The Nation Newspaper

Category: THE CEO

  • ‘Nigeria must monitor its domestic debts closely’

    ‘Nigeria must monitor its domestic debts closely’

    Dr. Ifediora Ameobi, a policy economist, is the Executive Director of the African Institute for Applied Economics (AIAE). He was Senior Special Assistant to the Vice President on National Development Matters between 2007 and 2011. In this interview with TOBA AGBOOLA, Ameobi seeks the governments’ support for the Organised Private Sector (OPS), which he describes as the engine of growth. He speaks on job creation, domestic debts and diversification of the economy.

     

    What is your advice to the government on economic management strategy for the masses?

    In the past, I had said employment generation is what is needed at all levels to ensure both increased productivity and security. But this obviously depends on a number of factors – the first being electricity. Substantial improvement in power supply would not only generate employment, but it would create considerable wealth for many. Second, our debt has to be watched closely, especially our domestic debt. Finally, Nigeria needs more structural decentralisation and economic diversification. Too much is dependent on the centre that taking a lot of government time and space. The federal structure as constituted is bloated, too heavy and it is weighing down on delivering services effectively to the people. I believe that more than half of the federal ministries, departments and agencies can operate effectively at the geo-political level.

    In what ways have AIAE research output and policy dialogue efforts contributed to the advancement of the economy?

    Very positive impacts have been recorded. I will tell you about a couple of them. When President Goodluck Jonathan presented his Transformation Agenda, our institute was the first to organise a roundtable on the economic transformation process in collaboration with the Office of the Special Adviser to the President on Project Monitoring and Evaluation. From this event, the government agreed and implemented the signing of a performance contract between Mr President and ministers. Also, before now there was no known indigenous research mechanism through which the business environment was measured across the states in Nigeria. Between 2003 and 2005, we conducted the Better Business Initiative research study. This received national acclaim and led to the introduction of the Business Environment and Competitiveness Across Nigerian States, what is known as BECANS. Today, BECANS is nationally accepted as a research-based mechanism for benchmarking, peer review and advocacy on business environment across the 36 states and the Federal Capital Territory (FCT).

    What are the challenges facing research efforts in Nigeria?

    The key challenges to research efforts in Nigeria include access to available, verifiable and accurate data; funding – particularly non-existing research grants from the government, analytical skills, and the environment to conduct research.

    In most cases, data exist, however, having access to it could come at a price. Also, confirming the accuracy or validity of that data is another thing. Students and other researchers can attest to this. International institutions provide most of our data from abroad, and our government relies more on these figures than the data figures generated by local research institutions, such as ours. Another challenge we face is the dearth of analytical skills. Data means nothing if it cannot be properly analysed. And finally, research can only be conducted in a conducive environment devoid of the distractions seen in a lot of our academic institutions.

    How is your institute collaborating with other stakeholders to boost the impact of research in the country?

    Research work is not what a single institution can do alone; that is why we need to collaborate with other stakeholders. We have been working with Nigerian universities and other thinktanks on various topical research areas. For instance, we worked with some state and federal universities on a project named Linking University Research In Industry. The project addressed gaps in the provision of scientific and research products and innovations to industry due to the under utilisation of research in policymaking. We also collaborated with the Organised Private Sector and the media. Very soon, the dissemination would be done and you will see how the impact of that study would be felt not only in Nigeria, but also across sub-Saharan Africa.

    What is the institute’s relationship with the state governments, especially the host geo-political zone (Southeast)?

    From inception we have had a very good relationship with the state chief executives, not only in the Southeast, but also across the federation. For the Southeast in particular, our institution has been part of the development programmes in various ways. You will recall that the Southeast Nigeria Economic Commission (SENEC) was the brainchild of our Institute. The initiative is a product of the recommendations of the stakeholders’ forum on industrial clusters held in September 2006 in Enugu. SENEC serves to facilitate investments in the Southeast zone, as well as develop large physical infrastructural schemes, among others. AfriHeritage demonstrates a high level of corporate social responsibility that impacts our immediate economic environment. We also partner with the Southeast Economic Summit Group in organising the yearly Southeast Economic Summit.

    Can you shed more light on BECANS? How will it impact on the economy?

    BECANS is the flagship of the institute. Its objective is simply to systematically assess, update and report the business environment and level of competitiveness among the states. We had observed that there was no way of analysing the business environment and investment climate among states, as the data was aggregated for Nigeria. Rather, all the assessments were cross-country comparisons, which rightly treated Nigeria as a homogenous entity. This thinking, basically, formed the rationale to disaggregate national data across the states of the federation.

    In 2007, the institute launched the first BECANS study, BECANS I, which was widely received by the government and the business community in Nigeria. The BECANS Report was used by some states as an instrument for planning, while the private sector and civil society used BECANS to advocate and dialogue with the government. Based on the lessons from BECANS I, the second cycle, BECANS II, was successfully launched in 2010 and represented a vital update on the state of business environment across the 36 states and the Federal Capital Territory. BECANS II revealed that businesses needed to have more access to energy and transportation infrastructure if they are to expand and create jobs, and job creation is fundamental to poverty reduction. Infrastructure is also critical to help meet the Millennium Development Goals and, ultimately, attain Nigeria’s vision 20:2020. The prospects for BECANS as an independent evidence-based monitor and accountability platform for business environment are ever increasing as the country’s democratic space widens. In all fronts, state governments try to as much as possible to improve their ratings on the different benchmarks of BECANS – infrastructure and utilities; regulatory services; business development support and investment promotion; and security in order to create a more friendly business environment, especially for potential investors.

    What is your view about the Organised Private Sector (OPS)?

    The Organised Private Sector (OPS), through the respective Chambers of Commerce, Manufacturers Association of Nigeria (MAN), the Nigeria Association of Small Scale Industrialists (NASSI), and so on, has been very dynamic, vibrant and forward-looking. I think they have also been very assertive and vocal, particularly in those aspects of the economy that directly affect their business, such as excessive tariff, multiple taxes, reforming the regulatory environment, and even the state of road infrastructure, amongst others. The private sector is the engine of growth, therefore a very strong understanding, co-operation and support from the government is required for them to confront the challenges to economic growth and industrial development. However, to make a more lasting impact, they have to expand beyond manufacturers and include importers, dealers and merchants, since these groups also contribute substantially to Nigeria’s revenue base.

    You have spent six months as the Executive Director of AIAE. What has been your experience?

    The experience has been extremely positive. Coming back to Enugu from Abuja after four years in government was a great home-coming for me, primarily because I had done quite a lot of work as an Associate Fellow of the institution prior to my appointment. Also, I was the Managing Consultant of Skoup and Company here in Enugu, as well as a lecturer at ESUT Business School.

    The past six months have been very fulfilling. The institution has grown both in prominence and in its operations. With a new strategic direction and a pool of dedicated staff, we are re-positioning the organisation, deepening research, attracting new skills and now being reckoned with continentally as an African think tank. Our ultimate objective is to be part of the global ranking of research institutions and think tanks in the not too distant future.

    What new things or ideas are you bringing into the institute? What are your objectives and how do you want to achieve them?

    Working very closely with the Board of Directors, the institution is on a trajectory. Our first objective is to operate beyond the hob of our traditional applied economics space and explore new areas such as governance, the political economy, foreign relations, and so on. The thinking, basically, is to enrich our output to our public and private sector clients as well as our numerous global audiences. This has necessitated the need for us to rebrand. We have officially been approved to operate under our new name African Heritage Institution or AfriHeritage for short, and we have commenced the full rebranding process. Our new identity will position us better to deliver value and give us the much-desired platform to showcase more of our offerings and capabilities as an evidenced-based research institution. Other things we have started doing in the last six months is renewing our policy dialogue seminar series – the Enugu Forum, enhancing our technological capabilities to deepen research, upgrading our library facilities, and expanding our network of partners and our reach beyond Nigeria.

    What is your plan with the media? How do you plan to carry them along in BECANS III?

    There is no gainsaying the fact that media as a communicator of policy reforms needs to be properly carried along in the process of policy formulation of which economic research is fundamental. We also believe that working with the media is one of the best ways to carry out advocacy. Even more than before, our institute is committed to working with you to bring about the needed change in the nations quest for socio economic development. As an integral partner, we are committed to building the capacity of the press especially those whom we have been working with on this project. Ours is not just briefing the press, but carrying them along on how research output are communicated to the man on the street. On BECANS III, we are already putting our strategies together to work with the press as we begin the fieldwork across Nigeria. This will continue from time to time till we are set to commence our dissemination seminars, which will make it easier for proper communication and greater impact.

     

  • ‘Three tiers of govt should get their allocations in dollars’

    ‘Three tiers of govt should get their allocations in dollars’

    Renowned Economist Henry Boyo has advocated the liberalisation of the foreign exchange market and advised the Central Bank of Nigeria (CBN) to stop substituting naira allocations for dollar derived revenue. Boyo, who spoke with LEKE SALAUDEEN, says that is how to revive the economy and diversify it.

     

     

    What is wrong with the economy?

    Our monetary framework is faulty. There is urgent need for a fundamental restructuring of our country’s monetary framework so that our economy can be rapidly transformed to induce vast expansion in industrial activity with single digit lending rates, increase employment opportunities, lower single digit of inflation and a market determined exchange rate mechanism.The government’s efforts to achieve these parameters, reduce poverty and enhance the social welfare of our people in the last 30 years have evidently failed woefully.

    Indeed, our economy appears trapped in a paradox of deepening poverty with increasing export revenue. It is inexplicable, for example, that Nigeria became listed amongst the poorest nations in the world. A careful analysis of the process of infusion of our export earnings into the economy will show that this anomaly was made inevitable by the Central Bank’s practice of capturing export dollar revenue and substituting naira at its unilaterally determined rate of exchange before payment of consolidated naira allocations to the three tiers of government.

    Can you explain further the dangers inherent in the CBN’s practice of substituting dollar earned revenue with naira allocation to the three tiers of government?

    I will narrate it this way. Buyers of Nigeria’s crude oil pay millions of dollars into the account of CBN for crude oil lifted from Nigeria. For example, $1 billion is paid to CBN account. The CBN unilaterally adopts an exchange rate for conversion of the $1 billion received from buyers of Nigeria’s crude. Consequently, the apex bank unconstitutionally prints N150 billion in place of the $1 billion crude oil revenue. CBN now pays the three tiers of government with over N150 billion—an exchange rate of N150 to a dollar. The three tiers of government now deposit the billions of naira into their respective commercial bank accounts, for custody even when deposit rates attract less than two per cent.

    The additional deposits of billions of naira supplement the existing cash position of the banks and enhance their ability to embark on additional liberal credit expansion. Thus, the credit creation capacity, i.e. the money available for lending becomes multiple times the actual cash available in the vaults of commercial banks as the banks leverage on the hundreds of billions of cash inflow from CBN per standard banking practice; this is what the CBN decries as excess liquidity cash in the system.

    Consequently, CBN and the Debt Management Office (DMO) approach the banks to reduce the amount of naira cash and the credit capacity of the banks. Thus, CBN decides to borrow money from the banks by selling treasury bills with relatively mouth-watering interest rates. The DMO also enters into the market to borrow from the banks for intangible and inconsequential purposes. As a consequence, CBN, the erstwhile cash provider becomes a major borrower. The result is the widespread incidence of factory closures and rising unemployment as industrialists, service providers and small and medium businesses are faced with excruciating credit crunch, high interest rates and avalanche of cheap smuggled imports.

    What would you recommend in place of the present system whereby the Central Bank dominates foreign exchange market?

    The sensible thing for the government to do is to liberalise the foreign exchange market. It is very crucial to Nigeria’s economic growth. CBN should adopt the instrument of dollar certificates strictly not cash (i.e. dollar denominated warrants in place of the usual Naira denominated warrants for dollar derived revenue) for the payment of monthly allocations to the three tiers of government for all dollar revenue. This arrangement replaces the present destructive system where CBN unilaterally determines the exchange rate and creates more naira in substitution for dollar revenue only to decry excess liquidity in the system. Under the new arrangement, the three-tier system would present their dollar certificates to their respective banks for exchange to naira, as the dollar certificates are not legal tender, and so cannot be used for every day transactions. If this system is adopted, there will be no excess cash in the bank system, as we would no longer be inundated with the huge naira allocations usually paid into the bank accounts of the three tiers of government every month by the CBN. The result is that we would have more dollar certificates chasing a limited supply of naira. The stronger naira notes would translate into cheaper petrol prices. Indeed, a petrol sales tax of 10 per cent or more can be levied on the price of each litre of fuel sold. In spite of the cheaper petrol price, the fuel will sell in a fully deregulated market. The government can collect up to N100 billion from petrol tax every year from the 30 million litres sold daily.

    The absence of subsidy on petrol prices will also save the government about N600 billion a year; this amount can be used to build up our infrastructure, such as schools, hospitals, power and roads instead of paying the same sum as subsidies to fuel marketers. The government will also save another N600 billion or more, as the CBN and DMO will no longer have to borrow from the commercial banks to reduce the scourge of excess liquidity that has always plagued the system, when CBN substitutes naira for dollar derived revenue. The CBN will remain the custodian of our dollar earnings, as the weekly auctions of dollar reserves and its attendant round-tripping and dispersal into foreign accounts will no longer be possible.Our foreign reserve base will consequently remain buoyant and less vulnerable to speculative dollar demand. Smugglers and money launderers will have little or no access to easy government dollar funding for their nefarious enterprise and the level of corruption will be reduced.

    The stronger naira exchange will bring down the cost of imported raw materials and machinery, and this, together with low interest rates will energise the industrial and services subsector, and reduce unemployment and insecurity. More operating factories will mean increasing employment and greater consumer demand. The local manufacturers will also be protected by a discriminatory tariff regime to favour patronage of locally produced goods in place of imports. Increased commercial and industrial activities will provide a huge revenue base for government taxes. More workers will inevitably mean more income tax revenue for both state and federal government agencies. The stronger naira will not only bring down the cost of production, but will also reduce annual inflation to not more than two per cent, and consequently increase the purchasing power of lower income group. The increasing job opportunities will increase employment and engender a conducive environment that will reduce strikes and other work stoppages. The enhanced economic growth and improvement in social welfare with increased purchasing power brought about by a stronger naira will begin to reverse the deadly infection of brain drain, as Nigerians in the Diaspora will return home to make valuable contributions and enjoy better life in their fatherland.

    What is the solution to the recurring excess liquidity in the economy?

    The dollars earned from crude oil export belong to the people of Nigeria and disbursement is facilitated by the issue of naira warrants to the accounts of statutory beneficiaries by the CBN. However, the beneficiaries—Federal, state, local governments and corporate bodies—do not currently have the same direct access to their portions of this export revenue as independent private exporters.The dollar revenue is first exchanged into a quantum naira value at a rate unilaterally determined by the CBN without any pretensions to the open market forces of demand and supply before the resultant naira equivalent are paid to statutory beneficiaries who would return to the same CBN to re-exchange their naira for the same dollars if they required foreign exchange for their corporate import needs. A week later the CBN will go to commercial banks to mop up excess liquidity in circulation at a rate determined by the commercial banks. The commercial banks take dollars from CBN in exchange for naira. That is why the banks are making huge profits that they didn’t work for. Henceforth, CBN should stop substituting naira allocation for dollar derived revenue. All beneficiaries—Federal, State, Local Governments and corporate agencies should get their allocation in dollars. There will be no excess liquidity. The bank will start begging the real sector to come and take loan and a stronger exchange rate between naira and dollar will emerge. That is the way to revive the economy and diversify it. With that, subsidy will disappear on its own and fuel smuggling will dry up because it will be too expensive for the smugglers.This is what Zimbabwe did when its economy was in a crisis. At a stage, one Zimbabwe billion dollar was equal to US$1. What the government did was paying workers in dollars. Prices of essential commodities are also paid in equivalent of US dollars. That was how Zimbabwe was able to get out of its economic crisis and stem the spiral inflation.

    What are the likely dividends of the liberalised foreign exchange market you are advocating?

    The main dividends to be derived from the adoption of a liberalised foreign exchange market is the quick evolution of a realistically priced naira that will infuse the positive multiplier effects inherent in a free market economy dictated by the dynamics of demand and supply. Indeed, the defects of the current system —lack of transparency, parasitic chain, price distortion and economic dislocation— would be cleansed by a liberalised market. The inherent features and desirable benefits include a new improved CBN. The CBN would emerge unencumbered by the distraction of foreign exchange hawking and intrigues and assume its role as a patriotic custodian of the naira and a nimble and effective policeman of the money market in line with national aspirations.

    The mirage of excess liquidity whenever the federal pool is disbursed and the regressive reflex of mop-up activity inherent in the current system will disappear forever. In other words, the CBN would not have to plead with beneficiaries of the federation pool to desist from spending their income even when the economy is crying for a dose of public expenditure to stimulate demand and investment.

    The bulk of all foreign exchange earnings will be expended in its original form for the nation’s total import needs, that is, industrial goods, finished goods, contractors’ imports and services. This insulates the economy from a deluge of naira with extensive money creation possibilities by banks as at present. Foreign exchange not it is required for domestic transactions by the governments, public agencies and private sector operators will remain in the owner-establishments’ domiciliary accounts with the CBN and will not be regarded as part of commercial banks’ liquidity base. A substantial proportion of foreign exchange converted into naira for domestic transactions is likely to be taken up by economic operators utilising the naira already in the system. Thus only a small portion of foreign exchange earnings would translate into injection of fresh money.

    Last year, President Jonathan promised that the pains of subsidy removal will disappear within few weeks or months. What can you make out of the president’s pledge?

    President Jonathan made a political statement to assuage anxiety in the land. If we are not careful, subsidy value will exceed 60 per cent of total expenditure in 2013. In 2011, there were underhand dealings in the subsidy arrangement; about N2 trillion was paid off. The government has indicated that approved audited claims exceeded one trillion naira in July 2012. By December 2012 audited subsidy claims would be two to three trillion naira leaving two trillion for both capital and expenditure. There is no way you can resolve fuel subsidy imbroglio unless you re-arrange payment in the country and confront the factors responsible for depreciation of naira.

    The problem of subsidy is not caused by crude oil price, but the exchange of naira. If you spend N3 trillion on subsidy and debt services, where will you get money to improve on the living standard of the people?

    Mr President would have made that promise with the belief of his advisers. Blame the economists in the team for not properly advising him. Reducing capital expenditure by one or two per cent is nothing to celebrate in an economy where corruption consume 30 to 45 per cent of the total value. Increasing Internally Generated Revenue (IGR) to N5 trillion and evolving a mechanism that would plug loopholes are worthy of celebration.

    The President also promised that the economy will be repositioned within a short time. What is your take on this?

    Jonathan is not an economist. Because of his inadequacy, he hired world class economists to advise him. If they don’t tell Mr President that the problem in the economy is excess liquidity, what do you expect of him? If the experts failed to tell the President the truth, he should ask what causes excess liquidity. The total money for spending by the government is N5 trillion. It is not a lot of money. The excess is the result of subsisting naira allocation for dollar derived revenue. The government spends money to encourage increase in investment and payment. It makes it possible for people to buy more and create demands for goods. Excess liquidity is counter-productive. We can’t get out of the problem unless the President says enough is enough.

    Government officials say the economy is growing at seven per cent. Do you agree?

    Yes, it is possible for the economy to grow at seven per cent. Crude oil provides 80 per cent or more of the national revenue. If the price of crude continues to rise and production increases, the gross domestic product (GDP) will also increase. But when it is infused into the economy in obtuse manner, it becomes destructive to the real sector. Our income is dollar derived. There is growth in external reserve and ability to pay. When dollar increases, it creates more excesses in liquidity.

     

  • ‘How Nigeria can attract more investors’

    ‘How Nigeria can attract more investors’

    Mr. Michael Andrew, Global Chairman, KPMG International, a renowned audit, financial and tax advisory firm, has concluded his maiden visit to the country. Before he left Nigeria, Andrew, who has spent about 30 years at KPMG, with a tour of duty in Asia Pacific and Australia, spoke on power privatisation; what foreign investors are looking for; the preferred investment destinations – Mexico, Indonesia, Nigeria, Turkey – and the Association of South East Asian Nations (ASEAN). Nigeria, he says, must diversify its economy and improve security as well as infrastructure, adding that there is a negative global perception about Nigeria.

    Group Business Editor AYODELE AMINU was there.

     

    What is your perception about the global economy?

    I will like to start from the global environment of banking and relate that to Nigeria. I think this is the first time in a number of years that we are not facing any crisis moment. The mood in the international business community at the moment is that we are probably going to get back into a growth pattern in the latter half of this year and that has largely driven the soft-landing in China and the regeneration of Chinese growth. The very fact that we are seeing a re-industrialisation of the United States, where the existence of shale gas is moving tremendous investment in manufacturing back into the US; we also seeing stability in Europe; there is no immediate risk of a currency implosion and the social and political risk that we sure in the Middle East are probably more manageable now than they have ever been. So, businesses are actually looking to where they can find growth and how they can diversify their business model to take advantage of the new opportunities that the emerging world presents.

    Interestingly, because of the lack of confidence in the global market at the moment, there is a huge amount of cash, which will be moved into several asset classes. Initially, they are going to be moved into the stock market, afterwards they will move into the property market, and then they will move into real business investments in economies such as Nigeria. So, everyone is watching where this cash goes and the real question is what are the factors that will drive this growth? People are looking for a growing middle class, predictable regulatory environment and stable and transparent corporate governance economies. In the last few weeks, I have been to Mexico, Indonesia, Nigeria and Turkey and their similarities are remarkable. The countries are attracting a lot of interest. In the last few years we have talked about BRICS (Brazil, Russia, India and China) as the area of focus. But if you talk to international investors, their view will be that the BRICS with the exception of China has been quite disappointing. They have found it difficult to invest in these countries (Brazil, Russia and India), their regulatory environment is unpredictable and investors have not been able to get return on their investments. People now talk about the MINT (Mexico, Indonesia, Nigeria and Turkey). They are the four countries that the international investors really focus on for growth and investment. The offers are intense and we are getting a huge amount of enquiries about these countries. People want to know how to do business in these countries, how to access the markets and how to take advantage of the long-term growth that is coming. The markets are putting pressure on the CEOs to try and find new markets where they can find growth, particularly in consumer markets, financial services, food and energy in these emerging economies. So, investors are actually studying the market entry plans for these countries. These are the macro trends that we are actually seeing in economies around the world. For companies such as KPMG, we are focused on making sure that we participate in these high growth markets. We have to make sure we have the right expertise and services that are actually required by international and local investors who are starting to look beyond their country borders. One thing that interests me about Nigeria is the amount of pan-African investments that I have seen in the country that are based outside Nigeria. We have seen also a lot of Indian investments where our business models have worked very well.

    Most times when global CEOs go into a market, they don’t just give a pat on the back to those managing these economies domestically. What is the biggest ambition that has brought you to this market as a global CEO?

    Well, it is probably a broader perspective on Africa. We see Africa as the engine of growth of the global economy for the 30 years. We actually regard the Nigeria practice as the best practice in Africa so if we can replicate what happens here and leverage the skills that we have across broader Africa. That is a smart business strategy for us to employ. We have been here (in Africa) telling international investors about project Africa and that we can actually tap skills, talents and business models here into other markets. So what we are doing is more broadly across Africa.

    People see Africa as the engine of growth and agriculture is one of the major areas of focus because they say Africa is going to provide food for the world. So, are you looking at investing in agriculture?

    Certainly, I think 43 per cent of people here (Africa) are employed in the agricultural sector and there is going to be a tremendous capacity to be more efficient and productive over time. It is one area we are looking at. We are also looking at consumer markets, financial services and energy (downstream). We will also see how we can assist in converting petrochemicals into fertiliser for agriculture. We are also looking at manufacturing because if you have a fit and competitive energy base, then you have the ability to start to utilise the substantial population that you have here. Agriculture is just a small part of what we are looking at. We are looking much more broadly at the services and the financial markets in particular.

    You just mentioned the financial system. If you look at the stock market that is just coming up, does it pose any challenge to the international community or will the current growth continue?

    Part of the growth of any economy entails that you have to have access to capital. You are going to be constrained locally if your market is not liquid or if there is no efficient governance and capacity. The pleasing thing today is that in the international markets, there is a great appetite for companies with good exposure in the high growth economies. The ability to be able to list in London and Singapore for example, show that a stock is attractive. Nigerian companies must convince investors in other Exchanges that they have the governance and capacity to attract investments.

    What is your opinion on the power sector reform in Nigeria, particularly the recent sale of the distribution companies (DICOS) and generation companies (GENCOS)?

    Philosophically and fundamentally, I am in support of a compressed public sector. So, anything that compresses the public sector and expands the private sector is what I like to see in Nigeria. I think that at the end of the day, our salvation is going to lay in that direction. You can say what you want to say about the private sector, but we know especially with a country such as Nigeria that the private sector is much more efficient and effective than the public sector. So, whatever we can do to privatise the government’s assets is okay by me. I welcome the sale of the power assets. What we have to ensure is that we sell these assets at the right valuation, and that the process for doing it is very transparent. From what I understand, the process is being handled by someone I have a lot of respect for – Mr Atedo Peterside. The process has been very transparent; you are not going to satisfy everybody in this particular deal. My own opinion is that we move forward. We need to move forward because if we don’t, we are going to have a real problem. It has been shown quite clearly that the public sector cannot deliver the amount of megawatt that we need to form an effective industrial base in this country. We need the resources and the expertise of the private sector. So, on overall bases I will like to say it’s something that I welcome, the process has been fair, valuation from what I understand has been fair. Let’s move on and deliver the power objective that we say we want to deliver.

    Still on the power sector reform, there is this impression that the Federal Government set up a body, which did a very fantastic job. It disbanded and put it up again even with the new power minister and the private sector is uncomfortable. What is your take on this?

    I will tell you this without going into why this task force is being disbanded. We all know how the government works, but I have been in functions and interacted with very senior people in the government. The conclusion is that deregulation and privatisation are the way forward. The government has no business in business, that is the reality. We have priority sectors such as education and health sectors, which are major sectors for this country. The kind of Gross Domestic Product (GDP) contribution from those sectors is very minimal, so the thrust of the reforms is that we change the way we use to do business. The key thing is that proper due diligence has been done, and liabilities are properly accounted for because all these agitations are coming from unions and pensioners. When this is done and the liabilities are settled properly, there will be no problem. The reality is that we are generating just 4,000 megawatts; there is a company that has just been set up in Dubai, where they are getting coal for aluminum smelting from Australia. That company alone requires 6,000 megawatts for operation. Here we are talking about 4,000 megawatts for the entire country. It is time to move forward. Let’s face it, there will be vested interest from the government, public and private sectors that will not want us to go ahead with the reforms in the power sector. These vested interests are very strong. We have seen them in the pension and petroleum subsidy saga. I think the most important thing for us as a nation is to focus on the goal we want to achieve for the common good. What is good for all of us is to have enough power so that we can generate the middle class that we want to generate and develop the Small and Medium Enterprises (SMEs), that should be the focus. Let’s say to the government – deliver on your promise – deliver the deliverables in the energy sector and let us move ahead. The government cannot deliver, they have been there for so many years, let’s try something else.

    Given what you must have read about Nigeria and what you have seen, can you juxtapose these and tell us your candid opinion about the country?

    What I see is a very vibrant economy, very good class and sophisticated business people. I see a very large population that is very nationalistic and focused on the direction of the country. I see unity, and I see huge potential having studied the amount of oil reserves, the agricultural sector and the stability in the banking system and the entrepreneurial ability of some of Nigeria’s large companies. What I have seen so far is very positive. I think you have a brand image that is still negative, there is still this global perception about security and corruption issues, which are largely been addressed. The reality is peoples’ thinking out there is very different from what is happening here. What strikes me also is the need for investment in infrastructure and some other things that need to be put in place. There is a need to invest in rail, sea ports and airports to attract more international investors. But having come from India, Indonesia and Mexico, I can tell you that you are at the same level, these countries are also fighting for investments in these critical sectors.

    Looking at Nigeria, which earns 90 per cent of its revenue from oil and the US that was a major buyer of Nigeria’s oil developing its own energy, very soon the US will become energy self sufficient. Europe is also facing sovereign debt crisis, if you were to advice Nigeria, what will you tell our government to do?

    Let me cover the energy sector first. I think the very disruptive force in the energy sector now is the discovery of shale gas in the United States, which is basically providing the US with a huge competitive advantage over the rest of the world because it now can produce gas for $4 while in the rest of the world it is $15. Oil costs 15 times more than the shale gas and if you get the US to reduce its import reliance and become an exporter, that changes the focus on oil in the world economy. But this will take a long time to happen. There is going to be environmental and safety issues and the US needs to satisfy its local market before it starts to look at the global economy. But over the long-term when shale gas is efficiently exploited around the world, you would see a long-term adjustment in the oil price downwards. So, my advice is for Nigeria to diversify her economy and to make she does not put her risk on any particular commodity and use the competitive cost advantage of other economies to drive other sectors of the economy. You do this by making sure that other sectors in your economy are competitive – using the advantage you have to access to low cost and efficient amount of oil reserves.

    Government has virtually moved away from the airline business and the companies we have in that sector, locally and internationally, have huge debt overhang. From your understanding of that sector, how can we salvage the situation there?

    I can tell you that you are not going to solve the problems in aviation with the government being a top player, with the government buying 30 aircraft and saying: “We are going to have Nigerian airways and so on.” We have all gone through this before; when I was growing up I knew that we once had Nigerian Airways. We all knew what happened. What has to happen is that you have to empower and trust the private sector so that people can put their money there and make sure that it works. Richard Branson came and made an investment into Virgin Nigeria, the only thing he asked for was “let me use MM1 as a regional hub and the Federal Government of Nigeria agreed to this, then we had a change in regime and vested interest decided to frustrate the agreement. They guy walked away and we handed the industry to people who do not have experience in that sector. What do you expect? The whole thing collapsed and we are in a situation where we are in now. If the government goes back there that will not make it work, if they set up a company in the next 10 years, it is going to fail. What the government has to do is to put incentives in place for people to go into the aviation industry, which is not an easy investment to do. They say if you are a billionaire and you want to be a millionaire, go into the aviation industry.

    The world aviation industry will be dominated by the Middle East airlines. We know the advantage that they have, regional hub, access to finance and new fleet of aircraft. It is better to leverage on their experience to help your local industry and setting up new companies, which may end up a bad business model.

    In all your interventions you keep saying vested interest. How do we deal with these interests as a consultant advising the government?

    It is not only my responsibility; it is the responsibility of all of us. If you look at the track record of KPMG, for instance, you know what we did with pension, the issues that we raised as regards to pension and fuel subsidy. We have done our part not only as a firm but as individualS wherever we find ourselves. As journalists you have a responsibility to educate people responsibly. I respect a lot of you because of what you write in your columns. We need to clean up the judiciary and I am happy with what has happened in recent time in that area. What I am saying is that the fighting of the vested interest is the responsibility of all of us and you as journalists are also included. It is a battle that we can win if all of us say enough is enough. Just like Michael said, if you go to Indonesia and Malaysia they are facing the same problems. The key issue is how do we ask for accountability?

    Even the private sector companies in the aviation sector are not effective. What is the solution?

    We’ve got to have a regulator that is effective. Not the one that is on holiday all day. You must have a regulator that will say I am standing above the frail and I am going to insist on standards. But you and I know what has been happening in that industry.

     

     

  • ‘Cost of finance is high in Nigeria’

    ‘Cost of finance is high in Nigeria’

    Emeka Ene is the Managing Director, XENERGI Nigeria Limited and Chairman, Petroleum Technology Association of Nigeria (PETAN). In this interview with Emeka Ugwuanyi, Assistant Editor (Energy), he speaks on the need to support independent oil producers, the dearth of funds and high lending rate by the financial industry. He stresses the importance of local content fund and stakeholders’ support to ensure security in the Niger Delta region, among others.

     

     

    It seems indigenous firms have taken over control of the service sector?

    I don’t think it is a take-over. When you say takeover, it seems the glass is half full and filling up. The fact is that hydrocarbon energy is a continuous process and the developed economies of oil sectors of the world, such as the United States have their own position on the search for hydrocarbon. Everybody has his own position. What has happened is that we have seen a transition where the hope of emergence of the Nigerian independents are truly coming into life and that gives the impression that there is some kind of takeover. The fact is that it is even in the interest of the major multinational companies to have independents exist because in areas and assets where they cannot produce them efficiently, they actually can farm out these areas to independents who can do them quicker, faster and cheaper. So I think what is happening is a transition to the emergence of the Nigerian independents, which I think, can co-exist side by side with the major multinationals.

    The local firms were some time ago asked to partner with the multinational oil companies. How has the partnership worked?

    The concept of partnership is when two parties bring something to the table. What has happened is that Nigerian companies suffer from major liability, which is access to long term low-cost capital. That has been a major millstone limiting the growth of these companies. Most of these first generation companies were started by people who were technocrats but they lacked the funding to do it. There are some factors that had militated against some of these partnerships from taking off. One of them is that the contract cycles are very short. For instance, you borrow $100 million to buy a vessel and two years later, you lose the contract. That puts you out of the limb and it has been a major factor behind all the partnerships from surviving the test of time. The fact is that many of them were designed to fail because they were not bankable.You cannot borrow money that you cannot recover within the period of a contract and expect that company to last the test of time. What has happened is that with the Nigerian Content Law, it is given a wider scope for companies to build economies of scale, which is what we need for the oil and gas business. You cannot do it by running a hand to mouth operation. You may start that way but the opportunities to grow your business have to be there. What happened is that we have gone beyond the partnership that started this process and expanded to developing capacity by ramping up collaboration. People are now collaborating without necessarily merging into one.

    You identified funding as a major problem and we have seen the recapitalisation and consolidation in the banking sector; didn’t the policy have positive impact on funding issue?

    Banks have money to lend, but the thing is that the banking sector was driven by trader mentality; that is, buying and selling mentality. But the oil and gas business is not driven by buying and selling mentality, it is driven by the mentality of a process that you invest and watch that business grow over time. Some banks play in this industry on short term basis. And where a man doesn’t have an option, he borrows the money anyway. But, of course, at the end of the day, he ends up working for the bank. What is happening is that banks have started to lend for longer term and have started to see single digit lending rate, dollar base and longer term. The Nigerian Content Development Monitoring Board (NCDMB) has also stepped in to provide succour through the Nigerian Content Fund where you can get much lower interest rates and much longer tenures. That is the only way because if I need to put up a factory, it cannot be for a two-year contract, it should be a 15 to 20-year fund. But no bank can lend you money for that long because it wants to make the bankability of the project work. But what happens is that the NCDMB, working with PETAN, is trying to create the basis for lending money longer term so that people can build real capacity in the country and not just masquerading as a Nigerian company when it is actually not producing anything.

    There is the tendency of local firms going for foreign technical and funding partners. Why can’t your members go for such partners?

    In fact, it is happening but maybe it is not being publicised. There is a lot of foster partnerships going on and even with the International Oil Companies (IOCs). We need to encourage what we call virtual partnership where they give an alliance contract to a number of Nigerian companies to contribute the equipment that they have to create a larger entity. This is something that is happening. But people can easily say partner, merge but partnership and merger are natural cause of events. I think it will be tragic to see a Nigerian company that has invested a lot of money into a fabrication plant and that plant is idle and there is another company that doesn’t have the ability to meet the demand. What we are trying to do is cluster them. Within the Petroleum Technology Association of Nigeria (PETAN), we are trying to do what we call Technical or Technology Interest Groups (TIGs). What happens is that people in the same type of business within PETAN, cluster them together in such a way that when opportunities come we encourage them to work in an alliance, so that their capacity is larger than the individual capacities.That is something that we think that we can take to the industry and make it more of a norm and practice as well.

    We have seen a trend where service providers, such as PETAN members re integrating exploration and production, for example, Nestoil. How would that actually impact on their capacity and capability to excel in the two areas given the huge funding demand in E&P?

    There is what we call high bill financing model, which was pioneered by one of the marginal fields’ operators called Energia. Coming from a service background, although from a technical point of view, you have to keep it an arm’s length. The fact that you have some components within your integrated portfolio enables you have access to services that you may not ordinarily have had access to by giving you low cost. Oil price has been moving around $100 per barrel for years. All businesses have been busy worldwide and equipment is in short supply. So when you have companies such as Nestoil and others, upward integrate as it were, they also have competitive advantage to provide some of the services because they are readily available. It is really like a worldwide web, things are opening up, and those who are on ground are those who are taking advantage of it.

    Some of the service companies complain about poaching of skilled manpower. How are you managing this trend?

    This is a major concern. PETAN companies and other Nigerian companies have invested a lot of money in training people from scratch and what happens is that they come and they are poached. Not even poached in a sensible manner because we have a PETAN member whose 25 members of staff were poached from one department and he had to shut that department. He started that department almost 15 years ago and most of the people poached are not put into productive use after all. So, as far as we are concerned, it was a predatory competitive move to take out the competition. What we are trying to do through the NCDMB is to encourage the free movement of labour and also impose an obligation on companies, particularly international service companies to make investments that are commensurate that match up how much they are taking out of the economy and what they are putting in. In other words, they should start pupilage and internship programmes so that for every one person you have poached, you have trained 10 of them, so that you are not just creaming up the top and crippling Nigerian companies and preventing them from developing. We are not stopping free flow of labour rather we are encouraging it but the industry should develop. We don’t want to recycle the same people. We want to give opportunity to fresh people to learn from the job but not at the expense of PETAN companies or Nigerian companies but at the expense of the technology companies, which need to invest in that respect also.

    What is your association doing to make the government and National Assembly pass the Petroleum Industry Bill (PIB)? Or are there enough jobs for your members?

    The Nigerian Content law has opened up the playing field, but I can tell you that we are still far from Uhuru. We have a new phenomenon, for example, people dressing up in coat of many colours as it were and masquerading as Nigerian companies. We don’t have a problem of people investing here in Nigeria. What we want to do is to create real jobs and capture know-how so that the economy can open up. This is something that we will certainly attack in a collaborating manner. In other words, the IOCs are actually champions of trying to develop the Nigerian Content in the sense that they want to see real Nigerian Content.They want to see efficient services, technology available when they need it and executed in a straightforward manner at a minimum cost. This is what every business man wants. What we are trying is to ensure real investment, real jobs being created, and real know-how being transferred rather than just masquerading.

    Some of the challenges that didn’t allow local content to come up early enough, such as technical challenges, finances, which are being tackled. Are they creating commensurate value in-country?

    I can only speak for quite a number of PETAN companies. Banks have started to understand the life cycle of oil and gas business a bit better.They are beginning to match the funding to the life cycle. But that is not to say that we are competitive. Our banks are not competitive because they are competing against other global players. For instance, you cannot compare them to a Norwegian bank that can lend less than two per cent interest rate and Nigerian companies are borrowing money at 30 per cent in real terms even in dollars. Although they say it is 10 per cent, by the time you add up all the bank charges and others they call country risk, it is quite enormous. However, we have come a long way from where we were 10 years ago. In terms of value addition, I can tell you that the comment I had from a banker at this conference is that when they started to fund oil and gas business and started seeing the returns, the treasurer called and asked where the money was coming from? Is it drug money, he asked. Because he has not been seeing such returns because the money was going somewhere and now they are lending the money to oil and gas. The returns are coming through the banking system and into significant way, in dollars, which they were unable to get in the past. So, it is a win-win for the banking system, the service and operating companies because you now have the funding circulating in the local economy. Even the little food canteen operator by the road side feels the impact when a Nigerian company is operating. It is so because where the Nigerian company operates, workers walk across the road to have their meals whereas if it is not a Nigerian company, they package the meals from abroad to feed the workers. It helps the economy and employs Nigerian nationals who have relatives in the village. So, it has ripple effect. The impact is much more when the investment is through the country rather than looking for the cheapest things.

    The NCDMB said it is carrying out a pilot scheme with some of PETAN member-companies to see how the content fund works. How is the scheme playing out? Also, is PETAN collaborating with NCDMB on building industrial parks in the Niger Delta states to enhance the skills of their workforce?

    In case of the pilot, it is a pilot financing from the Nigerian Content Fund. It has been a slow process, slower than we anticipated simply because they have been educating the banking industry on the unique structure of oil and gas projects. We wanted to get it right from the first time but essentially it is on track.The NCDMB is partnering with PETAN to see how this can be rolled out. We expect that the pilot will be in place by the end of March and from there other companies can tap into the Nigerian content try some contracts and be able to fund their contracts with lower cost finance. The industrial parks initiative that was announced by the Executive Secretary, I think it is directed at the grassroots entrepreneurship and grassroots manufacturing and the idea is to force some of the investments at the grassroots where it matters. For instance, simple nuts and bolts, most of them are imported. I believe 100 per cent of them are imported, but the technology for manufacturing nuts and bolts is not rocket science. So, by going to the grassroots and creat-ing these industrial parks, the idea is to create that enabling environment. However, PETAN’s position is that for such initiative, NCDMB needs to to carry along those such as PETAN because with private sector involvement, it would work better because we know where it pinches. Whatever is the good intention, you find out that for sustainability you need to give it to private sector to drive, otherwise, it would only work for the opening ceremony and after that it ends there.

    In spite of the enablement from the Nigerian Content Law, your members complain about the long contracting period. How is your association engaging the government on that?

    This is a big challenge for us. We have some of our members who bid for work in 2002 and they were given the contracts in 2012 and they are being told to use the same price they offered 10 years ago. We have heard this story over and over again. Now, the reality is that the contracting cycle needs to be shorter for a simple reason that the industry worldwide is busy. Therefore, you will have the service at a decent price if you begin to allow it to go out of hand. It has not been a good decision and it is systemic problem. Systemic in the sense that between the IOCs and the government and other stakeholders, there is nothing that has not been said to remedy the situation. NIPEX has done a lot to streamline that process but I think PETAN as a group is advocating both at the NIPEX, government and the IOCs’ levels. Not just in terms of processing contracts shorter cycle, but also in terms of having longer cycles in specific areas. So, why do you need to have two-year contract on major projects and why don’t you have five-year contract, which will allow investors so that you can build real capacity? It is a challenge for the industry and one that everybody faces. Nobody is comfortable with it.

    What is your organisation doing to integrate the ex-militants into the industry to stem insecurity?

    PETAN member-companies and Nigerian oil and gas service companies are on the frontline. We are the people that are first to be kidnapped, but it is very interesting that when the heat was on throughout the militancy period, it was PETAN companies and others that saved the day. Many times even the oil companies were helpless but they would approach the service companies and say that zone there is no-go-area but if you can go there and do a job, we give it to you. PETAN companies went there and managed the process because at the end of the day you find out that everybody has the same aspiration – have a good life, provide for your family and move on and train people coming after you. Sometimes odds are against people and they go with the options they have. We recognised that and felt that a lot of things were as a result of absence of knowledge and expertise. If you don’t have skills, there is not much you can do. To a large extent, that should be the spearhead of NCDMB to ensure expertise goes through. When you have a skill and the tools, you will not put your life at risk everyday. You will find a productive way to live. It is absence of all these that led to creation of militancy. There are some issues in your question that are outside the scope of PETAN to answer, but we can only do so much. However, all stakeholders have to come to the table to agree.

     

  • ‘Why some banks ran into trouble’

    ‘Why some banks ran into trouble’

    About four years ago, a tsunami hit some banks when their management teams were sacked by the Central Bank of Nigeria (CBN). Those banks have since been given to others to manage and they are today doing fine. What really went wrong? Mr Ahmed Kuru, Group Managing Director of Enterprise Bank Limited, which evolved from Spring Bank, said their undoing was lack of good corporate governance. He spoke on this and more to reporters. Deputy Business Editor SIMEON EBULU was there.

     

     

    What are the specific figures as regards Enterprise Bank’s improvement?

    I will give you figures. We have grown our deposit by 27 per cent. The industry average growth rate is 15 per cent, and we have grown ours by 27 per cent between last year and now. On loan book, the industry growth rate is 16 per cent, we have grown ours by 200 per cent. In total asset, the industry growth rate is 15 per cent; we have grown that of Enterprise Bank by 26 per cent. On return on investment (ROI); which is also important, the industry rate is seven per cent; we have achieved about 20 per cent and by any standard anywhere in the world if your ROI is 20 per cent, it shows that you are not destroying value. In the previous year, the bank was in a loss situation, now we have reported profitability in billions, I don’t want to mention figures; because the auditors and the Central Bank of Nigeria (CBN) are checking our books. I can tell you that our corporate communications in the next three weeks or one month would furnish you with the actual figures.

    How do bankers operate? A legacy bank was taken over by the CBN and the same CBN appointed managements that didn’t perform well, sacked them and paid them huge amount of money. Why pay those who have not performed well?

    You say our predecessors were paid huge sums of money, I’m sure some of them would have contested for political offices. Every management has a different mandate. When the previous management came on board, at that time there was an intervention, after the CBN’s special examination of 2009, the banks were almost collapsing, so the CBN wrote them to stabilise the situation and find core investors. This was their mandate, stabilise the situation and find core investors.

    At the end, they succeeded in stabilising the banks. Five of the 10 institutions succeeded in finding core investors, the only three that couldn’t conclude because the Central Bank of Nigeria (CBN) gave a deadline, they now have to intervene and appointed a management to complete the cycle, they came to stabilise and get core investors, and they were able to achieve the mandate that was given to them by the CBN. We were appointed to come and run these institutions as commercial entities. When we came on board, we were not challenged by issues of negative assets or inadequate capital; by the time we came, all those issues had been addressed by the Asset Management Corporation of Nigeria (AMCON) that purchased these institutions.

    So, we were given the institutions and mandated to run them commercially and competitively, and I think that’s what we have done and what we are doing and we are on the right track. These three banks are strong enough today to compete competitively with all operators in the industry. Anybody that was appointed was based on contract; so they are, ultimately, compensated at the end. I will not define the amount paid to them as huge; but I think they were adequately compensated based on their assignment. And, of course, because we were appointed to come and run the institutions commercially, we have to tread with caution.

    The last pronouncement by AMCON was that the nationalised banks would be sold next year. Would this have any setback on your operations?

    Yes, AMCON made a statement that they wanted to sell the institutions either next or this year or two years time. For us that means nothing. What is important to us is to run the institutions commercially, profitably and put all the structures on ground to ensure that business continues; because whoever steps in to buy the banks, is not coming to buy structures, he is coming to buy the value that is in the structures. He is coming to buy quality of the customers, balance sheet, quality of staff and infrastructure etc.

    Those are the things that a buyer will want to see. To run the bank profitably, these are the areas we are concentrating; we are not involved in issues of if they are selling or not; because we have three-and-five-year plans. Of course AMCON’s pronouncement does affect us once in a while because everybody wants continuity. I can tell you if you go into the institution, you will see how the processes are, considering how our customers are well taken care of. Anybody who is well attended to will like to come back and continue patronising the bank and if you are a good staff, anybody that takes over will want to retain you. As I said earlier, we have a three to five year plan and we are pushing it.

    What does your logo signify?

    The logo is deliberately designed the way it is, just a shadow, so that the black and yellow colours will show as a spirit of our enterprise. It explains how the eagle flies and, ultimately, takes care of us.

    The financial inclusion that the Bankers Committee want to pioneer and kick off in Borno State, will you send your staff to the rural areas of Borno State, considering the current security situation in that place?

    We are aware of the security issue in Borno State. However, if you go to New York, the security risk is higher. These days in New York there are certain streets you cannot walk at night; especially when you are a black person. Yes, the issue of security in Borno is a problem; but I can say you don’t just employ people and send them to a volatile area just because you want to prove a point. Every organisation has the responsibility to protect its workers. There are people that hail from those areas and there are people in those areas; part of the structure we want to leverage on; besides, the bank branches in those locations are also to offices in almost all the over 700 local governments in Nigeria. In some of these states, in every local government you go to, there is a post office structure and how does this work? They try to put local people that speak the local dialect; they are usually the staff that manage post offices in Nigeria.

    If you have a problem and go to the Post office to ask questions, you will realise that those that are there are local people. So, what we need to do is to build capacity and train them, you don’t need to carry people from other locations to a different place. Be conscious of the lives of those people that are going to manage it and try as much as you can to ensure that you eliminate any danger that may come to people you are bringing from outside.

    But in all the budget that I have seen, security is always at the top and that is why the project is the one the Federal Government, states, bankers committee and security agencies are involved to ensure that no life is lost in the process; because no matter the profit you are making and putting people in danger; definitely there is a challenge in it. The security issue has been taken into consideration and some of us strongly believe that it will work because some of these security challenges also have linkages with economic empowerment and economic activities. We believe that in the banking industry we are going to do something that will benefit the society.

    You mentioned that you have put structures in place, I want to believe that one of the major challenges that led to the collapse of the former banks was that of structure, I want you to be specific on what you have done on this.

    What has happened is that when the CBN intervened, they realised that most of these banks got affected because of lack of good corporate governance structure. At Enterprise Bank, the first thing we did was to convene a very strong corporate governance structure. And we insisted that there must be strong policies to this regard. Also, the level of regulation has gone up. In our bank as small as we are, we have a 16-member board. We have five executive Directors; including the Managing Director, we have 10 members non-executive directors. The least amongst them was a former Executive Director in a bank; so we are very strong, we have former Managing Directors of banks and insurance companies.

    We brought credible people and put them on the Board so that the corporate governance structure will be strong to avoid any abuse of process. It’s usually the abuse of process that allows banks to engage in unethical practices. So, everybody on the board is an independent character particularly now that CBN has intervened. They are professional people, Chairman of the Board is the former Managing Director of Diamond Bank, and he is a professional and disciplined banker. So, CBN has ensured that what happened in the past will not happen again, now due process is followed in whatever is done.

    Are you still a medium-sized bank considering all the achievements you mentioned?

    We are still a medium-sized bank. When I gave the unverified figures, and you look at it in absolute terms, if I grow by 20 per cent of N200 billion or N40 billion, and some other banks for example grows by one percent of say N5.0 trillion, in terms of size, I’m still a medium sized bank and I want to be a medium-sized bank, like I said in December 2011, we are not here for any size game or size war, we want to be an efficient bank and that is our strategy.

    What is the number of depositors in Enterprise Bank?

    In December 2011, we said we had about 1.5 million customers. What happens in the industry is that you always have five to 10 per cent dormancy and deposits continue to go down. We have not gone farther than the 1.5 million, because immediately we stop managing dormant accounts, you realise that naturally we have to drop so many accounts. In those days, what banks do is to go for mass market appeal, they go to the market and start opening accounts with zero balance; sometimes with N20 balance; by the time you start evaluating some of these things, you will have to move them because of administrative costs; because those accounts are not being maintained for so many years; some of them you try to pursue if after sometime you don’t get them, you have to remove them so that you will continuously have a realistic number to work with.

    On your business relationship with Union Bank UK?

    Union Bank UK has continued to support us; last week we had a major transaction with them,;happy with them also. We will still maintain a good relationship with them.

    You have narrated the things you have done so far for the bank, which ones have you not done yet?

    There are so many things that we will want to do, all those things that we have indicated are already in process. I’m working towards having a cost income ratio of 50 per cent, when I came, the cost income ratio was around 180 per cent, now I’m around 88 per cent which is a very good move; but my target is to make it 50 per cent which is good.

    On loan to deposit ratio, industry average today is about 80 per cent and I’m looking at making it 15 per cent. I have not reached the level of efficiency that I want. To train is not an easy task, it takes time, you cannot turnaround all sectors regardless of whatever you have on ground in one or two years. The only thing you can do is to put those things that are necessary on track, and then you start to measure them. I think that is what we have been able to do. I want to have a traditional institution; while in terms of percentage; maybe only five percent of my customers come to my bank. I want to be a traditional institution that is leveraging on innovation and technology to deliver an efficient service, we have not achieved that; but we are on track.

    Where do you think the bank will be at the end of 2013?

    I want to be a formidable bank; where you can identify with me and know when you come into my banking hall I will be able to give you an efficient service; this takes time; but we are on track. I’m happy with the progress we have made so far and happy we are on the right track to be anything that we want to be in the industry. We must continue to innovate, invest in our human capital, invest in technology and have the freedom and process that we are able to do what we want to do and once we are able to put those things in place, I’m sure we will be where we want to be.

    There is no going back in Nigeria, for us first and foremost, we want to take it to the next level and at the end of this year, I want to have maybe three per cent of the market, I don’t want to be like Bank A or Bank B, I want to have my own market share, I want to know that I’m making profit. I want to concentrate on the target I set for myself regardless of what every other person feels; I will then achieve my target of being an efficient and service delivery oriented bank. Be a bank that identifies with the tail end of the market regardless of size.

    How many branches have you opened since coming on board?

    When we were appointed, our mandate is to consolidate, and when you talk of how many branches we have opened, branches typically in a banking environment are supposed to be channels to where you offer banking services and the branch thing is gradually phasing out, the issue of having 10 branches on a particular street doesn’t count anymore; because people now want to transact business inside their houses.

    So, instead of spending so much time in opening new branches, our strategy is to consolidate the 152 branches that we have, before the end of this month, we are going to open in five states and these states we were not there before, that is why we are opening them. If we had branches in these locations, we wouldn’t have done that. We want to be present in all the state capitals, so we are going there as a strategic move not the one driven by profitability; but ultimately, it must be profitable.

    So, we want to make sure that wherever you are, you can reach us even leveraging on infrastructure built by other people. You can reach us on the Internet, go to the ATM. I believe things are changing; because if you go to developed countries, hardly you find the kind of banking halls that you find in Nigeria. You will see one small place, sometimes; you have to ring the bell before you go in, but if you know the kind of transaction that is happening in that office, you won’t believe it; because everything is now based on technology. As a banker 80 per cent of my transactions are done on the telephone; so the moment I have to go to the banking hall, I feel a little constrained and even you as a person, you will want to come out of your NUJ building and draw your N100,000. You don’t want to go to the banking hall to waste time; just because you want to collect cash. The emphasis will be more on technology driven channels than the kind of branch banking that we are used to.

    What are you doing with the assets of the legacy bank you inherited?

    The African Continental Bank (ACB) assets just like other banks assets are huge assets to the bank. What we are trying to do is to ensure that we get maximum benefit out of them; because at the end when you are going to value the institution, they will also count in that process. We are trying to extract maximum benefit out of our premises. The buildings we are not using, we will maintain them and rent them out. The plan is not to sell any asset; but to use them as a basis to earn some income.

    How do you manage to cope with over regulation?

    What happened in 2009 has made CBN to intervene and tighten their regulatory processes. All over the world, regulations have increased tremendously. I think the financial sector; mostly the banking industry is the most regulated in the world. The most important thing is it is for the good of the industry; because what the CBN is trying to do is to ensure that they put necessary measures in place; so as not to be caught unawares; that is why they continue to roll out guidelines. I can tell you that many of the circulars they put out are also discussed at the Bankers Committee meeting; they want to carry everybody along and as partners, we will see how to position the industry; it will not be driven by individuals, but structures; so, if anybody comes into the system, regardless of what happens, the structure will mould how he conducts himself. We are not distracted by the CBN’s regulation; but rather encouraged by it. So, we will continue to operate in a way that we do not go contrary to the CBN rules.

     

  • ‘We will make Kwara Nigeria’s agric hub’

    ‘We will make Kwara Nigeria’s agric hub’

    When Zimbabwean farmers started commercial agriculture in Shonga, Kwara State, not many believed in the project’s viability. Today, it has become a success.The state has bigger dreams for the project. Governor Abdulfatah Ahmed is seeking the Federal Government’s support for the scheme through irrigation, which he says is capital intensive. He also spoke on his administration’s efforts to create employment and revive moribund state-run businesses, among others, with reporters, Group Business Editor, AYODELE AMINU was there.

     

    The Commercial Agricultural Scheme in Shonga was launched with fanfare, are the products in the market?

    Shonga Farm is one of the best things that have ever happened to Kwara State and, indeed, Nigeria and I wish that the transformation agenda we’ve been talking about in the country borrows from what we have done in Shonga as a platform for driving commercial farming in Nigeria. We started with 13 farmers who moved from Zimbabwe and settled in Shonga. We have them compartmentalised into three sectors – Poultry, Mixed Cropping and Dairy. These farmers came in to be commercial farmers. For commercial farming, we are talking about what we call value chain. In other words, they will form largely what we call feed stock for processing. That is what we mean by commercial farming. You will not see their products on the shelves like you expected to see. Their products are there in the market which you use, probably daily but you will not know because it is a value-chain concept. For instance, the dairy plants soya and maize to prepare feed. This feed is fed to cattle. The cattle produce milk. Milk is now sold to WAMCO. WAMCO produces Peak Milk, which you use. You now understand the value chain. That is why if you expect to see fresh milk in the market you will not see it. They are largely designed to be feed stock and the same thing happens to the poultry. They plant maize and soya. They have a 50-tonner feed mill there where they generate feed. They buy day-old chicks from Olofa’s Farms, which is another feed stock farm and in six weeks they grow to table size.

    They have an abattoir that has the capacity to slaughter 10,000 chickens every day, but currently they are doing about 5,000. Once they slaughter the chicken, they are packaged and sent to eateries. At major eateries, it is their chicken you will eat. So, people who expect to see Shonga Chicken in the market will not see it that way. The cassava that is grown there has the highest yield in the country. The national average for cassava is about 15,000 tonnes per hectare; in Shonga we do 40,000 per hectare. This cassava is being exported to China as chips. The kind of transformation agenda we are talking about in the country is what is already happening there. Our own effort in the state is to see how our local farmers would begin to be incorporated into this transformation agenda beyond just subsistence farming. They begin to see themselves as clusters around these commercial farmers and it is that model which we are trying to translate to the state wide farming concept. So, if you hear us talking about agricultural transformation in Kwara, what we are talking about is replicating what we are already carrying out in Shonga to make it a state-wide farming concept.

    Unfortunately, the biggest challenge we are faced with is the issue of irrigation, which is capital intensive. That is what the Federal Ministry of Water Resources should be doing by supporting us with irrigation so that we as a state continue to give necessary inputs to drive our farmers from subsistence level to commercial level under a clearly spelt out value chain concept. This will help our farmers to truly see agribusiness as a means of economic empowerment. For us in Kwara State, we have gone further by not only enumerating our farmers, but clustering them according to cooperatives and compartmentalised them into crops; that is, rice, maize, soya and cassava. These are the four crops we are taking to commercial level. These four crops will form feed stocks to a value chain development programme. So, that is what commercial farming should be seen. Hence, when you are trying to drive a transformation agenda, it is the whole chain that requires to be renewed. All we need to do is to use our local farmers to copy what the Zimbabwean farmers are doing successfully. Hopefully, Kwara State will become the true hub of agricultural transformation and agricultural value-chain development in Nigeria.

    What is the government doing about job creation in the state?

    On employment, I can tell you that it is the benefit of continuity. The real meaning of continuity is value for money in the real sense because what are we trying to continue? You want to continue something that has been started which is expected to drive itself to a level of fruition that you can get benefit. For us in Kwara, we started the issue of getting people out of the streets, getting them empowered. We went further the moment we came in 2011. We went into an enumeration programme to know how many people are unemployed. What is their category? What is their educational level? That helped us in generating the database which has helped us in creating a platform for giving those jobs. The first thing we did was that we gave 2,000 youth jobs under the Kwara Bridge Empowerment Scheme. We promised these 2,000 youths that within the next one or two years they would be properly engaged. That is, they would move from the bridge to proper engagement and so others will replace them on the bridge. I am happy to let you know that the 2,000 have been completely absorbed. In addition to that, additional 2,000 have been replacing those ones that moved from the bridge. It is a continuous programme.

    Also, we have just started an International Vocational Centre, which will be driven under a programme with City and Guilds (C&G) of London so that the people who graduate from there will be given C&G certificates. We chose C&G because we want to create people that would be employable outside Nigeria. We are looking beyond Nigeria. As soon as it starts with the first tranche of students in September, the centre will be the platform for training youths and reduce unemployment. We will also create a platform for supporting them. We have a debenture. We have set aside over N250 million, the first tranche of people who already had skills but gaps in funding have collected theirs. We have given some of them part of the N250 million under the cooperative scheme. So, those who undergo training will also have access to these funds. In other words, we are training people that will become employers and employees at the same time. So that is the kind of support we are giving to address the issue of youth unemployment in the State.

    You said you are interested in micro finance banks. The policy allows state governments to put aside a percentage of their money to help the micro finance banks. How much have you given to the micro finance banks and what is the agenda to develop the micro finance banks?

    What we have done here is that we look beyond just giving the one per cent. We were very conscious of the fact that the micro finance banks are expected to drive deposits to be able to bring about lendable funds within the micro finance industry. We are not waiting for that. We have set aside about N500 million as a debenture, which we are making available to prospective beneficiaries through the micro finance banks. So, the way the Federal Government has created a debenture under the support for agriculture and made this money available through the Central Bank of Nigeria (CBN) to commercial banks to beneficiaries, we have also set aside that kind of money. The micro finance banks that have demonstrated capacity to lend this money and collect back will continue to be our partners. As a matter of fact, we are still assessing the first tranche of their administration of those funds and the level of recovery will make us know what next.

    What are the things you have on ground that could attract Shoprite to Ilorin and others that are coming?

    The first attraction to any business is how enabling the environment is in terms of security. We have spent so much and we have put so much at stake in ensuring that we have a secured environment.

    Secondly, we’ve invested so much on our road network, which makes us accessible from the North, the South and the North-central. Most importantly, our people are very hospitable. You hardly see any issues that have to do with religious, social problems in the state. We have always tried to ensure that our environment is quite enabling. We also have the population. This tells you that the environment couldn’t be more enabling to support this kind of businesses. That is why we asked Shoprite to come here and they saw that the environment is quite good for them. Our weather is also quite supportive of driving businesses. These have been part of the ingredients that the government has always seen as part of its own contribution to creating an enabling environment. However, we are not stopping at that. We are bringing Spar to Kwara. We have had the same kind of arrangement we had with Shoprite with Spar. They will not only create a new Spar outlet here, they will also create a new Shopping Complex, which will be a very good platform for employment. Our major concern is getting our people employed and creating the enabling environment for our people to carry on their businesses. Shoprite alone has generated so much employment for our people. The turnover in one day is on the average of N6 million to N7 million. Nobody ever believed that Kwarans have this level of disposable income. This tells you that our people are hungry for this kind of businesses. Apart from the environment that would be created for employment, it will also create an environment where we can get value for money.

    Spar is one of the biggest outlets globally from Netherlands. We are lucky to partner with them to bring them here to set up something that will change the lives of people. We are focused because we are driven under policies that have been outlined, structured, methodically put in place to drive Kwara State to desired level. From day one when we were coming to this business, we already knew what we wanted to do for the next four years. We didn’t come to this business by accident. We knew exactly what we were coming to do. We knew how much resources are available and we knew how much these resources can do and we know that we are going to get there only through ingenuity, through partnerships with the private sector and that is what we are doing. We are not deterred.

    What is the idea behind Harmony Holdings Limited?

    Before now, the state had interest in some businesses – transport, insurance, properties, hotel business and so many things. These things were just run on their own. Sometimes the state has shares in some businesses; for example, Kwara Furniture. But to what extent have all these businesses translated into increase in revenue for the state government? We have found out that they have not contributed anything, largely because they have been running on their own and we began to see that whatever they are right now, they have assets with latent potential to grow to desirable levels where they can contribute revenue to support economic growth in the state. It is against this background that we said all these things should be put under an umbrella, which we called Harmony Holdings with a very strong management that will see each of these businesses as S.B.U. – Strategic Business Units – that would be given specific targets in terms of growth and development and most importantly, in terms of expectations in revenue to advance the much required revenue for the state.

    Some of the businesses are even moribund, but we are reviving all of them so the potential are huge. I will give you an example, Kwara Transport, used to run commuter buses from one town to the other. We said no, this cannot go on like this. If you want to be in the business of transportation, what are the best practices? Who are those that know how to do it and are doing it well? Bring their models to see how it is working. That is what we have done. Today we have a structured management.We have a programme that allows individuals to bring in their buses. In short, we have been able to get to efficiency level from where we will grow organically and ultimately inorganically. This will begin to see us getting to the desirable level of revenue. There are so many options where we can go. There are courier services. There is haulage business. There are ferry services. These are all inorganic ways of growing. We can increase the fleet. Look at more routes, do a feasibility of which routes give us best benefit for our value for money. That is organic growth and that will see us getting to desirable level. Our major concern is value for money.

     What is the economic importance of the Aviation College?

    For keen observers and those who want to truly see themselves growing among comity of nations, they must begin to learn how to do a clear analysis of opportunities. One big opportunity that exists in the aviation industry is the fact that there is dire need of pilots globally. Check any international airline, they will tell you. Training pilots requires that you understand the dynamics of the business. The last administration realised that this gap could be filled to serve two purposes. Firstly, it will serve as a hub for aviation. It will support what we have on ground. Don’t forget that we have a cargo terminal. We already have the Air Force hangar here and, of course, an International Airport. Secondly, we want to bring Kwara State to be on the map of the world because when you have an International Aviation College it goes beyond servicing the immediate community. Apart from Zaria and South Africa, I don’t know where else pilots are trained in Africa. Obviously, by the time this school gets to its full potential, everybody in Africa who intends to train as a pilot will know the existence of an Aviation College in Ilorin. For now, we are training pilots but there are other services. There is engineering training. There are other services that are going to go into it. This would become itself a hub for driving aviation business.

    Indirectly, there are people who will support those who are going to work there. So, for us, it is a major hub to create the kind of economic environment that will not only put us on the map of the world but also we begin to see Kwara as a place that is attractive for prospective businesses. In Kwara, we are looking beyond just tapping on low-hanging fruits.We are looking at the process where in 15 to 30 years, the state will be one of the most developed.

    So, beyond just doing the normal infrastructure – roads, water, hospitals, schools –what are the long term benefits that we can bring to our people that on its own can regenerate support scheme for growing the economy of the state. This is part of the reasons we have set up an International Aviation College and, luckily, under the new EXIM loan that the Federal Government has signed with the Chinese and India governments and others across the world, International Aviation College will be benefiting from the loan. It will be able to acquire at least 10 new aircraft under a 25 year loan agreement with a 10 year moratorium. It couldn’t be better than that. The school will acquire the aircraft, develop economy of scale, train students, earn money and pay back the loan on their own. The 10-year- facility means that the college’s cash flow will not be under pressure. It is when you borrow money and you have to pay within a very short time that you have pressure on your cash flow. The loan was so attractive that we couldn’t resist it and it is one of the best things that ever happened to us. That will enable the school to get to the much desired full scale aviation college that we have always prayed for and will allow them to attain economy of scale where they can earn a lot of money to service the school and pay back. For now, the school is fully owned by the state but don’t forget that the state government is not in the business of running aviation. So, ultimately, we will sell off 70 per cent of that business to those who know how to do it and then the school will run on its own internationally.

     

  • ‘ Govt loses billions of naira to grey importation’

    ‘ Govt loses billions of naira to grey importation’

    With the liberalisation of the telecoms sector more than a decade ago came the influx of different devices into the country. Many of these products were brought in through unapproved routes, thus depriving the Federal Government of its revenue. In this interview with LUCAS AJANAKU, the Director, Hand Held Products, Samsung West Africa, Emmanouil Revmatas, speaks on the problems of the mobile phone industry, how to solve them and other issues. Excerpts.

    How will you assess the mobile phone market in Nigeria?

    It’s been great. I was here nearly 10 years ago, in the early phase of the evolution of the mobile industry and returned to Nigeria last year. I found that the market is as dynamic as it was 10 years ago. If you look at some of the developments, of course you know the operators have improved their network capabilities and you find that data is becoming more available to many people particularly in the rural areas and of course, you know the space Samsung dominates across the world is the smartphone arena, has grown enormously.

    This year, we are estimating that 40 per cent of all smartphones in Africa will be sold in Nigeria. This means that Nigeria is booming in terms of the mobile phone industry. Although I think users have become smarter and more selective, there is a lot more because the devices are becoming multi-media devices, not necessarily being able to do voice and short message service (SMS) but they are now expected to be able to access the World Wide Web as well as – connecting to various social network activities that have become part of everyday life.

    You said about 40 per cent smart devices that will be sold in Africa will be sold in Nigeria, underscoring the hugeness of the market. Why is Samsung not considering establishing a factory in Nigeria, not only to serve her huge market but also that of the entire sub-region?

    This is a question that is raised on a regular basis. Let’s take one step back. I think first of all, as an OEM (original equipment manufacturer), Smasung, particularly has made huge investment in Nigeria. If you look at the numerous projects we are involved in, from the corporate social responsibility investment perspective. I will use the investment rather than responsibility because we have done some very big projects in Ekiti and we have also established the first Samsung Electronics Engineering Academy in Ikeja, Lagos where we have been busy training large group of students in various technical skills and I think for many people, they don’t realise that for our consumer electronics business, a vast majority of our products are assembled in local assembly plant. If you take a look at our air conditioners and other consumer electronics products, we have a very big commitment in terms of assembly plants right here in Lagos.

    In terms of the mobile industry, it is a little bit more complex because of course, you deal with a lot more components that come from distant sources. At the moment, quite honestly, the challenge of trying to consolidate all of those components in Nigeria and having to do with either manufacturing or assembly is really pretty difficult. Is it a possibility for the future, I mean, of course anything is a possibility. The fact is that we are really assembling many of our products in Nigeria and that shows that Samsung is totally committed to the economy. But at the moment, we need to take small steps and for us, the real priority is to ensure that we can provide a high quality affordable products with two year service, which is what Samsung offers to the people of Nigeria. In the future, may be things will change, you know we innovate and we are very dynamic.

    Samsung is prolific in the roll-out of products. What is the organisation doing in managing the e-waste that arises from the use of your products considering the dangers such wastes pose to health, safety and environment?

    Let me make it clear that Samsung as a large global multinational company take our responsibility in terms of environmental issues extremely important. We are signatory to various international protocols. Unfortunately, I am probably not the right person to give you the details of our management of waste. What I can assure you is that even here in Nigeria, when it comes to the simple disposal of things such as old phones or batteries, we still engage third party agencies to do that for us and do it under a certification process. We comply with the regulatory requirements not only on international level but also on local levels and I know from personal experience in the past, during the disposal of our old demo mobile phones as well as batteries, we engaged third party agencies to ensure that they are disposed off in the right environment-correct manner.

    Let us talk about Samsung Research and Development (R&D) Centres. You have 22 of such across the globe but none in Africa. What is your organisation doing in the area of establishing an R&D centre in the country so that products are manufactured to withstand the peculiar climate of the continent?

    Let me begin by saying that we are already producing unique and numerous products tailor-designed and tailored-made for Africa. These are well known and known as our bond for Africa products and these extends to our mobile range as well as our consumer electronics range.

    In terms of R&D, It takes place on an annual basis, in the next few months, we will have our team from Korea, visiting us and spending considerable amount of time on ground, traveling across Nigeria, gaining first time knowledge, experience and feedback in terms of what consumers want.

    We have virtual R&D team that are not necessarily permanently based in Nigeria although of course, we have our own product managers and our own product specialists, they gather and collate information and feed it back. So, very soon, you will see the launch of Galaxy Grand, which is an exciting 5-inch smartphone, (Jiimson smartphone) in fact, the firsT smartphone that will be available in Nigeria. It is a typical example of market research, understanding the needs of the consumers and creating products that meet it. Chief Hero is the chief hero 1500, which is another product that was specifically designed for Nigeria and other parts of Africa based on inputs from consumers. It was created based on the requirements of consumers and affordable entry level. Consumers want robust, durable phones with good battery life and fast charging capability. They want the touch. When you gather all these information through your R&D team, you will be able build one product….as you said is built for Africa.

    Theft of mobile phones has become a recurring decimal in Nigeria. Is there anyway Samsung can assist the customers such that, through the application of technology, stolen phones become useless?

    We and our competitors are working very closely with the operators in Nigeria. There are various initiatives to try to reduce, if not entirely eliminate the abuse, either it is theft or other forms of abuse of mobile phone. Of course, all mobile phones carry IMEI, so there is a means of identifying products and taking the necessary action. Honestly, there is probably limited action that takes place within Nigeria; this is an area that could be improved upon. We will continue to work with the operators and other third parties to find out a way of managing this. In fact, at the moment, you talk about theft, the challenges in Nigeria continues to be grey. I want to emphasise this point because for your readers, I would like them to understand that the challenge with consumers buying grey. They are basically perpetuating illegitimate sales channel. Of course, people are very sensitive to pricing. Grey continues to be a big challenge in Nigeria; it continues to be a huge challenge for OEMs such as Samsung as well as our key partners, who are making efforts to try as much as possible to abide by the rules of the country in terms of importation rules or duty rules. I will urge Nigerians to reconsider buying grey because of N100 savings. In fact, in many cases, they don’t realise that at the later stage, the decision to buy grey has created a long term problem because there are warranty issues related to products that are illegitimately brought into the country.

    The grey imports you talked about, are they not Samsung’s products?

    There are two different grey products. On the one hand, there is the legitimate Samsung products made in a Samsung factory somewhere in the world, and they’ve been brought into Nigeria illegally. In other words, they are brought in by individuals who are avoiding paying the necessary duties and other charges that should be paid to the government of Nigeria. In the case of that grey products, individuals in many cases do not realise that they are buying grey, but there is a very simple way to check. At the time of buying your mobile phone, there is a call that can be made that can immediately tell the consumers whether they are buying a phone that is legitimately brought into the country or not. It is simple, there is a code that is made from the phone that will confirm whether the phone has been brought into the country legitimately.

    The second is a greater problem. Of course when you become successful globally as we have become, many people want to try and ride on the waves of your success, so, if you go to any of the markets, may be it is Computer Village, Saka Tinubu or anywhere for that matter, you unfortunately will find many products that look like Samsung but that are not Samsung. Those are completely pirated products. They are not our products; they are not made by Samsung. Again, we ask people to do some checks. Generally, consumers must realise that they are buying an illegal pirated product. You will find that the grey pirate is significantly cheaper than the real products.

    What amount of local content goes into your mobile devices by way of apps?

    It is probably one of the fastest growing areas of our business at the moment. In our team, we have Bolade whose is fully dedicated to building relationship with local content developers and providers to ensure that we are able to provide both the app and content to the consumers. At the moment we have various initiatives – one of them being with Spinlet, which is a company where Nigerian music is pre-loaded onto the phone or alternatively, if you go to the Samsung store, you will find that they are increasing number of app both global, African and recently Nigerian applications available to consumers. It is a big growth area. I mean between social networking and the need for local content being available, it is the largest growth area we find driving the smartphone area because you essentially need the smartphone for your multi-media device.

    Spinlet is about music. Are you not thinking of developing apps that will focus on education, health, agriculture and others? This may give you an edge on your competitors?

    I will not disclose our business plan but we are working with a group of young mobile app developers in Nigeria and we are busy on some initiatives, which in the next few weeks, one of them will be announced. We are working, not only on app and content to high-end smartphone, but also with the introduction of our Book for Africa chief hero product, which is internet enabled, we are also looking at providing content and app for affordable phone users too.

    The Federal Government, late last year, made available to develop the software industry N500million, leaving the balance of about $12million to sourced from individual and private organisations. Will Samsung support this fund?

    Honestly, I don’t know. I will not be able to comment on that at the moment because I don’t have details.

    What is your market share?

    Well, no one wants to disclose market share but let us take a look at the developments taking place in Nigeria particularly in the past few years. First of all, I think without sounding arrogant, if you have to look at the premium smartphone space, everyone will agree that Samsung dominates the smartphone space. If you have to look at the success of many of our flagship products whether it’s the S3, which is world’s best selling phone, or the Note 2, which continues to gain huge popularity, especially in Nigeria where in December last year, we recorded fantastic sales or 10.1 tablet, it an area we dominate and it is an area you will continue to see innovation.

    If you have to look at other smart phone areas, the Pocket, which is well known in Nigeria as well as across Africa has also become a major player. I think Nokia is finding it difficult to compete particularly in the smartphone arena. Blackberry has had some success in the past. It is about where the market is going and what the consumers want. It is not about Samsung. The market is going towards touch. So, the first thing is more and more people are becoming increasingly comfortable with the concept of basically using a touch phone. That is the first trend and if you look at who is the major player, of course you know it is Samsung. The issue is that consumers are moving more towards Android. Android age has become powerful engine that is really driving the smartphone space. And again, our alliance with Android and the fact that we use Android as our base for all our smartphones, positions us very well. If you look at the way the market is going right now, there is a two-camp forming; the first camp that continues to focus on low end entry level phone. Secondly, there is another camp that is focusing on entry level affordable premium smartphones. This is where Samsung chips in. We will continue to build some innovative smartphone, some affordable smartphones and we will also start introducing some exciting feature phones. Our strength to be honest is not in the ULC arena, there are other players that perform better there but if you start moving towards the messaging or feature phone arena. We are confident that we will continue to grow our business as it is at the moment because we have got consumers acceptance and in terms of market share, we are the dominant player within the smartphone arena.

    Under your B2B years ago, you developed solutions for the South African Intelligence Agency. With the security challenge facing Nigeria, what level of partnership do you have with the Federal Government to address the spate of bombings across the country?

    Again, I cannot comment on those particular solutions because I don’t have the details. What I can tell you is that in Samasung West Africa, we have dedicated B2B and D2D team; so because we have different units, we have the mobile unit, the IT, the consumer electronics and in many places B2B and B2G, opportunities extend across the business. We have now created one business unit; B2G business unit, which really drives many of our initiative into the government and the corporate sector.

     

  • ‘Growth impossible without stable power’

    ‘Growth impossible without stable power’

    Many businesses have gone under because of irregular power supply.Those that are alive suffer from underutilisation. According to the Group Managing Director, Elephant Group, Mr Tunji Owoeye, stable power supply is central to economic stability. In this interview with DANIEL ESSIET, Owoeye argues that the economy will perform better in such an atmosphere.

     

    Nigerians have said raising the national debt limit is unhealthy for the economy. What do you think?

    If there is a genuine reason to raise the debt limit, we have to, and if it is to finance infrastructure, I think it is okay. But, if we are raising a debt instrument to finance deficit in budget, that would be criminal because a debt instrument should be for activities that will impact positively on the economy as done in other countries. Raising a debt instrument to finance infrastructure is okay.

    How can the government reverse the slow down of the economy?

    There are several things the government can do. The first is to confront insecurity because security is key to economic stability. Also, infrastructure have to be put in place. Economic growth is propelled by factors, such as infrastructure, good roads, transport system, power and the likes. They are necessary infrastructure that can propel growth. I really feel the government is not doing badly in trying to address these issues, but, it needs to fix the bureaucrats in the system to ensure that policies are actually followed up in terms of implementation. From electricity to transport infrastructure,the economy is being held back by limited capacities.The general wave of insecurity can lead to economic instability. The issues are of importance to the economy and its prospects for achieving a higher level of growth and delivering prosperity to the people. These are barriers to greater productivity and growth of the economy. Economies are integrated systems that can only function smoothly when certain conditions are present. Reinvigorating the economy will require progress in some areas, including electricity generation, infrastructure, and trade policies. It is impossible to speed up economic growth without a fast-growing and fairly reliable electricity supply. Achieving rapid real Gross Domestic Product (GDP) growth will require concerted efforts to increase the supply and reliability of electricity. The economy will perform better and faster in an environment characterised by rapid growth, buoyant internal demand, and improving infrastructure and governance. However, there are worrying signs in terms of security and the role of the government is critical. The nation’s development is being constrained by the legacy of chronic underinvestment over many years. Infrastructure has suffered from decades of neglect and underinvestment. The crippling negative effect of electricity generation capacity and transport infrastructure on the country’s economic competitiveness, is obvious. The continued capacity of transport infrastructure is essential to maintain growth. But I feel the administration is doing something in these areas.

    Agribusiness is increasingly being viewed as a dynamic area to invest in. With tremendous shifts in food consumption, rising input costs, and food safety concerns, the changing landscape of agribusiness has become complex. How do you cope as an operator?

    Like businesses in all industries, agribusinesses battle for land, labour, capital, and finance. This has become more complex in response to the greater variety of goods and services transacted. Managing investments carefully is a critical capability, especially in a volatile and unpredictable economy where sudden changes in the competitive landscape and in regulatory definitions can dramatically impact supply and demand. Players in the sector grapple with rising input costs and intense margin pressure. All are vulnerable to climate change. Large scale international investments especially acquisition of agricultural land, continue to raise concern. Agribusiness is the same all over the world, but some of us that have been privileged to work in different countries have seen that agribusiness is practised in the same structure and if you look at the challenges of agribusiness and other businesses, you will find out that the challenges are similar. Other than the financing structure that is a bit different in agriculture, most of other challenges are similar to those seen in other businesses. In Nigeria for instance, across the value chain, we, the business people with long years of experience, have our own strategies of mitigating the challenges that we meet. The major problem we have as a company and a private sector is the difficulty to have long-term plan because of the environment we are in. Other than the inability to plan long-term, I do not think that what we have here is different from what is in other parts of the world.

    What about financing of the sector?

    The effort of the Governor, Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi, is commendable in ensuring that banks shore up their capital. If you look at some countries, they are still looking at increasing and shoring up their capital. The government has made it mandatory for local banks to increase their capital to a minimum of N25 billion. This was done some five years back with the mergers and acquisition that took place in the second phase of that fiscal review. It has been a plus for the economy and an advantage for the business environment. This means that businesses are able to access more facilities and support from the local banks, but this may also not be the best today because for agribusiness you need a long tenure. What the government has done in the area of agro input is giving guarantees to local banks to support agro input suppliers across the value chain. This is also an additional support and security to increasing agribusiness. Apart from the effect of the government’s effort and the local banks that have increased their capital, there are also international banks in Nigeria with vast experiences and capacity to give long tenured facilities to support agribusi-ness. So, if you look at the combination of all these developments, I think we are in a better position than we were some 10 years back, but what I know is that it can still be better.

    Is rice business fundamentally focused on large scale farmers?

    Generally, most rice farms are owned by small producers. Rice farming is still small. There are few commercial farmers. Agricultural finance is needed to create the supporting infrastructure for adoption of new technology, building major and minor irrigation projects, rural electrification, installation of fertiliser and pesticide plants.This is to help small farmers. At the last count, according to the Rice Millers Importers Association, we have about four commercial rice farmers in Nigeria. This is not sufficient. The incentives being packaged by the government, I think, should be attractive for commercial farmers. We need both the commercial farmers and the small farmers to meet the huge demand of the rice industry.

    What can you say about the sector’s preparations for natural disaster?

    The unfortunate incidence of flooding that ravaged most parts of the country last year in Nigeria also affected the value chain, especially the rice farmers. Their rice farms were washed away, but the good thing is that most of the farmers have mobilised back to the farm and the government had also introduced an incentive of giving them fertilisers through the Growth Enhancement Scheme (GES) fertiliser distribution. There have been ad-hoc responses to the flooding that we witnessed. Moving forward, what we are doing as an association and as an industry group, is to ensure that we move our farmers in the value chain, advising them to take farms in other states that are under-utilised to reduce their risk and avoid this kind of reoccurence in future. However, the policy of the government since the commencement of the administration, has been impressive. We have seen some seriousness in the policy as regards rice self-sufficiency. This is giving us some confidence in attracting and seeking for additional investment in the rice industry. We have several of our members who have taken up commercial farming-investing in rice processing mills and other investments but additional commitment of the government can only get better for the rice industry.

    Despite the persistent outcry of genuine rice millers, smugglers have continued with their illegal act, which cost the government huge sums of money in lost revenue. What is your experience?

    If you follow the trend in the industry in the last six months, the government has increased taxes and duties from 30 per cent to 50 per cent and from 50 per cent to 100 per cent levy on January 2013 with duty of 10 per cent summing up to 110 per cent. We support the initiative of the government because we know the purpose is to discourage importation to boost local production. But we should be mindful of the fact that as we increase our levies and taxes, it gives the smugglers more room to operat, especially through the corridors of Benin Republic whose economy is solely dependent on Nigeria’s economy. The only way to tackle smuggling is sincerity and willingness of the government to police the borders with stakeholders, such as the rice processors, and importers to give relevant information about routes that are porous, which they are supposed to man. I am sure that with the collaborative efforts of the agencies of the government, operators and stakeholders in the rice industry in Nigeria, we are sure to reduce smuggling. But I am not sure we can stop it permanently. We can reduce it to the point that it will not negatively impact on the investment of the local industry or on the budget and revenue of the government. I am sure with time, smugglers will know that Nigeria is not a country to toy with in this respect. For now, we salute the courage of the Controller-General of Customs and his men because in the last two months, they have made significant seizures of smuggled rice into the country. They are always pledging to assist us and they have promised to continue to assist us by policing our borders effectively to put a stop to these smuggled rice.

    Are there quality criteria for producers?

    We don’t have any. I do not want to speak in languages that Nigerians will not understand, but try to break it down as much as possible. The basic quality any consumer is looking out for in rice is the nourishment, colour and the long grain nature meaning that Nigerians are used to long grain rice. We are also used to rice that will not have many foreign particles, such as stones and in as much as we can fix all of these in the country, why import rice? In terms of quality and nourishment, the Nigerian rice is of high quality compared to imported rice but in terms of preparation and attraction, they are not as attractive as what we import. In Nigeria, we do not like to eat short grain rice, we want long grain rice and these things can be fixed with the kind of machines our members use for production. The environment and other things are being improved upon on daily because if you look at some of the machines, our members have imported and installed for production, they are the latest machines that are better than the old machines that give out the broken rice. The machines that we now use to remove the shaft to make the rice clean are all improved versions with better technology. I believe that as time goes by, we can only improve on the quality of the kind of rice we produce in Nigeria and in no distant future, we should be able to compete with other countries such as Thailand, Pakistan and the rest. We have to fix the border to stop the influx of poor quality rice. The agency responsible for ascertaining and confirming the quality of rice, must carry out their operations vigorously in the land borders and unapproved routes, because when they get into our markets, they impact negatively on the health and safety of Nigerians and that is why we are saying that the government should take it much more seriously in ensuring that we do not have smuggled rice through the land borders.

    What about certification of rice processors for export?

    Let me take you through the statistics. Nigeria consumes in excess of five million metric tonnes of rice per annum much less than 50 per cent of what is produced locally. We are unable to meet our own demand not to talk of export. In terms of certification, there are laws and agencies that certify the quality of food production. We have the National Agency for Food Drugs Administration and Control (NAFDAC) and the Standards of Organisation of Nigeria (SON) with duties to ensure that once goods are produced, they conform with the standards and laws of the country and this has not changed. I am sure that these agencies have always been doing their duties. Most of the rice you see in Nigeria have very high nourishment level. I do not think we have problem of certification, the problem we have is that of packaging, quality of the grain of the rice and cleaning. If we can fix all of these, I see no reason why imported products should be patronised anymore in this country.

    What are the labour problems and working conditions in the rice industry?

    The same labour challenges we have in other industries. The problem of cultivation and production of rice is much peculiar because most of the youth do not believe that they can make a living through agriculture. This has to be corrected by creating infrastructure and we are encouraging our outgrowers to plant rice and most of our millers are buying from them at commercial prices. So, the moment they can see that there is a future for them, that their rice paddy will be bought by millers at competitive rate, I think it will be an encouragement and that is being pursued.

    Smuggling is getting worse by the day. What impact is it having on the industry?

    If we do not fix smuggling, there cannot be a rice development programme. Fixing smuggling is key to the right development plan of the government and also key to the rice self-sufficiency scheme of the government. I will tell you why. If we do not fix the problem of smuggling, people that have invested in the rice industry will not get their returns on investment. For imported rice especially, those that are being smuggled into the country. In Benin Republic, the government looks at the duty that Nigeria brings and tries to bring it below what we pay in Nigeria, they can bring it down to even less than 10 per cent to get some income. They make smugglers to pay next to nothing duty giving them an edge over producers here who will have to buy the paddy, employ labour and incur cost in processing and packaging of the rice. The costs are many and until we fix the issue of smuggling, we will not get any significant rice development in Nigeria.

    How many jobs can the rice food value chain create if smuggling is tackled?

    Directly, close to six million jobs and indirectly nine million jobs. When I say directly, in the value chain we have farmers, farmer cooperatives, millers and processors, marketers and importers and in the value chain, there are a lot of people across the country. The farmers sell their products to the buying agents and the agents sell to the processors and the processors to the distributors, so you see the chain and across this value chain, you have close to eight million people for employment.

    What about the impact of the ban on rice importation?

    In the last two years, there have been serious positive impact on consistent production and cultivation of rice because of the ban on rice import from land borders. Production of rice has increased since the ban. Before now, there was a factory whose capacity utilisation was about 25 per cen, but has risen to 35 per cent. It will continue to increase as long as we fix the issue of smuggling of rice perpetually.

    What is the response from the National Assembly?

    We met with the Senate Committee on Agriculture and we got the assurance of the Senate to support the fight to stop smuggling of rice into the country. We met not long ago, but are yet to see the impact of that meeting. We are seeing the impact through the Nigeria Custom Service and we want them to do more. They have stepped up security at the borders and also the waterways. Nigeria is a very big country and we have so many unapproved routes. Even from the North the Customs have to expand their networks to police smuggling and also partner stakeholders in the industry to provide vital information to curb this act. We expect them to do much more.

    We suggest that the Federal Government meet with that of Benin Republic and hint them about the negative effect of smuggling on our economy and the initiative of developing our products. If they do not cooperate, the government will have no choice than to shut our borders. Though this will be against the Economic Community of West African Countries (ECOWAS) treaty, if they fail to respect the trade understanding, the government will have to take a step forward to enforce sanction and I think that will send the right signals to them that Nigeria means business.

    What of the Save our Soul (SOS) message to the President?

    As an association, we want him to ensure that the policies given out in the budget are meticulously carried out and there should be consistency. He should also make the environment safe and encourage stakeholders who have invested in the country.

    Pakistan and Thailand seem to have the largest share of the world rice trade. When will we get there?

    Thailand has been serious in the production of rice over the centuries. It is not about catching up with other countries, but being self sufficient and I think with the right collaborations with Rice Importers Millers, Distributors Association of Nigeria (RIMIDAN) and other stakeholders in the industry and with commitment to creation of the right environment to operate, we should be able to achieve self-sufficiency in rice production in the next five years.

     

  • ‘Local banks can fund power projects’

    ‘Local banks can fund power projects’

    There are some businesses which require high stakes. One of them is power. Since it is in the big league, it requires those with financial muscle to play in it. In the past, those in the business sought funding from financial institutions abroad. They no longer need to do so to participate in the ongoing privatisation of the sector. Nigerian banks, says Managing Director/Chief Executive Officer of Skye Bank, Kehinde Durosinmi-Etti, can take up the challenge. He spoke with Group Business Editor AYODELE AMINU.

     

    What is your forecast for the money and capital markets this year?

    For the banking industry, I think what you will get in 2013, is more of what happened in 2012. We expect to see more consolidation of the banks. The banks are behaving well, the Central Bank of Nigeria (CBN) regime is strong in terms of supervision and corporate governance and risk management practices in all the banks are good. So, we don’t expect any shock this year. For the stock market, we saw a trend in the last quarter of the year. Between the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE), there are lots of initiatives they are taking to deepen the market and they are quite novel. They are doing a lot to make the market robust. The inclusion on the JP Morgan index has helped, though what you have there is ‘hot money,’ a lot of short-term money that can go as quickly as they come, depending on how good or bad the economy is, and there is no how you won’t have some bad news that can affect their behaviour. Some of them, based on certain news, may take their money out. But we feel that 2013, for the stock market, should be more of what we had in 2012.

    The CBN has deferred the implementation of the cash-less policy in other states and one of the reasons given was that some banks are not making enough investment in Point of Sale (PoS) terminals and other alternative channels. With that, do you see the policy as a failure?

    I think the cash-less policy is laudable. This is something the Bankers’Committee of which I am a member supported. We discussed this at the Bankers’ Committee. If you look at the time the PoS started, they were probably less than 10,000 machines, but as at October, we had over 200,000 machines. That is a phenomenal growth. There are challenges, the biggest of which is communication and infrastructure, just like our telephones and the CBN and the Bankers’ Committee have done a lot of work trying to overcome these challenges, but as we see, with our telephones, these challenges have been with us for a while. Like other things, such as Automated Teller Machines (ATMs) and Information Technology (IT) in general, infrastructure is always a challenge, but we always invest a lot more to get the required service delivery. Why it is difficult here is because the service delivery is with individual merchants, not banks. ATMs are managed by banks, so you can make sure that the installation works. But if a PoS, which is with the merchant doesn’t work, it’s discouraging. Some banks have embraced it. If you are a bank that is focused on retail, if you are a large money-centred bank, you focus on it, if you are a niche bank that has a few branches and is not focused on retail; you are not focused on PoS. So, some banks have so many PoS while others have very few. But it is out of choice. That is competition and nobody is forced to do it. Really, it is due to your appetite and interest.

    Do you foresee the cash-less policy assuming a national spread this year?

    The plan was to do Lagos and then roll out to five major cities across the country. The performance of these only was to determine how many more to follow in the remaining parts of Nigeria. The limited success and the issues encountered have called for more introspection and a review of what we have done so far, and that has slowed down the pace of rollout. Twice we wanted to move ahead to new cities, but we felt that we should take a look again. So, there are learning points and we are looking at how best to approach other cities that we want to go into. So, the Central Bank, along with the banks is looking at these things. I am sure that, in due course, we would determine what to do. Whether we would be able to take on the whole of Nigeria in 2013, I am not sure if we would achieve that with the level of caution that is being employed now. But I feel that we would take on quite a few more cities and locations in this year.

    The power sector privatisation is on and we understand that some of the preferred bidders are negotiating with the banks. Do you think that Nigerian banks have the financial muscle to finance the acquisition of the power assets?

    Definitely, our banks have the capacity and capability to fund power projects. Already, banks are funding multi-billion dollar projects either through syndications or club deals. Both local and international banks are doing that in other sectors. So, the power sector is going to get a lot of investments from banks and other investors that are non-banks would put money in equity. So, the banks in Nigeria have the capacity to fund the power sector adequately.

    So, how many of the firms is Skye Bank negotiating with?

    Well, we are talking to two of the winners. We would participate in the programme. We are leading a syndicate and other banks have shown interest also because there is a lot of values added in the sector.

    How will you assess economic performance in 2012?

    2012 was an interesting year both for country and the economy. For the country; the Federal Government settled down to work. Key areas, such as power, agriculture, manufacturing, infrastructure were addressed and, at the end of the year, privatisation took place in the power sector and the process is ongoing and we feel that with a lot of investment in power, production will go up in 2013. The Central Bank of Nigeria (CBN) got involved in agriculture few years ago and the Minister of Agriculture has stepped up and done a miraculous work.

    Bank lending to agriculture has increased from one to three per cent and the target for 2017 is 10 per cent of aggregate lending. We are involved in new initiatives in lending to agriculture. We are trying to make it more bankable. You would see that agricultural production went up in 2012 and this should continue in 2013. Banks were involved in cropping, animal husbandry and processing in 2012, and there were direct initiatives in fertiliser and seeds financing. So, you see fertilisers getting to the end users much more and also better quality seed is being distributed at affordable prices to farmers. So, that has helped production a lot and we should see that improving in 2013. On infrastructure, we have seen the airport and we have seen a lot of road contracts taking place. The states and the Federal Government are doing a lot on infrastructure.

    Security, however, is still of concern, but it is fairly under control. A lot more still has to be done. I believe that the assistance of the international community where you could get better technological assistance would be of great help in resolving a lot in security. In banking, I think 2012 was a year of realisation of the efforts of the industry. With the support of the CBN, the Asset Management Corporation reported ground breaking profits. The banks are relatively sound and are all behaving responsibly and ready to support the growth of the economy. There are good signs for the banking industry today as competition is back. We have seen relatively stable interest rates with inflation at 12 per cent, still high, but stable. Interest rates are still a bit high, but that was necessitated by the fact that government borrowing is still high and also due to the need to stabilise exchange rates. So, the tightening of money supply pushes the rates up. But we feel that 2013, interest rates should slide a bit. One of the things still holding interest rates where they are is the need to maintain exchange rate. So, the tightening would continue and the CBN would continue to maintain that stance as long as there are signs that the exchange rate may go out of control. The stability in the exchange rate has enabled banks and companies to plan and has created a platform for us to work

    What is the market share of Skye Bank and how does the bank intend to grow?It is believed that Skye Bank is public sector biased. Is that true?

    The market share of Skye Bank is about 4.5 per cent of the industry and we have about 270 offices all over the country. We believe that we have a decent market share as we are a mid-sized bank. We believe that we have the ability to compete with all the banks and we do compete with all the banks in all lines of business. In terms of growth, our strategy is to grow organically and in growing organically, we shall do so in tandem with the growth in the industry. But we would also look at opportunities to acquire or merge with other banks as the opportunities arise. You know, in this environment, merger and acquisition is not a common thing like abroad where you can approach a bank and you guys would just marry each other. So, when the opportunity arises, we would look at the situation and see what is possible to decide on what to do. Really, merger and acquisition is not the answer because it is not the size of the bank that is critical, but the level of efficiency, the strength of the capital, and the quality of its loan which all translate to efficiency. We believe that you must be have the sizeable and we believe that Skye Bank has this as we have a N1.3 trillion balance sheet and we feel that at that size, we can take up 80-90 per cent of the transactions in the industry by ourselves and we can syndicate or arrange funding where necessary. We have taken up many sizeable projects and we have seen a lot of leadership, innovation and have carried out landmark transactions in the economy. So, we believe that we also want to do the right things at the right time. We believe that as an institution, with bias for prudence, probity and the core values that we have in the way we do our business, our bank would sustain growth over time. The bank plays in all sectors; we do not discriminate and public sector is the largest spender in Nigeria. So, we have to focus on public sector and we add a lot of value to public sector. But likewise, we do more business with small and medium enterprises (SMEs) and other areas of the economy such as manufacturing, oil and gas. On the single obligor limit, I think it is okay. It cannot be reviewed upwards; at best it can be reviewed downwards because as banks grow in size, the obligor limit can only go one way-downwards. But I think for now, it is okay.

    Talking about growth and opportunities, the process for the sale of the three banks wholly owned by AMCON will start this year. Which of them will Skye Bank consider for possible acquisition?

    That would be pre-mature. But we would look at them; we cannot say which one we would go for, because we do not know what is in there. But we would look at all of them when the time comes.

    Given the number of banks that we have at present, will you say the country is under banked or over banked?

    Well, it is not the number of banks that determines whether you are under banked or over banked. It is the level of penetration that determines that. The kind of environment also can determine the number of banks you can have. Like in the United States, we have over 10,000 banks, in some countries you have about four banks and in others, a few hundred. I think that our culture, our diversity, and our varied interests determine the number of banks that we have. At one point, we had almost 130 banks and, today, we have about 24 plus another two coming up, and over the next few years, maybe more would come. Some people say it is not sustainable, but what I say is that it is really the penetration that matters. Banks are all able to carve a niche, there is a lot of money in Nigeria. There is a lot of interest. Nigeria is diverse and there are lots of interests. So, banks can create niches for themselves and are able to play as niche players. You can’t have so many big banks. I think that is where the confusion is, because every bank is looked at to attain a big size. So, really, it is more of the penetration because if you look at it, in urban areas, they say we have as much as 80 per cent penetration within the adults and in rural areas, only about 30 per cent. Really, we are still very far from what we can attain. Also, the government is the biggest player in business and if a lot of government businesses are privatised, what that does is that it grows the wallets of the banks. Also, if a lot of the accounts that are being lodged with the CBN are taken out of its domain that would increase the wallet for banks. Then, there is so much cash outside the banks. So, really, what would determine a lot of all these factors is the size of the market and how the players would play. I believe that our level of diversity and the depth of the economy can sustain the number of banks we have.

    Fingers are being pointed at the banks and bureaux de change over the rising cash trafficking these days. What is your take on that?

    Well, the bureaux de change have done nothing wrong. If you want to take money out of the country, you declare it. And dollar is not under cash-less, so you can go and buy dollar from the banks or the bureau de change in any quantity you like. There is nothing wrong, but if you want to take dollars out of the country, you declare it. That is all. So, there is no law that has been violated in the ordinary way.

    The House of Representatives says it intends to push for a legislation that would strip the CBN of its banking supervisory power and create an independent body to regulate he banks. Do you support the idea?

    I read it in the newspapers and was surprised. You know it is difficult to have an opinion. But what I can refer to is that in the United Kingdom, years ago, they took out the supervisory arm from the Central Bank and created the Financial Services Authority (FSA). After the crisis, they said the FSA did not do a good job and so they want to return that function to the Central Bank. But we are thinking the opposite. So, there is no one that is right and there is no one that is wrong.

    But the question I would ask is what is motivating them to do that? What is their motivation? The CBN has done a very good job in sorting out the banking crisis and they are supervising banks much better than before. I think it is more of the focus and the leadership that drive the result as opposed to the structure. Either structure could work; that is my take.

    Is the $79 per barrel oil benchmark sustainable?

    On the oil price benchmark, I like to be a bit more conservative. I will favour more of the $75 per barrel. Really, I think it is slightly political and also to try and maximise cash into the budget, that is why we have the $79 per barrel. Now, the issue of oil price today in Nigeria, in the short-run, it may be sustainable. You have every West African country producing oil, even East Africa, but in five to eight years, the oil will not add up to something significant and if the United States is not importing oil again because they are almost self sufficient, the oil price would even be half of that. That is a bigger worry for us as a country. If we do not get our act together within the next five to eight years, we would be in trouble as a country. So, I think the next five to eight years is extremely critical to us as a country. We need to diversify, we need to invest in infrastructure, we need to take care of security, we need to sort out all our problems and become a wealthy, up and coming country.

    We understand Basel 111 implementation has been shifted forward. What is the level of implementation of Basel 111 by Nigerian banks?

    For Basel 11, you know Basel in itself is more applicable to international banks while Basel 111 takes care more of capital requirements. So for Basel 11, the aspect of it that relates to us is being implemented and we believe that in the course of 2013, we would have full implementation of the aspects that relate to banks.

     

  • ‘How Stock Exchange can be demutualised’

    ‘How Stock Exchange can be demutualised’

    When the Securities and Exchange Commission (SEC) mooted the demutualising of the Nigerian Stock Exchange (NSE), it set off a chain of reactions. Stakeholders argued that the Exchange cannot be turned into a publicly quoted company by government fiat. The Chief Executive Officer, First Registrar, Mr Bayo Olugbemi, reinforces this argument in this interview with Akinola Ajibade.

     

    Late delivery or loss of shares certificates and unpaid dividends are some of the issues causing problems between registrars and shareholders. Have you resolved these?

    There are bound to be issues in any service industry. It is difficult to satisfy everybody. However, solutions have been provided to these issues by the registrars and the industry in particular. We have been encouraging shareholders to dematerialise their certificates, and get stockbrokers to register them on the Central Securities and Clearing System (CSCS) to solve these problems.

    We believe once investors are on the CSCS platform, their bonus would seamlessly go there electronically. Investors on CSCS do not have issues bordering on certificates or dividends. When bonuses are declared by companies, they are transferred online to CSCS as soon as they are approved by SEC. It is only the people that have not embraced CSCS that are still having problems with their investments. There have been complaints over the years, but we are advising people to embrace CSCS to address the problems. This year, SEC will enforce the issue of dematerialisation. We are taking a step further for companies that have just embraced the holding structure arrangement.

    For instance, we are making sure investors on CSCS get their shares electronically. Those that can get certificates from us are investors that have not registered with CSCS. For dividends, the easiest way to go about it is to give us your bank details and your dividend would be credited to your account the same day.

    Does that mean registrars pay dividends promptly?

    All registrars are paying dividends into the shareholders’ accounts the same day they get the account details of investors. The era of queuing at the registrars’ office or post office is gone. Registrars are adopting seamless methods of operations. There are easier ways of getting returns on investment. One of them is the electronic platform, which does not cost shareholders anything. To do an e-dividend mandate costs nothing. What a shareholder needs to do is to pick up a form, complete it, and take it back to the registrar for stamping. After this, the information is captured in the system. This is an industry-wide initiative.

    First Registrar is developing a product called ‘Dividend Prepaid Card’. The device operates like an Automated Teller Machine (ATM) used to dispense cash. It ensures dividends are credited into the shareholders’ cards. Shareholders, who subscribe to the cards, do not need to have bank accounts before they get dividends. This has eliminated the problem of sending dividend warrants to shareholders. Though the Securities and Exchange Commission (SEC) has approved the scheme, we are doing the pilot run now.

    Do other registrars use similar device?

    First Registrar developed the product. However, other registrars may join later. In 2004, when CSCS started operation, investors found it difficult to register with CSCS. But investors that have done so are happier today. This is because they are not experiencing problems in investment. If your certificates are on the CSCS, and you need money, you will only tell your stockbroker to sell certain units of your shares and you get your money. On the other hand, if your certicates are not on the CSCS platform, you have to go to your stockbroker, your broker will go to the registrar, which will verify them before it goes to the CSCS.

    What is the value of unclaimed dividends in the country?

    It is difficult to ascertain. I know we have been talking about between N30 billion and N40 billion. When the issue of N40 billion came up, registrars presented a kind of position paper on the issue. Besides, First Registrar did something on it. Anytime people are talking about the quantum of unclaimed dividends, I have been asking the following questions: How much dividends were declared over the years? How much is the outstanding now? What is the percentage of that outstanding to what was declared? Is it about six per cent or seven per cent outstanding? It may be N40 billion. You know it is a moving figure. As new businesses are coming up, bonuses are being paid. At a point, one may not be able to say this is the amount because it moves daily. The figure SEC gave us was N22 billion or thereabout. Even at that, what is the percentage? As I said, we saw an average of about seven per cent in the industry. And for First Registrar, we gave SEC the figure of about five per cent outstanding. This can be verified. I’m not sure what the percentage is now. Even at that it is more than five per cent of what was paid over the years.

    The demutualisation deadline set by SEC seems to have failed without making the desired impact of bringing disillusioned investors back to the market. How best do you think SEC should approach the issue?

    In my own opinion, the issue of bringing investors back to the market is a gradual thing. When a child gets beaten from outside, he would withdraw to his own shell until he gets his confidence back. Also, when a small child plays with fire and has his hands burnt, he wants his hands to be healed first before coming back to the fire. A lot of investors, including myself, have been badly beaten. We want to be very careful before coming back to the market.

    Beyond this, confidence is returning to the market as evidenced by the positive changes in the All-Shares Index among other barometers. You will see that investors are gradually coming back. There must be enough confidence for investors to return fully. The Exchange has set up Investors Confidence Committee. The committee has been working underground to bring confidence back to the market. The results declared by some companies have shown that confidence is coming back to the market. Companies that were not paying dividends are doing so now. Some banks that were paying 10 kobo, have increased it to 80 kobo. Some are paying dividends twice a year. Many companies are now paying dividends that are higher than what they paid in 2009, 2010 and 2011. If the returns on investments are improving, people would be encouraged to invest in stocks. The purpose of investments is to get returns, either by way of growth in the price or dividends payment. If these are not there, nobody will be willing to buy shares. You observed that prices of shares are going up. Last year, First Bank was over N9, but today the price has doubled. So also are GTBank, Zenith, Nestle, among other listed companies. People are coming back gradually. People have lost so much money, and it would take time before they come back to the market.

    What is your take on the forbearance package granted stockbrokers?

    The forbearance package is neither here nor there. Different schools of thought have emerged as a result of the issue. Some brokers said they have sold their stocks to pay up their debts, arguing that the package is coming late. Others argued that some firms have no capital for operations, and need to be encouraged to come back to the market.

    My take is that some firms have to take leadership roles. If for whatever reason, you have been able to bear the brunt over the years and you are still trading, they should help those that have been badly affected to come back to the market. Those that have been paid their debts should see themselves as taking leadership roles. Another thing is that the forbearance package must not be looked at from a selfish point of view, but from an industry point of view. We should look at how the crisis in the market would affect us globally. If all of us are doing very well, the better for the market. The forbearance package is okay. It would help in reviving the market.

    What is your stand on demutualisation of the Exchange?

    The issue of demutualisation, introduced to make the stock exchange a public quoted company, would take sometime. This is because there are legal issues that must be resolved. I think the Nigerian Stock Exchange (NSE), SEC and the market in general are working to achieve this goal. It is not something they can rush. It requires careful planning. It will take the Exchange, SEC and the stockbrokers time to carefully, plan and achieve the Exchange’s demutualisation. Main1ly, brokers are the owners of the Stock Exchange, and for you to sell the Exchange, everybody must be carried along.

    You have to carry the management, the council and the ordinary members of the Exchange along. But you cannot sell what you do not own. Neither SEC nor the government owns the stock exchange. NSE is a company that guarantees the market, and it has some owners which are the stockbrokers.

    What are the legal issues that would affect the demutualisation of the Exchange?

    I think the legal issues border on the right to sell the stock exchange. You cannot sell what you do not own. SEC does not own the shares in the stock exchange, and therefore cannot sell the Exchange. Only the stock exchange owners can sell the Exchange, though with the consent of SEC. Some people have shares in NSE, and must have a say in what happens to the Exchange. They are doing more of negotiation than trying to enforce what is not possible.

    Can you assess the market performance, since the time Market Makers came on board?

    I have not done any analysis on that. Some movements experienced in prices of shares could be partly attributed to the activities of the Market Makers. The questions are: Do the companies appointed as market makers have the capacity? Do they have the depth? Do they have the finance? Based on these, I may not be able to comment on the performance of the Market Makers vis-à-vis the market growth. However, the market is growing gradually.

    Some banks opted for holding structure arrangement. What are their chances of growth, in view of liquidity squeeze in the economy?

    I know FirstBank, Stanbic/IBTC, and FCMB opted for a holding structure licence. Once their businesses increase, there would be growth. Growth cannot be divorced from the larger economy. If Nigeria is doing well, the companies within the economy would do well. There cannot be growth without development. Companies cannot grow well, if we do not have adequate power supply. A lot of companies are spending huge amount of money on alternative power to survive. Once the power is stable, it would have a multiplier effect on the economy. Carpenters, welders, among other artisans, would be able to do their jobs. Once they do their jobs, money comes into their hands, and the money goes to the banking industry. This will enable the industry to lend to the economy for growth.

    FirstBank has divested its shares from First Registrar. How is the company coping, considering that it is now a stand alone organisation ?

    First and foremost, a registrar outfit or any other business organisation survives through its clients. We have been surviving through our clients over the years. Our clients include notable companies listed on the floor of the Nigerian Stock Exchange (NSE).

    Before now, we were a full subsidiary of FirstBank, which was our major shareholder. Despite the divestment, we are still doing well. This is because people that made things happen are still with us. Though we are yet to fully commence the implementation of the new entity, we still have a team of highly skilled professionals.

    What we are doing now is management buyout. This means everyone who has been involved in bringing First Registrars to where it is today is still around. I’m also included. I have been in the company for 13 years and one week. I assumed duty on January 2, 2000, and I’m still around. My management team is still around. So, whether we stand alone or become part of FirstBank, we are still First Registrar. The only thing that can change is the Board of Directors. New people are coming in, while others are leaving. Nothing has really changed, except the shareholders.