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NSE/Bloomberg: Nigerian Companies Embrace Innovation to Navigate Recession

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Top chief executives across sectors who were part of a panel at a recent Nigeria Stock Exchange (NSE)-Bloomberg CEO Roundtable in Nigeria agree that the recession provided an opportunity to innovate and take advantage of opportunities hitherto unseen.

Nigeria, is widely believed to have come out the worst of its recession. While it lasted, businesses suffered erosion in bottom lines, forcing them to tweak models to stay in business and to thrive.

Effects of Recession On Companies
Speaking at the CEO Roundtable Demola Sogunle, CEO of Stanbic IBTC Bank, said that 2015 was a tough year for Nigerian banks, as it “affected the quality of our loan book (personal and corporate). People were just not able to pay. The loans became impaired. The situation was the same in 2016 and was exacerbated by forex illiquidity.”

Graham Hefer, managing director at Okomu Palm Oil Company, commented that in agriculture, there were significant revenue drops, leading to aggressive lowering of cost.  In his company, there “were issues with having to import and the lack of forex”.

In the infrastructure sector, “in the last couple of years there hasn’t been any new large scale infrastructure project due to the fact that the recession has constricted ability to pay,” said Andrew Alli, CEO of Africa Finance Corporation (AFC).

Telecom companies’ “capacity to pay is coming to a grinding halt,” added Funke Opeke, CEO of Main One. This is because they are no longer able to approach the market because of forex shortage and there is lack of local substitutes. This has led to rationalisation of services, cost and consolidation. She also noted that “There is loss of skills as experts depart the local market,” adding that the ability to deliver virtual businesses is impaired as interested parties are focusing on competing markets like Kenya and South Africa because of the macroeconomic environment.

Facing Up to The Challenge
On how businesses stood up to the challenge presented by the recession, Sogunle said that when considering companies with which to do backward integration, his bank looked at firms who were able to source raw materials locally and whose reliance on foreign currency was moderated, or those who were in a position to export (and thus could earn FX to bring in their imports). 

Sogunle added that in a further bid to reduce costs, his bank went more digital and had to scale down on branches leading to rationalisation. It also made changes in terms of channels and internal operations, leading to faster delivery of service to customers. “We scaled down on sectors. In agriculture for instance, we identified key subsectors to work with.”

Hefer said the recession helped his company aggressively lower costs while guarding forex that it obtained. To bolster their forex sourcing, they devised a system of selling palm oil locally and selling rubber to the international markets.  “On productivity, we’ve looked at vertical integration within our company and we are looking for better yielding crops so that we don’t look for more land.” He also stressed the need for value creation if agriculture will deliver the promised benefits.

Mark Bohlund, Bloomberg Intelligence economist commented that “agriculture is going to be the biggest contributor to the economy in the next two years. The country doesn’t have to reinvent the wheel, but simply look at what the Rwandans and the Zambians are doing. It is one of the sectors that can benefit from weak naira and improved cost competitiveness. This is also because it is not as dependent in energy as other sectors like manufacturing.”  He also noted that while agriculture is a central part of the government plan, implementation of that plan remains to be seen.

Alli pointed out that there hasn’t been many large scale infrastructure projects that have taken off because people’s ability to pay (including the government’s ability to pay) has gone down.

“Shortages of dollars have caused a rethink around innovative products that will allow financing in naira,” says Alli, but cheap funding in naira given the macro environment is difficult and these things take time. So in the meantime, the industry is resorting to the use of technology to manage cost.

According to Opeke, “there’s the need to create structures that make it easy for private capital to come in” to the telecom industry and to allow investors repatriate their funds. On the demand side, she says since consumers have less buying power, which has to be addressed in the same way the government has to aggressively implement policy.

Fortunately, the government appears poised to key into the needs of business, assured finance minister Kemi Adeosun, who added that “a strong focus on infrastructure and improved ease of doing business is a very clear recipe for growth, profit and progress.”

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