Although he acknowledged that the Nigerian financial market is extremely competitive, Chief Executive Officer/Regional Head, West Africa, Rand Merchant Bank Nigeria, Mr. Michael Larbie, told Festus Akanbi and Obinna Chima that with the huge infrastructural deficit in Nigeria, his institution that was recently granted operating licence in the country is ready to provide banking services and other services required to further enhance the vibrancy of the market.
How did you come up with the decision to set up a bank in Nigeria?
For FirstRand and RMB, our strategy is to be a leading African financial services provider. We are a strong player in the South African market and if you look at Africa, the two giant economies are South Africa and Nigeria. So given our position in South Africa where we have done well, the next natural market for us is Nigeria. The Nigerian economy is one of the fastest growing economies in the world. As you are probably aware, the Nigerian economy has grown at an average of seven per cent over the last five to six years. It is projected to grow between seven and 7.5 per cent in the next four years and that makes it a big growth market. If you look at Europe today, countries are struggling to get an average of two per cent Gross Domestic Product (GDP) growth. If you look at the United States, if they are lucky they can have about 2.5 per cent growth. Obviously Asia is growing, but there is declining growth in China and India. So in terms of a frontier market, Nigeria has its rightful place. The Nigerian economy is also blessed with a large population and we have seen the growth in the middle class which represents a significant consumer segment that supports the growth in consumer spending in the economy. We think the fundamentals are in place for this economy to grow and become one of the leading economies in the world. The various initiatives instituted by the government of the country as well as the Central Bank of Nigeria (CBN) support further growth in the economy and so we are excited about all these initiatives and we also believe it is the appropriate time for us to be part of this evolving Nigerian story.
I asked the question earlier because in 2009, your bank bided for one of the then rescued banks, but was unsuccessful and in spite of that, you still continued to make efforts to play in the Nigerian market?
Again, we are committed to the Nigerian economy. Nigeria is a key strategic focus to us. Let me say that we did express interest in the rescued banks by the central bank then and we still remain interested. As you know, the Asset Management Corporation of Nigeria (AMCON) has recapitalised three of the banks and has hired advisers to advise them on what to do with them. But I will leave that with our Group CEO to talk more about it. But FirstRand and RMB are committed to the Nigerian market. We believe it is a market we need to be in. It is a long-term play for us. We are not in Nigeria to stay for two or three and go away. This is part of our story, it is part of our evolution and we are going to be part of the Nigerian story for a very long time to come. We would be patient, we would be tenacious and we would play as long as it takes to take our rightful position in the financial services sector in Nigeria.
So one can say you still have your eyes on the three banks owned by AMCON?
Look, we have interest; our interest in the banks there is no secret about it and if the process starts, we would be engaged in that process.
But with the stiff competition in the Nigerian financial market, how do you intend to sell RMB?
The Nigerian financial market is a very competitive market and we have great respect for the players in the market. My own personal belief is that is you look at the Nigerian market where there is significant infrastructural deficit and there is significant working capital financing.
The country can never be seen as not having a need for enough funding and enough innovation to help further enhance the vibrancy of its market even through banking services and solutions. So I think there is enough to go around in the Nigerian financial market for a significant number of banks who do things well.
As RMB one of the things that we are very good at is infrastructural financing. When you go to South Africa, a lot of the infrastructural developments in the country were driven by us.
We are talking about multi-billion dollar projects. So, I think there is room for other players who understand the sector to contribute to the enormous amount of money we believe is needed to support infrastructural growth and development in Nigeria.
What is the target market for RMB?
There are several sectors that we are interested and focused on. One of such sectors is the Fast Moving Consumer Goods (FCMG) in the market. The telecoms sector is also a sector we know very well. Clearly, oil and gas is a sector we know very well and as you know is the backbone of this economy. The agricultural, services and manufacturing sectors are other sectors we intend to play in. We have several key sectors we like to engage in and what drives how we do it is the solutions and innovation that we bring.
Some have argued that part of your mission in Nigeria is to protect the interest of South African business in the country. What is your take on that?
I am not sure how RMB can protect South African businesses as we are not a security or protection agency and so cannot offer them any help. I think what we are good at is providing innovative financial services to clients. As I said to you earlier, our strategy is to be a leading pan-African financial services firm. What that means is that we would support good corporates that operate in sub-saharan Africa. Specifically with regards to Nigeria, we would finance and support Nigerian corporates and companies that operate in the Nigerian market. If they happen to be South African companies, we would support them. Now, our origin is South Africa and we remain a leading player in South Africa. So, if any of my clients operates in this market, will I support their activities? Yes I will. In the same vein if I have Nigerian corporates here who over time grow and set up operations in South Africa or any other market where is have operations, would I support their activities there? You bet I would.
What type of financial services will you be offering?
It is a broad range of products and I like to categorise them under the merchant banking framework into advisory, financing and risk management. Advisory services cover a wide range of products. Advisory for us includes mergers and acquisitions, debt advisory. For our debt advisory services, generally people hear that companies or governments have decided to raise debts.
A lot of home work goes into advising clients strategically as to where they want to be and once you work with them to know where they want to be, you then determine how you are going to finance it. This can be either through debt or equity. So we bring a lot of those advisory services, for which we charge a fee. So, we cover debt, equity, project financing and structure financing as well. We generally also provide broad strategic advice.
You intend to come across companies that have evolved over time but when they get somewhere they get stuck. They are not sure where to go or sometimes they get involved in so many things and they want to restructure their businesses and refocus themselves. We are very good in providing advisory services to refocus them. An example of an advisory: RMD out of our South African office is involved in the structuring and advisory of the construction of the Lekki-Epe toll road. Those are some of the projects that we have done in the market. In conceptualising it, RMB is one of the biggest Public -Private Partnership participants in the South African market. Nobody does it as we do and those are part of the advisory services that we do.
On the financing side, our financing cuts across a broad range of activities in the sector. We do provide acquisition finance. If one company wants to buy another company and they want to raise financing to do it, we can raise financing for them to do that. We provide broad corporate financing and obviously we do our risk analysis to determine the amount of debt we think that company can take on.
Late last year, RMB South Africa announced a $50 million bi-lateral loan with the Africa Finance Corporation (AFC). Those are some of the projects that we offer broadly. We also do structured assets financing. What that means is that we finance equipments for several companies be it mining companies, oil services companies, fleets of trailers and trucks for companies. I can structure a loan for a logistic company. It can either be recourse to their balance sheet. We do a lot of financing across the oil and gas value chain, be it financing tank farms, be it financing capital or operating expenditure for upstream sector and vice versa for the downstream. Also, one of the things we are very good at is working capital financing. If you look at the Nigerian market and the oil and gas services sector, there is a lot of refined crude oil importation which requires a lot of lines of credit and working capital to do that. We are very innovative in doing that. We are also very big in infrastructure financing. Talking about risk management, we have defined risk management broadly to include hedging solution, interest rate hedging. Sometimes a client wants to borrow in dollars, but the client generates his cashflows in naira, you need to be able to structure a hedge for them and when it is time for them to pay, they will still have enough naira converted to dollars to service the loan. Also for foreign exchange, a lot of trading activities happen in the country. People need dollars, euro, yen, to buy goods and sometimes they want to hedge their currency, we provide all these services.
Some have also described the Nigerian business environment as harsh, do you also hold that view?
I am fortunate to be very well travelled. The operating conditions in Nigeria, one may argue is not different from what is obtainable in a place like India and not long ago, in Brazil and even Russia today. But these economies continue to grow. So, no matter how harsh the economic conditions are, there are always opportunities. But I think harsh is a loose term. Are we defining harsh by the lack of adequate power supply? So, I don't dwell on terms, but on specifics. Power is a challenge in the country, so when I access the business environment, i look at the fact that even in the absence of adequate power, the economy remains vibrant. So one can only imagine where it could go, if it gets power right. I am confident that the initiatives by the federal government around the privatisation of the power sector and the continuous investments in the private sector, will yield dividends. I am optimistic that we would see some improvements in power generation. I am also optimistic that it gets to a certain point in time where government should reduce its role in certain sectors to allow private sector funding. Obviously in so doing, one needs to protect consumers. So, I hope ultimately, the government would position itself in providing the right framework and enabling environment that attracts private sector to support projects being developed. I am encouraged by what the government is doing in the power sector. Look, I can tell you and I am aware that power plants are being built in Nigeria, almost every year by independent power producers to support their industries. I may also say that Nigerians are also becoming innovative by generating power with inverters in their home. It is optimum? It is not. So, as steps are being taken towards that, I am very optimistic about power. I think as power is resolved, one should begin to see increasing impact on other operational areas of the economy.
What role is your bank playing in the privatisation of power assets?
As a bank, we provided letters of financial support to several of the consortium that bided for the power assets. We also stand to provide financial advisory services and arranging services for the eventual successful winners of these assets. I think a lot of money is going to be needed to get power where it is supposed to be. Acquiring these power assets is the first phase of several phases in getting power to where it needs to be. There is going to be continued capital expenditure and operating expenditure required to keep the power plants functioning effectively. So we are very excited about the power sector and where it is going. But the key is for one to be diligent to get the right players who know what they are doing.