‘Three more years’
New expansion targets make for curious reading
ADAY AFTER LAUNCHING operations in Africa’s most populous nation, financial services company Blue Financial Services said it would continue to expand into more markets before it pauses to take stock of its achievements. “We’ll go into all the countries worth going into over the next three years,” said CE Dave van Niekerk.
Speaking at the launch of Blue in Nigeria and a fortnight after launching in Rwanda, Van Niekerk said the company was working on establishing operations in Ghana and was also looking at Mali and Angola. Three days later he added Mozambique and Cameroon to that list.
“Thereafter, we have our sights on Chad, Congo Brazzaville, Benin and Senegal,” Van Niekerk told Blue’s 2008 shareholders’ meeting recently.
Founded by ex-African Bank Investments (Abil) executives who saw niches in the rest of Africa, Blue currently operates in 12 countries, seven being opened since February last year.
While Blue has grown rapidly in every sense since listing on the AltX in 2006, investors might be worried – correctly – about the pace and quality of that growth. However, it’s worth noting its rating (earnings multiple in the mid-Fifties) on the JSE currently doesn’t reflect any market fears about its progress. Blue recently issued a trading update that indicated interim earnings to August 2008 would be 130% up on its previous corresponding period.
Is Blue growing too fast? Is quality perhaps not suffering in order to fulfil its ambition of being Africa’s biggest micro-lender?
“We have the largest market capitalisation on the AltX – more than R3bn from R1bn a year ago – and now rank in position 156 on the JSE, up from 189 a year ago,” said Van Niekerk. He could have been thought to be bragging as he told shareholders at the meeting.
Group finance director Grant Chittenden told Finweek in Rwanda recently Blue was comfortable with its pace of growth. “All our operations throughout Africa are monitored real time from head office (in Pretoria).” He said every single day staff in Pretoria do qual- ity checks on every transaction conducted.
“Our IT system (called FAME) allows us to go at any time into any transaction entered into in any location and check if everything is done according to the book,” Van Niekerk said en route from Lagos, Nigeria. “Before we can open any branch in any country, we spend at least two years familiarising ourselves and researching the market.” He said Blue has two divisions, one looking after its expansion process and the other its operations.
The operations side is responsible for monitoring its operations while legal director Wessel Smit can be described as head of the expansions team. Smit’s job involves researching and investigating the legal regime in any country Blue intends entering. When a decision to go ahead is finally made, Blue deploys country managers (only South Africans), led by ex-Unity Financial Services (taken over by Abil) executives Johan Senekal (who has made himself available for the next three years) and Anton Nel.
In most countries Blue starts its operations from scratch or takes over companies. However, Nigeria was different, as it joined forces with the Intercontinental Bank (ICB) to form Blue Intercontinental Micro-finance Bank (BIMFB).
Said Van Niekerk: “We realised Nigeria was going to be a challenge, as it has its own culture and challenges. We decided on a local partner with its own infrastructure and the required experience.” Blue owns 55% of the new entity and ICB 35%, with the American Investment Group (AIG) the remaining 10%.
“If managed correctly, Nigeria can be Blue’s biggest market,” added Van Niekerk. Without building its own infrastructure Blue builds kiosks inside the ICB’s 280 branch network, although it started with 17 and will grow that to 70 by February next year. With more than 140m people and a negligible retail credit market, Nigeria is indeed potentially Blue’s most lucrative and biggest market. Blue requires a lot to achieve success in the country as Nigeria is far from normal. A simple thing, such as checking into the country at Murtala Muhammad Airport, is a serious effort that can take anything between two to nearly four hours (we left our passports with an agent at immigration, having sat in a private VIP lounge for more than an hour). A 14km trip in Lagos can take anything from three to four hours due to traffic congestion. To gain some advantage in traffic, police escorts (normal for foreign businessmen – at a fee, of course) can cut that time by up to an hour. It would also be of great assistance to the company if the Nigerian government can contain the growing unrest in the Niger Delta so it doesn’t spread to other parts of the country.
“It’s very difficult doing business in Nigeria, people will find any excuse not to pay,” construction company Esor’s CE Bernie Krone told Finweek in May. “If you want to get paid your contract really has to be very water-tight.” Franki Africa, now a subsidiary of Esor’s pulled out of Nigeria in 2004 after a three-year study of the country.
The latest additions to the list of Blue’s possible expansions also make for curious reading. Only Benin speaks English, the others being French- and Portuguese-speaking countries. However, Blue’s in-house IT team can modify its software to any language.