The Nation Newspaper

Category: THE CEO

  • ‘Solar energy now the way to go’

    ‘Solar energy now the way to go’

    The prediction is scary. In 50 years, some experts have said, the country’s oil reserve will dry up. Can anything be done to remedy the situation? Yes, says Managing Director, Sovereign Solar Energy Ltd, Dr Felix El-Schaeddhaei, in this interview with TOBA AGBOOLA. He advises that Nigeria to pay more attention to renewable energy, saying solar energy has the capacity to solve Nigeria’s power problem.

     

    Do you think solar energy can solve power challenges in the country?

    Sure, it will. The power problem is borne out of the shortsightedness of policy makers. Without vision the people suffer. The government should promote and fund the development of solar industry in Nigeria.

    The demand on the Power Holding Company of Nigeria (PHCN), domestically, publicly and industrially, is so huge that it needs to triple its capacity to meet up. With the development of an alternative energy sector, residential and public energy consumption can be eliminated thus increasing energy at the disposal of industries for economic growth.

    Public places, offices, streetlights, agricultural settlements, poultry farms and residences can all be solar-powered thus leaving manufacturing industries to have the much-needed power to run their plants.

    Spain is one of the most advanced countries in the development of solar energy, and one of the European countries with the most hours of sunshine. In 2008, the Spanish government committed to achieving a target of 12 per cent of energy from renewable energy by 2010 and by 2020 expects the installed solar generating capacity of 10,000 megawatts (MW). Total solar power in Spain was 3.859 GW by the end of 2010 and solar energy produced 6.9 terawatt-hours (TW·h), covering 2.7 per cent of the electricity demand in 2010. By the end of 2011, 4.214 GW had been installed, and that year, 7.912 TWh of electricity was produced.

    Through a ministerial ruling in March 2004, the Spanish government removed economic barriers to the connection of renewable energy technologies to the electricity grid. The Royal Decree 436/2004 equalised conditions for large-scale solar thermal and photovoltaic plants and guaranteed feed-in tariff. This singular act promoted solar development and application nationwide.

    With adequate public enlightenment and education, Nigeria can make its energy problems history.

    For instance, the privatisation by the Federal Government is a welcome development. However, this alone cannot alleviate the power problem facing Nigeria. There is need for all facets of the sector to embrace adequate planning, setting of achievable targets, investment in alternative sources of energy, and accountability.

    Are Nigerians responsive to solar energy adoption?

    Most Nigerians don’t understand the concept of using the sun to generate electricity. We at Sovereign Solar Energy Power are working to create public awareness of the technology and how it can be easily deployed to the populace.

    We are willing to delve into the private sector; we want to address that lack of confidence in people when it comes to solar power. I have talked to a number of people who said that solar does’t work in Lagos, but the truth of the matter is that the amount of sunlight emanating from Nigeria is greater than what Germany and the United States have.

    Germany is the leading country when it comes to solar usage, so there is no reason solar cannot work in Nigeria. It is all about proper implementation to ensure that it works in different localities in the country.

    Can it be used by big industries?

    Of course! By Febuary 22, last year, the Chattanooga Airport had saved 90,000 kilowatt-hours of power since installing a 4.5-acre solar farm in December 2011. Spain is producing solar power in terawatt-hours and we have the Sahara Desert with enormous solar resources wasting away everyday. We have more than enough solar power resources to power all our industries if fossil fuel energy source fails.

    The earlier we embark on renewable energy development in Nigeria, the better the chances of our rapid economic advancement.

    What can be done to encourage the adoption of solar technology?

    First, we need to understand that solar can work in Nigeria. I have heard from a lot of people that solar power cannot work in some states.We are blessed with more sunlight than leading solar user countries. Having clarified that as a technology in its infancy, adequate awareness/education is key in encouraging solar adoption.

    Many people either haven’t heard of solar or are not convinced of its potential. Some see the huge capital investment cost as a major deterrent, but proper education, including fact-based report, such as cost benefits analysis will go a long way in combating such fear.

    Does government have any role to play in this regard?

    It is the major player.The government needs to create incentive/subsidy package to encourage the early players in the industry. This could be in form of solar import tax rebates, net metering packages, etc.

    What are your challenges in doing business in Nigeria?

    Nigerians are generally scared of change. To achieve change, we have to give up a lot of things. For instance, it has been hard convincing people to ditch their generating sets for a hazard-free hybrid system. In our line of business, it is a continual process educating the people on the advantages of a green economy. Patience has been our key word as we continually strive to light up Nigeria.

    Are you facing challenges at all?

    Our major challenge is subsidy from the government because solar technology is very expensive as much as its products.Although the price of solar panel is dropping, we hope it drops to the level of one dollar per watt, then we will surely compete favourably with the power generated by other means.

    Another problem is that we don’t have a single company producing batteries in Nigeria. All the solar batteries are imported, so we need a company producing battery so that the cost will be reduced.

    In other countries, solar is subsidised by the government, but here there is no form of subsidy, the end user pays for everything and that’s why it is expensive. Just like petroleum subsidy, there should also be subsidy for solar, which is even more environmental friendly. It doesn’t have any form of environmental pollution. Its only impact is that it covers space. Maybe the space that would have been used for agriculture is now used for solar lighting or to fix solar panels. If we want to address that issue, we will find out that there are lots of virgin land not used for agriculture; such land can be used.

    How cost-effective is it?

    I have had people coming in to make enquiries. At that time, some of our portable 500W solar generators were selling for N90,000. A particular gentleman said he would rather stick to his “I better pass my neighbour”generator because it only costs him a mere N300 fuel to run each day. When I analysed for him that he is spending an average of N9,000 per month and that he would have spent N90,000 worth of fuel in 10 months, he bought the solar generator – seeing that he would save a lot of money in the long run.

    The same applies to larger solar systems for homes and public places. The initial outlay may appear enormous, but huge savings will be realised for many years thereafter, justifying the investment in the first place.

    What is the lifespan?

    The average lifespan of the solar system is 20 to 25 years, however, the batteries’ efficient life is usually three to five years when they are due for renewal.

    When there is no light, how does it work?

    In majority of cases, the solar system will continue to provide power from its energy store for an average of three days. However, because the efficiency of newly developed thin film silicon cells used in building solar panels is high, it has the capability to start harnessing power from the sun at day break without direct sunshine.

    A combination of factors, for example, the intensity of rays of the sun, the panel’s wattage size and efficiency, the inverter and regulator efficacy and adequacy of battery bank will determine how long the system will work assuming there is total darkness.

    How much maintenance does one need?

    All things being equal, the system is maintenance free over its life expectancy of 20-25 years with the exception of course, the battery bank, which needs renewing within three to five years.

    Where do you see Nigeria in the next 10 years as regards solar power?

    Where Nigeria will be depends on a number of factors which include: successive government policy vis-à-vis renewable energy; how much public awareness is created in relation to renewable energy; individuals and organisations’ drive to find alternative energy source in solar power; price of the component parts of solar system and the state of the economy

    What is solar power and why is it efficient?

    A photovoltaic panel (or solar panel) is a packaged interconnected assembly of photovoltaic cells, also known as solar cells. They are used as components in a larger solar system to provide electricity for civil, commercial and residential applications. The solar system harnesses energy from the sun, and converts it into energy that can be used for multiple practical applications.

    Solar technology provides environmental and social advantages over other energy sources. Some of the advantages are low energy costs. The sun provides solar radiation for free. It has low maintenance: Fewer moveable parts means fewer parts can break. No emissions. Solar lighting does not contribute to global warming. Besides, solar solutions continue working even if there is power cut.

    Can you tell us about your products and how they are doing in the market?

    Our solar products are designed and constantly redesigned with end-consumers such as individuals, domestic, community, commercial and public in mind. This is reflected in the variety of products developed over the years – from solar key-ring flashlight, to all-in-one solar streetlight, solar generator and solar home systems to mention a few.

    We are sensitive to the need for constant power supply if meaningful economic development and growth are to be achieved by individuals, entrepreneurs, society and the nation.

    We acknowledge that power supply on the African continent is grossly inadequate. This invariably affects every aspect of human endeavour and development – private, public, commerce and industry.

    Our policy decision to establish our first African outlet in Nigeria was based on huge economic resource potential available that will be enhanced by renewable energy supply.

    We have carried out remote installations in Nyanya in the outskirts of Abuja as well as home installations in Lagos (Maryland), Nasarawa State (Karu Court, Mararaba) and in Ibadan (Ologuneru area), Oyo State.

    Is Nigeria ripe for this technology?

    The bane of the nation’s economic advancement is deficiency and inefficiency in power generation and distribution.This is a nation wallowing in poverty in the midst of plenty.

    Nigeria is blessed with huge natural and human resources in the energy sector and scientific field. No nation will ever be described as ripe for technological growth.

    Technological advancement for any nation is synonymous to a child learning to sit, crawl, stand, taking the first steps and becoming unstoppable in walking and running.

    It is not a question of whether or not Nigeria is ripe for solar energy technology, but a question of resource recognition, development and management. The most important aspect of the solar energy technology is the sun, which is a major player and raw material. Nigeria has no excuse since at the dawn of each day, the creator has covenanted that solar energy be made available unhindered. All that is left for our policy makers is to make available the component parts by promoting their localised productions. Nigeria needs to start from somewhere; somehow, otherwise she will never be ready for solar technological development. The starting-point will be hands-on research projects working in co-operation with technologically advanced nations, such as USA, India, China or South Korea.

    The Federal Government has to key into the advancements made in solar energy. This will enable the government to provide cost-effective rural electrification with positive environmental impacts.

    Although Nigeria needs adequate supply of energy to drive its economy and power its domestic, economic, technological and social sectors, it has been difficult to meet the energy needs of the citizenry by successive governments.

    Nigeria is blessed with a variety of energy sources in abundance. It has fossil energy, such as crude oil, natural gas and coal, and renewable energy resources such as solar, wind, biomass, biogas, and so on. Nigeria’s oil reserve is predicted to be exhausted before the next 50 years, thus it is imperative to pay more attention to renewable energy sources.

    By using solar photovoltaic panels of only five per cent efficiency, the country could generate close to 600,000mw, from only one per cent of its land area.

    Renewable energy is always available on cyclic basis, and can never be exhausted, unlike the conventional energy of oil, coal and gas.

    As long as there is life in us, solar energy will always be there, everyday.When the sun comes up, solar energy is available.We also have wind as a renewable energy. Wind arises as a result of extra-terrestrial solar heating of the air masses in the extra-terrestrial space; leading to pressure differences, manifesting in the flow of air.

    We can also tap significant amount of energy from wind. Hydropower is also available from cyclic activities of the rainy reason. Rivers are there and we can tap. We also have biomass – biofuels; they are all part of renewable energy. They are always available on cyclic basis.

    If we can learn from Germany and Japan and tailor various Nigerian market specific programmes aimed at reducing the cost of solar power systems, we will be able to support the growth of the solar industry.

     

     

     

     

    Can you tell us about your company, Sovereign Solar Energy?

    Sovereign Solar Energy Technology Limited is in the business of solar system research, design and development, production, marketing, installation and maintenance services.

    The company’s head office is in England with branches in the Federal Capital Territory Abuja and Lagos. Our main areas of specialisation are in systems design, production and installation of street, community and residential renewable power needs. We have been engaged mainly in home systems installations and other consumable solar power products such as laptop and phone chargers, table and flashlights, lanterns, rechargeable fans and fence lamps to mention a few here in Nigeria.

    The company has grown over the past five years to become a force to reckon with in the renewable energy sector in Europe. It has acquired a leading edge technology to produce user-friendly personal and domestic solar consumable products and commercial solar products with hassle-free installations.

    The company has the necessary infrastructure and know-how to achieve its objectives and complete its projects ahead of schedule in most cases while maintaining high standards of quality control as its benchmark.

    The company was established to alleviate problems in two fronts – environment – to do our bit in reducing global warming, and to contribute to accelerated economic advancement through regular power supply.

    We are committed to providing power to whosoever may be in need of it – school pupils and students ( for their home-work/assignment) farmers in the remote locations where there is no form of power supply as well as small entrepreneurs.

  • ‘Why banks are running away from SMEs’

    ‘Why banks are running away from SMEs’

    Small and Medium Enterprises (SMEs) are expected to be the soul of the economy. But they have a problem; many of them cannot access loan for their growth. The banks too are shying away from doing business with them. Why? It is because they are not vibrant and are operating in an unconducive environment, says Central Bank of Nigeria (CBN) Governor Sanusi Lamido Sanusi in this interview with reporters on the sidelines of the Bankers’ Committee retreat in Calabar, Cross River State. Group Business Editor AYODELE AMINU was there.

     

    What will be the focus of the Bankers’ Committee in 2013?

    Our focus in 2013 remains the implementation of the financial inclusion strategy, continuation of the agricultural lending programme, moving towards the gas to power plan, privatisation of power, issues around policies and principles. We still have a long way to go, but we are proud of the work we have done in the last four years. I do hope that this industry will produce the generation of central bank and bank chief executive officers that played a catalyst role in the development of the economy. The Bankers’ Committee has said that our focus would be on financial inclusion across the country. But there will be a special focus on Borno State on financial inclusion. The Bankers’ Committee will partner with the government of Borno on financial inclusion in that state. Now, with the conclusion of the power privatisation there are issues. The first is advising the government on funding of power transmission. One thing that is clear to us and what we are going to advocate is that all the proceeds from the sale of power assets should actually be dedicated to improvement in power transmission system. Because there is a huge financial requirement for power transmission development and if $2.3 billion is dedicated to that, it covers a significant part of that cost. Now the announcement of that kind of decision to be taken by the Presidency and the National Assembly and not the Bankers’ Committee, would create the confidence that private investors require to invest in the integrated plant because they know that the big risk in the power value chain now is transmission. A lot of funding is required. So fixing transmission is one, ensuring that we have funding for capital expenditure for generating plants that have just been set up is also key. The committee is working on financing and advising the sector. On the agricultural sector, we will continue with our engagements with the states and continue to address the value chain process. There are outstanding issues and they need to be addressed. We need to improve the engagement with the Federal Ministry of Agriculture and our resolve is to integrate our silos so that all stakeholders can get more value chains to operate. We shall continue with the work which we have started on the modernisation of the payment system, governance, competency, training and financing.

    How does your intervention in the agric sector affect rural farmers?

    The whole idea of the intervention in the agric sector through Nigeria Incentive Based Risk Sharing for Agricultural Lending (NIRSAL) is to address some of those things that have affected the growth of the sector. One of those things that we have tried to do is to work with states and put those farmers into cooperatives so that they are able to raise silos as a cooperative. As a cooperative, they are able to get training, extension services, buy seeds and negotiate for fertilisers. Then, you go to Kagawa, which is 40 kilometres from Kano, you will see how we and the state have put together, tomato farmers to get improved varieties and seeds. Now, we are looking at setting up a processing plant, which will produce tomato and process it on-site. They are producing twice a year now, instead of once with irrigation. We give them seeds, fertilisers and they are able to access financing. But we must remember that agriculture and lending to the real sector is a journey and not a destination. Two years ago, we set a target of getting bank lending to 10 per cent of the loan book of banks by 2017. As at that time, 2011, we were at 1.5 per cent. But today, we are at 3.58 per cent. So, as we continue to implement these reforms, we should get to our target by 2017.

    What is the Bankers’ Committee doing to ensure that lending rate is reduced to support the growth of SMEs and what would be the contribution committee’s to assist flood victims?

    As far as the Committee is concerned, remember that small and medium enterprises (SMEs) only thrive in an environment that is conducive. If you want vibrant SMEs that can borrow from banks, we must fix the power problem, we must fix the agricultural value chain problem. Banks cannot continue to lend to SMEs that are not profitable because they have to continue to run on generators and buy diesel, with bad roads and insecurity. So the environment has to be fixed and that would encourage banks to lend to SMEs. That is why we said there should be focus on power and we should get the reform ongoing. A lot of work has been done on power reform and the funds from banks. Take funding for example, the reform would not have happened if the Central Bank did not provide the funding for the advisory role. So, the Central Bank paid for all the work that was done to privatise power by the Bureau of Public Enterprises (BPE). The objective is to get the power reform completed, and if that is done, then power supply would improve, cost of production would come down, industrial capacity would increase and SMEs would be able to borrow and service their debts. On the rate of interest rate, it is not a Bankers’ Committee issue. Rates of interest are reflective of rates of inflation, therefore there is need to have stability in the system. As we begin to move to a low inflation environment, rates of interest would continue to drop and make it easier for banks to provide financing for the real sector. On the flood, the Bankers’ Committee has agreed that we would support. The CBN would put money into that pool, all the banks would put money into that pool and we would give the funds to the Flood Relief Committee that was set up by the President.

    What is the Bankers’ Committee’s level of commitment to the stability of the financial system?

    We affirm our commitment to a stable financial system that contributes to economic development of the country. We commend President Goodluck Jonathan’s economic reform agenda and associate with the objective of growing the Nigerian economy and creating jobs. The Central Bank has taken proactive actions to ensure that the financial system remains focused and committed to the goals of economic development and sustainability. Effective collaboration and partnership across government, banks, private sector and key stakeholders is critical to achieve economic goals and objectives. We reaffirm our aspirations for the transformation of the power, agriculture and oil and gas sectors of the economy, increasing access to finance for the under-banked and unbanked, and to the principles of sustainable banking. To consolidate our progress and achievements to date and address issues that remain, the Bankers’ Committee will continue deliberate advocacy and partnering with the economic team to implement the economic reform agenda to grow the economy and create jobs. We have defined clear objectives and targets for 2013, agreed on the results and outcomes we expect to achieve and assigned responsibilities for implementation. We will continuously monitor our progress on implementation as well as the impact of our actions on Nigeria’s economic development goals and objectives.

    What role is the Bankers’ Committee playing in the development of the economy?

    The Bankers’ Committee is committed to a lead role as catalyst for economic development, improving access to finance by the unbanked and under-banked and growth of the real sector.

    The Committee has focused on the Power, Agriculture and Transport Infrastructure sectors for driving growth and identified opportunities for financial system intervention in the transformation of these critical sectors of the economy.

    Through collaboration with the government, the banking community and real sector stakeholders, the Bankers’ Committee programmes and initiatives have contributed to tangible improvements in the enabling environment and private sector funding for the power and agriculture sectors.

    Progress has been made on several fronts. For example, lending to the agriculture sector has increased. The banks’ lending to agriculture has increased from 1.5per cent of total industry portfolio in 2009 to 3.5per cent in 2012.

    We have established the NIRSAL to encourage the growth of formal credit for the agriculture value chain. We have continued effective advocacy that has led to significant progress in the reform of key sectors of the economy including power, agriculture and oil and gas. Also, the financial excluded population has reduced from 46 per cent of adults in 2010 to 38.7 per cent in 2012.

    Significant capacity is also being built within the financial services sector in the areas of project finance and agriculture lending to support long term finance and agricultural lending.

    The 2012 Bankers’ Committee Retreat focused on strategies to consolidate and improve on the gains we have made in real sector development, determine further opportunities for financial system intervention as well as required actions to sustain and improve stability of Nigeria’s Financial System.

     

  • ‘Why sustainable power supply is still elusive’

    ‘Why sustainable power supply is still elusive’

    Can uninterrupted power supply be achieved without adequate gas reserves? An expert, Bimbo Onafowokan, answers this question in the negative. Onafowokan, Managing Director/Chief Executive Officer, Power Systems Limited, in this interview with Ambrose Nnaji, speaks on the importance of gas to stable electricity. Excerpts:

    What do you think should be done to address power problems in the country?

    The importance of power generation in the development of any nation cannot be over emphasised. It is important for our development. Also, it is vital for its sustainability.

    One school of thought said the privatisation of Power Holding Company of Nigeria (PHCN) would solve the problem.That is already being achieved. Everything must be done to ensure that by 2020, Nigeria is at least 50 per cent power sufficient, and not allow individuals to provide their own electricity in the most expensive way which we are doing at the moment.

    To what extent has your firm been a solution?

    We were born out of the deficiency in the power sector. The company was actually created to provide solutions in this area and in providing solutions. We have over time been selling generators. But at a time, we felt the need to do something different. We have gone into solar power and also into Direct Current in AC generators, popularly called inverters.

    Why solar?

    Solar is very well-recognised across the world. First, it is environment friendly, because there is no emission; there is no carbon in solar generation. And because we are in the tropics, the sun comes out at least six-seven months in a year.We have sunshine.We cannot continue to waste that sunshine. We convert this to energy and store them in batteries and use it to power our facilities at night. So, these are the ways we are deploying power technologically.

    Recently, we have gone into the metering of power to support the privatisation programme of the Federal Government and that Lagos State, which has also gone into power production to meter for them. These are areas that we are trying to help develop our capacity to provide solutions to the government.

    What informed your interest in metering?

    Every business opportunity comes out of deficiency. When you see that there is a deficiency somewhere, it’s an opportunity for a market. The deficiency of pre-paid meter in the country is an opportunity. There are a lot of investments in the country, so there are opportunities. The meters will not only be used for electronic power, they will also be used for gas. The two inter-phases will use the same metering for gas and also for electricity. So, you have what is called the flow-meter.

    As the gas is flowing, it is sending signals to the meter, as well as counting your electricity consumption in kilowatt per hour. As you draw the power, there is a calibrator that records what you draw as you are using the kilowatt per hour. That calibrator also sends information to the meter and on the same payment that you have made. You will draw payment to the power company and to the gas company. You will only pay once.You don’t need to go and pay to the gas company or to the electricity company.

    Currently, what we have is estimated billings. Most of the meters we have are analog. So, what the PHCN does is give an estimated bill for the month even when there is no light at all. That will stop when you have a pre-paid meter because you only pay for what you consume. You are able to keep data of your consumption.

    Overseas they have what is called peak and off peak rates. Peak rate is night rate, day time is low rate. So, if you need to do certain things that will demand a lot of power, you can do them during the day than in the night, you do those things that don’t demand much power because rates are higher in the nights.

    How far have you progressed?

    The first thing is research. We are in Research and Development. We try to find out what Nigerians need; what the problems of the ones that are in the market are; what the cost for us to develop a unit of meter.

    Our target in the open market is between N20, 000 and N23, 000 for a single phase meter. Now, we are moving from what we want to what it is that we need to do to get to this price. We want the people to partner with our meters. We want PHCN themselves to buy the meters and to make sure that the materials are locally made. The materials that form the major part of that meter are available, so you will not have problems with fluctuations as much. These are the things we are researching on. Once we are able to install those meters and the distributing companies are able to pay for them and spread the cost to customers, it becomes self funding.

    The Organised Private Sector (OPS) has predicted that the industrial sector may be in serious problem due to rising cost of energy. What do you think should be done to avert the crisis?

    It is affecting us. For instance, 20 per cent of our turnover in this organisation is for providing alternative power, buying diesel to maintain generator. When you spend 20 per cent of your profit, that’s very huge. It’s a waste of resources that cuts across the Small and Medium Scale Enterprises (SMEs) and the OPS. These is money that you can use to provide very cheap power.

    It affects the OPS because they have to provide their own power. And they provide it to make goods that are competing with those coming from across West Africa, Africa and across the world at cheaper prices because they don’t have to provide their own power, they don’t have to buy generating plants, they don’t have to buy diesel at a very high price, because their government is providing them power at very affordable prices and you bring the goods into the same market and the Nigerian goods are more expensive.

    Take, for instance, in the cable industry, Nigerian cables are much more expensive than the cables that are coming from China, India and if we do not make laws to protect such industries, they would have folded up by now. So that prediction is certainly possible if we do not find solution to power problem in the country.

    We have several alternatives to generate power. We have the thermal, which uses water and we also have coal as a raw material to generate power, and there is a lot of coal in the east, but it is not being explored because people are saying it is not environmental friendly. If you look at America, more than 40 per cent of their power is generated from coal. Coal is still one of the most reliable power generating technology in the world. So, these are the things we need to put in place.

    The government has to change because some of the generating plants built by NIPP do not have power supply, and we are not building enough storage for gas so that if there is a problem in the pipelines, there is something to bank on. These are the areas we really need to improve on; these are the areas the government should support the organised private sector. We need to access cheap fund to build excess gas reserves. What we should be having is gas storage tanks spread across the country through where power is generated so that when they run out of gas, they can see an alternative supplier of gas to keep their plants running.

    What are the opportunities in the gas sector?

    The opportunities are enormous. Unfortunately, gas is not cheap. Managing gas is a lot of money because gas, as you know, is like air. It has to be compressed. It has to be under certain pressure so that it can be managed properly. Accessing funds in the local market to build such facility is costly.

    A lot of people are afraid that they may be working for the banks or they may have to lose their efforts overtime if the funding is cut, because you can start a gas pipeline and then you will project that within the next one year, you will complete the pipeline at a certain cost, and when you start that because of cost of pipes that would have gone up in the market, you have to access more funds and if you don’t get those funds, you can’t recover your investment. So, these are the fears that they have. But there are opportunities in the gas business in this country.

    Nigeria’s main sources of power are thermal and hydro. Is the restriction of power sources to these two the main cause of power problem?

    It may not be the main cause, but it is one of the causes. Why people go into producing power is because of drought, because when there is enough rain, then we use thermal to support or you use coal to support and that’s what we should be doing. Having different and employing different technologies in producing power so that we can be power sufficient is important

    If the country should diversify its sources of power generation and supply, which other sources do you think will serve the nation better and why?

    I have said in different fora why we are not exploring coal. Why is the government not supporting coal mining in the country. We need to mine coal; we need to have enough coal reserves to encourage the organised private sector to employ forms to generate power using coal. We need to develop capacity; let’s do it the primitive way. Left to me, we need to have locomotives which we had ages back in the ‘60s and ‘70s. We did away with them because the mechanical way of driving engine came. We should have kept them going. We would have developed capacity to improve on them. We would have developed capacity to even use coal to generate power now. That is much needed; that is very important.

    The government is insisting on privatising the power sector, do you think that is the best option of achieving stable power supply?

    It is not the best option. I have always differed that is the best option. It’s just an option. And it’s an option that if it fails, it’s going to be colossal for the country. It is unlike what you have in the power sector where you have powers conveying transmission lines that are huge in size. If you privatise PHCN and it fails, the repercussion would be unbearable for the country.

    So, I usually will say that rather than privatise it, let’s run it on a Public-Private Partnership (PPP) basis; that is the private sector basis to keep it alive while allowing the organised private sector access to good funding to build plants and begin to compete with that from generation through transmission to distribution. We should allow the private sector cheap affordable funding that would allow them to build capacity in generation, in transmission and in distribution to compete with power holding company.

    Inadequate gas supply has been identified as a major setback to optimising generation from the thermal plants, what is your take on this?

    To me, the major problem is to develop the capacity to convert sea water to drinking water. The same applies; we have a lot of gas that is being flared across the Niger Delta and rather than channelling this gas for domestic use, more than 50 per cent of this same gas is exported successfully by the Nigerian Liquefied Natural Gas Company (NLNG) and they are not folding up. The Brass Liquefied Natural Gas is also exporting gas daily. So, we are exporting gas and the country is making money from it, but locally, there’s something wrong and the government knows what is wrong. We need to be very serious about local use.

    I remember the government of President Yar’Adua actually said he was going to stop export unless they developed and allowed gas for domestic use first and domestically sufficient before they would export. And I think if that policy had been followed up by subsequent governments, there would have been a transformation by now. The woman roasting plantain on the road would have been using gas rather than kerosene and the problem of kerosene scarcity and not having enough aviation fuel would have been a thing of the past.

    Most people living in the rural areas don’t have access to electricity. Do you support that government appropriates more funds for rural electrification?

    The rural people certainly deserve to be supplied power. They deserve to be supplied power at a cost and they must pay for it. Power cannot be supplied for nothing. It has to be paid for. They deserve to be supplied power, but the productive sector itself, which is the productive sector of the economy, which is creates jobs for the people in the rural area, who are migrating to the urban areas to get jobs if they are not having power to keep employment, then consider people in the rural area – that is, placing the cat before the horse.

    But it is only necessary if the country develops enough capacity to produce power to take care of the industrial areas first, take care of the essential areas where a lot of employment is being generated. Because you will privatise when you supply power; supplying power to those who are wasting it and not converting it to something that is productive and generate money for the country and companies around is a waste of resources.

     

     

  • ‘There’s no accurate record of vessels at the ports’

    ‘There’s no accurate record of vessels at the ports’

    As national president of Association of Nigerian Licensed Customs Agents (ANCLA), Prince Olayiwola Shittu knows the inside out of port operations. In this interview with Maritime Correspondent, OLUWAKEMI DAUDA, Shittu, who is also a member Presidential Committee on Ports Reforms, examines Maritime’s role in growing the economy. Excerpts.

     

     

    What is your take on the review of Customs Act?

    The review is necessary because some aspects of the law have become obsolete. For instance, when you arrest a smuggler and you ask him to pay 10 shillings which translates to about N10,000. What is N10,000 to a smuggler in Nigeria? That is one of the areas we need to look at in modern time. There is no way you can set up a government organisation without an Act.

    The Customs Act is CEMA. Customs all over the world have an organisation that controls how they operate from country to country. There is nothing fantastic that makes Nigerian Customs different from Cotonou Customs or Belgium Customs. What the National Assembly is doing about the CEMA now, is to look at those areas that don’t have modern tools for Customs to operate, to discourage smuggling, enhance enforcement and welfare of officers.

    What are the major challenges facing the ports?

    Lack of port facilities, such as roads, water, rail and interference by non-licensed agents. Everyday, even in my office as the national president of ANLCA, I am confronted with various mind-bungling activities of both our members and some non-members in the clearing of goods at the ports. People are not compliant at all. A situation where we encourage the importers to under declare and undervalue imports shows that we are not professional enough.

    What do you think is responsible for this?

    I would rather say it is the Nigerian factor, because it is only in Nigeria that people know what to do and they are not ready to do it. People don’t want to pay tax or for the services rendered to them by the government. It is the duty of the citizens to pay their taxes and levies, then demand accountability from their government, not the other way round. So, I think we need the re-orientation of our people and thinking in this country.

    How was the ports under NPA before concession?

    The operations at the ports were bureaucratically tied to the ministry and that was why the managing directors of the Nigerian Ports Authority (NPA) were incapable of doing what the terminal operators are doing at the ports. Because, for everything they have to do, they have regulations, processes they must pass through; some approval must come from the minister or from the Federal Executive Council (FEC). Based on that, you cannot expect what is happening at the port now to have happened. The truth is that we must follow changes.

    Do you think there should have been wholesale concessioning of the ports?

    There was nothing wrong with the concessioning of the ports. What the people were against was the concessioning of all the ports. If we had a model where some of the ports were allowed to be run by NPA on commercial basis, that would have given rise to competition to the concessionaires. There would have been a base line. When you concession all the ports, what you meet in port A is what you meet in ports B and C. Concessioning is not bad in itself, but what is wrong is the process of concessioning. For example, if you concession and give longer period of gestation for the concessionaire to recoup their money, there is no concessionaire that would wait for 20 years to realise his money. They will start recouping now, automatically; it would affect how much you pay for services rendered by them. A concessionaire in Nigeria can say we have concession in Cotonou and other places, let use foreign base to determine the amount we charge in Nigeria, but they have forgotten that the efficiency level in those countries may not be the same in Nigeria.

    Is government performing its resposibility after concession?

    As at the time of concessioning, there were clauses that the government themselves must be responsible for the provision of certain facilities to these concessionaires. The concessionaires paid you and the facilities are not there. It is a similitude of a man who wanted to rent his house and the gate is blocked through drainage and you as the landlord doesn’t want to spend money to remove the garbage and you want the caretaker to do it. Definitely it will affect the rent that would come back to you for the man to recoup his money. That is the sorry situation we are having in the port. For instance, common users facilities like light, water, roads, rails and others are not being maintained by the government. They are part of government’s responsibility and you want these people to operate. Most of the challenges are those facilities that government is supposed to provide.

    What is responsible for the laxity?

    There is laxity because the government was in a hurry to concession because concessioning was based on political consideration. I can tell you that from the 26 concessioned ports all over the country today, they are not supposed to be more than four or five terminals. The reason is that if the APMT was to handle from here in Apapa to Port and Cargo Terminal at Tin Can, making it one terminal, they would be able to plan how that terminal would be operated. Holding bays for empty containers would have been cut out, holding bay for trailers that are coming to load, then you will now see a modern port in operation. But what they did was to balkanise the ports into various small concessions which has turned common users of road to where the trailers would park and cause congestion.

    Until the government is ready to take the bull by the horn, either they take money from the World Bank or find other means and acquire all those areas around the Lagos Ports in order for us to have a modern port, the situation will remain the it is.

    Why is it so?

    It so because the Federal Government is biting more than it can chew in this so called federation. Everything is Federal Government and the amount of revenue the centre is getting is not enough to solve these problems. That is why we are creating crisis.

    If the government is not doing enough, what of the concessionaires?

    They are slow in fulfilling the agreement they signed with the government, maybe, because the government has reneged on its side of the contract. The concessionaires have to make use of what they have to get what they want. Part of of the reason for concessioning was to get Foreign Direct Investment (FDI). For example, what MTN and others did in telecommunications was to start building masts. They didn’t ask us to pay before they built masts. It was when the masts came and you can access services that you start ed paying. Remember how much a SIM card cost at that time too and how much we pay for air time before it finally got to where we are now. This happened because there was competition.

    But in the ports, there is no record of FDI mainly because they have paid all the money and they are now collecting from us. Unlike the telecommunication sector, there was still regular flow of cargo that must be cleared. I need to tell you we need to understand the challenges of the concessionaires themselves before you know who to blame.

    For instance, NPA handed over equipment to one terminal, saying they are about 37 equipment, only to discover that only two were serviceable. This means that the concessionaire has to go and bring plant from outside. In the mean time, they went to hire plants to complement what was on ground until they started bringing new equipment to the port. So, a government-run port would have given competition to the concessionaires. If I know NPA is running Port Harcourt port, for example, and I know it is cheaper to clear goods from there, why would I not go there? That is competition.

    But some of the terminals are run by Nigerians?

    What is the difference between a Nigerian and a white man when it comes to issue of how to make money in business? There is no difference because it is the same thing that is affecting all of them. There must be an incentive to patronise Port Harcourt port run by NPA on commercial basis, maybe on half the cost in Lagos. When I know as soon as I clear my goods from Port Harcourt Port and bring it to Lagos, it is still cheaper than clearing in Apapa, then my bill of laden will read Port Harcourt.

    But since we have given all out, we must experience what we are experiencing now until we have enough equipment. This will lead to port charges going down. By the time we start doing export and less of import, charges will drop. So, if the energy level increases and production starts, our level of importation will reduce which will affect cargo throughput in the port.

    How do we stop congestion?

    To discourage congestion, you must stop people from using the terminals as storage facilities. I happen to be a member of the Presidential Committee on Port Reform, and when issues were being debated, the issue was: Is it true that people leave their cargo in the port? But we later discovered that there are so many reasons people leave their cargo in the port.

    What are the reasons?

    There are those that brought in prohibited items and are looking for an appropriate time to see how they can fly it out of the port. Flying of cargo out of the port to evade duty is still happening. So, they are ready to pay demurrage to terminal operators for the cargo to remain there until the coast is clear for them to do their illegal business. Others that leave their cargo at the ports are bulk importers. These are the people that import about 50 containers on the average and they give agents money to clear 10 and ask him to bring the 10 out so that when he sells them, he will bring out another 10. So, the port becomes storage facility of a sort. This is because it is cheap, if it is not, nobody will use it a storage facility. In the US, there is nothing called storage charges because within 72 hours, your cargo must leave the port. They don’t have room for storage. If you need a storage facility, you go outside the port and hire a place to store your cargo.

    What has Customs and government done in this regard?

    Customs has reduced the time for overtime cargo from 90 days to 28 days, yet people still leave their cargo in the port. If the Federal Government musters the political will and confiscates cargoes left at the ports, nobody will leave his cargo in the port.

    But what is your take on 100 per cent cargo examination by Customs?

    Customs is doing 100 per cent cargo examination because our people are not doing the right thing.

    I have always told my colleagues that yes, we can go and complain about Customs, we can get up now to say these are reasons Customs is not doing their job. What if we go with just one folder and Customs comes with a trailer load of documents on non-compliance by the people?

    What do you mean by non-compliance?

    I mean under-declaration, under-valuation and that is why Customs raises eyebrow almost everyday. Look at the American system, Customs brokers take responsibility for their importers. They do so by paying the duty and carry the load out. How you deal with your importer is between you and the importer. But the importer, must, as part of the contract, sign for you, pay your bill within 72 hours after delivery. That is a country that has enforcement.

    What is your take on Ogogoro village at the back of Tin Can port?

    That land has been paid for and the government should just take over the place to create more space at the port by converting it to a terminal. It will surely give room for expansion. If NPA can do away with their residential houses, during the time of concession to enlarge the port, any space we can get now should be used to expand the port. At least, Japan built an airport on top of water. We should, therefore, be thinking of expansion using our water.

    What do you have to say about deep seaport?

    You don’t build a port without first thinking of the cargo that will come there. There is need for people to know that without the importer who is called the shipper, there would be no cargo; without cargo, there would be no port. If you go and build a deep sea port to take large vessels, where is the cargo that is going to go there? Have we thought about it?

    But the idea is that they want the port to be the hub in the sub-region?

    We need to start with the efficiency of the ones we have before thinking of a deep seaport because, as we are building a deep seaport, our neighbours are expanding their own. And it is left for the individual importer to decide where his cargo goes. Assuming 20 per cent of Nigerian importers want their bill of laden to be destined to Cotonou, is the government going to waylay them? No. if you build Ibaka deep seaport and the others ones, but no bill of laden is destined to go there, what happens?

    Why are the ports outside Lagos not attractive?

    Importers don’t find them attractive to send their cargoes. Even there is more traffic in the land borders than some of the ports in the east. It is not only Seme and Idi-Iroko we are looking at. There are still other ones in the north with huge cargo passing through them. They are all Customs ports, and at the end of the day, people pay their duty and carry their cargo. It is the importer that determines where cargo should go. If you think the Ibaka deep seaport, for example, is going to assist in a particular sector such as oil and gas, you already have port servicing them like Calabar port which is under-utilised. But if the issue of the road is addressed by the government, it would be cheaper to carry cargoes from Calabar to Aba.

    The Federal Government has given Customs N1 trillion revenue target. Is this realisable?

    It is good the government is putting Customs on their toes. The N1trillion target given to Customs is like a budget. A budget is like the plan for the year. And on any amount of target given to Customs, the determining factor is still the Nigerian importers. If there is no cargo, Customs will not manufacture money. Setting revenue target for Customs is not limited to Nigeria, it is a standard practice everywhere. Most countries that don’t even have oil rely on Customs as their major revenue source and also set target. The Secretary-General of World Customs Organisation (WCO) said at one of the meetings we had with him that the port of any county is dependent on what the government of that country wants to make of it. Some are for revenue generation, while others are just border and security control points. In some countries, what Customs does is to ensure that there is no importation of prohibited goods and you obey the law.

    But look at the situation in Nigeria where the Federal Government regards Customs revenue as a component of what is required for the survival of the nation. Why would they not gave target? It they give you the target of N600 billion, they have done it before, and they realise N800 billion. Why should they give N600 billion the following year? They must give you something above that. But that does not mean that your not meeting the target is failure on their part.

    Do you think there is improvement in revenue generation?

    Yes. There is an improvement based on the efforts of the new management of the Customs in collaboration with customs brokers. Even the compliance level has gone up.

    By what percentage?

    Up to 70 per cent. The remaining 30 per cent is negligible because, even abroad, people still violate the law. But I am telling you that we should not get ourselves worried that if you don’t meet the N1.2 trillion, heaven will fall. No, heaven will not fall.

    …Despite the increase in cargo throughput?

    Yes. The government itself knows that there is increase in the level of cargo coming into the country and there must be increase in revenue. Therefore, we cannot blame the government for setting that revenue target. The idea is that you made this amount last year based on the volume of the cargo, we are expecting XYZ amount from you this year. So, you must have to work at it.

    Security on the nation’s waterways has become worrisome. What are your perspectives on this?

    The security situation on our waterways is very worrisome because it has been politicised. This is because people are not looking at the security implications of what is happening on our waterways now. Right from the time of the Niger Delta uprising, our government has not explored solutions to the challenge outside the political realm. It should be considered a national security mater.

    It is only in Nigeria we have various security measures, security apparatus, security agencies dealing with the same thing and at the end of the day, the number of vessels that call in Nigeria as recorded by the various security agencies such as Customs, NDLEA, NIMASA, NPA and others are not the same. Is it good? A vessel is not like a car that you drive and it is gone. There are international convention guiding how vessels approach port and leave. How come these government agencies are giving us different numbers? It means something is wrong.

     

  • Pension assets available to finance infrastructure

    Pension assets available to finance infrastructure

    As he prepares to exit PENCOM, the Director-General Muhammad Kabir Ahmad spoke to a select group of journalists including Nduka Chiejina (Assistant Editor) on the PenCom scheme. He said it is an improvement on the previous one and is designed to encourage savings. Excerpts

     

    After eight years of the contributorypension scheme administration inNigeria, what are the prospects and challenges?

    Basically, we started an industry that never existed. There are three issues that we need to focus on. One, we had a pension reform that had intended to establish a scheme that is fully funded and to be privately managed in a more efficient manner. A scheme that was also to replace other old schemes, particularly at the federal level so that we can have a more transparent scheme. The reform also provided that it should be managed by regulated entities, but beyond that, should be regulated and supervised by the government agency called the National Pension Commission.

    Today, we have the National Pension Commission, some of us have been associated with the scheme from the beginning and, hopefully, by the end of December, we are exiting and new people would take over from us.

    We have a regulatory and supervising institution that is charged with regulating and supervising pension activities, whether at the state, federal or in the private sector. Pension assets have been accumulated over a period of time. We do have an industry and quite a few states have also complied with that.

    We have also been able to license and regulate operators, like asset managers and custodian. In a nutshell, these are the things that we have been able to do.

    Have there been challenges?

    There are challenges. As an industry and precisely as a regulator, we decided to focus on educating and enlightening Nigerians to secure their acceptance of the scheme, because if they buy-in, you will have a voluntary compliance. They know what you are doing, they know the benefit and so they will voluntarily comply.

    The next issue is compliance. Private sector compliance. Do they get their employees registered? Are they contributing? For the formal sector, majority are complying, either they have got their staff registered and are paying regularly, or at least their staff are registered and the payments are not regular.

    But the bulk of employers are actually in the informal sector, given the fact that we are looking at employment of five people. Now, how do you capture that group? Historically, an economy like Nigeria’s managing the informal sector is the most challenging, whether you are looking at a tax issue or compliance issue.

    The reason is that you don’t have a structure as per what the informal sector is all about. Businesses are not properly registered. Today, you cannot go to any agency or office in this country where you can pick a list of active registered businesses or employers of labour.

    Recently, SMEDAN and I think the National Bureau of Statistics did some survey on employers that employee three to five workers and hey came to a figure of about 14 million and if you multiply it by three that gives you a rough situation of what the employment situation is. The challenge is how do you get the data and how do you structure issue of getting the benefits paid.

    What is the way out?

    We needed to have a separate structure of how payment of pension could be done and how PFAs can go and get money. We are developing a regulation on regulatory framework for the informal sector where we believe the bulk of our employees are. We also want to link it up with an important elements of pension reform that has not been implemented, that is the mini pension guarantee.

    How?

    The intention of the mini-pension guarantee is to encourage saving. We are still working on the structure and we hope it will be incentive for people to save. If I started saving, let’s say N100 every month and at the end of 20 years, my pension is not up to N18,000, then the government would have to pay the difference so that I can have something to fall on.

    The third issue has to do with the states. The states are supposed to establish their own pension schemes. Lagos is the flagship; they have a very effective contributory pension scheme. We have about 21 states that are in different stages of compliance, but unfortunately, the compliance is a bit slow and haphazard.

    The old scheme is under probe because of corruption. People are scared that the new scheme may go the old way. What are the striking differences between the old and the new scheme, and what have you put in place to ensure that the new scheme does not go the old way?

    At the federal level, prior to 2004, we have what we called, the defined benefit-Pay As You Go. In other words, the Federal Government never set aside money for the payment of pension. On an annual basis, it had an estimate, X number of people would be retiring, let’s pay pension. Funds were not been made available, that is one reason.

    The second reason is that it was a defined benefit based on final salary. Come rain come shine, the employer has agreed that when he/she retires, I am going to get 80 per cent of my salary for the rest of my life. This is how it was structured, but it was not funded. Beyond that was that pension departments were established, where the government paid money to them to pay pensioners. They placed the money in the banks, what happened and what is still happening is what brought about the Senate public hearing.

    The Federal Government disburses money to the pension departments, they open bank accounts, keep the money in the banks in a fixed deposit accounts, as a result of which people who are retired are not put in the payroll. Those on the payroll, their names are on-and-off. Every year, there is a verification exercise, the administration was not transparent. It was cumbersome. You have to come to Abuja for the verification.

    It appeared that those in charge of the pension administration took advantage of the internal weakness the offices created. At the end of the day, you have the government making payment and somebody in between is getting the benefit.

    On the other hand, the contributory pension scheme ensures that it is fully funded. In other words, funds must be set aside on a monthly basis. You don’t need to wait for budgetary allocation.

    Two, an employee must open a retirement savings account where his collection is paid into. It is an account owned by an individual that can be traced. If somebody touches that account, there  are appropriate sanctions that can be taken. The money is privately managed by licensed institutions that are regulated by the National Pension Commission with specific rules and regulations. They are monitored and supervised and, therefore, you can easily challenge them.

    Beyond that is the fact that you have two institutions- the administrators and the custodians. The administrator that manages the fund does not have access to the fund.

    Clearly, there is separation of duties and even in the event that there is hiccup. Whatever happens to the fund, the shareholders of the custodian is oblique to make good whatever fund that might have been lost, either as a result of fund trapped in any of he banks or financial institutions.

    It is impossible that what happened under the old scheme would happen in the new contributory scheme. That is why, today, we have not heard of any incidence that the funds have been diverted. It is very difficult.

    This funds are invested in diversified portfolio. It may be treasury bills, bonds, equity and so many other instruments. It is not as if the funds are kept in a vault of the pension board.

    How has it been administered so far?

    The people retiring under the new scheme started retiring in July 2007. Basically, five years. In the last five years, as at September this year, 54,000 contributors have retired, and close to N150 billion have been paid as lump sum to those in the public and the private sectors that have contributed.

    However, there is also another challenge. The challenge is that those who have retired under the federal and the state government, we have a period that arrears were due for, towards the end of last year to the middle of this year. Section 29 of the Pension Reform Act provides that the Federal Government should be setting aside five per cent of its bill into a Pension Fund Account, to be managed by the Central Bank of Nigeria for redeeming such liability for those who are retiring under the new scheme.

    But the five per cent was not been paid. The reason being that appropriate appropriation was made by the budget office, but it took us a long time to convince the National Assembly that this was a statutory requirement. Up till the middle of 2011, and in that intervening period, we had a large number of people that have retired, either as a result of tenure system, and it was not anticipated.

    It was not part of the five per cent, or people that voluntarily retired or deceased employees.

    How are you addressing that?

    National Pension Commission encourages employees to come and register so that we can calculate their liability and advise the government one year in advance. Those who are retiring in 2013, we have already captured and advised the government how much will be required. Until recently, employees don’t want to do that.

    But since the records are there, why can’t the PfAs do the update, get the data from the organisations and pay the retirees?

    Let me tell you how it works. The PFAs write to all the prospective employees, six months in advance. Majority do not care to respond. Some will say they have not seen the letters, or were busy tidying up. It is only the employees that can provide those documents.

    For us, six months is enough to provide these documents and the benefits are processed in advance. We don’t have that problem with the private sector, it is the civil servants at the federal level, who normally do not think the process is relevant, but it fast-tracks the process, that is our concern.

    A pensioner lamented that after the lump sum is paid, what he takes home every month is very little to take care of his family. Another one complained that he retired at the same level with his colleague but his colleague was in the old scheme but earns better pension than who that operates the new scheme. He also raised another issue about increase in salary, saying whenever there is an increase in salary, it affects the take-home of pensioners but it is not the case with the new scheme. There is also this issue that says after 20 years, you must have finished your fund; after that what happens to the pensioner?

    Let me take the three issues one after the other. They are two different schemes. The defined benefit Pay As You Go Scheme is the final salary scheme. In other words, when you retire you get 80 per cent as your pension for life. I can tell you it is one of the most generous in the world.

    Except for Saudi Arabia that has a 100 per cent, Netherlands has about 105 per cent, most African countries have under 40 percent, or what they call replacement ratio. Most emerging economies have under 40 per cent. 40 per cent is the ILO Convention.

    There are two things, you either have your money now, or you assume that somebody is going to give you money. The group of people you are looking at, are those who work for the Federal Government. The private sector does not have that because they do not have the money to support such a generous scheme. The point is that in this new scheme, you will have your money, the money is there. The other schemes are dependent on budgetary allocation, which may and may not come.

    Obviously, it is lower in the new scheme than in the old scheme, because the new scheme is about sustainability. The cohorts of those who would be retiring  in the next 10 years, perhaps from 2007, their pension will be low, but those who have time to save, I can tell you that by the end of the day, they are going to accumulate more money than those under the old scheme because they have longer time to save.

    How are the assets invested, where and at what ratio?

    Investment management is the most critical aspect of the contributory pension scheme. We contributed over a period and, therefore, the returns on investment is supposed to go into our savings. What we do is to ensure that the investments are managed in a more transparent manner.

    What we did was to issue an investment regulation. Generally, there are two options. You either allow the investment manager to decide because he is a professional, a very transparent person, he can take a decision on your behalf. Most developed countries have that because they have a more transparent process.

    The other option is a restrictive regulation, clearly defined bucket. These are the areas for you to invest in and these are the requirements. There must be rating, performance-based mark and there is also the limit. You cannot invest more than X  per cent of your portfolio in a particular class of asset, or in a group of assets.

    The last time we did a comprehensive work was in December 2010. What we did was to see how you diversify investment instruments. As at today, there are basically three instruments where pension assets are invested. Federal Government Bonds, which takes about 60 per cent. It came down from about 80 per cent. Interbank placement, money market instruments and then the equity market. For money market, I think it has dropped to about 14 per cent and for equity, it is about 12 per cent.

    The reason you have substantial portion of the asset being invested in Federal Government Bond is because they are sovereign risk and they offer the highest yield.

    Of recent the states are coming to the capital market to raise bonds, but we have requirements. For pension assets to be invested in state bond, the state must be in compliance with the contributory pension scheme and that has assisted us in getting quite a few of them to come on board and to join the new scheme. We hope that will encourage others to do the same.

    As at today, we have about N3 trillion pension that have been contributed. The growth rate per annum is about 30 per cent annual growth of pension asset. Hopefully, in the next five years, you can estimate what that means. It is a gradual process and it has been consistent so far. The private sector have been contributing significantly to that.

    Some people don’t know how their contributions are invested; again, can you throw more light on the issue of minimum pension guarantee?

    As at today, what the contributors have is what is called the Retirement Savings Account statement on a quarterly basis. You can have a hard copy, some PFAs can give you access to their website so that you can see your balance 24 hours seven days. That gives you an idea how much has been contributed by you, by your employer and what returns are earned over a period and you get an alert on that. But by the time we create these funds, you now choose where you want your funds to be invested.

    On pension guarantee, what is it is saying is that there are people, particularly, small workers who may not contribute enough. Or migrant workers who have worked for six months, rationalised and moved to another company the following year, and within the interval I saved and that savings will not accumulate huge amount over a period. For that reason, what the guarantee is saying is that for those of us who have saved for a minimum number of years, when they are retiring, the pension they will take is minimal, it is an incentive for people to come on board. The challenges we have today in our society is: who will bear that cost. Could it be part of social security? But someone at the age of 60 needs to be taken care of. At least, let him have a minimum wage. It is a conditional grant that you are supporting an individual who has made an effort. In the long run, national savings promote economic development and for every country to succeed, it must have national savings. The idea is to assure somebody that at the end of the day, there is something for you and this will encourage even those who are not saving to join. The benefit for the government is that large funds are been made available and instead of borrowing from banks, the government can borrow and invest in infrastructure. Worldwide pension assets constitutes an average of about 100 per cent of the GDP in most countries. They rely on pension and insurance assets for growth and development and not on bank assets. That is what we hope the pension reform will promote.

    What is your response to the debate that pension asset should be provided to develop infrastructure in the country?

    That is what pension assets should do because pension assets are long term assets and they should finance long term assets. Because they finance long term liabilities, they are available. However, there must be clearly defined rules and regulations. There must be clearly defined terms. Exit terms that those investments are secured.

    In a country where you borrow from outside to finance projects when you have pension assets lying, how far have you gone with your offshore investment? How far about marginal players? What would you like to be remembered for and what would you call your major challenge?

    We believe the ICRC needs to play a greater role. MDAs should be able to work with the ICRC to come out with clearly identified long term projects that long term funds can be invested in, that is the starting point. Concessionaires should also come out with a real starter process. Should we continue to finance infrastructure from the budget when we have private sector? I don’t think so. There is this debate that make the bride beautiful before you offer it to the groom, is that the argument? If an activity can be financed by the private sector, give it to the private sector to finance. Why don’t we have all the enabling environment for them to finance that. As a country, we need to agree on that. If we do that then we don’t need to borrow to finance infrastructure.

    The last time we interacted with the media, we said there are two PFAs that have not complied. The IGI and Citi. IGI has indicated their interest to comply. To the two of them we issued notice to the board. Our law says that you must give notice for revocation. You can’t revoke immediately and the notice is 28 days, which means you are given the opportunity to meet up. Most likely, for IGI when our board meets we may take a decision and ask them to return the licence, because they are prepared to do that. They have the funds and they say they are going to do that. Unfortunately with the Citi Trust, they decided to take us to court, we are in court with them. As at today, you could say we have 21 PFAs, plus IGI.

    Do we expect more of them to have merged? Yes. We raised their minimum capital from N150 million to N1 billion. The argument was that is the N1 billion not too small? Of cause not! They are asset managers and don’t need huge capital. They don’t take credit risk. But they needed capital for expansion to provide effective services to the public. We have been discussing with them. We encourage mergers and acquisition. What we are saying is that the more accounts you have, the better you are generating resources to manage your business. We say, for instance, if after 90 days, there is shortfall in this N1 billion capital, we can withdraw the license. It is a huge task, especially for some of the marginal players for them to maintain that N1 billion continuously. We will continue to encourage them through moral suasion. It is better to operate in a bigger environment and get more reliable returns than to be a managing. In most countries, Chile, Mexico started with a large number but over the years ended up curtly with six or seven. Some people say no you will create an oligarchy. The bottom line is that the stronger they are, the better.

    What the law provides for offshore investment is that no pension assets can be invested abroad except with the approval of the president and in accordance with the rules and regulations of the Central Bank of Nigeria. Let me tell you why we have been reluctant. One, we needed long term funds to be invested in infrastructure. Domestically, we need funds, and encouraging funds to be taken outside would not be in best interest. The second issue is that our operators and us need to understand investment instruments. Thirdly, we needed to build confidence. We don’t want contributors to start saying we contributed and PFAs take my money abroad. We needed that confidence that Nigerians would trust PFAs, will trust PenCom. In the intervening period, what we did was to say that for private equity fund to provide only five per cent, the funds they generate they can invest 75 per cent locally and invest 25 per cent abroad. The reason is that most of them have cross border establishments. Also, PE funds are usually provided by outsiders.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

  • ‘Insurance is more unpopular among the elite’

    ‘Insurance is more unpopular among the elite’

    As important as insurance is, at the corporate and personal levels, many are still averse to it.This feeling is prevalent among the least expected segment of the society – the educated. In this interview with SIMEON EBULU and ESHIET UYOATTA, the Managing Director, Royal Exchange Prudential Life, Wale Banmore, speaks on the challenges and prospects in the sector, saying the future holds much promise for stakeholders. Excerpts:

    Technology plays a key role in today’s business. How have you employed information technology (IT) to achieve your goal?

    As far as any service industry is concerned, if you want to make an edge, you have to invest in IT. Though I may not be able to give you figures right way, I can assure you Royal Exchange as a group has invested so much in technology.

    In the life aspect, we at Prudential Life pioneered the e-payment business in insurance in Nigeria. We upload our products onto a platform where people don’t need to pay by cash; all you need is to pay by recharge card. You buy our recharge card which has a pin number and you are automatically credited in our office. Wherever you are, you get an alert that your policy has been loaded with so much amount.

    In this regard, every other company is just following us. It is four years since we started it and has given us an edge over others. As a company, we are always trying to put an edge to it. We have some other innovations which will come on stream in the next few months, all aimed at making the process even more simpler.

    To what extent have you employed e-transaction and claims payment to drive the business?

    Claims payment is the real essence of insurance. The payments are in form of savings. We have a very robust IT platform that takes care of all these items. By the time any customer comes on maturity, all we do is go to our IT, print out every detail of your transactions and send it to you to cross-check with your record at home, or you come for reconciliation. The process is very smooth and rewarding.

    Have you had issues arising from this, issues, such as knowledge gap between your customers and the IT platform?

    We have never had any issues with our clients. Where interests are calculated and there seem to be an area of disagreement, all a client does is simply come into our office with his observations and they are promptly sorted out.The system is working 100 per cent. This is so because most of the customers, at inception are educated; they understand how the system works. If any marketer comes to you, after marketing the different products, you are the one to indicate which product you want to buy. We discourage in totality, the use or exchange of cash, based on experience. You know the morality aspect of giving cash to individuals. There are a lot of temptations and this is one of the reasons we employed the IT platform to take care of our e-business.

    How have you fared so far?

    As of last year, our total premium at the Prudential Life was about N672 million, but for this year, we have already recorded over N1 billion in premiums. This is a giant leap considering where we are coming from.

    What is responsible for the leap?

    It is about being focused. As a team, we try as much as possible to examine where we are coming from. What enabled our growth is being focused and being proactive to the market. We try as much as possible to make our service delivery key to our clients by trying to revolutionise our processes, and knowing what our customers need.

    NAICOM said less than 10 per cent of Nigerians have insurance cover, either general or life. What is your opinion?

    It is true. It is actually less than eight per cent. Records actually show that less than six per cent of Nigerians have any form of insurance coverage. Insurance penetration in Nigeria is surprisingly low. You cannot trace it to education, in the whole of Africa we are leading in terms of education but it is even more unpopular among the elite.

    In Nigeria, based on my experience, it is even easier to sell insurance to the semi- literates and even the illiterates than to the educated. People that don’t buy insurance in this country are the literates, except of course at the corporate level, where they take insurance to protect their businesses and properties, but can hardly take a life cover for themselves.

    Now what we do is, if you pay premium regularly and suddenly, we don’t see you in a month or two, somebody will come to find out what is wrong.

    In the past, most firms did not bother to check, so there was a lot of residual money with insurance companies, not because they did not want to pay, but because they did not go ahead to look for who to pay to.

    If the wife or son of the late policy holder knows that their late father had a policy and never bothered to go and check, they will just carry the wrong notion that insurance don’t pay claims and the notion is still carried around even today.

    Insurance pays claims, but because policy holders/beneficiaries do not know how to go about collecting their money, they say insurance firms don’t pay. Now there is consciousness that insurance firms pay claims, that is why our claims level is very high because of awareness among the people. When people pay premium, they know when to come and collect their claims.

    President Paul Kagame of Rwanda, while in Nigeria recently, said 94 per cent of Rwandans are covered by life policy. What percentage of Nigerians are covered by life policy?

    I don’t have the figure as it were. Our percentage, or figure of those covered by life policy can be given by the industry regulator because they are the ones that collate these data. We have not had that kind of data in the last one or two years. On the whole, it is still less that 10 per cent in Nigeria, whether life or general. If you go to other African countries, it is alarming the level of awareness in those countries, even with the level of education when compared with Nigeria. In Kenya, South Africa etc, there is a high level insurance awareness. They are just conscious of insurance.

    Nobody will buy a car and put it on the road in Rwanda without insurance, but there are a million cars in Nigeria travelling from one end of the country to another without insurance coverage.

    How are you try to contain this level of ignorance?

    The ignorance level in the past few years has actually reduced. There have been a lot of education/information dissemination in the country though the press by industry regulators – NAICOM and NIA. There have been a lot of seminars, advertisements, outreaches, all aimed at educating Nigeria on insurance. Our company has engaged in so many programmes this year. We sponsored one of the youth programmes in Lagos State, we organised workshop for them. I even sponsored one of the leadership programmes in Lagos. It is all about trying to educate people at that early stage. When they have that awareness early in life, when they grow up, they will appreciate insurance.

    About 70 per cent of Nigerians reside in the villages and insurance seems to be a city issue. What are you doing to reach out to this critical percentage of our population?

    For my company, we have branches in all the states of the Federation. Apart from that, we have a lot of marketing outreaches in terms of agents who reside in these rural areas. The issue of infrastructure is still a challenge in the country. You and I know how many villages have electricity supply. So even if you do advertisement, how do the people in the villages have access to the advertisement to see what is going on? There is a limit to which you can go from house to house, door to door, advertising insurance. In villages in South Africa, no matter how few the people who live there, the houses have electricity and television. So, when you advertise, they are aware and are able to follow up. Despite the challenges we encounter in Nigeria, we still try to be physically present in most of the local governments and state capitals.

    Nigerians embrace banking without being forced, but are not embracing insurance. Why?

    It is quite unfortunate, the two (bank and insurance) came from the same Britain together, but I don’t know at what point banking got far ahead of insurance. Now we are trying to catch up. I still believe it is a cultural thing. Even our educated people, when they are abroad, they don’t joke with insurance, but the moment they are back, they careless about insurance.

    Is it something to do with enforcement?

    We have a problem of enforcement. It has been our major challenge. We have always had laws, rules and regulations, but the fact remains that we have never had enforcement.

    In most of these countries that record good insurance awareness, they have enforcement. In Nigeria, we don’t have enforcement. Somebody in Kenya, South Africa, etc cannot drive a car up to a kilometre without being arrested if he doesn’t have insurance. But in Nigeria, people drive from Lagos to Kano, and all over the country without insurance and without molestation. In other countries the police have gadgets that will indicate that a vehicle does not have an insurance, but here in Nigeria, there is no such thing.

    NIA came up with a similar idea. What has become of it?

    It is still in the pipeline. I can assure you because it will go a long way to ensure enforcement. Look at life insurance, the law says employers of labour that have up to five workers must take group life policy to provide for them. How many factories, employers with 10, 20, 30 and more workers are operating without the policy.

    Nobody goes to that factory to find out whether the group life policy has been obeyed by these employers or not.

    Who is to do that?

    Insurance cannot enforce. It is an organ of government that is supposed to do that. Insurance companies cannot go to a factory and demand to see whether the factory owners/manager has complied with the group life policy.

    Agencies of the government go to these factories to inspect what they do, whether they do it right, collect taxes and ask for other payments, but do not ask to see the insurance policy for group life for the workers. No agency of the government asks these questions. That is why our union, the Nigeria Insurance Association (NIA), should not only be agitating for increment in premium. Other benefits of life that Nigerians are losing are so many. So many Nigerian employees are dying on their jobs without being adequately compensated. The employer will be doing himself a big favour if they subscribe to the group life policy.

    It is not easy to write individual cheques of say N10 million or N20 million for employees, while if you have taken a group life insurance for your workers, you would have paid, may be as low as N200,000 and then when the disaster occurs, the insurer would have taken over the responsibility. You could pay as little as N200,000 and when the man dies, you could collect compensation of say N15 million, that’s the essence of insurance.

    Do you raise these issues with your clients?

    When we market, we always do, but the fact remains that some of them want to cut costs. When factories or organisations in Nigeria want to cut costs, one of the major areas they look at is insurance, it is really unfortunate. This is as a result of lack of enforcement. If a company has 10 vehicles and doesn’t bother about insurance, it is because he knows, his vehicles will not be impounded for lack of insurance. But if he knows his vehicles will be impounded for lack of insurance, he will insure them.

    What’s the impact of the economic environment on the sector?

    It has really affected insurance, but things are looking up. We all know the economy dictates the purchasing power of the people. When organisations or individuals want to adjust, the first item they look out for is insurance. It is as a result of the scarce economic resources. Directly or indirectly, insurance thrives on the economy. When the economy is booming, insurance thrives, but when it is the other way round, people will try to adjust, including the government.

    A lot of their properties are not insured. Go to the government secretariat, you will see a lot of their damaged vehicles abandoned there. They don’t care about them because they did not take insurance cover for those vehicles or other state properties. Even as at now, only very few states have group life insurance for their workers.

    For those that have it, their workers know that when they die, their families have something to fall back on.

    When you go out to sell, who are your target?

    We want to go fully into retail. My target is the individual, the corporate market is almost saturated. Individuals are our target. We can no longer rely on government account, that is why we are driving our retail account very aggressively, especially the high networth and the middle class who can still spare something out of the little they are collecting as salaries or as income.

    Nigeria has about 160 million people. What strategy do you have in place to reach the people?

    The strategy we have in place is product-wise. We designed several products for people of the different strata in the society. We have products meant for the executives, middle level workers, people like drivers and others. That is the major strategy we have.

    We make sure all our products are tailored towards the high networth people, the middle class people, the lower class people, and whoever in the society, and make sure we speak their language too. We speak to them at their levels.

    For our population of say 160 million, if just about 25 million of them are fully insured, there will be no complaints in the industry. But I can assure you, the economy is key; the economy has to be buoyant for people to have extra to put into insurance.

    At the Nigeria Stock Exchange, insurance stocks are the least performing.Why?

    We all know what happened at the capital market. It is quite unfortunate. If we look back to when the capital market was very active, the shares of the insurance stock were all going up. The crash at the capital market was very unfortunate on the insurance companies because it was at a time people were buying more of our shares,

    If you look at it now, it will be a source of concern, but the fact remains that insurance companies have not been making that kind of profit to pay dividends. You can only ask to buy more shares if you are paying dividend.

    For us in Royal Exchange Prudential Life, we paid dividends this year to our shareholders. The issue mainly is because most insurance companies have not been declaring dividends. It is only when you make profit, you plough back some into the operations of the company, then you can spare some to make the shareholders happy.

    But things are really looking up in the industry. I am sure very soon, the share price of our company will rise. The major reason the insurance stocks at the capital market is at nominal value is because insurance companies have not been paying dividends to shareholders in the past few years after the capital market crashed.

    Has ownership structure affected the level of acceptability of insurance companies?

    Ownership structure is not the main issue. If we want to invest in a company, the major thing you look out for is the ability to get returns, and you have to be conscious of the people driving it and the historical background of everyman there.

    But even if the company is family owned, but is doing fine, investors don’t have that fear, it its performance that determines why people want to put their money into their stocks. In our own company, we don’t have that problem because we are an old British company that Nigerians bought into and become shareholders.

    Our historical background is there for all to see.

    We still have insurance that are owned by close families, but they are in the minority, even the ones owned by the banks are in the minority too. That is not an economic factor that people do not have confidence in insurance companies. What happened at the capital market was a major factor.

     

     

  • ‘We can’t assess insurable value of flood’ 

    ‘We can’t assess insurable value of flood’ 

    Despite efforts to get Nigerians to embrace insurance and reap its numerous benefits, the National Insurance Commission (NAICOM), the sector’s regulatory body, says about 90 per cent of Nigerians do not have insurance cover. This is worrisome, says Godwin Ejembi Odah, Managing Director/Chief Executive Officer, Union Assurance Plc, who in this interview with UYOATTA ESHIETaddresses the issue and other challenges facing the industry. Excerpts:

    What is responsible for the lack of interest in insurance ?

    I think a lot of it has to do with lack of awareness, because you have to embrace something that you know. If you don’t know about something, it will be difficult for you to deliberately embrace it. If Nigerians are not embracing insurance to the extent that they should, I would say it is because they are not fully aware of the benefits.

    Having said that, there are some Nigerians who have unsavoury experience in the past with some providers of insurance services, and some of these Nigerians point to that fact that they did not have a good experience with past dealings with some insurance firms. There is also the fact that the economy is not doing as well and so disposable income is low, and when people want to allocate their disposable income, they allocate them in order of priority; insurance is not likely to be the first priority. So, when you put all these together, you can see why the demand for insurance is not as high as it should be.

    What is the level of acceptability of insurance?

    The penetration of insurance is better in virtually every other developed country than in Africa. And within Africa, it is still deeper in many other African countries than Nigeria. South Africa, Kenya, Egypt and others have deeper insurance penetration, relatively speaking. In many places, it is better than Nigeria.

    There are reports that poor legal framework and low perception are also responsible. How true are these?

    Image arises from experience sometimes, though there are people who despite not having any personal rely on the experiences of others. There are also misinformation and speculations about what insurance companies do, and all these will affect the industry. On legal framework, there is enough legal frameworks to encourage demand for insurance and that is why National Insurance Commission (NAICOM) came out with the Market Development and Restructuring Initiative (MDRI). This is a strategy that is built around the existing legal framework, in the sense that NAICOM wants to enforce laws that are already in our statute books, existing laws that make insurance compulsory in several situations. Motor insurance, insurance of buildings under construction, insurance of employees, and all that, so I would say that there is a reasonable legal framework within which to encourage Nigerians to take up insurance in crucial situations.

    What are the other major constraints?

    In countries where insurance has thrived successfully, there are one or two things that are in place that we do not have in Nigeria. Where credit is very low, you are bound to have problems because if you have to have money before you access anything you want to buy, if you have to pay cash in order to buy whatever you want, then when you don’t have cash, you are not able to get what you really want. That really is a problem.

    The absence of credit is a problem in Nigeria. Elsewhere, if you want to buy a house or motor vehicle or other assets, you have credit facilities granted you by the banks and the way the banks protect this credit is by ensuring that you insure the asset acquired with the credit. In Nigeria, it is very difficult to have facilities to buy a house or a car, people have to struggle to save money to buy these assets, this is why when they finish buying them, because there is no framework to force them to take insurance, as would have happened if there was credit institution that granted him the credit facility, so they don’t bother. This is a major factor; we don’t have a credit system that would have automatically ensured that assets that are purchased with this credit are insured. That is a major problem confronting insurance penetration in Nigeria.

    There is the issue of compulsory insurance. Why should people be forced to insure?

    It is like saving someone from himself. If someone is trying to commit suicide for instance, his family and friends have the responsibility to prevent such a person from committing suicide. If you want to, for instance, drive your motor vehicle anyhow you like – at the expense of other road users who could be motorists themselves or pedestrians, it is not right to allow that to happen. The idea behind compulsory insurance is to protect other individuals against the harm that you can cause them. If you have a motor vehicle for instance, the government expects you to take at least a third party insurance. The idea behind that third party insurance is to protect other road users against your recklessness. If you want to be reckless, let it be that at least you have insured a potential damage you can do to this other third party.

    There is also the law that says if you employ up to five people, you must provide them with an insurance cover against certain risks. Even though this is in the interest of both the employer and the employees, the employers often see it as they are being forced to do what is good. If they are being forced to do what is good for the sake of other people, I think it is for a good course.

    If you have a building under construction and the government says you must insure it because there is a possibility that it can collapse and kill other people, if you the builder do not see any good reason in ensuring that other people are protected and the government sees a good reason, is it a good or a bad thing? It is wrong to say people are being forced to insure; rather they are encouraged to or compelled to take insurance in the interest of other people.

    Are insurance firms doing enough to expose the business to as many Nigerians as possible?

    I think there is a lot that has been done, and a lot more can still be done under various umbrellas. Under the umbrella we belong to, that is the Nigeria Insurers Association (NIA), where all the underwriting companies belong, we regularly advertise in the newspapers. National Insurance Commission (NAICOM), being the insurance industry’s regulator, also does the same. Individual insurance companies also advertise in various media, both electronic and print. A lot of efforts have been put in, and a lot more can still be done.

    Insurance seems to be a city-based issue in Nigeria as one can hardly hear of it in the villages. What is the industry doing about this?

    Insurance should not be a city issue. It is like when you want to begin a fight you pick the easiest fight first. The cities are where you have the most literate people; it is where you have the most economic activities, so the city is where most demand for insurance is. That is why insurance companies seem to concentrate in cities. But with time, these efforts also will have to go into the hinterland because economic activities will also gradually spread into the hinterland. If you take agricultural insurance, it will be more relevant to people outside the cities. So, when agric insurance becomes more and more potent than what it is now, you will find out that people outside of the cities, farmers in the various villages will then become subject of agric insurance; so it is a matter of time, we are just at the beginning of a long and important journey and that is the journey of providing insurance for virtually everyone who is a Nigerian because every Nigerian needs some form of insurance, or the other.

    Which other factors affect insurance in Nigeria?

    Poverty certainly negatively affects insurance because you should be able to afford it to pay for the services, the premium, which is what you pay in order to be granted a cover. The level of education also affects insurance because you need to understand the contract you are going into. Our contracts today are written in English language. In other words, you have to read and understand what your rights and obligations under the contract are, you have to be literate. This should not be a barrier because there is nothing that stops us from writing our contracts in our local languages, but even to do that, you should have some indication of demand. With time these things will come to pass.

    There are complaints also of the issue of technicalities in the trade. Are these technicalities not putting off potential clients from its acceptability?

    It is a very simple thing. There is nothing too technical about insurance. Insurance is about you handing over the risk when you run to a company that specialises in handling such risks and you pay them a little amount of money called ‘premium’. When the risks crystallise, that is what you never wanted to happen, if  such ever happens, then they pay you and put you in the same position you were before you started taking that risk.

    What people complain about may be the wordings of the contract and insurance companies have started making efforts towards simplifying the wordings of the contract. Because it is a legal contract, it has some level of technicalities to it. The relationship between the insurance companies and the person being insured is a legal relationship; legal contracts are not always very simple but despite that, efforts are being made to simplify the wordings in a manner that people will now understand with ease.

    Union Assurance has held its Annual General Meeting (AGM) where an impressive result was posted. What made that result possible and what are you doing to sustain and improve on it?

    Sustained hard work and the benefits of the Enterprise Restructuring Program (ERP) that we put in place in 2009, that is the goal of the transformation programme that we courageously began in 2009.

    How is Union Assurance driving insurance penetration?

    We sell all the normal insurance products and we are also working hard to develop new products. We have five new products that are awaiting the approval of NAICOM before introducing them into the market. We are a company driven by the desire to innovate, that innovation can only show by way of new products. We sell all the products that other insurance companies sell, both on the life and non-life side, but in addition, we are developing new products based on our observation of the needs of the insuring public.

    Do you see the efforts of NAICOM, yielding the desired results?

    What you are talking about is the Market Development and Restructuring Indicatives (MDRI). It is a courageous project and also one that have a lot of potential. We may not reap all the benefits this year but there is the likelihood that things are going to work better in terms of the income, the increase in premium income in the industry.

    Nigeria recorded the worst flooding ever, where millions of people were displaced in most parts of the country, and over 140 were said to have died. What is the insurable value of the assets destroyed during the disaster, because the cost of Hurricane Sandy that happened in the United States after the flooding in Nigeria has been put at over $20 billion?

    We don’t have accurate statistics for it. It is not every policy holder that has flood policy. Right now, it is difficult to say what percentage of the affected population that has flood policy or what percentage of those that have flood policy that were affected in the flooding in Nigeria. It is statistics that need to be obtained. The American environment is driven by statistical information. That environment is different from our own and that is one of the major problems we have as a developing country.

    The government is said not to match words with action when it comes the issue of insurance premium payment. How does this affect the industry?

    The government does pay premium. It is only that it takes time. They don’t pay as at when due, but the government does pay. The government generally take time in everything; for instance, the budget that is the basis for everything does not usually become  operative  immediately because of the process that it goes through. The National Assembly has to approve budgets before they can become operational. That is why the government takes time before paying premium but it does pay. But we hope that there will be changes because we are moving towards a state of ‘no premium, no cover’. If you don’t pay premium, there will be no cover for you.

    In the capital market the insurance stocks are often referred to as the ‘penny penny stocks’ because they are at nominal value of 50 kobo except for about two  stocks. What is the cause of this pathetic situation and how can it  be rectified?

    The value of stocks is mainly driven by demand. What causes the demand for a particular stock is the potential or prospect of profitability of that stock. The day insurance companies begin to declare reasonable profits for their shareholders, other potential shareholders will begin to look at the stock and think about buying them.

    Right now, many insurance companies are struggling and that is not unusual because when an economy is struggling, it is difficult to for a component of that economy to outperform it and insurance in particular because demand for insurance in Nigeria is pretty lower and what causes how much income you get is as a result of the demand you get for your product. So, as long as the demand for insurance remain low, insurance companies will have little money to play with and with the cost of operations and other overheads, at the end of the day, you don’t have much money to declare by way of profit. The low profitability of the insurance industry is the reason insurance stocks are not attractive. The stocks will become attractive when people begin to demand to buy them and that is when they begin to become profitable.

     

  • ‘Agric lending has risen’

    ‘Agric lending has risen’

    Despite its enormous potential, agriculture suffers from funding in Nigeria. Banks run away from supporting the sector, citing among others, risks, high interest rate, short term nature of sources of funds and lack of access to technology. But things, according to the Managing Director of Sterling Bank Plc, Mr Yemi Adeola, are looking up. He told Group Business Editor AYODELE AMINU that lending to the sector has risen following the introduction of some schemes by the Bankers’ Committee. He also spoke on the benefits of Sterling/Equatorial Bank merger and how regulatory challenges worldwide have been putting lenders on their toes.

     

    Lending to the agricultural sector of the economy is ridiculously low at less than two per cent. Why are banks shying away from lending to this sector given its potentials?

    Agriculture is indeed the backbone of the Nigerian economy and today contributes about 42 per cent of the country’s Gross Domestic Product (GDP) and accounts for roughly 75 per cent of the non-oil sector’s GDP.

    Regrettably, in spite of this agriculture accounts for only 1.7 per cent of total lending by banks. I will give you a few reasons why this has been the case: first, banks have operated in a high interest rate regime, coupled with the short-term nature of the sources of funds to banks. Second, agriculture has been viewed as a ‘high risk’ venture given its peculiarities such as susceptibility to unfavourable weather conditions. Third, infrastructural deficiencies and hugely limited access to improved technologies limits agricultural production considerably.

    However, with the introduction of the various intervention funds and credit enhancement initiatives by the Central Bank of Nigeria (CBN), Bank of Industry (BoI) and the Federal Ministry of Agriculture (which have made lending to the sector bankable and profitable), I can say confidently that lending to the sector has increased and we expect to see greater participation of banks over time. Schemes such as the Nigerian Incentive-Based Risk Sharing in Agricultural Lending (NIRSAL) and the Commercial Agriculture Credit Scheme (CACS) have gone a long way towards empowering farmers around the country and have made possible things, which a few years ago could only be imagined. I am happy to say that Sterling Bank has grown this segment of its loan book to almost 5 per cent of total loans. Also, we have in place a competent management team looking at this segment carefully and working with borrowers to explore the innumerable opportunities available.

    Today, Sterling Bank ranks as one of the most prominent banks providing financing collaboration with stakeholders in the Agricultural sector through strong partnerships with the Federal Ministry of Agriculture, the CBN, BoI, and other international development finance institutions.

    The oil and gas sector, in addition to capital market used to be the two major two sectors that enjoyed funding from the bank. What is the situation today?

    Sterling Bank has over the years helped to promote economic activities by optimally extending its resources to identified sectors where it will make a meaningful impact and support economic development. Two of the sectors that benefited hugely from the bank’s lending activities in market. Lending opportunities increased in the wake of the Capital Market explosion that witnessed the emergence of a vibrant market towards the end of the last decade. Also, deregulation of the downstream market of the Oil & Gas sector coupled with the improved financial strength of banks attracted the banks to these sectors.

    The continued increase in funding to the capital market was buoyed by the huge inflow of foreign direct investment into the sector, which stimulated the market and encouraged equities trade and bank’s channeling of excess liquidity to the sector. This continued unabated until the market began to overheat and eventually crashed in 2007/2008 with its negative impact on the banking system. The oil & gas sector equally witnessed sudden and sharp drops in international energy prices with consequent depreciation of the naira, which dealt a heavy blow to the downstream sub-sector. Thankfully, the impact of the meltdown of these sectors on Sterling Bank was minimal, due to our limited exposure to them.

    While Sterling Bank has continued to grow its oil & gas business to date, the same cannot be said of the capital market because of the dearth of economic activities and market appetite to warrant such support. Today however, oil and gas ranks high in the lending portfolio of the bank. Other sectors that the bank has continued to support include small and medium enterprises (SMEs), manufacturing, agriculture, power, telecoms, infrastructure and project finance among others.

    How will you assess the banking industry in the first 10 months of the year? Has the recent banking sector reforms paid off?

    So far, we have witnessed a sector-wide return to solid profits supported by the clean-up of balance sheets led by the Asset Management Corporation of Nigeria (AMCON) in 2010/11 and the return of risk appetite, which has boosted lending. We have also observed early signs of returning investor confidence mostly in the portfolio segments. This has reflected in the improving valuation of listed equities.

    2012 has not been without some pain as some of the policy initiatives have put significant pressure on profitability. An example of such measures is the sharp increase in the Cash Reserve Requirement (CRR) to 12 per cent – the highest in a decade as the CBN struggles to contain inflation. The impact of the funding costs of most operations has been significant. This is one example of some of the current challenges facing the sector.

    The pace of regulatory changes both domestically and globally continues to severely challenge operators and attaining a satisfactory compliance status in relation to these regulations is often quite demanding of management time and corporate resources. Nonetheless, one must commend the actions of the domestic regulators who have tended to be significantly ahead of the curve when compared to other jurisdictions.

    But the current positive perception of the sector by stakeholders across the board stands as proof that the right choices have been made.

    In spite of the publicity that heralded the introduction of the CBN’s cashless policy in Lagos, one cannot really say that the policy has fully taken off. Who do we blame for this…the banks or the bank users?

    Our data suggests otherwise. We have seen our branches in Lagos drop from our list of top cash users since the introduction of the policy – a clear sign that people are responding. We expect that it will take some time before total cash in circulation drops to the anticipated level but the early signs are quite promising. Our progress in providing alternative payment channels has been slow as the reliability of the available communication solutions continues to be a challenge. We are, however, evaluating an industry-wide solution (at Bankers’ Committee level), one that should significantly improve our ability to serve our customers better.

    The benefits of the policy when fully achieved would be increased convenience, additional service options, cheaper access to out-of-branch banking services, and reduced risk of cash-related crimes to the individual. For financial institutions, it would increase access to capital, reduce revenue leakage, cash handling costs, drive incremental investments in alternative channels and lead to product innovation. Without the policy, the banks might not have found compelling business reasons for doing so.

    That said, it is probably sensible to wait a while longer before reaching any conclusion on the long-term impact of the policy.

    Nigerian banks used to do well in the area of consumer promo. Why are they shying away from investing in consumer products these days?

    Promos are a means to an end, a way to promote specific objectives. We continue to run product promotions to enhance our retail customer base as this remains our core objective. You may see fewer promos when it comes to consumer lending as banks strive to strengthen their risk management framework before pushing lending products, especially those targeted at the mass market.

    Going forward, we expect to see more targeted product promotions as banks define their market segments based on their risk appetite. The fallout of the financial crisis in the industry was a tightening of banks’ risk management frameworks and a re-alignment of their individual risk portfolios. We are unlikely to get to the days of endless and unrelenting offers of unsecured consumer credit that created unsustainable household debt in the western market.

    In line with our retail strategy, Sterling Bank has a bouquet of promos in the pipeline targeted at specific segments of the retail market to encourage the culture of saving particularly among the younger generation. One of such is the Savers promo, which is currently running.

    To what extent has the gains of the business combination between Sterling Bank Plc and Equitorial Trust Bank Plc (ETB) reflected in the new Sterling Bank?

    The business combination with ETB is a significant milestone in Sterling Bank’s drive towards building a globally competitive retail franchise. We almost doubled the size of business with the addition of over 300,000 active customers. We also grew our total assets from N350 billion to nearly N600 billion, added 80 active branches to our network and increased our staff strength by 1,300. As a result of the expanded footprint, we have now succeeded in refocusing our attention on alternative channels, nearly doubling our Automated Teller Machines (ATMs) in one year.

    We have also leveraged our expanded presence to grow our business in the first nine months of the year. Our gross earnings rose to N51 billion, almost twice the amount generated in the same period last year while interest income rose by 110 per cent year-on-year resulting in a 64 per cent improvement in profit after tax

    If you look at our third quarter results, we grew loans and advances by 23 per cent to N230 billion on the back of our enhanced presence in the corporate banking segment. Following our successful integration, we grew our deposit to an all-time high of N434 billion last quarter.

    In your unaudited result for the first nine months of the year, profit before tax jumped from N3.01 billion to N4.77 billion, while after taxes, net profit distributable to shareholders increased from N2.74 billion to N4.49 billion.What should your shareholders expect when the full year result is ready?

    Our philosophy is to think long-term. We avoid the temptation of judging our progress on short-term parameters such as quarterly numbers. We are building a sustainable business that will contend for a leadership position in our chosen market.This requires a long-term view. Despite the long-term focus, we are pleased with the near-term progress recorded on on-going initiatives and are convinced that things will get even better as we consolidate on their early gains.

    That being said, our quarterly and yearly numbers are certain to continue on the upward trend in the foreseeable future.

    We expect to translate more of the enhanced revenue into shareholder value during the final quarter of the year on the back of the third quarter momentum. As an institution, we are focused on delivering sustainable value to our shareholders but the details will become clearer after year-end. The combined franchise has enhanced earning capacity and efficiency is just beginning to kick in.

    To what extent have you been able to combine Equitorial Trust Bank customers with those of Sterling Bank and what is your customer base?

    The integration of the erstwhile ETB with Sterling Bank was a success by all parameters. Our processes, products and branches were harmonised seamlessly and became functional across the enlarged entity on April 1, 2012 – five months after the announcement of the merger in October 2011.

    What is most satisfying for me as Chief Executive Officer is that my team accomplished these by relying almost completely on internal resources and without compromising our risk management and operating processes.The record-setting speed and efficiency of the integration process is unparalleled in our industry and is unlikely to be surpassed for some time.

    We successfully migrated over 300,000 customers from ETB to our network in April 2012 and we are well on the way to achieving one million active customers. We remain deeply grateful to all our loyal customers who stayed true to the Sterling brand during the minor disruptions witnessed in March 2012 when we integrated our systems. We have reached out to many of these customers during the various customer events to show our appreciation and we certainly look forward to broadening this cherished relationship.

    Sterling Bank used to be a fringe player before last year’s merger with ETB. How strong is the brand now in terms of coverage and net worth?

    In most African countries, a bank with over $4 billion in assets and 180 branches will be among the top three. It is a testimony to the size of the Nigerian market that we are classified as a mid size bank. With N45 billion in capital and a workforce of 2,800 professionals, Sterling is fast becoming systematically important. We are certain that in a few years, we will be a source of national pride and a globally respected financial brand. We have done the groundwork and the results should become apparent to the public in the near future.

    In the first nine months of your operation this year, loans and advances improved from N164.3 billion to N229.43 billion. What is the target set for the full year and how realistic is the target?

    We have already achieved a 23 per cent growth in loans and advances this year and this is consistent with our guidance to the market for 2012. However, we remain open to tapping exceptional opportunities that are available within the boundaries of our risk appetite. We are however, mindful of the consequences of aggressive loan growth. The repercussions can be disastrous – hence our strategy of a moderate growth in risk assets for the rest of the year.

     

     

     

  • ‘Nothing wrong in borrowing’

    ‘Nothing wrong in borrowing’

    At the last count, eight states Lagos, Edo, Ekiti, Imo, Yobe, Kwara, Bayelsa and Delta, had borrowed from the capital market to fund some infrastructural projects, raising fears about the sustainability of their debts. But the Director-General, Debt Management Office (DMO), Dr Abraham Nwankwo, says there is nothing wrong in states or the Federal Government borrowing, as long as it is within acceptable limits.He spoke to with Group Business Editor AYODELE AMINU on a wide range of issues on the sidelines of the World Bank/International Monetary Fund (IMF) annual meeting in Tokyo, Japan. Excerpts:

     

    Some states have gone to the capital market to borrow. Given that most of them have low internally generated revenue (IGR) and rely on federal allocation and oil, can they sustain these debts if something happens?

    The issue of borrowing is global. Borrowing is for regions, countries both developed and undeveloped. It is for states, provinces and households. So, first of all, let me make it clear that it is specifically wrong, politically and methodically to single out states and start talking about states borrowing or not borrowing. We have to say that whether as an individual, family, school, organisation, company or country, you have to borrow responsibly. So, let me make it clear that there is nothing that makes borrowing by a state sinful in itself. Every economic agent should borrow responsibly. In the case of Nigeria, of course states borrow within acceptable limits .There are rules and guidelines and states follow those rules and guidelines. First of all, no state in Nigeria can borrow from the capital market without following the process of borrowing from the capital market.There are guidelines that apply to every government entity that wants to borrow from the capital market and those rules have been there and are still there and they are being enforced by Securities and Exchange Commission (SEC) through the investment and security Act as amended. There are terms and condition for any entity whether private or public that wants to borrow from the capital market. So, it is for SEC to ensure they monitor states or make sure that whoever wants to borrow comply with the various specifications in the investment and security act 2007. Hence, the procedures, which private companies that wants to borrow from the capital market undergo is the same with that of the states in the hands of SEC.

    Secondly, in the case of states because they are government’s entities and sub-nationals, they have additional regulations and monitoring guiding them as contained in the fiscal responsibility law in the debt management office Act. And based on the authority given to the DMO and the authority given to the minister of finance in the Fiscal Responsibility Act, states are also enforced to comply with additional requirements beyond what is already provided in the Investment and Security Act. So, linking states’ability to service their debts with their Internally Generated Revenue (IGR), of course, is the prudent thing to do and that is what is being done. That is why the guidelines allows no state to borrow in such a manner that its total debt service on a monthly basis is more than 40 per cent of its monthly allocation from Federal Allocation. What is taken into account is the fact that the money is essentially oil revenue. So, as a state, it is expected that your total debt service should not be more than 40 per cent of Federal Allocation money. This means that the idea of sustainability of oil revenue has already been factored in. Everybody must realise that it has been taken into account that oil revenue is volatile and unstable. What this means is that for states that already have internal generated revenue now have a buffer. The rule has been made such that every state must depend not 100 per cent on oil revenue. This is to account for the volatility and vulnerability of oil revenue. So, if you have internally generated revenue, it is being neglected and considered as a back up. The second way to look at it is that every year, DMO conducts a debt sustainability analysis and takes into account that oil revenue may drop to as low as $30 per barrel. It is on this basis that the DMO has an idea of the total debt owed by the country and looks at it and consider what could happen if oil revenue were to drop to as low as $30 per barrel.

    This means the way we manage our debt or control it is such that the vulnerability or volatility of oil revenue is essentially taken care of. The second thing is beyond the figures – that is the value added. This is what I believe every country and states should be focusing on. What value do you generate in terms of productivity, growth and employment with the use of financial resources whether borrowed or not?

    From the guidelines, I can say Nigeria’s method meets the best standard in the world. But in addition, over the past few years, effort is being made so that emphasis is not placed only on the statistics. Emphasis should be on using resources effectively and efficiently so that you can use it to generate maximum growth, employment and eradicate poverty.

    When you look at the discussion going on at the IMF/World Bank meeting, you can discover that all over the world, countries are battling with issues of debt sustainability and the like. But you can say that Nigeria is relatively lucky because even before the global financial crisis started Nigeria has been on path of reform since 2004. We continued on that path of reform up till the time that the global crisis set in and that is why despite the global crisis, the country has not been badly impacted like other parts of the world. Because if Nigeria had not been on the path of reform in 2004, when the crisis set in 2008 up till about 2001, it means that with the turbulence in the oil market it is possible for us to now be experiencing the serious impact too. But go and look at the statistics, we will see that even despite the turbulence our growth still averaged about seven per cent. There are few countries in the world that did better than Nigeria in terms of growth and stability during this turbulent period. The country has been minimally volatile and vulnerable. It continues to maintain stability and growth.

    The lesson to take is that Nigeria is not isolated from the global turmoil but because it has continued to maintain a path of reform its economy is stable. What it means is that we should take advantage of the situation and continue with the ongoing structural reforms by intensify the processes.

    Despite the period of growth and rising price of crude oil that the country is touted to be enjoying, why then are we still borrowing?

    Can you tell me any country in the world that do not borrow? It is like saying that because Mitsubishi is producing and making sales it should not borrow. The economic fact is that for any country or business that is doing well it should be able do what can ensure its expansion and that includes borrowing. It would borrow to build more factories to give it a competitive edge and make it dominate the global market. That is the rule. In the history of the economy of the world, borrowing, I must say, has played a significant part. Developed countries, such as United States, Germany, Japan and China are not left out in the exercise as every economy is looking forward to expanding its business and that means it must seek for fund through borrowing. So, we must not look at borrowing as an absolute thing but relative to something.

    So, is that why Nigeria is embarking on another borrowing come next year?

    Nigeria is not borrowing next year.Borrowing is done on a medium term based on the development project to be executed. That is why there is a budget to help decide how the available resources can be used to execute these projects. We should be praising the government for coming up with this medium term expenditure framework

    How sustainable is the cost of servicing these debts?

    When you talk of debt sustainability it has to do with solvency and liquidity. In fact, that explains why we do debt sustainability analysis every year. It is the duty of the public including the media to get a copy of the report and see whether the solvency and liquidity ratios are okay or not. After looking at, it we must ask ourselves this question; what is the relation between our total debt – both domestic and external with our revenue generation? These two things would lead to liquidity ratio and answer these questions. Every year, we do debt sustainability analysis, which includes solvency and liquidity ratios.

    So, if we are not going to service our debt, then it means we won’t borrow. Nigeria borrows at fixed rate and that makes it easy to service our debt. Once we go to the bond market, we borrow at fixed rate. So, upfront you know how much you are going to pay because it is fixed. You don’t borrow free. Even for external loan, where borrowing is done on concessional terms, you still have to pay service charge and commitment fee, which is very low. But it is these combinations that make it possible to know if you can service your debt. But the issue is, do we have the framework for managing our debt?

    But it appears the private sector is being crowded out?

    What do you mean by crowding out of the private sector? Crowding out means you have a market where private sector is borrowing and the government too is borrowing. Before now, in Nigeria, there was no bond market, it is the government that tried to develop the market. So, there is no justification for accusing the government of crowding out the private sector when in actual fact the bond market was not in existence until the government started it. There was no way a three- or 10-year loan could be got before now until the government created the bond market, which has made it possible to get a 20-year money from the market. It is wrong and mischievous to say that the government crowded out the private sector when in actual fact there was no bond market until the government developed it.The government is retreating by reducing its borrowing from the market since the past three years if one looks at the statistics.

    But it seems that the objective for which the borrowing is done hasn’t been realised going by the fact that the projects are not feasible on the ground?

    We don’t have to make conclusions if we have not done our investigations on this. If your revenue is less than your expenditure, then you have to borrow.That is why there is a budget. But before the budget gets approved, stakeholders including the media and civil society organisations are called together to look at it. After then, it goes to the National Assembly which considers the Appropriation bill before making it an Act. They would have looked into the budget to see the expenditure and the revenue before taking action on whether to approve or not. At the end of the day, why would anybody say there are no feasible projects if the budget contains the expenditure both capital and recurrent? And the same budget tells you the difference between the two to decide how much to borrow. You can’t come back and say, you don’t know where the bond money goes to.

    But there is always a contention between the National Assembly and Executive on the execution of projects for capital expenditures. So, why do we have 50 per cent implementation of the budget?

    I know you are aware that in certain years the money meant for capital expenditures were returned. Every year, we know that every penny allocated for capital expenditures, which was not spent is returned to the treasury. If you are not able to spend, you should be able to account for what you did not spend. Secondly, on the issue of capital budget implementation, Nigeria needs to improve on it and that is why measures are being put in place to make this possible. Last year, for instance, I am aware that all Ministries Departments and Agencies (MDAs) were tasked to start execution of projects in advance to make a significant implementation of the budget feasible. They were told not to wait until the funds were available. This is to encourage them to make preparations so that when the fund is made available, they can commence the implementation straight off. There are corrective measures that have been put in place to ensure that there is higher implementation of the budget.

    Secondly, we must realise that the budgetary process is not completed until some months into the year, sometimes up till April. So, when you are talking of budget implementation in Nigeria, it is done for nine months and not 12 months as expected. That is why this year, the1 government is committed to working with the National Assembly to ensure the process is completed on time so that the implementation can start in January of the New Year.

    If the budget is not fully implemented after borrowing by the government, don’t you think this could have consequence?

    I think there is no linkage. Of course, when you borrow there is a cost on doing so. Each year, you also look at the revenue generated and expenditure to be made even without borrowing at all. If what is expended is not up to what is set aside for projects, would it not be returned to be used the next year? I must say that borrowing is the way of helping you to boost your cash flow.

    Shouldn’t we have a penalty for non-implementation of budget, especially by the MDAs?

    I would not answer you either yes or no because it is not as simple as you think. But you can come up with that proposal so that Nigerians can look at it and decide whether it is good for them or not.

     

  • ‘Union Bank now performance-oriented’

    ‘Union Bank now performance-oriented’

    She came, she saw and she conquered. This line best describes the success story of the immediate past Group Managing Director of Union Bank of Nigeria Plc, Mrs Funke Osibodu. She was one of the turnaround managers hired by the Central Bank of Nigeria (CBN) in August 2009 to rescue some lenders that posed a threat to the financial system, after eroding their capital. From the outset, Mrs Osibodu’s role (to stabilise and retain the identity and name of the bank) was clear. Mrs Osibodu, the last ‘man’ standing, who  held sway until last Wednesday, was mandated to fix three issues weighing down the 95-year-old lender: corporate governance, negative capital and liquidity crisis. It was not an easy task as she had to contend with sceptical shareholders, pensioners, employees, brokers and other stakeholders. In this interview with journalists in Lagos, she speaks on her three-year tenure. The Nation’s Group Business Editor, AYODELE AMINU was there.

     

    Since October 2009 when you came to Union Bank, what has been your experience trying to revamp the bank? Considering that a lot of people had come and gone, what made you the last ‘man’ standing in view of the fact that you have been able to achieve the mandate given to you by the CBN? What has kept you going over the years?

    I would say that I am not the last ‘man’ standing. I thought that Union Bank was the last man standing. I think Union Bank has been a very, very interesting institution, though tough to work for. Union Bank, you know, is an institution that has a very rich heritage in terms of relationships and people. There are many stakeholders with their various angles. I believe these were what kept me this long. What the CBN Governor, Sanusi Lamido Sanusi, asked us to do was to stabilise the institution and move it to a new home; in other words, get investors to participate. My stay in Union Bank couldn’t have been shorter because the Board from day one took a decision that Union Bank must stand on its feet again. From that perspective, we opted to look for investors who will ensure that, going forward, some of the things we had in the past will not take place again. As you already know, we have core investors called Union Global Partners Limited. But what is unique about them is that they are largely foreign investors who bring strong corporate governance and international exposure to the bank.  As you know, even externally, they have been making their own public announcements about their involvement with the bank; i.e., some of the members of Union Global Partners who have invested in Union Bank. When you bring international players who are foreign into the Nigerian environment, their time frame is not necessarily fast. And two, the methodology we used was different from that of the other intervened banks. It was such that it required careful process, lots of due diligence and regulatory approvals. So, while we wanted it faster, we couldn’t get it faster.As you also know, we had closed and concluded the recapitalisation process long before now. Again, to ensure smooth transition, I had to stay and be part of the new board. The new board started in February, this year. We had to make sure that there is a new executive. It was also important to make sure that when I leave, it is not all of us (executives) leaving, so that there is continuity. And as you know, three of the former executives – Executive Director, Commercial Banking (North) and Public Sector, Alhaji Ibrahim Kwargana, Executive Director, Commercial and Retail Banking (South), Mr Kunle Adeosun and Executive Director, Corporate Banking and Treasury are staying behind as part of the process of making sure that the transition is smooth and two new executives will join them. One of them has commenced and she is Executive Director Finance, Mrs. Oyinkan Adewale.  The other one will not be able to join the bank until sometime next year. With that, the bank will have a completely effective executive team. We have everything planned out to ensure that with the change in baton, the transition is smooth.

    Sometimes when I read some of the reports in the newspapers that are speculations, it gives me the energy to say that I will stay and prove to them that the information is not correct. But most of the time there are positive reports in the press in terms of celebrating what we’ve done so far. The change we (Union Bank) went through has been very significant. You remember, at some point when we needed shareholders to agree to what we were doing, we needed staff and shareholders to work together. That was one point where I saw the real strength of Union Bank. We had staff, pensioners; and shareholders all working together to make sure Union Bank remains the last man standing. Generally, there were so many things in bits and pieces that ensured that we (my team) were successful.

    It’s been a long story from 2009, bringing the bank back from tatters. We would like to have some performance indicators. When you met this bank, what were the indicators?

    Well, I will talk in general not very, very specific term. As you know, when I came in there were three things wrong: corporate governance, negative capital and liquidity crisis. Today, from the liquidity perspective, I think within the first three months we dealt with the liquidity crisis. Our liquidity ratio has moved from below 20 per cent to between 80 and 90 per cent. This is very positive as the minimum statutory liquidity ratio is 30 per cent. And we are leaving it far higher and above the statutory minimum. The major portion of this came from the new capital that came in and the loans we sold to the Asset Management Corporation of Nigeria (AMCON).

    On negative capital, I think at our peak level, our shareholders’ fund was negative, somewhere around N378 billion negative; in other words, we were in such a deep hole, and as you said, nobody would touch us and even at that point, existing shareholders technically abandoned their bank. Today, we have positive capital of N190 billion, so we moved from N378 billion negative to N190 billion positive – that is over N570 billion positive. That was something that took quite a lot of work by all us and we are reaping the gain today.

    On the corporate governance side, you remember, the corporate governance issue was that everybody was doing his own thing and there were so many things we (Union Bank) had done and were still doing wrongly.A number of these have been corrected using best practice as our guideline. Standards have been set and are monitored. I think the example I usually use is that when you go into an old woman’s house (Union Bank is 95 years old now), you are bound to find a lot of cobwebs and junks because she will not throw away many things that are no longer useful or relevant away easily. Even though the sitting room may look okay, it is only when the children and grandchildren go into her bedroom and forcibly clean up the bedroom that a new and modern environment is formed. Our job when we were brought in by the CBN was to go in and clean out those cobwebs. I believe we’ve done a reasonable job. There are many things we have cleared up. Remember that I used to say we had un-reconciled accounts of over N3 trillion, today our un-reconciled accounts is in hundreds of millions not even billions. We had an army of over 150 people that worked day and night and they are still working and cleaning it up. So, that’s part of the cobwebs that we were cleaning up. We also had bad loans, which we sold to AMCON. We wrote off some, renegotiated some.We now have a department called portfolio management and part of their job is to manage and monitor those bad loans in such a way that we still resolve them. We only have those that are in very small bits, nothing substantial anymore in terms of bad loans. So, we have a relatively clean book. It means that our loan portfolio reduced from somewhere around N700 billion to around N200 billion.  When you look at our balance sheet, it is small but very clean. All the things clustering us are gone. It’s now for us to build on it.

    More importantly, some of you are our customers. People used to say, that Union Bank is for the old senior citizens. The young man cannot have an account or work in Union Bank. Even the young man will say: “That it is the bank of my father or the bank of my grandfather; they took me there in those days.” But there is good news for you. We have an army of young people that we recruited over the last three years now working in the bank. As at the last count, they were about 1,000-man army. I had what we call a congress with some of them (600 people) about two weeks ago. We gathered all of them into one big canopy hall, somewhere in Victoria Island and we had our own mini- rally. It was interesting, the energy I saw in that group and the testimonies in terms of their experience in Union Bank. So, we have this strong army that is taking over Union Bank. The way we describe ourselves is that we now have energy and experience in the new Union Bank. The young 1,000 people recruited over the last three years have the necessary energy for the future of Union Bank.The older people like us have the necessary experience, which will ensure that we learn from our experience and mistakes. And with that, we can’t go wrong because when the experience tells you this is what we have to do, the energy takes over and moves very fast.

    So, many things have changed. When you look at customer service, even though we will not say that we have got to where we should be, quite a number of our customers are surprised at the good quality and responsive service that they now receive from our staff. When customers come into our branches, we attend to them fast. We had many of our branches looking very, very run down and we are working round the clock to revamp them. We have changed 75 out of about 300, all of them are wearing a new look.The one on Oba Akran, Ikeja, Lagos is a good example of our new look. So, those are some of  the changes that I am leaving behind and what I will call the foundation to move to the next level.

    Finally, the third issue of inadequate capital was sorted out through the combined help of AMCON and the new core investors – Union Global Partners Limited (UGPL).

    What is your projection in the next one year? What should the shareholders and the customers expect in the next one year? Secondly, banking is now Information Technology (IT) driven. Where is Union Bank in terms of technology?

    I want to start from the last one. As you know, just as it happened with the intervened banks, when we came in, some of our customers came to withdraw their money from the bank. Our staff were trying to pacify them, to stop them but I said no, allow them to take their money in spite of the fact that you are shaking. You know even the Iroko tree can shake when the wind is very strong but that does not remove the fact that it is an Iroko tree. So, we said that we (Union Bank) will show them that we are still big, strong and reliable. Let them take their money and they did. But within a short while, they returned. And this is very, very important. In the last three years, our savings account has continued to grow, not going down and our current account has also continued to increase. Now those two (savings and current accounts) are very strong marks of confidence. It is largely from our retail network. That is from our entire branch network. That rural banking, you call it rural, I call it retail because there is nowhere that is rural anymore; there is no where you cannot reach with technology today. Those locations became the bedrock of savings and deposit accounts. These customers are so strongly committed to Union Bank. We continue to hear from these customers: “this is my bank and am not moving anywhere and there is nothing going to happen to it.” So, in the area of continuous growth in confidence and bonding from our customers, we believe that we are still big, strong and reliable. We do not have any serious issue.

    On technology, for some of us that have been in the bank before we joined, while we had computers, several people did not know how to use the computers or the technology. Today, everybody is technology compliant. We did not have to buy anything new. We had all the technology internally. All we had to do was to turn them on. When it comes to banking using technology, we had everything –whether it is telephone or mobile banking, whether it is internet banking, the facilities existed in-house but were not utilised.Even in the latest cash-less initiative and the Point of Sales (POS), we became number one out of all the banks in terms of active POS utilisation. I never dreamt that we will get to be number one in active POS. In other words, our customers use our machines and they will only use your machines if you educated them well, and you are making sure that those machines work. We are becoming very effective in technology utilisation.

    For mobile banking and internet banking, again, we didn’t need to buy anything new; we had them. All we need was to open them up for our customers to use them and get our staff to appreciate and start using them, so whether it is using technology to transfer money from one account to the other, whether it is going on line using your computer to move money, we do all that. We used to have a very low number of cards that we issued to our customers, now that is a thing of the past. Somebody was saying that before when he requested for ATM cards from Union Bank, at times if we are very fast, it might take you two or three months to get it,  at times it might even take you up to six months. Today, the maximum is 10 days. We are working on turning it around to make it 48 hours. Even to collect cheque book from the bank, it used to take a long time.Now if you want a cheque book you get it by latest the next day. So, a lot of things have changed and are still changing on that technology side. We even have the technology where you can use your Naira ATM card to withdraw money abroad, which we will soon be activating.

    So, what I am highlighting to you is that the ‘big, strong, and reliable’ bank is not only back but much better. Our stallion brand remains very strong and resilient. Within the first month in office after I resumed in Union Bank, I went to Abuja to see a customer. The security man at the entrance called me big, strong and reliable, merely by looking at me. He saw the way I looked at him surprised and he just pointed at my stallion lapel pin. That is how strong our brand is. Our marketing and advertising communication campaign now has the line: “We have only just begun.” This is to mark the commencement of a new beginning and a new phase for Union Bank. We are no longer an old institution but a young and vibrant institution.

    When you look at our published performance as at June 2012, we exceeded our budget and market expectations. We expect we will continue to exceed our budget going forward. We have laid the foundation, it is time to build. As you know, laying a good foundation of any house is critical and often is not easily noticed. Now that we have put the pillars, the bank is ready to move fast.

    When will the new Group Managing Director resume?

    The new GMD will officially take over on the 1st of November, that is, Thursday (last week). We’ve been working together and even tomorrow (Tuesday) again we’ll be working together so as to make sure that the handover of baton is smooth and effective. Thereafter, I will take my accumulated leave but will always be available for any clarification. Someone was telling me that I am looking relaxed. It’s just the thought of the leave that I am about embarking on. This would allow me an opportunity to ‘let my hair down’ after these years! The thought is enough to relax me.  So, in the initial period I’ll just take that leave, travel and then come back.

    You said you are going on leave and after a while you’ll come back. Could you be more explicit?

    I did not say after a while I’m coming back to Union Bank. This is why it is very useful to have an interactive session. What I said was that I will be proceeding on leave. I will be taking my accumulated leave and come back to Nigeria after that. Technically, I am still a staff member of Union Bank till the end of December. I was talking about transition with the new chief executive; we’ve been exchanging information for a while in order to ensure a smooth transition.For the next two days (last Tuesday and Wednesday), we will be working together and when I leave if there are things that are unfinished, that I need to clear, I will be coming in to sort them out, so I am not returning to Union Bank. I’ll just be performing my duty as a staff of Union Bank.

    I know initially you had this problem with the staff, especially the retired ones. What is the situation now? And, again, are you satisfied with what you have done in Union Bank?

    First on the retired staff, it was an issue that I met on ground. We had a situation where there were so many things done wrongly in the past. We had staff that had issues on whether they were exited on retirement or retrenchment. We had retired staff who said their benefits had not been paid for quite a while and some who had issues with the timing of the commencement of payment of their retirement benefit. We had over 2,000 ex-staff affected, with very many cases in court, and picketing being the order of the day. What we’ve done over the last three years, is to streamline all the issues and start paying those who have genuine issues. I am happy to say that substantially, we have resolved all these issues. On those who had issues on if they were retired or on retrenchment, we reached an out-of-court settlement.

    We are now more performance oriented, and we are accordingly rewarded; so everybody is aligned to work for the shareholders and the stakeholders. This bank has a new orientation. I think we now have a major culture change as a result of the measures we have introduced.