Adetu: Power Critical for Nigeria’s Growth

The Group Chief Executive Officer, Algorithm Media Limited, Mr. Seni Adetu, in this interview with Obinna Chima, speaks on the need for government to focus on policies that would improve living standards of its citizens. Adetu, who is a former CEO of Guinness Nigeria Plc also speaks about the outlook of the advertising sector. Excerpt:

What is your assessment of the performance of the economy since January this year?

Well, I think what is coming through is that in theory, on paper, the economy has been looking good, when you look at the fact that we came out of recession.  We have come out of a situation whereby in the last few years, inflation has been trending the right direction. But as I say to people, macro-economic growth does not in itself give the full picture of a booming economy. This is because at the end of the day, you will measure whether and economy is doing well in my perspective, from two angles. Firstly, is from the aggregate consumer demand. That is when consumers are making purchases and FMCGs are growing, there is premiumization that is happening, in other words, people are picking things based on luxury or things that they want to feel good about, as against down trading; as well as when generally there is employment, then I can say the macro-economic growth, as in Gross Domestic Product (GDP) growth is translating to real economic growth.  So, from my perspective, a macroeconomic growth does not automatically translate to a booming economy, and that is what we are seeing now.

In fact, unfortunately, the last quarter GDP report showed that things are also slowing down as the country recorded GDP growth of 1.5 per cent. So, we need to ensure that not only do we increase productivity, but as well as direct resources to activities and sectors that can impact on the consumers’ disposable incomes and generate consumer spending. The other thing I want to say is that I was thought so many years ago that if you move into a country, especially in Africa and you want to see that the economy is growing, one sector that clearly indicates that is the real estate sector. This is because what happens is that when you see new buildings springing up or a building that is about to be completed, you will notice that tenants have lined up to rent it or, if you want to sell it, it is sold on plan, then you will know that the economy is booming, especially in Africa where there is hardly anything that is mortgage. But the truth of the matter is that what we see these days is a situation where increasingly there are empty houses all over the place. In fact, we have cases where sitting tenants are demanding to pay less rents as they were paying before, which has never been the case. So, the reality of today is that macroeconomic indices are trending the right direction, but unfortunately Nigerians are seeing that a macroeconomic growth is not the same as a booming economy. The economy booms when consumers have cash in their pocket to spend. So, if you GDP is growing at 10 per cent and consumers don’t have cash in their pocket, I won’t call that a booming economy.

There is an increasing concern that Nigeria’s population growth rate has outstripped its GDP growth rate. What type of reform do you think the government should consider fast track its GDP growth?

As Africans, I think the issue of birth control is a very sensitive subject matter. In developed countries for example, there would typically be a law or policy that disallows families to have more than a certain number of children if the population is outstripping GDP growth. But if you do that here you will begin to whip sentiment around why should a government do such. In some cases, it would be by creating incentives for smaller families or disincentives for larger ones. I am not saying I support this, but it is the reality. So, that would not work here based on our beliefs and sentiments. Therefore, the only solution would be to grow GDP faster than the population and accept that in terms of population, we are who we are. But as long as we are still very monolithic in terms of our economic positioning, where we are limited to one sector in driving our economy, unfortunately, the economy will continue to struggle.  The international competitive landscape is tough and requires economic diversity. At the moment, our economy is exposed to vulnerability and we can’t control what happens in the world, like in the case of oil. An example I always give is that if you are a company and all you depend on is one brand and you don’t see the need to diversity and bring in other brands to support you and act as what is called flanking brands or flanking portfolio, you are just exposing your chest to bullets. Unfortunately, that is what the country is facing today.

How critical is the power sector to change the Nigerian story?

The truth of the matter is that we are in a vicious cycle. We complain of unemployment, but ideally, in most developed economies, the biggest employer of labour is the manufacturing sector. That is where you line up people to produce the Fast-Moving Consumer Goods (FCMGs). Unfortunately, here the manufacturing sector contributes barely eight per cent or thereabout to our GDP. That is the bane of our economic malfunctioning. What needs to happen is that the manufacturing and other productive sectors have to grow, and there is nothing more critical to our ability to expand capacity within the manufacturing sector than power. Anybody that manufactures, almost by implication, needs power, regardless of what it is that they produce. Power remains the single most critical infrastructural need in Nigeria, but then we sound like a broken record on this. We have made multiple and costly initiatives to address it and instead created insanity in the sector. Growing generation output and enhancing the capacity of the Transmission Company of Nigeria (TCN), We need to scale at pace, is still a mirage to feel the tangible impact of those.  Many of the operators are struggling under debt and working capital burdens, yet there is no major break-through in mass generation and transmission, yet.

Earlier, you said the standard of living standard in the country has remained low, how is that affecting the advertising sector?

When I say that the standard of living is still very low, it is not an unknown fact. Theresa May, the British Prime Minister during her recent visit to Nigeria attested to it. There was also a UN report that declared that 80 per cent of Nigerians live below poverty level, which is $2 a day, if the UN definition is applied. The whole world knows about the poverty challenges of Nigeria. The government needs to continually upweight spending in the productive sectors to cure this pervasive poverty disease. Advertising as an industry is not insulated from today’s challenges because you are advertising for consumer goods, services are whatever. So, if your clients’ businesses are not thriving, it is a logical expectation that the advertising agency and media agencies won’t do well. The industry is entirely reflective of what is happening in the bigger economy. Several clients are calling to cut their marketing spend for the year. Don’t forget that for many businesses, the advertising spend of a client is typically a function of its net sales revenue. What it means is that If the revenue is stunted or lower than they are targeting, it means the advertising agency gets less advertising budget. So, there is a bit of shrinking in some areas, but it is all reflective of what is happening in the bigger economy.

If you go through the trend since 1999, few months to elections in the country, there is usually an uptick in advertising, Have you started witnessing same ahead of the 2019 elections?

The unfortunate thing is that If we go by historical trends, we should be experiencing that boom already. Remember that elections are in February March. With the 2019 elections only about 6 months away, we are yet to witness anything, comparable to same period in the run-in to the 2015 elections, when you could hardly find space on billboards, print or radio. It may still happen, but maybe relatively close to the elections, which tells me that there is an underlying constraint in the economic power of Nigerians and also suggests to me that the high net worth individuals are not spared.

Do you see digital advertising as a threat to traditional advertising?

Without a doubt, it is a matter of when, not if. All the signs indicate that what you get out of traditional, a lot is general, whereas what digital gives you is that it is more targeted. Unfortunately, digital is also more measurable than some traditional. Digital is much more targeted, trendier and more modern. But measurability in traditional media such as out-of-home advertising is still a matter of debate, but that is not applicable to digital advertising. When buying space on social media, you can see the engagements, the likes, comments, etc. The more financially constrained advertisers become, the more scrutiny and governance they create around getting a big bang for their advertising and media dollars. The digital world also pulls the youth, which is where a lot of advertising budget should be targeted in securing the future of your brands. Over time, digital advertising will get more prominent, though this is not to suggest that traditional advertising will become dinosaurs.   

How do you see the new media changing the landscape of adverting and media buying?

Consumers are a lot more discerning. The world is more open- a true global village. Consumers are aware of what value they should be able to get from anything. For instance, a Nigerian in a buying negotiation on the streets can tell the seller how much a product costs in the UK, do the exchange rate conversion and confront the seller on how much the product ought to sell in naira. The implication is that beyond media, a company wishing to succeed must professionally juggle all the the elements of the marketing mix; including price-to-value, great consumer experience and product availability. Media will do its work, but as they say, “good advertising cannot sell a bad product” just as “bad advertising can destroy a good product”.  The traditional ways of doing media have to be tweaked in order to reflect the changing world. Mobile handsets are a whopping 95% or more (albeit some consumers have two or three handsets) and internet penetrating is believed to be inching close to half the population, A good population of Nigerians are now reading news on-line, making purchases (a la e-commerce) and even gossiping (a la social media) so why won’t advertisers change their ways of reaching these consumers. Traditional businesses that operated with conventional approaches, like the banks, have all changed their strategies. Internet banking, e-banking, the use of mobile phones for banking, etc. have taken over.

What are the key trends that will shape the media industry going forward?

First will be digitalisation. Everything that can be consumed is moving through that channel. If something happens on the streets of Lagos for instance, before it hits the news in print, it is already on social media. The print news may become stale by the following morning when it appears on the newspaper. The second will be measurability. People do not have as much advertising and media spend as they did in the past, so they will be much more discerning in their deployment of advertising spend; more careful on how they spend their money. They will want to put their money where it is measurable. The third trend will have to be cost efficiency, what I can think of as “Cost per Target Audience”. These three things are key and revolve around content, capability and compliance.  

Don’t you think that for digital media, regulation is important?

My position is that regulation is good, because it instils “good” fear and somewhat removes the risk of people exploiting that platform to spread fake news and damage people’s reputation. So, if the regulation is about correcting for authentication purposes, I am for it. If it is about trying to hide the antics of  politicians, that is a separate conversation. Another pro for its regulation would be to protect the minors in the community. Years ago, with traditional media, APCON, for example had an advertising policy for alcohol companies that they called watershed, for radio or television advertising so as not to expose teenagers and children to alcohol advertising. Unfortunately, if regulation is not done in digital media, we risk exposing young ones to all sorts of advertising online which might not be good for their future wellbeing. Indeed, there are pros and cons and as a consequence I do not have a strong position either way, I must say.

How do you think government has fared in terms of funding for SMEs?

I think the government has made efforts in some areas, starting with the intervention funds of the Central Bank of Nigeria. This is highly commendable. I believe they are consciously trying to create the economic environment for SMEs to thrive under this current CBN leadership. A lot of things that were difficult to do through the commercial banks can now be done through the intervention of the CBN. The Bank of Industry (BoI) also provides loans at affordable rates to deserving and qualified SMEs. There’s a significant pool of education initiatives to embed good governance and succession practices in many SMEs. All that is great.  On the other hand, the SMEs are faced with some challenges. One is infrastructure. SMEs are in possession of working capital, they are still faced with infrastructural problems. Take agriculture for example. If farmers are provided with tractors, irrigation support and other necessities, but when their goods have been produced and it is time to transport to the point of sale, the roads are unmotorable, then we have a problem. What then happens is that the farmers never get the economic value that should be derived on their produce and are thus back to square zero. This speaks to the fact that as much as cost of capital was or is an issue, capital itself is not sufficient to transform the lives of our SMEs to a thriving height. There are still issues they are dealing with, issues that the government has somehow found difficult to solve, such as power, roads, security. These should be the key areas of focus for the government in order to enhance SMEs’ performance and contribution to the economy. Let me emphasise that, we begin to get our economic healing from the moment more and more SMEs’ can thrive enough gainfully and legitimately employ a majority of eligible Nigerian workers.   

What do you think about tax breaks. Should it be encouraged, or  do you see it as a form of favoritism?

I think tax breaks are good. In Nigeria, there are many policies that are meaningful on paper but collapse completely in execution. If you think of tax breaks in the context of well laid out policies, and the right people and sectors getting the tax breaks to encourage expanded investments, then that is excellent. However, what tends to happen is that corruption comes in and tax breaks do not do what they otherwise should, and the state ends up throwing value out of the window or in some cases creating a non-level playing field amongst competitors. This isn’t good at all.

Tell us about your company. What should we be expecting in the nearest future?

We started about three years ago with Algorithm Media, which is basically the media arm of our marketing communications company. We started on a good note and we have a number of quality clients already. What is happening now is that we are currently in the process of expanding to advertising, by launching our creative agency. In a couple of weeks, we will be announcing a partnership that would result in the unveiling of a new company, which we expect to play a very huge role in the advertising company. I have always said one of the reasons we haven’t grown so much is the fact that there have been so much limitations around our foreign participation. But the reality is that if you look at most industries that have thrived in Nigeria – telecoms, banking, FCMGs, etc- they have got some foreign participation to build scale. Without scale, you can’t compete internationally. So, we are going to announce our partnership with WPP, which has taken 25 per cent equity in our company and in a couple of weeks we will make the announcement.

For the rest of the year, what are your expectations from the industry, especially as the 2019 election draws closer?

I expect to see a relatively strong last quarter, with hopes that perhaps, more people will bring out and/or bring in from outside Nigeria for the purpose of the election, which will then have an impact on consumer goods. This will likely run till the first quarter of next year, after which I am afraid to think of what will happen post elections, especially if the spending has been artificial and driven by unproductive wealth. Of course, the aftermath of the elections in the sense of peace and stability with no security concerns, would help create positive gearing in the second half of 2019, I believe. As for the marketing communications sector, it is a truism that as goes the commercial performance of advertisers, so goes the business fortunes of their advertising and Media agency partners.