together with the other institution like the Nigeria Interbank Settlement System (NIBSS), we are working very hard to ensure that we dot all the I’s and cross all the T’s. I can tell you that we already have our road map and we are not going to shift the implementation date of the Phase Two, which is 1st of July 2013.

    What are the current and previous challenges and how are they being solved?

    The most important previous challenge was connectivity; we have over 150,000 Point of Sales (PoS) machines in Lagos area where we had the cash-less Lagos. However, only 25 per cent of them are active largely because we don’t have General packet radio service (GPRS) and connectivity alive in some of the clusters and because of that, it has affected the rate at which those machines are used. However, we believe very much that it is getting better because we monitor the transactions on daily basis and we are beginning to record large volume and value of transactions done under the PoS. So, rolling into Phase Two, we believe that there may also be a challenge. However, we are not even looking only at the PoS as a major of channel for cash-less; we are looking at all the other major channels for cash-less. That is to say that apart from the PoS, we have the mobile telephone, which we will use all the malls, particularly in PhaseTwo because, of course, you know that the teledencity in Nigeria is very high and we have over hundred million mobile phones now, which then makes hundred million Nigerians potential users of mobile money. So, we are also driving cash-less through that, don’t also forget that high volume of frequency of transactions done by banks and through the high corporate end also go through the cash-less channels. There is a product managed by the NIBSS that they call the NIPS (Nigeria Inter-bank Payment System) instant payment. NIPS records over N20 billion values per day. And in terms of volume, it is over hundred thousand (number of transactions that occur). There is also the NIBSS Electronic Funds Transfer (NEFT) that goes through the clearing house; you get value the following day. That also has increased in volume. Between NIBS and NEFT, we record over N80 billion transactions per working day and they both now account for more than twice the volume of cheques. In fact, the share of cheques as a proportion of non-cash transactions is down to 20/21 per cent on a daily basis and I think this is quite remarkable. So, this is the kind of thing we want to emphasise. When we talk about cash-less actually, we are looking at the retail end. The wholesale end is already very cash-less, so we are quite happy at the progress we have made in the area of NEFT and NIBSS. As we roll out to other six locations, we are going to engage the customers on the need to use more of the NIPS and NEFT if they are high networth individuals and also there are other card and electronic payment services or products that banks have developed that also should be seen as part of the programme. But the PoS machine will also be installed in key locations and we will also monitor the use of mobile phones. So, these are the channels that we are encouraging and, of course, we’ve been able to get a lot of customers to embrace ATMs. I was going through the papers a few days ago, there was a survey done by KPMG where they said about 80per cent of the respondent said they regularly use ATMs, which is good. But you know ATM is not cash-less, because you are still going there to collect cash. We want to encourage people to move away from cash. As efficient as ATM may seem, we want to leap-frog and then get more people to move away from cash and embrace cash-less.

    Going by the guidelines of the cash-less policy, banks are not supposed to be directly providing Cash-In-Transit for their customers. It is supposed to be outsourced, but some banks are still  doing this. What is the CBN doing to stop such banks and what sanctions await erring banks?

    Those who do it do so outside Lagos. You will recall that we said cash-less started from Lagos where we said banks should no longer do cash pick up activities. When we move over to other six locations, banks will also step back from cash pick up activities. We have registered four cash-in –transit companies that should do that on behalf of others and we are also happy that filling stations themselves and other big supermarkets are embracing cash-less. There is a company called Easy fuel, they get the filling station to install that capability at the filling station, whereby you just drive in and use your card to buy fuel. They are even going beyond that now to make it fairly more contactless –meaning that you can even fill your car with fuel without the use of card. That will also ensure that you don’t even build up cash not to talk of having CIT company to evacuate.

    What is the CBN doing in a situation where you are using your ATM or PoS and they debit you, without you getting value for it?

    We have put in place a dispute resolution mechanism. Banks have been told that at every point where you have ATM or PoS, there is a number you can call as a customer if you have a problem and that problem should be resolved within 48hours. In other words, if you are wrongly debited, may be because of a fault or an issue, the bank is expected to resolve it. If, however, by seven days it is not resolved, you can escalate it or actually escalate it to CBN. We have set up a full-fledged department called the Consumer Protection Department, that department will ensure that the banks are not only sanctioned for delaying the resolution of the problem, they will also ensure that the customer is refunded the money that was wrongly debited. But we don’t even want it to get to that point. We want a means by which disputes are resolved as they occur and I must also say that we have seen tremendous improvement because we keep tab of complaints from customers. There are less and less complaints now even as we continue to see the volume grow around ATM transactions.

    Why did the CBN increase the number of states for the second phase of the cash-less project to five?

    Yes, we actually had five before; we added Ogun State because of Ota. You know that Lagos and Ogun are almost in the same territory now in terms of the fact that the two states, the residents now criss-cross at different territories. In order to avoid arbitrage – a means by which, of course, there is cashless in Lagos and there is no cash-less in Ota, Ota is as close to Lagos and so many other places in Lagos. So, to discourage arbitrage, it is important to add Ogun because it is very very close to Lagos and we don’t want a situation whereby banks then use territories that are very close to Lagos to side-track or to avoid the strict conditions of cash-less. But apart from Ogun, we also have Anambra, which is there because of Onitsha, which has a major market. You know Onitsha also has a large market. Abia is there because of Aba market. Rivers is there because of Port Harcourt, Abuja and, of course, Kano. So, those are the five other locations. But when you add these locations to Lagos, you are accounting for around 90 per cent of the volume of cash within the country. These locations are major cash centres. The other states will be added in Phase Three. But we believe if we get it right with these six locations in addition to Lagos, we would have covered 90 per cent of the volume of cash.

    When will the Three Phase be implemented?

    Let us look and see to the success and implementation of Phase Two first. I don’t want to hazard any guess, but I reckon that in no distant future, we will get to other parts of the country.

    Why did the CBN reverse itself by abolishing all off-site ATMs not directly operated by banks?

    There was no reversal. Recall that at the time the Central Bank said banks should not put branded ATMs outside their premises in offsite, it was because then, when you get to some key locations like Hilton, you see 25 ATM machines, virtually every bank is there and yet other areas are not well-serviced. So, we felt that instead of wasting resources, why not then get licensed Independent ATM Deployers (IADS) to have those equipment there that will serve the entire industry. The IAD, then were just three and so we had three in those important locations as opposed to having 20-25 different machines, just to save cost. But recall that at that time we didn’t have cashless exercise. But when we came up with the cash-less programme, we decided to look away from that to encourage banks because, then, we had told banks to invest heavily In ATM machines. So, it was the cashless programme that made it unnecessary to do that and, of course, we discussed with the IADs and we have since ensured that they were compensated for the change in policy.

    Let’s move to the banking industry. Given the number of banks in the country, would you say Nigeria is over-banked or under-banked?

    I don’t want us to be looking at whether Nigeria is over-banked or under-banked in terms of the number of banks. For instance, the biggest bank in India has more branch networks than the entire banks in Nigeria; so, if that bank were to be in Nigeria, probably we would think that Nigeria is under-banked, because it is only one bank. Banking penetration in Nigeria today is monitored in terms of the number of Nigerians who have bank accounts and the number of bank branches. Today, we have around 6,000 branches of banks all over the country and we believe that we can do better. However, we are asking banks to look away from the traditional means by which they deploy their services, because it is not cost effective; technology has made deployment of banking services cheaper. You don’t have to have the physical presence of the brick and mortal type banking before you can conduct banking business. Today, if you go to Kenya and you go to a normal grocery shop, the grocery shop combines with his core business about two, three or four banks. And most of the people outside the city, what do they do when they go outside the city? They either go to deposit, save or open accounts. So, these normal three not-too-complex services can be rendered without the physical presence of a bank. That is why we came up with a regulation around agency banking and we have since released guidelines and, of course, before long we are going to license or register accredited agencies of banks. Through the agencies, we expect that we will be able to get a lot of people into banking network. So, access to finance, banking services is a better barometer now to measure banking penetration as opposed to brick and mortal presence of banks or the other numbers of banks. Today, I will not be surprised if these numbers shrink and yet with wider network of branches. If a bank can have 60,000 branches in India, why can’t we have a mega bank that will have the same number of network that the entire banking industry has? So, we should look at penetration in terms of the number of people who have access to banking services and that is improving and we will continue to improve on that.

    Do you foresee further consolidation in the industry?

    That should be driven by business exigencies. Banks are free to discuss that among themselves if there are opportunities. What we are telling banks is that they can achieve a lot better by sharing facilities, which is the shared services’programme that we have put in place in the last three years and we are beginning to see a lot of transactions there. The banks’ cost to serve ratio is going down. Going by the results published by banks, they are returning very good profits and the customers are beginning to get the benefit of that in terms of lower interest rate. Only last month, the Bankers’Committee came up to say that they were going to reduce interest charges on the Small and Medium Scale Enterprises (SMEs) and, of course, they are by that introducing the benefit of the cost to service ratio. Banks, on their own, can choose to merge, but the CBN is not going to force that. It is not going to be regulator induced. However, it may bother us when we begin to see a cluster among two-three banks. But the anti-trust issues are there. How far can they go? Can we just sit back and look at the whole thing shrink to one or two? May be not. But today, so long as they can still get a lot more mileage by combining resources and reduce costs, we will encourage mergers and acquisitions up to certain level.

    We have seen about two banks posting over N100 billion in profit. How credible and sustainable are these results?

    Credibility first. Of course, with all the strict regulations around integrity of data and strict regulations around prudential issues, I am not sure any bank will take the risk of playing games anymore. Don’t also forget that we have the International Financial Reporting Standard (IFRS) – a new accounting policy that ensures that all the risk you have in your balance sheet is well-explained to investors and that you also make enough provisions. You mark to market if you have real sensitive assets in your books. So, because of that, I believe that all the numbers that are being shunned out are real and they are good.

    On sustainability, I think the public thinks that these banks are making super normal profits. You are just looking at the numbers, you are not looking at the capital that is employed. I think that at the end of the day, banks are not the most profitable institutions in Nigeria. Take, for instance, oil companies and telecoms. They are having superior arrow eyes on returns to investment. Banks’ return on investment is at best 20-21 per cent; that is not abnormal in terms of the risk that they take. So, talking of sustainability, I believe it will remain sustainable to the extent, of course, that the business climate is good, that we continue to fix infrastructure and continue to de-risk the business environment. Don’t forget that we have not even yet seen enough penetration that we expect in Nigeria. When you look at the total financial assets relative to our Gross Domestic Product (GDP), I think there’s a lot more that banks can do.

    With inflation decelerating to about 8.6 per cent, do you foresee the CBN changing its monetary stance at the next Monetary Policy Committee (MPC) meeting this month?

    Well, first and foremost, you cannot expect me at an interview like this to begin to tell you the direction that the MPC will go. First, I don’t even have all the facts with me to tell you the way my mind is working and yet I am just one in 12 members. So, you can see it is difficult for me to sit down here and tell you whether or not when we meet, rates will go up or come down. It all depends on so many things. But don’t forget, we are happy that we are beginning to see traction in the area of lower interest rate, but how sustainable are these? And then you have not yet removed the base effect. These rates are low, because if we look at year-on-year, there were spikes this time in February/ March and when you consider that as a denominator, you can then understand why year-on-year the rate is low. Although if you check month-on-month, there is some deceleration of interest rate, but it is not yet time for you to begin to say that it will be sustained; we need to wait a little bit longer.The reason, again, is because of what is happening in shale oil and in the international scene. There are still some downside risks that are there, that may not make it expedient for the MPC to look at loosening the monetary stand now. However, we don’t yet have the facts on the table; so, it is too early to make a judgment on whether or not the rate will come down. But, of course, when we meet and we will see all the figures, we will then be able to know where things should be.

    The Holding Companies are burdened by double taxation. How is this being addressed by the CBN?

    Fiscal issues are not under the Central Bank purview. When we talk about taxation and tax concession; these are matters for the Federal Inland Revenue Service (FIRS). The Central Bank together with our colleagues in the Financial Sector Regulators Coordinating Committee (FSRCC) are helping to talk to the relevant tax authorities on the need to look at these areas where there are double taxation so that they we can at least have some concessions and some understanding, so that banks are not unduly penalised. We can only advocate and push for a consideration, because it is not within our control. So, I cannot be upfront on whether or not they will get it.

    Looking back at CBN’s intervention in 2009, would you say it was justified, given what some critics had said?

    I think if there is any doubting Thomas or anybody who doubted the veracity or the importance of what we did in 2009, they should by now be convinced that we did what we were supposed to do and if we didn’t do it, it would have been a lot more devastating. We had a similar problem with Europe. Europe was in denial and you can see what began to unravel in Europe after all the actions that we took. Everybody thought that we went overboard, but we are glad that two years after the action, Nigeria’s case even became a very interesting case study in the United States to the point that the governor of the Central Bank was even invited by the Congress to share his experience and his thoughts and at the end of that meeting, he received a very good commendation. But, again, what is happening in Greece and other places in Europe now confirms that had they done what we did in Nigeria three or four years ago, the problem wouldn’t have gotten that bad. So, like the proverb says, “A stitch in time saves nine.” We tried to stitch our own problem in time and that is why it has saved us a nine that we are beginning to see in Europe.

     

  • ‘Farmers need concessional interest rates’

    ‘Farmers need concessional interest rates’

    Mechanised agriculture and outsourcing of non-core agricultural activities in the commercial sector of the industry are gradually eliminating sharp practices, which account for increase in labour costs, says Mr Ikechukwu Azogu, Executive Director, National Centre for Agricultural Mechanisation (NCAM). He explains to DANIEL ESSIET why mechanisation has become important to farmers’ economic survival.

     

    What is the state of the agric machinery industry in the last five years?

    The agricultural machinery industry has grown rapidly in the past five years. The government’s policy is changing towards supporting the sector. The administration has shown increased desire to support and sustain agriculture, ensure food security and encourage more productive farming methods. Agricultural machinery producing companies are making their presence felt as they move to expand their global footprint.The global downturn a few years ago, which led to a decrease in the purchasing power of consumers also offered farm machinery makers a chance to compete in market by producing low-cost machines and parts. Solid agricultural performances have also encouraged reinvestment this year.

    The rising costs of raw materials, such as steel, and energy such as coal and fuel have been of concern. How are these affecting agricultural machinery?

    Steel is one of the largest input used in making machinery and equipment. The impact of changing market requirements for steel has been dramatic. The demand growth is exceptionally strong. Consumption continues to grow strongly, matched by a large rise in production.The reasons for steel prices escalation are numerous.There has been a worldwide industrial growth. A boom in construction, along with rapid industrialisation is causing demand to increase. Impact of steel price increases is affecting the agricultural machinery industry. This is because manufacturers use steel, iron ore and coal as their basic input. So, the steel crisis has certainly provided manufacturers with a major challenge – reduce costs to offset the increases or risk losing margin. Locally, we rely on materials from the scrap market. The scrap price is crucial to the agricultural machinery industry.

    Earlier, the industry was sustained by importation and assembly. Has it developed capacity for manufacturing and development of new equipment that are appropriate for the sector?

    We were importing tractors both in completely knocked down (CKD) and completely built up (CBU) condition from abroad. With the realisation of the importance of farm mechanisation in crop production, the demand for tractors has increased gradually and also their imports. All the tractors and farm machines were imported. Since then, the imports have gradually given way to local production. However, a variety of implements are still being imported from Europe and USA. We are meeting the country’s needs for technologies that it could not obtain for a variety of reasons. We are developing what could be better education and agric research system. We hope that as the agric sector advances, foreign investors would be attracted to establishing assembly plants in Nigeria. We have also got to the level where we dissect imported tractors and copy their parts, to enable us to replace broken down or worn out machine parts. This is cheaper for us than going all out to import these parts.

    What are the implements manufactured in the country?

    We have done a lot in terms of simple tillage implements that prepare the soil for planting by loosening the soil and killing weeds or competing plants. They include machines for tilling the soil, planting seeds, irrigating the land, cultivating crops, protecting them from pests and weeds, harvesting, threshing grain, livestock feeding, and sorting and packaging the products. The Centre has developed technologies that have impacted positively towards the use of land tools, animal traction and engine powered mechanisation technology. The machines include: seed treatment dram, manual seed planter, manual seed and fertiliser broadcaster, weeding hoe, cassava lifter, cassava peeler, cassava grater, groundnut digger, groundnut decorticator, paddy parboiler, oil palm fruit processing machines, maize shellers, melon shellers, palm nut crackers, okro slicer, lysimeter, yam chipping machine, threshers and vegetable slicers. The centre has trained numerous fabricators on how to produce these machines. We need to create the necessary awareness of the immense potentials of these products to the economic development of the nation.

    Our mandate empowers us to carry out adaptive and innovative research in design, fabrication and testing of proven agricultural technologies. NCAM conducts programmes on adaptive research for the development of better agricultural tools, equipment and machines for land clearing, weeding, harvesting, crop preservation and processing, as well as the development of low cost machine and equipment appropriate for the effective mechanisation of farming operations, which at present, are predominantly small-scale. We have a pedal operated cassava grater – a farm processing equipment fabricated to improve the traditional way of grating peeled cassava tubers into fine mash for further processing in terms of drudgery, timeliness and output capacity. The grater comprises a grating drum, a rectangular hopper and drum housing a gear system and a pedal. The output capacity of the machine depends on the strength and agility of the operators. Two operators can produce 30 kg cassava mash per hour. There is also the oil palm fruit processing equipment – a complete set of labour saving devices for the production of palm oil from palm fruit. The set comprises of a palm fruit steamer/steriliser which is made of standard 50-gallon oil drum with upper and lower chambers, perforated circular metal sheet and a drain plug. There is a palm fruit digester used to depericarp or macerate the mesocarp and extract the oil from the cooked palm fruits. They are of two types, namely: vertical and horizontal types. Their essential features include cylindrical housing, the inner perforated cylindrical drum, ashaft, spikes and a handle. The palm oil clarifier is a cylindrical container made from iron sheet. The main features are upper cylindrical section, lower cylindrical section and a drain pipe.

    We have established a liaison programme to facilitate linkages with research Institutes, and the manufacturing Industries. This ensures that prototypes designed by the research institutes are manufactured and mass produced by the local and indigenous manufacturing industries that no doubt have more adequate engineering infrastructures for the manufacture and mass production of the prototypes for distribution to end-users. In addition, this arrangement encouraged more entrepreneurs to establish industries for the manufacture of the locally designed equipment or even sponsor research and development works on agricultural equipment development. We distribute our equipment through the Agricultural Development Programmes (ADPs) as well as directly to end users.

    Do we have competencies to manufacture combined harvesters and heavy tractors?

    No. It takes four to five years to develop a new product and have it ready for the market. We want to respond to this growing market by developing products unique to the nation’s agricultural processes. There is rapidly growing demand for agricultural equipment. The challenge, however, is the difficulty in obtaining investment for agricultural machinery.

    At present, NCAM is mandated by the Federal Government to test the quality and adaptability of every tractor imported into the country, an attempt aimed at stalling the importation of low quality tractors that hardly last for six months before they pack up. We are aware that after we have tested and certified, some of these importers still go back and import low quality tractors. This singular reason underscores the need for NCAM officers to be at the ports and work hand in hand with the Nigeria Customs Service to ensure that the machines being brought in are in tandem with our specifications.

    Do you have a functional national system of apprenticeship and formal education through the polytechnics for technicians, artisans and for qualified engineers?

    As the agricultural and turf machinery business becomes more technologically advanced, the need for skilled people working in the industry becomes ever greater. It’s not just about the machines either. Sophisticated parts and service systems require the same skills too. One of the major benefits students and apprentices enjoy doing their industrial attachment with NCAM is the certainty of attaining prescribed standards of training. Indeed, the quality of training delivered is such that the students should be widely sought after in all fields of agric engineering. We focus on capacity building so that the farmer has a wide range of skills to run the farm. There are apprenticeship programme, which provide a high-quality route for agric engineers to acquiring skills. At NCAM, we provide internship for undergraduates. Those who participate are guaranteed adequate training and standards are followed. Apprentices have a chance to learn and get real work experience.

    What impact will financial liberalisation have on agric businesses, especially farm machinery companies?

    The availability and cost of finance within the agricultural sector is generally assumed to exert an indirect but important effect on the level of total agricultural production through its effect on investment. Because of the contribution made by the agricultural sector to the nation’s economic viability, it is most important that the resources required for the expansion of agricultural output, in both the traditional and non-traditional areas of production, are available. Perhaps the most vital of the resources needed, if the desired increase in agricultural output growth is to be achieved, is the provision of adequate capital.

    The government has sought to encourage the flow of funds to agriculture from banks by indicating lending priorities. There are a number of long-term national policy issues related to agricultural financing, which may require review in the light of changing economic and market conditions, and their success in furthering government’s objectives and their effects on undesirable economic phenomena, such as land price escalation. These include concessional interest rates for farming, and the specific farming purposes for which funds are allocated under the lending policies of these institutions.

    In the short term, decisions must be made on the annual allocation of funds to government institutions and on the need for special financing arrangements in times of climatic stress. It is essential that policy makers at both the national and institutional levels be able to plan for changes in demand and be aware of developing shortfalls in supply. Until the government has the necessary background data to make appropriate decisions, provision of funds for agricultural purposes will lack focus and coherence.

    Objective decisions on the direction of government funds to the agricultural sector and on the allocation of those funds within the sector, there exists a risk that groups of farmers selected for targeted assistance will not be those in need of assistance, or that the assistance is not being given where the nation will benefit most.

    Do you think the economy has prospects to sustain multinational agric businesses?

    Management of international agric firms can utilise the benefits of what NCAM can provide them such as base of operations. There is an enabling environment to encourage many international firms to establish operations and/or conduct business within our market. Nigeria is highly regarded as a location, which includes highly-skilled engineers, governmental aid, good geographic location and some tax and custom benefits. The industry is capable of enjoying tremendous profitability. This is in terms of added value, export rates and productivity per employee. The government is making efforts to improve the climate for foreign investment as it seeks to develop a more market-oriented economy.

    What has NCAM done to assist SMEs?

    The major constraints on improving the small scale agricultural mechanisation value chain are lack of information, including financial feasibility information, about the machines and technologies that are available. The large capital outlay for specialised harvesting equipment can be daunting. If a farmer buys this equipment, he will likely only use it for a few weeks every year. It is not economically viable to have this expensive equipment standing idle in a shed for the remainder of the year. However, should a silage contractor do so, he can harvest and ensile forage crops for farmer clients, spreading his costs and income across many different farms and across different seasons to make the capital outlay and running costs economically viable. An added challenge is that, due to very high land prices, many farmers can’t afford to buy the neighbouring farm land to expand and so take advantage of economy of scale. So, many farmers are looking further afield for more economically viable farm land on which to grow maize silage.Technical know-how is by far the most important aspect to ensure that small-scale farmers succeed. This is why the centre has specific projects to enable small-scale farmers to produce enough food to meet their needs and contribute to national food security. This is a big task because small-scale farmers are not really being supported in this regard. There are lots of farmers in the rural areas that need training and better knowledge of agricultural practices such as preventing disease.

    Can you justify the establishment NCAM, considering the similarity of roles with organisations, such as the Federal Institute of Industrial Research, Oshodi (FIIRO), that are also involved in the production of small agric machines?

    NCAM was established by Decree No.35 of 1990 with the objective of accelerating the pace of mechanisation in the agricultural sector. To achieve this, we design and develop simple and low-cost equipment, which can be manufactured with local materials, skills and facilities. We bring into focus mechanical technologies and equipment developed by various institutions, agencies or bodies and evaluate their suitability for adoption. We manufacture replacement parts for equipment. Because the majority of purchases of farm equipment are financed, improvements in borrowing capacity represent potential for increased equipment purchases by farmers going forward as they work to keep up with increased demand.

    We produce a wide range of machines including hand tools, draft animal implements, ridgers, shears, milling machines, cassava processing machines, oil palm processing machines, grinding machines, threshers, shellers, hullers, and expellers, among others. We carried out programmes focused on the enhancement of the capacities of the public institutions involved in the promotion of agricultural mechanisation to better perform their duties to increase production and utilisation of agricultural mechanisation input. NCAM has the mandate to conduct research towards development of indigenous machines for farming and processing, including the design of simple machines which can be manufactured locally. NCAM is also mandated to standardise and certify, in collaboration with SON, agricultural machines, equipment and engineering practices in use in Nigeria. In addition, it is supposed to bring to focus mechanical technologies and equipment developed by various institutions, agencies or bodies, and evaluates their suitability for adoption. Farm technologies from land preparation to milling activities are available here. These include, hand tractors, power tillers, floating tillers, four-wheel tractors, transplanters, drum seeders, mechanical reapers, combine harvesters, threshers, seed cleaners, shredders and different types of grain dryers and rice mills. The test and performance evaluation of the farm machinery is part of the monitoring of projects of NCAM to keep the quality and efficiency of the machines being availed by farmers’organisations. Experts from the centre train agricultural engineers to test the land preparation, planting, harvesting, drying and milling technologies. We are trying to support the development of skills and expertise within the industry. We have a long history of working hand in hand with government agencies and the private to deliver workable solutions appropriate to local conditions be it soil type, climate, social or environmental conditions. We work with the government to give advice on policy and strategy issues affecting agriculture and food security. We also make recommendations for agricultural projects and give government technical assistance when required.

    Can Nigerians manufacture standard rice processing mills?

    Modern rice mills are scientifically up-to-date units, with most modern plant and machinery. Rice produced in a modern mill would be of superior quality and thereby finding greater customer acceptance. Further, the bye-product of such mills, rice bran, could find great demand as raw material among solvent extraction plants.

    NCAM has not produced rice mils. What we have just done was to order rice mills from abroad. The motive is essentially to dissect and copy this machine which is cheaper for us and it will enable us to mould and fabricate spare parts when necessary.

    Rice cultivation becomes more profitable with the introduction of the machines, due to increased area under cultivation, maintenance of optimum plant density. Small scale farmers require small machines due to the small size of their farms and affordability and large scale farmers require bigger machines with higher work output. Compared to village-level systems, the commercial milling system is a more sophisticated and configured to maximize the process of producing well-milled, whole grains. In modern rice mills, many adjustments, for instance (rubber roll clearance, separator bed inclination, feed rates) are automated for maximum efficiency and ease of operation. The whitener-polishers are provided with gauges that sense the current load on the motor drives, which gives an indication of the operating pressure on the grain.This provides a more objective means of setting milling pressures on the grain.

    Mechanisation is not just a question of supplying farmers with tractors and machinery or of making mechanisation services available to them through the public sector. The utilisation of mechanised input must be profitable to all parties concerned. The best way to mechanise is for farmers to own their machines or for them to hire services from other farmers. Most farmers still cannot afford mechanisation.

    The cost of doing business plus the inherent risks involved in tractor ownership is key constraints currently affecting demand for mechanisation inputs. The major costs of doing business for the tractor owner is funding the initial capital costs of purchasing the tractor. The major risks are not being able to meet the loan repayments and lack of tractor-hire opportunities. The availability of credit is a major factor in the development of mechanisation. Investment in farm machinery requires large amounts of capital that is amortised over several years. Lending large amounts over long-time horizons is risky for lenders. Farmers need knowledge of which types of equipment are suitable for their conditions and crops being grown.

    What are the problems in the industry?

    Challenges facing the agricultural machinery industry in Nigeria include low purchasing power of most small scale farmers, inadequate agricultural credit and unfavourable interest rates of banks, importation of farm machinery of poor quality; inadequate after-sales service support, poor production infrastructure, comatose steel industry and inefficient power sector. The industry has been confronting a lot of issues such as, lack of adequate research facilities, lack of availability of standards and proper raw material for manufacture, lack of trained and efficient manpower, lack of after-sale service and lack of standardisation and quality control.

    What are your plans for the year?

    We have numerous projects that are either field orientated or deal with policy and strategy issues. Our biggest project relates to capacity building of agricultural professionals.

    Mechanisation, particularly for harvesting, is being introduced. Introducing mechanisation for all stages of production – from transplanting to harvest – would help further improve efficiency.

    NCAM has partnered with the administration of Governor Rauf Aregbesola to establish a low-land rice demonstration farm in the State of Osun. The initiative is to enhance food security and improve the yield for rice farmers to an average of 4.5 metric tonnes per hectare of land. The demonstration farm, which would be established on the Songbe-Ogbaagbaa Road, is expected to cover 385 acres based on the application of SAWAH Eco-Technology for low land rice production. It is obvious that to transform Nigeria’s largely traditional farming system to modern commercial one, there is the need to inject in the system, substantial engineering and technological input that are properly managed.

     

     

     

     

     

     

  • ‘Pension funds should bridge growth gap’

    ‘Pension funds should bridge growth gap’

    Experts believe that there are many uses to which pension funds should be put if well managed. One of them, Mr Adebayo Jimoh, the Group Managing Director/Chief Executive Officer, Odu’a Investment Limited, in this interview with BISI OLADELE, says the cash can be given to the money and capital markets to enhance economic development.

     

    Odu’a Investment Limited is a major player in the economy and also a member of Association of Developing Finance Institutions in Africa, an offshoot of African Development Bank (ADB), whose business is development financing? Is the group funded by the government or the private sector?

    Development financing is purely the business of the government. It is the business of the government because it needs to provide an enabling environment and resources that are attractive. By the word attraction I mean finances that have long gestation period because most issues of development are not short-term. And if they are not short-term, the returns on them are also not short-term. They are long-term projects that touch on the life of every sector of the economy, essentially the rural sector. But it has to be funds that have attractive interest and it has to be single-digit interest with handsome moratoria period that could create breathing space for the investors. It should not be a choking fund. Neither should it be a risk-free fund; it should be in-between a choking fund and a risk-free fund. The aspect of development finance requires a huge fund which the Federal Government provides. lf you look at the African Development Bank, it has a charter that compels every member-nation to provide funds in a pool so that the development bank now identifies critical areas of intervention that would have long lasting effects and benefits for a greater majority of people within the sub region.

    What other sources of financing do governments in African countries have? Are we exploring enough of these funds, particularly in Nigeria?

    Essentially, apart from the internally generated funds coming from the resources of government, bonds that government raises, hedge funds that industrialists and people that want to invest put into a system like a basket, there are also the special development funds of some continents, such as the European Development Funds and the American Development Funds. They are special funds meant for specific interventions like afforestation, HIV/AIDS, funds for educational development, skill development, funds for intervention in areas like polio, funds for development in floods and natural disasters. All these funds are available through some specific international agencies but there are checklists; there are some processes and conditions, specific requirements.

    The most important one is the counterpart funding. Although European funds come free, you must be able to provide your own counterpart fund to ameliorate what the overseas funds will provide which will be able to accomplish the task.There is no half-measure in development finance fund. If the project, for instance, is N100 billion, the international agency, say from the China Investment Bank, wants to give an aid to Nigeria for construction of a bridge and the cost of that fund is N100 billion, they will provide N70 billion and the Federal Government must show the capacity to provide that counterpart fund. When they start, they must accomplish it. But we, most times, make mistakes because these funds do not necessarily come out in cash as liquidity. Most of them come as materials, equipment, resources, people, infrastructure and even consultancy. So, a development fund is a conglomeration of several input and most times the benefit are not necessarily for the receiving country. The benefit could be for the donor country, especially in the areas of food aid because they try as much as possible to find ways of exporting to support their home grown institutions. For instance, if they are farmers and they have excess harvest, they will say they want to give you aid and you will start clapping, but it is not necessarily free. There is no free lunch anywhere.

    Are there funds like these which are home-grown in Nigeria?

    Yes. Our pension funds serve as a good example. But, unfortunately, it is being abused. These are supposed to be funds that are to bridge development gaps. If our pension funds go into the capital market rather than being kept in stagnant banks and are growing wings to fly as we are seeing, what do you think will happen to our capital market if N30 billion comes into the capital market? There will be serious activity. If these funds are made available to the lending institutions, the simple economic principle of demand and supply will apply. There will be more funds going into the economy than even the demand, and what will happen to the interest rate? It will come down. The real sector will have access to these funds. People will buy into the bonds that our states are taking, and if our liquidity improves and Central Bank of Nigeria (CBN) is able to monitor that, it will help our economy than going to take loans in hard currency at very lower rate but when you bring the money into this country they will give them out at higher interest rates. So, there are funds in this country, the pension funds, the stock market funds which are supposed to be used for providing these interventions for our activities back home and that will at least bridge the gap on the foreign loans that we get.

    How would you describe the state of development financing in Nigeria compared with other African countries?

    I would say that there are two institutions that have done very well in Nigeria over the past three years. The first one is the Bank of Industry (BoI). It has been able to identify some specific sectors that require interventions and I know that it is able to support some small and medium enterprises (SMEs) in the textile industry, in the arts and craft, some SMEs in the power sector. I also know about the Bank of Agriculture (BoA). These banks have done well in providing funds at single-digit interest for investors in that sector. Looking at it from that angle, those development finance institutions have performed well and I commend their management. Beneficiaries are accessing these funds and they are also paying back because these funds are being better managed unlike before when people saw them as national cakes and never repaid. They also provide them with support, including extension information services and follow-up to ensure that the funds taken are applied into what they are supposed to use them for. They even offer input and not just necessarily cash. I will say that the critical ones among our development finance institutions have done very well.

    Did any subsidiaries of Odu’a Investment access such funds?

    Yes. We are able to access the funds for graduates of our farmers’ academy where we were able to secure loans for our graduating students in agriculture through the Bank of Industry.They have been able to fulfill their obligations. Default rate is minimal.

    How well are the graduates of Odu’a Academy applying these loans?

    They are doing well. We have graduated over 500 farmers from our academy in Ede, Osun State and they have been able to access this fund through the Quick Intervention Fund of the Osun State Government. Also in Awe, I can conveniently tell you that the first two sets of graduates have been able to access the funds through their cooperatives.

    How about patronising the private sector, particularly in developing infrastructure in Nigeria?

    No government can do it alone. Actually, what I mean by government’s major task of providing funds for financial institutions to use is that the institutions will engage the private sector to utilise the funds. The private sector cannot provide the development funds because they want to make profit. The policy of Public-Private Partnership (PPP) is great and that is what can be used to develop this country. However, what we have noticed in this country is inconsistency in policy for most of these infrastructural development programs. There is a need to have a standard rule of law guiding the operations the government will have with the private sector so that it can become more encouraging for Foreign Direct Investment to come in and support that. But if they know that there are no standard policies whereby another government comes in and proposes another condition to reverse the policy, then it cannot work.

    What about business financing, particularly in the real sector where Odu’a Investments Limited has some subsidiaries? In what ways do you think businesses in Nigeria can access better funds to help them run more profitably?

    To access funds by business enterprises in this country, there is a need for all businesses to do the NEEDS analysis before they can identify what they need the fund for and will be able to match the resources that they will take with the actual output in terms of what they will be able to produce with those funds so that there will not be an hitch whereby loans are taken and can hardly be repaid. There is a need to gather data, have information along with a strong business plan. Jumping out to source for funds is not desirable. People usually say they are travelling abroad to look for investors or funds, but they need to first get information as to the opportunities available in Nigeria. What are they going to use the fund for? Most times they lack this information or some of the business plans that are prepared are just updated without really re-visiting. So, I am saying that it is not just about the need to source for funds that is important, but what you are going to do with this fund and to make for sustainability of the operations of the company. It is also important for the company to prepare a good bankable document that will show that what I am investing this fund on would provide optimal returns on my investment. Without that, most institutions go out for funds and before you know it, they run into serious problems and that is what has led to AMCON to have taken over several companies, including some companies that you don’t think should be in the basket of AMCOM. It is a misnomer, but I am honestly advising investors to check their data properly before they jump into loans or funds that are available in the market for investment. The bank manager will always smile when they want to give you these loans, but if you refuse to pay then that becomes a problem.

    With the high interest rate on bank loans, how will you describe the future of this business and business financing in Nigeria?

    If the high rate regime continues and the inflation rate is said to be coming down, it does not tally. It creates a bleak future for industry because the industry will not be able to get into meaningful activities that would enable them to make profit, to have returns and pay back these loans. There will be a limit to which you can increase your prices if the interest rates are low and the money supplied into the economy is also being highly regulated, whereas the interest rate in banks are still high, so there is a mismatch. So, it’s a bleak future for industry if the interest rate continues this way, there is no way by which they can cope. Coupled with the fact that the cost of doing business is rising, in terms of power, security, water, people, and even normal communication. All these fixed cost are very high. My appeal is for the banks to find a way of at least, bringing down interest rate and the CBN through its monetary policy regime, can do this. The answer is to look at ways of meaningfully utilising our pension fund in a proper manner than being stolen and taken outside this country to other countries. Those countries are now benefiting from it than us. There are some countries whereby their banks will even beg people to come and take loans at zero per cent rate because they are awash with cash.

    But why don’t we have such banks in Nigeria?

    We do not have such banks in Nigeria because the people are afraid to put money here. There are controls, checking, monitoring processes of deposits and the supply into the economy is still very low, and there is huge demand because our infrastructural needs are still many. We do not have institutions to check many things here. We do what I call fire-fighting. We are yet to build institutions that will regulate, monitor and create activities for industry, for the people, society and we will continue to move round in circles.

    This conglomerate has shifted focus to real estate in the last few years. Why?

    I will just say it is a paradigm shift from what we used to do because we just shifted from just trading in the capital market and we saw that the capital market was going to have problems and we needed to identify a good sector because we have the advantage after a strong SWOT analysis of the strength, weaknesses and opportunities of Odu’a. We have advantage to go into real estate investment because we have good locations and we also have the wherewithal to partner with a lot of other people, because most of our associate companies, our subsidiaries, are all in the building sector of the industry. They include WAPCO/Lafarge is in cement, Nigerite is in roofing, Askar is in paint; Nigerian Wire and Cable. We are working in synergy with these institutions that are still very strong. Again, there is huge demand for what I call gated estates in this country. There is more demand for shopping malls because our people are becoming more enlightened, coupled with the fact that the five Odu’a owner-states have started urban renewal projects, and all what Odu’a can do is to support the urban renewal projects by also building to support the people that are coming out to look for opportunities into these new areas of real estate buildings.

    Your administration has built massive properties. Can you share the value of the real estate portfolio of the conglomerate?

    The value of our real estate portfolio as at the last time evaluation was done about two years ago was close to N76 billion. We have been doing some investments since last year. I think that is a very strong level in our real estate development which I believe can even grow better by the time we do others, because we still have a lot of real estate redevelopments to do in some strategic locations. By the time we finish with the Heritage Mall, we are thinking on moving into those locations and the five states. And I can tell you that Abeokuta is our next port of call where we are also trying to replicate a shopping mall like the Shoprite there.

    Very soon, you will be inaugurating the Heritage Mall, which is believed to be the largest shopping mall in the Southwest. What informed your choice of Ibadan as the location? Why not Lagos?

    What informed our choice of Ibadan is basically the fact that Ibadan is a very strong growing economy in terms of people, in terms of opportunities and in terms of the historical nature of it, being a regional capital of Southwest Nigeria, and if Lagos already has three malls, of course, based on our research and business plans, the next port of call is Ibadan.

    As a major player in the real estate business, what are the challenges facing that sector?

    The major challenge facing the sector is the cost profile. You will recall that early last year, the Federal Government was very worried with the high cost of input for building, especially cement and the government had an intervention by calling the manufacturers of cement and there came the issue of undercutting and underpricing between some of the manufacturers. But I will say to you that cement is still better, but there are other aspects, such as the metal, iron rods and the steel. That leads me to the need to call on the Federal Government to revisit the steel industry. The steel industry has to come back because close to 80 per cent of our steel and iron rods materials are still imported, whereas we have the resources, just like we have the resources for manufacturing cement, that was why the Federal Government was able to control the price of cement because close to 90 per cent of our demands are been manufactured locally. If they are able to do that for the Ajaokuta Steel Industry, Delta Steel, they should go back to the drawing board and revisit our steel industry. It will assist in bringing down the prices of most of our building inputs. A lot of our aluminum profiles are imported from China while we have the aluminum smelting industry in Akwa Ibom State. There is a need for the Federal Government to get that place fully privatised and all our steel industries too, so that they will start operating perfectly well. The government should venture into afforestation and start producing woods that will be used in buildings. The greatest challenge is cost of materials.

    How have you been able to raise the profile of this conglomerate since you became the GMD about seven years ago?

    The first thing I think we have succeeded in doing is to raise the morale of our people. We have been able to improve the level of capacity of our staff. Most of our staff are now well-groomed in addressing issues of investment, infrastructural growth, capacity building and issues in industry development. We are also providing assistance for our states in terms of training. As we speak, I can say we have provided several trainings to enhance the capacity of our people and by extension, those people we have the opportunity to empower. Secondly is the environment. I think it is a thing of joy that the greatest legacy of the Yorubas (Cocoa House) that was dead for over 18 years is the pride of everybody including some states, as they have Cocoa House as part of their logo. In terms of reaching out to our states, we are building shopping centres in some states. In Osun State as we speak, we are building a big shopping mall called Aje International Market in Osogbo, The first phase comprises 600 shops and it is almost ready and will be inaugurated in April. We are going to do the same in Ondo State. It will comprise 3,000 shops but we are doing them in phases. We have built our relationship with the youths, scholarship schemes for graduates, undergraduates, nurses, and empowerment schemes for the farmers’ academy because the youths are the future and they should not be idle. Another program which is coming up is just an icing of the cake for us to always remember our great heroes in the past, is a museum which is completed now and Prof Wole Soyinka has agreed to commission it and we are going to do a lot more. What we have been able to put in Odu’a now is a standard you can only grow.

     

  • ‘Entry, exit are free in capital market’

    ‘Entry, exit are free in capital market’

    The financial markets are major sources of raising funds for transactions. In this interview with AKINOLA AJIBADE, the Managing Director, UBA Trustees Limited, Mrs Oluwatoyin Sanni, advises investors to operate a balanced portfolio of investments. She also speaks on the capital market, retail bond trading, appointment of women onto boards of companies and attainment of Vision 20: 2020 objectives, among others.

     

    The capital market is topsy-tursy. What does this portend for the long-term growth of the market?

    The market is a critical part of the financial industry. The growth recorded in the market is crucial to the health of the financial industry, and the economy in particular. When you look at the stock market, you will discover that it is an integral part of the financial services market. Now that the market is rebounding, it’s going to provide long-term avenues for individual and institutional investors to make money. It will also provide opportunities for long-term wealth creation, if investors recognise the fact that it is not wise to concentrate all their investments in one market such as equities. It is worthy of note to say that our markets are inter-dependent. Each needs the other for growth. We need the money and capital markets to grow our investments and vice versa. They work hand in hand. Therefore, investors should not put all their investments in one basket if they want to achieve good returns on the investments. There must be good and balanced investment portfolios.

    Do you think the tempo of activities in the market can be sustained, given the measures put in place by the management of the Nigerian Stock Exchange (NSE)?

    The reforms are still unfolding in the market. Many are initiated by the Securities and Exchange Commission (SEC). Others came from the Exchange. The Exchange has shown a strong drive to grow the market in recent times. For instance, the introduction of market making, lending, investors protection fund among other initiatives have buoyed confidence in the market. Before now investors have lost confidence. But many have now regained their confidence as a result of the steps taken by the regulators. I think the activities in the market are sustainable.

    The growth in the market is largely driven by local and foreign investors. Do you foresee a recurrence of what happened in 2008 when foreign portfolio investors were forced to leave?

    You cannot force investors to stay in your market. We need to understand the pull and push factors in the market. What we need to do is to make our market attractive as much as possible. We must ensure that our market in comparative terms is more attractive than the next market. We must ensure that all necessary infrastructure are available in our market.We must ensure that our disclosure obligations meet international standards. For instance, if there is a major liquidity squeeze in the continent and investors need funds to meet their domestic obligations, they have no choice than to pull out their investments from the crisis zone. That is the reality on ground. But that does not give us room to discourage the participation of foreign investors in our market. The truth of the matter is that we need inflow of capital into our market to make it stronger. Sometimes people need to move their money out. What we need to do is to put in place measures that would allow them to get their money easily or move it out as when due. In a situation where regulatory impediments prevent foreign investors from moving their funds out, such investors would come back. Be that as it may, we still need to encourage domestic investors because they are more likely going to be stable. If you look back at what happened in the market, it is not only the foreign portfolio investors that left, everybody left. Everybody crashed out. What we are trying to do is to encourage investors to come back. It took sometime before retail investors came back to the market. Foreign portfolio investors are the first to come back. Since they came back, they have been able to get over 80 per cent of volumes of shares in the market.

    Has the market makers really impacted positively on the market?

    I think the market making initiative is still relatively new. I understand that four more market makers are coming. We are expecting an updated list of market makers. Even, the securities that are available for market makers are still being updated. Whichever way you look at it, market makers are relatively new. The securities lending that support the market is in progress. It is too early to measure the performance of market makers.

    You earlier mentioned the issue of having balanced investment portfolios. Can you explain better?

    There are various ways of having good and balanced investment portfolios. First, people should try and seek professional advice. Secondly, they should monitor the movements of their investments in line with the realities of the market. For instance, when equities market goes up, a lot of investors move in. When this happens, investors would like to exit the market. As they do that, rates would probably go up in the alternative investment portfolios. As investors, your best bet is to maintain some reasonable investment balance. What you should be more interested in is the credibility of your income to meet your needs. You have to consider your active employment years before you arrive at investment decisions. If you are much younger, let’s say you are in your 20s, you can afford to have investment portfolios of about 60 per cent in equities. Because what you are interested at that stage is an opportunity to grow your wealth overtime. If you are looking for classes of assets that can give you a healthy investment returns over a long time, returns that have a good chance of being higher than the cumulative rates of inflation, then the stock market is a very good place to invest.

    When you also consider that there are people at various stages of employment, we have people in the early 20s, 40s, people that just joined the workforce, they also have provisions being made for them in the National Pension Scheme as contained in the pension reforms Act. If you were to invest pension savings in money market instruments, there is the possibility that the returns may actually be lower than the rate of inflation in an inflationary environment. In real terms, you may actually have lost money. I always say that a big proportion of endowment fund, pension fund among other long-term funds be invested in the capital market. The reason is because the rate of returns always exceeds that of inflation. But like I said, the whole idea is striking a balance.

    To what extent do you think the retail bond trading will impact positively on the market?

    I’m cautiously optimistic about the issue. You need to recognise the fact that the bond market needs big players to grow. The market is dominated by corporate investors. Therefore, do not expect the level of retail activities you see on the equities side in the bond market. The bond market has huge potential, and should naturally be bigger and larger in volumes than the equities market. The main reason for creating retail bond market is to enable investors to enjoy free entry and exit. In the past, there were individuals who had bonds (primary offers) and were unable to exit the market. They bought these bonds when they were issued as initial subscription, and could not get an outlet to exit the market. Before now, bonds were not only being traded at Over-The-Counter (OTC) platform, but in large volumes. Then, the only outlet available was the corporate end of the market that attracted larger and high-volume investors.

    The advantage is that if I subscribe to Lagos State bonds or Benue State bonds and I buy N1 million or N500,000 worth of bonds, I can only sell under that platform. That would encourage me to buy again when any state government rolls out its bonds for corporate organisations. Nobody wants to be locked into investments where there is no way out.

    Now that the retail bond market has been created, people can buy bonds at the retail end of the market. Even at that, people should not expect huge growth from the market compared with wholsesale bond trading market.What I’m saying is that we should not be over optimistic about it in our expectations of the market because we need to recognise that the bond market is not predominantly a retail market anywhere in the world.

    It appears women have been crowded out of the financial services sector, especially in the area of giving higher responsibilities. What is your comment on this issue?

    This is something I’m passionate about. I do not think that marginalisation of women is limited to the financial industry, it is all over. In the business and employment worlds, women have been marginalised from time immemorial. There was a time it was not lawful for a woman to own properties. Experience has shown that in most cases where women have been given opportunities to function, they have shown what it takes to excel. I’m gladdened by some of the initiatives that the Central Bank of Nigeria (CBN) Governor, Sanusi Lamido Sanusi, spearheaded to ensure that there are more positions for women on boards of the banks. The Deputy Governor Services (DGS) recently talked about financial inclusion for women. Rather than discriminating against women on the boards, we need to give them opportunities to function.

    Before we look for the next man for the job, we need to compare the number of qualified men with that of qualified women with open minds. You would be surprised that there a lot of qualified women. Before a woman can get to a position of authority, she has faced a number of challenges that a man has faced or more.

    Can we say that the CBN Governor has bailed out women?

    CBN has not bailed out women, rather it is trying to champion the cause of women. I do not want to look at it from the point of numbers. Like I said, do not limit it to one sector. Generally in the business, employment, financial and industrial worlds, we need to ensure that the number of women at the head increase because nobody has been able to show me that women are inferior to men intellectually or capacity wise. Findings have shown that the ratio of men to women is 50: 50. From Assistant General Manager (AGM) to Managing Director (MD), the ratio becomes 1 to 50. Won’t you wonder what is happening? What I’m saying is that the proportion of women at the apex should reflect the proportion of women in the entire organisation.

    Can Nigeria achieve the goals of Vision 20: 2020, given the fact that enough steps have not been taken in this regard?

    To achieve the dreams of Vision 20: 2020, we need to address political problems. We need to place emphasis on unity. As long as we are not united, we cannot trust each other. We would be working against each other, rather than working together. There is no way we can achieve the objectives without unity. We need to understand the fact that we cannot go far, if we do not deal with the problem of corruption. We keep paying lip service to the fight against corruption. Corruption permeates every facet of life.

    If I have a project and cannot be sure that the fund for the project would not be diverted, what is the guarantee that the project would succeed. If I have the plans to put critical resources in place, I cannot guarantee that qualified person would be put in a position as opposed to a favoured person. There is no transparency in the ways and manners people are selected for positions in both the public and private sector. That is another problem. Infrastructure is another problem. If we do provide necessary infrastructure, we would still have big companies moving out of Nigeria to neighbouring African countries. We need a radical change in the way we think as individuals and a nation to achieve the goals of Vision 2020.

    What are the areas of competence of UBA Trustees Limited?

    The company provides services to all categories of clients. Broadly, there are two types of trustees. First is the Public Trustees, which ensures that services such as collection of investment schemes and handling of public offers such government and corporate bonds are provided to investors. Others are holding trust on syndicated loans, and other similar structures designed to help companies raise funds from banks. Secondly, is the private trustee. This has to do with the issue of project financing, among other services. Of note is the fact that UBA Trustees has been providing quality services to clients since inception. The firm’s franchise dates back to 50 years ago, hence, we have attained leadership position in some key areas. These have created opportunities to boost skills, and develop upcoming professionals for growth. Also, the company is an active member of Association of Corporate Trustees, of which I’m the president.

    UBA has a holding structure, which allows it to retain some of its subsidiaries. What added-value has UBA Trustees brought to the group?

    In actual sense, UBA did not go for the holding structure. What happened was a unique kind of restructuring in the bank. Under the restructuring, the bank divested from its investment banking and assets management subsidiaries within the group. Those subsidiaries are now under the holding company known as UBA Capital Plc. One of such subsidiaries is UBA Trustees Limited. In terms of value addition, UBA Trustees made a profit of over a billion naira last year and has over N40 billion assets under its trust.

     

  • ‘Users will pay toll if services are good’

    ‘Users will pay toll if services are good’

    The Infrastructure Concession Regulatory Commission (ICRC) minds public infrastructure and lists those that should be commissioned to provide better services. Its Acting Director-General, Dr. Ghali I. Bello, in this interview with our Assistant Editor, Nduka Chiejina, speaks of his vision for ICRC, the challenges and the controversy surrounding Public-Private Partnership (PPP) projects.

     What do we expect, now that you are at the helm of affairs?

    For us to make a difference, we need to understand who we are and what our mission entails. Once we are clear on these, we would then assess what we have achieved within the short time that the commission has been operational.

    Primarily, the ICRC was set up through an Act of Parliament in 2005 to fill the gap in infrastructure deficit which our country is experiencing. We wake up in Nigeria to no light, no airlines, children don’t have good schools, no good hospitals, we lack most of the things that make an economy to function. Actually, we have them, but they are not in the best form.

    ICRC was set up to provide those goods and services, which ordinarily the government ought to provide, so the best option was to get the private sector to come and partner with us to deliver those services that ordinarily the government ought to provide.

    Old infrastructure have deteriorated and the government is not in a position to provide them, so the commission was set up to partner with the private sector on PPP basis to deliver those goods and services that otherwise the government should provide.

    The former board of the ICRC was a unique and powerful board, with a former Head of the Interim National Government, Ernest Shonekan, as the chairman.

    In addition, you have almost all the key players in the government on the board, like the Secretary to the Government of the Federation, Minister of Finance, the Attorney- General of the Federation, the Governor of the CBN and the DG as the secretary of the board. Also included were six others from the private sector who were selected on competence basis from the six geo-political zones. That board did its best and you have to realise that during the time, we had to start from ground zero.

    So, what will you do differently?

    The perception of the commission outside is that the ICRC is not known by many people. Philips Consulting carried out an on-line survey of about 1000 people, and 57 per cent say they have never heard of ICRC

    I would like to make ICRC more visible to the outside world by reaching out to the people. I would like to bring ICRC to the fore.

    So, we need to let the public know that we are here to serve them and make a difference in their lives. To do these, I must consolidate on what the former board did and further that by creating a general awareness within the country.

    We also want to work closely with the MDAs to assist them develop the needed infrastructure. The MDAs are the owners of the projects we are to regulate and we have been able to get a buy-in from the MDAs. There was a circular passed by the Secretary to the Government of the Federation (SGF) and Head of Service of the Federation directing all MDAs to create PPP units. It’s a new concept and like everything new, there will be resistance to it, so if one is able to bring to the attention of the public that this institution exists to serve the interest of the public, I think we would have been able to create some level of difference in that direction.

    We want to sensitise the public that this institution exists to serve them. In summary, we want to really raise the profile of the organisation and bring the MDAs to appreciate that we are partners. We want to create a scenario whereby at the end of the day the infrastructure deficit will be addressed in the interest of the country.

    We want to develop the regulations because as an agency of the government. We have to develop regulations and provide and issue the guidelines as a regulator. At present, I do not think we have developed any guidelines for any sector of the economy in the last four years. So, we have to develop guidelines for the power sector, ICT, transportation, port concession, as well as for about 12 sectors as provided for in the Act setting up the ICRC.

    We have a lot of work to do to deliver on these mandates and by His grace (if we are permitted to be around in the next couple of months), we will turn things around and create more consciousness in the mind of the public about the ICRC and this will go a long way to make us achieve what we are set up to do.

    Concessioning infrastructure will lead to tolling or imposing tariff on these  infrastructure and many Nigerians may not like the idea of paying tolls on these public infrastructure. What is your commission doing to balance tolling these infrastructure and allowing the concessioneers to make profit from their investment?

    I don’t think Nigerians don’t like paying tolls, stakeholders’ consultation is important when public infrastructure are to be tolled. People will pay if the service is good and alternatives are provided so that they can migrate to other alternatives. A good example is the public school system, people withdraw their children from public schools to private schools where they pay more because the services are better. The PPP is a good concept that is new and because it is new, it will have resistance and also by its nature it has a long gestation period.

    How would you react to the controversies that have engulfed some critical PPP projects in the country?

    There are conditions for terminating agreements and these are usually contained in the terms of the contract that any member of the contract can terminate the agreement based on certain conditions.

    The ICRC has been shy in taking a definite position on certain issues, such as the Marvis/Aviation PPP saga, and the revocation of the Ibadan Expressway project. Why is this so?

    I wouldn’t say the ICRC has been shy in taking a definite position on these matters. In all these issues, the position of the ICRC has always been clear. As a regulator, we are supposed to be an impartial umpire which means that we are not supposed to align with any of the contending parties. We are expected to look at issues without bias to either parties and proffer solutions.

    The award of the contract of the Lagos-Ibadan Expressway was done before 2008 well before the inauguration of the last ICRC board. The issue surrounding that project pre-dates the ICRC. We are new and we didn’t want to mire ourselves in controversy. The award of that project by the Obasanjo administration was done with the best of intentions. Though there was a contract awarded for the job, it did not reach financial closure. The project was awarded and nobody wanted to put up the money, that was why Babalakin could not go outside to pick money for the project, but the intention to do it cannot be doubted by anybody because it is the major track that links the South to the rest of the country.

    What was the specific role of the ICRC on the Lagos-Ibadan/Bi-Courtney controversy?

    The Lagos-Ibadan Expressway concession pre-dated the ICRC, the commission advised that procedures were not followed and that was the saving grace for the ICRC. If we were to do it on PPP there were things to do and unless you do those things, it will not fly. I think we have been vindicated because it didn’t fly.

    What about the Lagos Trade Fair Complex and Marvis contract?

    I think I have a little bit of consultation to do on that. I have a general idea but since you are asking me for specifics, I don’t want to give you information that is inaccurate.

    As a regulator can’t you put your foot down and take a stand on some of these issues instead of just advising that procedures were not followed?

    One of the reasons we have not been able to put our feet down, is because we do not have enforcement powers. This is because there is regulation in place. Once the regulation is in place that empowers us to enforce, we will act. As I have told you, we have not developed the regulations and with no regulations, how are we going to enforce the rules because the regulations have to pass through different stages to get approval and stipulate sanction for different forms of violations? In addition, the regulations have to be comprehensive to spell out the sanctions for violations. With the regulations in place, we will become more effective regulators.

    How soon are we going to see the regulations in place?

    This is not something you do over night, but since we have a clear idea of where  we are headed, we are going to put the machinery in motion to develop the regulations. As you know, to develop the regulations, you need to have to conceptualise, carry out extensive consultations, get the input of stake holders. After that, we will be re required to pass it on to the Federal Ministry of Justice to go through and see if it reflects what it is supposed to be. Once they are satisfied, we pass it on to Mr President  for final approval.

    Do you mean there will be no new PPP projects until this process is over?

    Development is not something you do overnight, it is something that is incremental. We are not just going to focus on regulations and say give us two or three years to develop the regulations. No! While we are doing these, we will also continue with the other functions of our mandate. For instance, we will be developing the human skills gap which at present do not exist in the MDAs. We would also be coordinating with the MDAs closely such that they will be able to develop the projects that will be taken to the market, so while they are developing the projects for the market, we would also be enhancing the capacity of the MDAs and consulting with development partners to come up with the regulations.

    Recently, the steering committee of the National Infrastructure Master Plan was inaugurated and the director-general of the ICRC is the co-chair of that committee. What should we expect from that committee?

    First of all, you look at the history of our country. In the past we used to have development plans, then all of a sudden that was truncated, especially following the intervention of the military. Now what we are seeing is that evidence abound that most of the countries we are trying to copy, like Brazil, Indonesia, Malaysia, etc sit down to strategise for a long time. They have short, medium and long term strategic plans and ask themselves what can we do as a country  and where we want to project ourselves in the next five, 15, or 20 years as a country. Anybody who fails to plan, plans to fail. If we are able to have this infrastructure master plan, it will enable the development of the country to work systematically in a manner and also enable us to prioritise.

    There are islands of plans in the ministries, but they are not talking to one another and we have abandoned projects simply because they were not planned. However, if we are able to get all the ministries to state their long term goals and we are able to synchronise these goals and they speak to one another, chances are that the issue of abandonment of projects will stop. There will be investments in all these sectors because investors will be speaking to one another. There will be planning and coordination which will guide us in our development. But in the absence of that, every minister will just come do what he or she wants and leave.

    But in other countries, when one minister leaves, his predecessor takes over from where that old one stopped. If Vision 2010 had been implemented, we would not be where we are today.

    Section 2 (4) of the ICRC Act states that the commission should publish projects that are eligible for PPP, but in the last four years, we have not seen such publications. Why?

    Yes, that is because in the last four years, the last board was pre-occupied with setting up the framework and mapping out the way we want to move forward at that point in time. It was too early to publish the projects because even the projects were not in place. The ideas were there, but they were not coordinated. People were happy to have PPP. They want to participate in PPP projects, but when they discover that the process is not that easy, they will back off. Gradually, as you move along, you will have what is known as a learning curve. On our part, it was not that there was no effort, but rather, it was because the concept was new. Now people are beginning to buy into the idea of PPP and trying to understand what is to be done. Projects are coming on board and we are working closely with the MDAs and we have reached an advanced stage and very shortly, we should be able to publish what projects we have. The present crop of leadership wants to make an impact.

    If your board is confirmed, what will you do to encourage local businesses and entrepreneur to participate in PPP projects?

    The beauty of PPP, which escapes most people is that when we talk of PPP people have this big picture of the projects. They don’t know that there can be PPP to even build a hostel. We will encourage investment and make people know what PPP is all about, so that they can deepen it. We also have to break down the mystery. It can be down on a small scale even at the local level, but all these cannot be done unless you have the knowledge. Right now, if you do a survey, not many people know about ICRC, let alone know what the mandate of the ICRC is all about. We will make activities known to the people and creating the enabling environment in relationship with other agencies of the government, because creating the enabling environment is not a one man, or one agency show. For example, we want to know how we can utilise pension funds to finance infrastructure development. One thing about investment is that when people know that an investment will bring money, they will go for it.

    Nigerians have a lot of expectation with regards to infrastructure provision. What message do you have for Nigerians and the ideas that you are bringing in as you assume office?

    There is genuine desire to, on our part, transform the landscape so that people know what PPP is all about and also know that this institution is there for them. Secondly, we will collaborate with stakeholders to bring the benefit to the fore, with the right mindset and attitude, people are collaborating and will soon begin to bring out the dividends. I am convinced that very soon, things will begin to change.

     

  • ‘Use of foreign loss adjusters will kill economy’

    ‘Use of foreign loss adjusters will kill economy’

    Globally, the insurance industry thrives on a tripod – underwriters, brokers and loss adjusters. But in Nigeria, the reverse is the case. The Managing Director of Corporate Loss Adjusters Limited, Chief Lebi Omobayowa, who is also the President of the Institute of Loss Adjusters of Nigeria (ILAN), speaks with UYOTTA ESHIET on a wide range of issues affecting the industry.

     

    What is Insurance Loss Adjusting all about? What is its relevance to the industry and the economy at large?

    Basically, there are three major arms in the insurance industry, the underwriters, the brokers and the loss adjusters. The business is sourced by the broker and delivered to the underwriter as a business to accept the risk if it is acceptable and issue the policy, that is the insurance contract. If there is a claim, the underwriter calls on the adjuster who is a professional in the area to carry out necessary investigations, verifications and claims adjustment. He advises finally on the liability attached to the policy.

    How important is loss adjusting in the industry?

    Insurance is like a triangle or tripod, it stands on three legs; the underwriter is a leg, the broker is the second leg and the adjuster is the third leg. The three legs must be present for the tripod to stand. If the adjuster is not there, the insurance industry is not complete. They add value by assessing claims professionally. They stand between the insured and the insurer as an independent arbiter. They hold the scale of justice with equal pulse between the insured and the insurer; interpret the policy conditions and terms stated therein and advise if claims are admissible or not. If admissible, what is the quantum of claims to the insured? We also advise on risk improvement measures.

    What is the importance of adjusters to the economy?

    If a claim is not properly adjusted, excess could be paid to the claimant or the quantum could be paid to someone who is not supposed to be paid. These are funds that are supposed to be channelled to some other areas that can help the economy. The adjuster can also help the nation to reduce losses associated with perils such as fire. If things are done properly in the country and professional advice is sought and taken based on the advice of adjusters, losses and other destruction could be eliminated and the huge amount usually appropriated for replacement or repairs of such damaged assets could be channelled to other areas for national development. If certain things that are supposed to be done are left undone, it can result to fire and fire is national waste.

    What are the challenges of loss adjusting?

    Despite the local content concept and laws, we are aware that some of the underwriters still allow foreign loss adjusters to come into Nigeria, do the business without the knowledge of the local loss adjusters and without taking the local loss adjusters along. This is against the law of local contempt. It is advisable that underwriters in the country should heed the law by ensuring that whenever there is a big claim that will warrant the presence of an international or oversea loss adjuster as may be demanded by the re-insurers, they should let the re-insurers know that there is a law in Nigeria that says if any foreign loss adjuster is to be invited, they must work with a resident loss adjuster. The law must be allowed to apply as it is done in other countries. This is a message to the insurance underwriters in the country that some claims managers in insurance companies do not care whether the local adjusters are involved or not. By this action they are killing the economy slowly. They are not growing the economy. They are not growing technology. They are not growing professionalism and are not allowing the local adjusters to acquire international exposure and experience that the local content is seeking to establish. All other countries do it and they are making it.

    Doesn’t the National Insurance Commission (NAICOM) have authority over the issue?

    NAICOM has authority over insurance companies but is it not only when NAICOM is aware that they can take corrective action aimed at correcting the situation? When a claim occurs and overseas adjusters come in, NAICOM will not know and the invited adjuster would have finished his assignment and run back to his country only to be paid there through capital flight because they will be paid in foreign currency. If we do the right things and Managing Directors of insurance companies have control over their claims managers, the right thing should be done to make sure that if there is the need at all for a loss adjuster to come from abroad in compliance with the directive of their re-insurers, the underwriting companies, through the claims managers should let them know that in as much as they are not objecting to the coming of foreign loss adjusters, there is an existing law in Nigeria, which says if a foreign loss adjuster comes here, they must work with a local adjuster so that the local adjuster can get his share of the professional fees and also gain international exposure and experience so that eventually Nigeria will grow like other countries.

    Is there no mechanism within the Institute of Loss Adjusting of Nigeria (ILAN) for monitoring the situation and reporting to NAICOM?

    If a claim occurs and a local loss adjuster is not called upon by the underwriting company, he may not know when or who has been appointed. There are certain claims that may be handled internally by insurance companies. So, it is not all claims that are known by ILAN members. If a loss occurs and the insurance company and the re-insurers agree to appoint an international loss adjuster, it is the underwriter here in Nigeria that should tell the re-insurer that according to our local laws, the invited foreign loss adjuster must work with our local loss adjuster. It is our own people here that must tell both the re-insurer and the invited loss adjuster that there is a law which they must obey.

    ILAN is trying to set up a mechanism whereby if any foreign loss adjuster comes into Nigeria to do business without respecting the law of the country, when such a person is caught, he faces the law. It is necessary for them to know this though quite a number of them are aware, but because our local underwriters usually don’t draw their attention to it.

    But the foreign loss adjusters cannot just come in on their own without being invited

    The underwriter will appoint an adjuster and in complex cases, the re-insurer may want an international loss adjuster to also be involved, working along with the local adjusters. Our own underwriters here are those that are suppose to tell the adjusters who are appointed through the re-insurer that you cannot work alone in Nigeria because the law does not allow that; you must work with local adjusters probably an Associate, presenting to them the list of registered local adjusters for them to select from if they do not have one already. Our websites are there and our individual members also the websites where the foreign adjusters can interact with, interview and select whoever they chose as their partner here.

    To save the industry from collapse, NAICOM introduced the ‘No Premium, No Cover’ at the beginning of this year. Why can’t the regulator also ensure that loss adjusting is not driven into extinction?

    NAICOM should also reflect this in their regulations by publishing a reminder that no underwriting company should appoint or allow a foreign adjuster to handle a claim in Nigeria 100 per cent without the involvement of at least one local adjuster. NAICOM should put this into their regulation. They should protect the interest of the local adjusters. After all, we pay our normal charges to the government. The regulator should protect our interest. If NAICOM put this into their regulation, it will serve as a reminder to the insurers.

    What are the other challenges facing loss adjusting in Nigeria?

    There are about 45 functional registered local loss adjusting companies in Nigeria. It was more than that, but that is the number we have now. Others have closed due to poor remuneration. It is the only profession where the service provider has no authority to fix its own price but only rely on the consumer to do this. Some companies are dead because they did not have sufficient funds to run and to employ fresh graduates, train and to retain qualified loss adjusters. Over the years, ILAN, through her past successive governing Councils, has been asking the Nigeria Insurers Association (NIA) for an upward review of the old adjusters’ scale of fees which has been in use since 1992 without any review despite inflations and other economic vagaries that have rendered the scale palpably unrealistic, inefficient and potentially averse to the sustenance of professional adjusting practice in the country and the technical growth and development of the Nigerian insurance industry, and by extension, the national economy. Without sounding an alarmist, I am of the candid opinion that care must be taken to avoid a re-occurrence of capital flight if the local loss adjusting practice is forced into oblivion by frustration and thus give way to an influx of foreign adjusters who must be paid in foreign currencies that will automatically deplete our national foreign reserve.

    We have complained variously in the past, but right now, I am adopting a new approach involving dialogue. We have agreed with NIA that there is need to have a review to encourage adjusters to earn a reasonable remuneration that can keep the loss adjusting profession in Nigeria in existence as it is in the developed or even developing economies. There is going to be a positive response this year. We are seeking audience with them and the new Council of NIA appear to be ready to go into discussion with us in the interest of the industry as a whole. The industry stands on three legs, the three legs must be there and function effectively before the industry itself can function effectively. NAICOM is not involved in fixing our fees but nothing is wrong if they get involved for the overall good of the industry.

    Insurance penetration in other countries is said to thrive on enforcement. What is the situation in Nigeria?

    Government has actually enforced a number of insurance products in the country, including the latest one on buildings under construction and the public buildings. I am happy that the government is trying to do that and I am equally happy that NAICOM is equally working hard on that. It now depends on insurance companies to go all out and ensure that it sanitises the insuring public to comply. They should also be in a position to monitor to ensure all buildings under construction, and all other public buildings are insured. Government should not be dependent on to do all things, we all must play our part. Insurance companies should set up machinery to find out buildings under construction without the appropriate insurance, buildings classified as public buildings fall within the purview of the law without appropriate insurance covers and make a report to the National Insurance Commission to take appropriate action.

    After 70 years of existence, insurance still contributes less than 10 per cent to the Gross Domestic Product (GDP). Why is this so?

    What is the level of education? Education is an important factor in this regard. The Industry is trying hard to create the necessary insurance awareness among Nigerians. Insurance awareness is still very low and too poor, that is why insurance cannot contribute much to the economy. In developed nations that understand the benefits of insurance, insurers are the owners of banks because the little insurance premiums become huge to do business with if there is proper management of it, if there is no undercutting of premium rates by unscrupulous underwriters and such other factors. It is where that sanity exists that you can see insurers owing banks, not banks owing insurance companies as is the case in Nigeria. We will get there if we do things straight, correctly and reduce drastically the level of corruption in the country.

    Why are we still having issues with claims settlement?

    Those complaining may be right and wrong. There are some genuine claims that underwriters may turn down for some reasons but as an adjuster, I have not witnessed a claim that I have adjusted that an underwriter will turn down. Some claims are handled in-house by some underwriters. The complaints could be from those ones handled in-house by the underwriters.

    Following last year’s floods in some parts of the country, the Federal Government budgeted N17 billion as compensation, states and other bodies too have been announcing various amounts as compensation to the victims. As a risk and claims expert, is this proper ?

    This is a misnomer. Even if these people were not aware of need for insurance, why given them the compensation in the first place, the government should have used that opportunity to tell them about insurance and warn them to take to insurance against future occurrence and get them to embrace it, but that was not done. At any rate our level of education in Nigeria is also militating against appreciation of insurance. Again, because of the high level of corruption, people are always looking for ways to line their pockets with the nation’s money.

    Where do you see the NAICOM’s new policy on payment before insurance cover is granted taking the industry to this year?

    It is a welcome development, a positive one too. Initially, it may be difficult. There is no good thing that starts from a smooth level. There is light at the end of the tunnel if we keep doing the right thing, if we do the business the way it is supposed to be done. In the next two to three years there will be very positive results through adherence to the law because the insuring public will become fully aware that you must pay premium before you can be granted insurance cover. Those that were used to getting cover on credit in the past, to them it will be difficult now but they will adjust.