Ayeye: Nigeria Punching Below its Weight
The Group Managing Director of Growth and Development Limited (GDL), Mr. Kola Ayeye believes that the Nigerian economy ought to be growing at double digit in order to tackle its myriad challenges. Ayeye also spoke about a unique business model adopted by
How will you describe the performance of the economy in the first half of 2018?
Our economy is still substantially oil driven. The successes we have had were substantially driven by oil and the challenge of diversifying our economy and creating employment still subsists. I don’t think it will be right to say the positives are actually independent of oil. I think we should acknowledge it, but i don’t think we should over celebrate it.
The US Federal Reserve during week raised interest rates and also signalled that two more increases may take place before the end of the year. Does this not pose concern in terms of capital flows in the country?
Well, I think that generally interest rate in the US would rise and attractiveness of investments into developing countries like Nigeria, would reduce. But I don’t think those rates were sufficiently raised to be a major reason that would discourage portfolio flows. Those rates at below three per cent, are still low and I don’t think it will be a discouragement to portfolio flows towards Nigeria. In my view, the major reason that could result in a cessation of portfolio flows are issues in our political space. If some things happen that creates a substantial lack of confidence, then there could be an outflow. I think that for interest rates to lead to investors saying to themselves that the differential is not sufficient compensation, I don’t the rates are there yet. But it is a signal, because the US is saying that they are close to full employment, the economy is doing very well and so they want to cool it down. So, if they continue raising interest rates, we would ultimately get to a position where with or without a disruption in our political and economic environment, it would no longer make sense for them. But I don’t think we are there yet.
What is GDL offering the market?
Our country Nigeria is generally punching below its weight. That is something that is obvious and needs no further explanation. We have a substantial collapse of social infrastructure. The middleclass is very thin and continues to get thinner. From where we stand at GDL, there are three kinds of wealth and this is how we define wealth. There is personal wealth, which is what individuals hold. It could be the money in their bank accounts, the houses they own, the shares they have bought. That is one class of wealth. The second class is trans-generational wealth. That is wealth that is structured in such a way that it is likely to live and transcend generations. And one important category of trans-generational wealth is when a company has become not only stable but has become institutionalised so that it can go from one generation to the other. That is the second category of wealth.The third category of wealth is the common wealth, which is wealth that belongs to everybody and is available for everybody. So, for example, the medical system of a country is part of its common wealth, the social infrastructure, the schools are part of the common wealth.
For there to be a thriving middle class, the last two classes of wealth are very important. In societies where you have a thriving middle class, you will find that they have a very robust and large common wealth. The schools work, the health facilities work, the infrastructural facilities are up to par.What that does is that, regardless of the quantum of personal wealth that you have, there is a certain minimum standard that you can achieve because those things are common wealth. So, there are societies where even if your child were going to a public school, he will be getting close to the best in education. Transgenerational wealth on the other hand makes the wealth that is created by a generation available to other generations. You have companies that are fifty years, some 100 years and even 200 years.
So, essentially, in societies where the middleclass is thriving and robust the emphasis is not only on personal wealth but on transgenerational and commonwealth.
Unfortunately, the way a lot of African countries, including Nigeria run, what is prominent and visible is just the first category of wealth, which is personal wealth, prominent. So, one of the concerns of GDL is how to grow and expand the middleclass. You know, we need to examine not only the strength of institutions, but we must also consider the structure and relevance of institutions, whether those institutions are best adapted to the strength and weaknesses of that society. We think that custodians of capital are important institutions because the custodians of capital decide what gets finance and what does not get financed. We believe financial institutions are important pillars of the society. So, it is not enough to strengthen institutions, but we must rethink how institutions are structured and what they do. So, we think it is time to start to look at how financial institutions can focus not only on personal wealth, but on creating transgenerational wealth and on helping society to transform by strengthening the common wealth, that is, social infrastructure. That is a major reason why GDL was set up. To give you an example, the kinds of things are how do we redeploy our savings pool to transform society? I think the savings pool in the country is now approaching N4 trillion. And our own estimate is that N4 trillion of savings contributes almost N300 billion of income annually to banks. So, the issue is, is there a way to redeploy those savings to improve living standards? Those are the models and the opportunities that GDL wants to concentrate on. We have an asset management licence. One of the things we want to do with our asset management licence is to pool savings from both the private and the public sectors under new frameworks such that with those frameworks, there can be interventions in areas that have so far defied solutions. Notably education, health and housing in such a way that will produce not only decent financial returns but also strong social dividends. We are not in this business for charity. We are in this business also to make money, but we think you can make money and deliver significant social impact. That is one of the major things we look to do with our asset management licence. Over the next few months, specific funds and specific products to actualise this would start being unveiled and these are the things that would differentiate us from others.
With the competition in the industry, are there strategies you have to achieve this?
Societies evolve. And it is important that as societies evolve, you start to think about how to do things differently. Doing things differently means that you must realistically accept what your strengths and weaknesses are. Hopefully, over time you correct those weaknesses. But while those weaknesses are there, they are steering you in the face. One of the things we want to do differently is that we believe that financial institutions are important pillar of any society and in addition to making money, deliver significant social dividend. That is one thing we are going to do differently. I don’t want to give the impression that GDL is not about making money, because we are going to make money for our shareholders and all our stakeholders. But in addition to making money and also make money the savers and investors in our funds, through the licences that we have, we want to deliver significant social impact. And for that to happen, you need to start to create new kinds of frameworks. Let me give you an example, right now, in most banks, depositors don’t get interest of more than two or three per cent. Now, that means that before the crash in interest rate, annually, those savers, including the retail savers were contributing up to N300 billion to banks as income. But the things we are working on would enable the savers to get a little more than what they are getting and we would start investing in things that are very crucial in the society, like health, education, etc. Those are the things we do differently. We are going to deliver unique frameworks. We are not saying this can happen overnight, but part of what we would do is the process of education.
What are the framework (s) you are going to use to achieve this?
Our thoughts are very clear. The frameworks we would use are very clear. What is critical for us is that we want the country and the savers to start to think. We want some of the things we are saying to start to resonate. That for example, the savers in this country have almost N4 trillion residing in Nigerian banks and from that N4 trillion, Nigerian banks earn almost N300 billion annually, and if nothing changes, over a 10-year period, savers would have added almost N3 trillion of wealth to banks. So, isn’t there another way of organising the financial system, so instead of adding N3 trillion to the wealth of the banks and their shareholders, you can take some of that wealth and use it for significant social investment. If the financial institutions that work well in every other countries but are not working for us and providing the dividends we want, we must rethink the way the institutions work. And to rethink the way the institutions work; the savers and investors must start to see what the opportunities are.
Are you looking at going into partnership with institutions outside this country to pool the amount of resources you are envisaging to make the interventions in these critical sectors?
There is the contracted behaviour of funds. But there is also actual behaviour. The contracted behaviour of a current account is that I can take it at anytime. That is the contract. But, the actual behavioural pattern is that a bank looks over the last three or five years and says at the worst of time, my current account balances has never fallen below a particular level. So, if an institution has for example, N10 billion in current account, and in the last three years, his current account balance has never fallen below N5 billion, it actually means that only the N5 billion that is on top that is unstable, while the other N5 billion is permanent. The same way that savings account behaves. Savers can come and take their monies at any time. But the trend on the savings graph is upwards. So, we are not looking at the contracted terms, we are looking at the behaviour. And it is that behaviour that we want to leverage on. The big deal is that when GDL forms the right alliances, that saver over time, by reasons of these kinds of initiatives, would start to see the public schools in his domain is re-engineering.
What is your outlook for the remaining six months of the year?
Frankly, it is not going to be much different from what we have seen since the beginning of the year. I think oil prices would remain where they are. But I must say because of increased oil price, there is relative stability in the Nigerian economy. The projected growth, depending on whoever is projecting, whether it is two or three percent, we would achieve that. But, from where Nigeria is presently, population growth is above three per cent and a substantial level of the population is living below the poverty line. The kind of growth rate we should be celebrating should be close to two digits. So, that should give you an indication of how far we are from where we ought to be. Where per capita income in less that $2,500 and where a substantial part of the population is still living below poverty line and where population growth rate is more that three per cent. The kind of growth rate that we should be celebrating should be close to 10 per cent.