Ashade: The Economy Needs Bold Reforms to Grow

Mr. Peter Ashade, who has worked in the financial services for 29 years was recently appointed the Group Chief Executive Officer of United Capital Plc, an integrated financial services group. He spoke to journalists on his vision for the company and on other issues on the economy. Goddy Egene presents the excerpts:

Kindly tell us about your background?
I hold a Bachelors’ degree in Banking and Finance, an MBA in Marketing and an M.Sc in Finance. I am also an alumnus of the Lagos Business School’s Chief Executive Programme. I am a Fellow of the Chartered Institute of Bankers; Institute of Chartered Accountants of Nigeria and the Institute of Capital Market Registrars. Also, I am an Associate of The Chartered Institute of Taxation of Nigeria and Institute of Directors. I am currently the First Vice Chairman of the Chartered Institute of Bankers (CIBN), Lagos State Branch, where I also serve as the Vice Chairman of the Membership Development and Services Committee and a member of the Grants and Funds Committee. I am a Trustee of the Investors Protection Fund of the Nigerian Stock Exchange, the Treasurer of the Institute of Capital Market Registrars. I am also a member of various capital market reform committees of the Securities and Exchange Commission (SEC).

With your appointment as the Group CEO, what will be your strategy to sustain the growth trajectory recorded by United Capital over the years and how do you intend to build your own legacy?
I must start by thanking my predecessor who did a lot of work which brought the Group to where it is today, as one of the market leaders in the Nigerian financial services landscape. Going forward, we are not going to rest on these laurels; we will work on continuous improvement of products and processes structure. We will innovatively change the narrative of financial services in Africa. We will pursue with clarity our pan-African strategy, we are currently in Nigeria but building a critical mass that will enable us to operate in other African countries.

Furthermore, we shall strongly support the initiatives to improve the depth of the capital market in Nigeria and thereafter in Africa by engaging in product development as a means of broadening investment opportunities in our market. We shall equally focus on consistent increase in the wealth for our teeming shareholders while also ensuring that we keep a healthy relationship with other stakeholders. In driving all these, we shall keep in mind our three core values of Excellence, Enterprise and Execution. We shall also place premium on our people. Our people are one of our key assets. Bearing this in mind, we will ensure that our people are motivated, exposed and trained as required to deliver the expected value.

What are the factors that would drive activities in the banking sector and the broader financial services sector in the second half of the year?
The key challenges facing the banking sector currently include the weaker macroeconomic environment, high level of non-performing loans, asset quality concerns, pressure on capital adequacy ratios and elevated risk outlook which continue to drag credit growth. Clearly, the performance of the banks reflects what is happening to the overall economy. While gradual recovery in the macro space is supporting performance. So far, pre-election activities which are expected to dominate H2-2018 is a concern for loan growth. Hence, resolving the challenges confronted by the banks is rooted in restoring the economy to the pre-2014 era of solid growth.

For the financial services sector, specifically on increasing investor confidence, the concerns are broadly linked to political uncertainties, absence of reforms to drive market activities and the dominance of foreign portfolio investors in our market. For instance, low capital market depth reflects the poor disposition towards the market and this is evident in the absence of operators in key sectors of the Nigerian economy such as upstream oil & gas, retail trade and wholesale, power, telecom, and agriculture in the market. On the other hand, weak local participation rate, high transaction cost and socio-political/economic concerns also constrain demand for Nigerian equities, lowering market capitalisation. To resolve this, we must stabilise the economy, drive reforms in critical sectors and boost investor education.

Nigeria’s external reserves have increased, compared to where it was last year. What is the implication for the economy?
Nigeria’s external reserves added a whopping $9.1 billion in the first half of the year to close at $47.8 billion – its highest level since 2013. This dramatic rise in gross external reserves was driven by a number of factors including Eurobonds worth $5 billion that were issued between November 2017 and February 2018; oil export proceeds driven by stability in domestic production; higher oil prices which rose to $79.4 per barrel as at the end of first half (H1) 2018 and net capital flow which surged over the last 12 months, thanks to the introduction of the I &E FX window.

Although events in the political space ahead of the 2019 general election and the external environment (in light of the policy normalisation in the United States) may push the Central Bank of Nigeria (CBN) to do more in terms of defending the naira, we believe the current reserve level would provide succour to any potential volatility that may arise. At $47 billion, the CBN can conveniently cover 12 months of Nigeria’s import. This projects a stable outlook for the second half(H2) of 2018, given that the continuous improvement in external balances will support sustained stability of the exchange rate.

What is your take on the multiple exchange rate system in the country?
The central bank was able to resolve the protracted crisis in the forex exchange market by opting for a multiple window solution. The other option proposed by the market was an outright devaluation or a more market-friendly flexible exchange rate regime. Clearly, the gains recorded in the currency market over the last 12 to 15 months are a testimonial to the success of the CBN’s strategy. For instance, as at June 2018, the total transaction at the I&E segment topped $32.6 billion since it was introduced in April 2017. Similarly, FX rates across market segments have converged around N360/$ compared to pre-April 2017.

Foreign Direct Investment (FDI) and foreign portfolio investors (FPI) flows appear to have dropped and inflation remains relatively high, how can the private sector thrive with this situation?

Actually, a lot has changed in the macroeconomic space over the last 12 months. Although FDI flows have remained lean, the adoption of the I&E FX window has triggered a massive inflow of FPI funds, at least up until May 2018. And the economy has also witnessed significant improvement in terms of headline inflation, currently at 11.4 per cent. However, for the private sector to thrive, the government still needs to create that enabling environment. The Vice President’s office is doing a lot in terms of ease of doing business but more is still required. Overall, what the economy really needs now are bold reforms (in the power, infrastructure, oil & gas, healthcare sectors, among others) to spur mid-to-high single digit growth and boost national productivity.

What will you advise the government to do to place the economy on a sustainable growth path?
Current concerns for Nigeria in our view are long-term structural challenges – not much of policy issues, but implementation issues. The business environment remains tough, continued focus on politics seems to be dissuading the implementation of meaningful structural reforms. For instance, the oil & gas sector remains at the mercy of badly needed policy reforms that could boost more investments into the sector. The delayed passage of the Petroleum Industry Bill (PIB) is the ever-present risk creating uncertainty to the long-term investment in the sector.

The PIB was broken down into four separate units governing regulation (PIGB), administration (PIAB), fiscal terms (PIFB) and a host community bill (PHCB). The idea is that a clearer breakdown of the bill will enable at least certain parts of it to progress through the House of Representatives, Senate and President, unimpeded. As we speak, only the PIGB has reached the President’s desk. These bills have the capacity to add momentum to new investments given the potential improvements to fiscal terms, and clarity around local content costs that could be addressed.

The downstream oil and gas sector remains crippled by policy inertia as the regulatory bodies are resistant towards deregulating the pump price of fuel. As such, fuel prices in Nigeria do not reflect the landing cost. On the agriculture sector, while policy directives such as the Commercial Agriculture Credit Scheme (CACS); Presidential Fertilizer Initiative (PFI); CBN’s Agribusiness Small & Medium Enterprises Investment Scheme (AGSMEIS) and the Anchor Borrowers Programme (ABP), have aided the sectors’ growth in the space, there are issues yet to be addressed. For instance, storage, distribution and processing is hampered by poor transportation network, access to finance, poor local processing facilities and low investment in technology.

In addition, the recent crisis between herders and famers is a major downside risk which is already weakening the agric sector GDP as at Q1-18 while pushing food inflation northwards. The onslaught of the Boko Haram insurgents remains a concern in the northeast with economic activities in the region still considerably low. Other areas include heath care, education and the issue of brain drain, which is negative for manpower development. We need to invest in education, technology, healthcare and correct the decadence in our social system.

With crude oil price soaring in recent times, how do we best manage the proceeds?
The Excess Crude Account (ECA) is still in use, hence, proceeds from excess crude will continue to be remitted in the ECA. However, Nigeria can learn from economies such as the United Arab Emirate (UAE), where proceeds from oil were deployed into investment in tourism, real estate and so on. Oil revenues should be integrated and managed with a view to mitigating the overall impact of oil market volatility on the broader economy. Nigeria is rich in agriculture, human capital, mineral resources and immensely blessed with historical and cultural features that can boost tourism. Accordingly, Nigeria can focus on deploying the excess from oil into investments in these sectors.