Two weeks ago, the Nigeria Sovereign Investment Authority (NSIA) entered into partnership with Old Mutual Investment Group and UFF African Agri Investments, two foreign companies, in a $700million joint venture in agriculture and real estate development, that NSIA’s Managing Director Uche Orji views as catalyst to opening up the untapped potential in those sectors as never before. He spoke with Group Business Editor, SIMEON EBULU.
It’s not quite easy to strike this kind of deal in a recession. How were you able to pull this through?
It’s not recent, the discussions have been going on for some time. The timing is largely by design and also by coincidence. There are two ways you view every recession, it’s either you run away or you take advantage of the opportunity. For investors of like minds, who can see through the cyclical downturn, it’s a cycle. Things go up, they come down, almost every economy is in cycles. And we are going through a cycle. As the government has admitted, we are in a recession, there are challenges in the economy, but that is also a buying opportunity for people. It’s an opportunity to come in and invest, and take advantage of the relatively lower prices for assets. Frankly, I see this as an opportunity that its time has come. And we will move very quickly in terms of the deployment of the capital.
And, if I may use a football parlance, form is temporary, class is permanent, and it very much applies here. The cyclical downturn is temporary and smart investors use that as an opportunity to buy into the market and buy into assets.
There are two classes of investors, there are real investors and there are momentum traders – people who come in and when things are moving, they just buy something. Those are hot money investors, those are not the kind of investors we are looking for. So, if you believe the economic potential that brought people into this country is past, if you believe that in this one cycle (the recession) it is completely reversed, then you can leave, but if you believe – longer-term that this is just a temporary patch, that there is longer term opportunity and if you have liquidity, then you invest. And that’s what we have done with this.
The NSIA thus have the liquidity and our partners have liquidity, and we both believe that this is a great opportunity to buy into assets in the country.
So, I’m happy that this happened, and as I’ve said before, we are using NSIA capital to catalyse other investors.
This is agriculture, real estate, and you’ll see next, hopefully before September is out, you will see us announce a Social Impact Fund – similar catalytic fund that will raise huge amount of capital, with NSIA providing some catalyst.
We have spoken about doing something in power, healthcare. We will commence our healthcare projects this year.
There will be groundbreaking of the projects and we will start to build in Kano, and Umuahia. Our LUTH project is also starting.
There is a remarkable opportunity for us now to invest, and I think other investors we are planning to work with, see it the same and that is why this is quite groundbreaking.
What informed your decision to invest in real estate and agriculture?
For real estate, it took us a period of working together – people don’t know this, but we’ve been working together with the Old Mutual Investment Group since February, 2014. And most of it, we’ve been looking through assets. And over time, we’ve learned how to work together and through the process, we said, why don’t we form a joint company, we put capital in, you put capital in and we form a team, and we start investing.
The same thing with agriculture. The first meeting with the Agriculture Team was in early last year. And that has now evolved. We saw what they did in South Africa. They came to Nigeria – two, three times. We saw the opportunity in the country. We surveyed a few things and built up a reasonable pipeline of what we can do together, and then we said, why don’t we do it as a joint venture, a joint company. So, these things didn’t just happen.
You know raising money is not an easy thing. People need to get to know you, trust you and be comfortable with your processes. We did due diligence with each other, we had to be comfortable with their processes. We went to see them, they came here, back and forth, and then we had to go through the documentation process.
What are the terms of engagement?
For each of these partnerships, there are three agreements signed.
One is an investment company which is registered in Mauritius, because their jurisdiction is amenable for foreign investors. That investment company structure is mirrored in Nigeria. The reason it is in Mauritius is just to receive the capital, but the management company that does the actual investment is in Nigeria. So, it’s money for Nigeria. We replicated an investment company agreement and a management company agreement for Mauritius as well. All of that was done so as to receive the capital and bring it here to invest. We did that also for the agriculture side. The management company is 50/50 owned by NSIA and Old Mutual Investment Group.
And what follows?
The next stage of work after we made the first phase of investment is to put the money to work, and now go to bring the other third party investors to join. And we have enough expression of interest to be very comfortable to say we can do $500 million and $200 million in real estate and agric apiece.
Agric practice in Nigeria does not have a good history of success. What gives you the confidence you’ll succeed?
Our partners have a very good track record of success. They said they have invested over $200 million in agriculture in various countries and they said they have made returns in dollars ranging from 14 per cent to 20 per cent. There are three, or four things we need to note with agricultural investment in Nigeria. The first thing missing obviously, is the skills in farm management, the second is equity. Most people go and borrow money (debts) and they fund it and they can’t withstand any hiccups, and from day one, your debts starts clocking 22 – 23 per cent and even with the intervention fund, it’s still nine per cent. It’s the wrong kind of capital. Agriculture needs patient capital.
And then there is the infrastructure problem. You grow something -and you can’t store it in good enough condition that you can then sell it in the future! We lack cold storage. Those are the three challenges we have in agriculture.
Skills is one of the most important thing they are bringing. Collectively we are putting together the right capital now. The infrastructure aspect, we are still going to invest in at the NSIA.
How will you go about it?
We have expressed interest to take the Commodity Exchange and that process is ongoing. The Commodity Exchange is just a trading platform, but it’s really going to help us now to create all the necessary platform for storage necessary to make all these things work.
Very recently, the Vice President inaugurated a committee to steer the privatisation of the rail network, and most of it is aimed at freight-carrying goods. The infrastructure is being put in place, but there are three ways we are going to play.
This investment we’ve made with Old Mutual and UFF African Agri Investments, (which are actually the specialist farm managers), is going to be in direct agriculture, agric processing, animal husbandry… I’ve seen what they’ve done and I feel comfortable that we can replicate that in Nigeria.
Two, we will invest in the infrastructure – in the. And if you’ve noticed, we have signed a Memorandum of Understanding with the River Basin Authorities to look at their sites with a view to taking the land they have by the rivers which they have not developed, to now do proper farming. So, I believe that we have the right skills and the right capital to do the right thing and we will succeed.
A lot of the things we make in Nigeria are good for exports, we just need to get it right, build the right skills, build the right extension services that are consistent, make sure the farmers have the right seeds and extension services that will enable the knowhow to use the fertiliser, so it doesn’t become toxic, make sure the processing is done properly with the rice milts, so it’s a lot. And I’m quite excited about the lots of opportunities that this presents.
Will you be directly involved in this, or NSIA is just going to put money there ?
It’s a joint company and we are going to put some people there. It’s going to be a skill transfer, to be honest. We are going to have some people there who’ll have the necessary skills, but as I have said, these are the experts who have done it successfully. And most of what they have done is taking failing farms and turning them around.
Are you looking at specifics, in terms of crops?
Everything. It’s a whole process of deal selection, deal origination and they’ll look at the right opportunities, the right infrastructure. That is what they are bringing to the table.
If I understand you very well, you are not just going to put money there, you are also going to be involved?
This is a joint company, so obviously we are going to put some people there. This is just a skill transfer to be honest, we are going to have people who are reasonably skilled. But these are the experts who have done it successfully. Like I said, they’ve invested $200 million with equally high returns and most of what we have done is stake some funds and turn them around.
We are looking at everything. So, there is a whole process of selection going on right now and then we look at whether it is the right opportunity, whether we have the right infrastructure. So that is what we are bringing to the table.
Let’s talk about the housing aspect.
It’s real estate, not housing.
Real estate.
Yes, housing is a subset of real estate. We will look at office towers, we will look at logistics. Logistics are very important and that is like warehouses. Warehouses are very important, they are like distribution centres with the right infrastructure- power, properly conditioned warehouses where NAFDAC can come and check and certify products with respect to quality and expiry dates, and so on. This is not just renting a shop and stuffs like that. We are looking also at hospitality.
It’s like you want to tie products from your prospective farms to this warehousing idea?
Yes, yes, but not just that. There are products being made already in the country that are not being properly handled. The issue really is, we have not really seen a proper logistics centre. Lagos has a few in Agbara and all those areas, but these are the kind of investments we need to make across the country. Also there are a lot of states assets that are abandoned. We are willing to talk to the states.
The joy of Nigeria is that it’s a big country, the opportunities are incredible. People shouldn’t look at this as the only solution. This is just one of several solutions.
Agriculture in Nigeria needs billions of dollars in investment. This is just a $200 million fund. There’s the tendency for everyone to gravitate towards one solution. This is just one of many solutions out there.
How much bigger is the NSIA willing to play in the agricultural sector?
At NSIA a lot depends on how much capital we receive. We are watching the space, but if we catalyse it, and we deploy the $200 million successfully, my sense is that we would have provided the platform for fresh investors to come in, and we might just want to see our role as catalytic, help people get started. But if we get more capital, we will expand. There are 15 possible areas of investment in NSIA. We have just started with five. The reason we just started with five is because of limited pull of capital, but as we use them to sow seeds to get other people to bring in capital, then we’ll expand.
In what sense will the ordinary Nigerian benefit from these investments?
You know when these investments are made, everybody is going to work. If you build an Office Tower, Logistics Centre, bricklayers will be employed, electricians and several others will be employed. Nothing creates jobs more than real estate. You can’t strengthen the weak by weakening the strong. We’ve got to get that philosophy right. For some of these people we are inviting into this country to invest, it will take all of us to support them. We’ve come to the conclusion that for every $1 billion you invest in infrastructure, you empower about 240, 000 people.
What’s in this initiative for small-holder farmers?
If you build an agro- processing plant, which is one of the investments the Agro- investment fund will be meeting, a lot of the suppliers will come from small stakeholder farmers. Your job will be to ensure they have the right seeds and that they produce consistently for you. One of the things we hear from these guys is that they have improved the quality of life of farmers in their own network.
Today the farmer has three issues- even when he has the seeds, he is not consistent, sometimes he doesn’t know how to apply fertilizer and pesticides, and so at the end of the day, there’s no consistency in quality. But more importantly, if there was, who off-takes from him? If he knows he has an off- taker who takes the product from him, then you’ve raised his quality of life. He just sells it to you. His quality of life, earnings/ incomes come up. When he knows he has somebody who’ll off-take from him, he can now go to the bank and borrow money. The amazing thing is, there’s something here that says agriculture is investable.
Are you satisfied with what you’ve done so far?
With the NSIA!
Yes!
No. There’s so much we need to do. I’m disappointed we haven’t made credible size of investment in power, not for lack of trying but the environment is contrary. We’ll look into that. I’d like to show case our health care projects, there’s the refinery and other gas sector projects, so there’s a lot that can still be done, but we are limited by the size of capital we have. But hopefully, what we’ve done here today becomes an example where we can catalyse even more, with less of our own capital and create the platform for seven or 10 times more with the capital that we have. Then I can be happy.
Have you had downturns?
At the NSIA?
Yes.
No. We have had moments when we did not earn as much as I thought we should do. Last year was one of those. But this year, so far so good.
