‘Investors should know that Nigeria’s economic challenges are temporary’

Sola David-Borha, chief executive officer of Stanbic IBTC, in this interview with KEHINDE AKINTOLA, speaks on various financial issues and the roles being played by the bank as one of the leading African financial institutions at such a critical time of recession. She also bares her mind on how the bank has impacted on critical sectors including manufacturing, agriculture, ICT, energy, among others. Excerpts:

What is your impression about the recently concluded NES #22 and its theme: ‘made in Nigeria’?

The Nigerian Economic Summit is the leading platform for public and private sector engagement and the theme is particularly important at this time when the economy is in recession. This is not the first time that made-in-Nigeria has been promoted or discussed but you will find out that during crisis, people are more attentive. You now have a better understanding of why it is much better to use local goods and services because that ultimately helps to achieve an improvement in productive capacity in the economy.

Essentially, our message is to tell those domestic and foreign investors that Nigeria is still an economy which has great opportunities and that the current challenges that we are facing which is primarily driven by the commodity price drop which has then led to a foreign exchange scarcity will soon become a thing of the past. It is temporary. It is a business circle and hopefully if we do the right things in terms of our policy direction and also working together with our government such that we support their efforts to promote an enabling environment that would then attract investors to come into the country, invest in various sectors and that ultimately it would lead to a private sector driven growth. We believe that an important aspect of achieving this is to ensure that the financial markets are transparent, liquid and the prices at which goods and services are obtained are done at an optimal level. So whether you are selling foreign exchange or the money market or the equity market it is at your market rate. Also, on the back of a properly functioning financial markets you will find out that capital is attracted and that capital will then drive the growth that we so desire.

From the submission of the resource persons, the dichotomy between the fiscal policy and monetary policy; are you comfortable with it? Can that actually help achieve the purpose for which we are gathered here?

It is very important that there is alignment between fiscal policy and monetary policy and giving where our inflation rate is now, which is about 17 percent and inflation has to be tamed. That has to be the priority and in the short term it does mean that interest rate will still remain very high. But strategically, the longer term direction when inflation starts coming down is for interest rate to start coming down. In the meantime there are a number of other things that can be done to support the overall objective of stimulating growth in the economy. The Keynote Speaker pointed out that if you look at the four main drivers that impact our economy, he talked about the global trends, which we don’t control, he talked about international trade, he spoke about commodity prices, which we don’t also control and our expectation anyway in the short and medium term is that oil prices is not going to rise significantly. The fourth aspect is our own policies that we implement. Of the four things the only thing that we can control is our policies. Therefore, it is very important that we put in place the right policies and we are consistent in implementing it. What investors look for is that policy consistency. They are very nervous when policies change. It means they can’t manage that risk. They can manage the risk of a drop in oil price. So our policy response, what we do? Making sure that we essentially gain the confidence of investors in this market has to be the priority.

What is your bank doing to help reduce the unemployment situation we have in the country?

We are doing a number of things and it includes capacity building, up-scaling the young people is very important. Training is very important and we run capacity building workshops for SMEs for free, we don’t charge. You will find out that it enables the younger entrepreneurs to get a better understanding of how to manage their businesses and ultimately, if you learn to do businesses they have a better chance of surviving and paying you back. So capacity building is a critical aspect of it. Also we found out that the big companies help the smaller companies to survive. We need everybody in that value chain. Everybody has a role to play and we found out that as lenders if you have a big company that is utilising the goods and services of smaller companies around them, it guarantees the smaller companies of buyers and support. They have a working capital circle that is more manageable. So that whole ecosystem of both the big boy and the smaller players is much easier to lend to, than lending to one small person isolated by himself that at the slightest problem he just goes under. So those are the kind of things that we encourage. So we try to encourage small companies to try and get into an ecosystem of a larger one. We provide them with capacity building. Then with the appropriate type of financing you know it is very important that when you are even looking for a loan, depending on what that loan is for, make sure you get the right type of financing for that loan. If it is a project that has long gestation period, you shouldn’t take a short term loan that you have to pay back in one year. So linking investors to such opportunities is part of the work that we do as well.

Is there any special arrangement that your bank has different from other banks to encourage small investors, perhaps in terms of collateral?

We have tried a number of things over the years because we are committed to the SMEs sector. We think that the SMEs sector is the segment that is going to drive growth in this economy. Bulk of Nigerians is involved in the sector. We have tried so many things, at a point we even had unsecured loans that we gave out. But we found out that, that couldn’t work as well. They don’t pay back. So it is best to put in place a structure that provides the support but also holds them accountable. Like we say, it is not so onerous that they can’t provide what is required. That ecosystem principle is very important. Or co-operatives where you have a group of people who come together. You know one person just can’t decide that we are not doing it again. You know there is pressure from the peers to behave correctly. You also are able to review the risk of the whole and typically co-operatives have a better bargaining power with larger entities. So those are some of the ways which we try and address the challenges the SMEs face. It is also good to put them in a model that helps them as well to be accountable and responsible.

What does Agricultural and Agro-allied sector stakeholders need to access loans. Do you encourage clusters?

Agriculture is a sector that has faced lots of challenges especially in financing. A lot of progress has been made over the past five years. Essentially with the introduction of NISRAL which is a risk sharing model for lending to the agricultural sector. We have found that banks are now more prepared to lend and we are also involved in supporting the agricultural sector. A single subsistence farmer operating on his own is going to find it very difficult to get financing. That farmer has to get into a group, a cluster, cooperative or an out-grower scheme and then you find out that it is then easier to support that farmer. And we have done that. So we have lent to out-grower scheme, we have lent to co-operatives.

PPP has been with us for quite some time. Are you comfortable with the legal framework? What do you think should be done differently by this Administration to get it working?

The PPP is right in the middle of what the NESG is about to do- public and private sectors coming together and giving the billions of dollars that are required to fund infrastructure products. Government is not capable of doing it by itself. It is clear that at the state government level, some states are yet to pass their PPP laws and what some times is even more important is actually the implementation of the law and what happens across the lives of different governments, because the projects typically are long term. They can span 12 years plus. And the risk we see many times is when the government that initiated the project is different from the new one that comes in and the commitment of that new government to keep to the terms that were agreed with the previous one. Now financiers and investors invested in the project based on those terms. So once there is any change of such, it almost triggers an event of default which then affects whether the project can be completed in some cases or continued. So I think to help encourage more PPPs there has to be an education about PPPs in general both in the public and private sectors as to what financiers are looking for and the risks of policy changes that affect PPP projects, so that there is just more awareness around it. If the political will to ensure that PPPs are protected from many of the vagaries of changes in government, you will find that you will see more successful PPPs.

To what extent is Stanbic IBTC involved in the development of the power sector?

We have been involved in the power sector. We are involved in two of the assets in the distribution space within the past privatization exercise. It is a very challenging sector. Giving some of the changes in the tariffs; for instance, a party has taken the government to court whether there should be a tariff increase and those tariffs were the basis by which investors came in. So, it is a challenged sector. But despite those challenges, I believe there is still hope to the extent that it is a sector that is very much needed. Everybody requires power. We believe that the fact that those power sectors are now owned by the private sector, gives them the capacity to go out and raise capital should they require, bring in new investors, borrow, so that they can buy the much-needed equipment. It is a long term game, but the expectation would be that in 10, 15 years that if the right investments are done into this sector we would see that translate into an improved power supply. We have partnered with GE to run an embedded distributed power solution across the country where together Stanbic IBTC and GE in Nigeria and Standard bank and GE across Africa would basically help to put up embedded power plants across the country. And we continued to work on that project and we believe that will also support the efforts of our country to improve power supply.

There was a long list by the House of Representatives about the health of Nigerian banks. How healthy is your bank?

All I can say is that we are in good health and we are adequately capitalized. Our liquidity ratio is well above the regulatory threshold. Our rating was recently reaffirmed as AAA. We want to assure everyone that Stanbic IBTC is an organisation they can continue to do business with.