Phillips Oduoza, Group Managing Director and Chief Executive Officer of the United Bank for Africa Plc Group recently sat with a group of
senior business journalists to discuss ongoing restructuring of the bank's operations tagged Project Alpha to boost efficiency and ensure better returns on investment. The project, involves splitting of its operations into UBA Africa and UBA Nigeria, he explained, is basically about helping the group achieve industry leadership by 2015 through the implementation of key strategic initiatives. The idea, he noted, is about diversifying the group's earnings stream realizing that most African nation's rely on different natural endowment. Deputy Editor, Kingsley Ighomwenghian was there. Excerpts:
Why this restructuring, is it because your branches are not functioning optimally, or making profits?
It is not correct that we are not making profit. In 2012, 14 countries made profit. In 2013, 11 made profit.
Each time we enter a country as a global player; there are certain basics we have to go through before you achieve some of stability. In the case of UBA, the 18 countries outside Nigeria are mostly Greenfield... new licences that we got approval for, starting from ground zero and building them up.
Apart from two subsidiaries Burkina Faso and Benin Republic where we acquired existing banks, all the rest were Greenfields. And we did this over a short period... in the space of three years between 2008 and 2011. What you see is that you can rollout... you can do a maximum of three countries in a year. But we did this in a space of three years in 17 countries apart from Ghana that started in 2005. So when you are rolling out, the first thing is to chase the licence, put some people there... but you are not driving business yet. That is what was being done at that time. New businesses were not being generated at that particular point in time. You will still be carrying some pre-operating expenses that you will be writing off such that it will impact on your bottom-line. That is what has happened all this while.
We now believe that we have concluded that first phase of expansion. We have hired the people, put processes in place... We are now at the aggressive acquisition of customers' mode. Right now, we want to focus on the business development, and getting the larger share of customers' wallet.
(And as such, I can confirm that) they have been making profit even though it is not all of them. In 2013, because of some write-offs that we did in the subsidiaries that were acquired... some understandings that were reached with the people that sold the entities... they have not met their own side of the bargain. We just decided to write it off. That is why you will see a well-established entity making a loss. It was those write-offs that affected the level of profit. The level of profit that we have been making has not been significant.
Apart from Ghana which is our flagship subsidiary that makes profit of before tax $2.5 million per month, for others, the quantum of profits made are not very significant. And we feel that a subsidiary should be able to stand alone and make huge profit. That is why we believe this is the time to increase the wallet share of customers and deploy full remittance products. That is basically where we are now.
What of the aspect of encouraging negative competition and conflict?
I think the whole world is about relativity. If you sit down in Nigeria, and do not look at what competition is doing, you might deceive yourself that you are doing well. Until one day when somebody says this is your performance compared with other performances, and you now realise that it is below expectation. That is when you wake up.
You have a target of the African business contributing 50 per cent of UBA Group's earnings. What was it in 2013, and when is the target going to be met?
The whole idea is that you have Africa contributing 50 per cent and Nigeria contributing 50 per cent... chief executive officers driving Africa and Nigeria. I will not want Africa to lead me if I am running Nigeria and the same position will also replicate if I am running Africa. For me, it is a positive competition, because these are autonomous entities running on their own. Naturally, there is no conflict but competition. We believe that should enable us get more returns on investments.
On the question of what was the contribution of Africa in 2013 and when do we achieve 50:50 ration, Africa contributed about N5.4 billion profit, which is 11 per cent. In 2013, Africa contributed about N11.4 billion, which is double of 2012, that came to about 20 per cent of our GDP. We believe in the medium term, say between now and three years, we should be able to achieve the 50-50 contribution. Don't forget that Nigeria is also growing which is the beauty of the business model because there is that strive to continue to grow Nigeria. We are not going to ask Nigeria to wait until Africa comes to that 50 per cent target. So, Africa is growing and Nigeria is expanding. A lot of other opportunities are coming up for us as a financial institution to tap into.
The other issue is what name do we call them. For us here, we refer to them as directorates. There is no entity called UBA Africa, neither is there any called UBA Nigeria. They are both under an entity called UBA Plc, and these are directorates. They are running as autonomous entities.
UBA is a bank that has a million shareholders and there are a lot of institutional investors like IFC (International Finance Corporation). We have a lot of foreign institutional investors. If you had attended our AGM (Annual General Meeting), you would have seen that a lot of institutional investors put their investment in Stanbic Nominees Limited. At the AGM, three resolutions were reached and these include declaration of dividends, re-election of directors, and fixing of compensations of the auditors. In the case of the foreign investors through Stanbic Nominees, they insisted that there should be a poll. So, it is not going to be by raising of hands. That tells you that there is governance. They wrote and their views were respected. UBA has very diverse shareholding structure. Because we have enlightened investors, foreign investors, we operate a high level of governance.
In the spirit of competition envisaged, looking at the different operating environments, would that affect remuneration and the directorates.
There is nothing called UBA Africa. We try to call them our African operations. The implication is that you don't have a homogenous environment because the business climate in Ghana is different from Cameroun, Kenya, Guinea... and different from other countries where we have footprints. What we have done is to create a focus and visibility for our African operations. We want a Deputy Managing Director to be in charge of all our businesses in the different African countries. And at the end of the day, when we are looking at our profit before tax, profit after tax, revenue, commission, risk assets... it will be easy for us to say if you get the one in Ghana, this is what it is, if you get that of Nigeria it is this... Now, the implication is that each country has its own CEO that drives the business and the CEO reports to the Deputy Managing Director in charge of the various African countries put together. So, in terms of the different environment, it is already recognized. The regulatory environment in Kenya is different from the one in Ghana. Having said that, you have some regional blocks where you have common currency, and common central bank. For instance, the regions where you have Burkina Faso, Senegal Benin and Togo (Francophone West Africa)... they are under one central bank in Senegal and use the same currency- the CFA, In this instance, they have the same exchange rate, same regulations. So, for those countries, you see some form of similarities among them. You can move money from one country to another without any form of restriction. This also happen in countries like Cameroun, Chad, Congo Brazzaville and Gabon (Central Africa) where they also have a regional central bank. What UBA is doing by having presence in these African countries is to take benefits of these common regulatory regimes so that you will be able to move liquidity around. For instance, the excess liquidity in Cameroun can be moved to Gabon without any restriction whatsoever. So, these are the regional synergies that we are tapping into through visibility and focus.
On the issues of customers investing in treasury bills as against other products, since the qualitative easing has been on in the US, we have been seeing a lot of inflows of foreign investments to Nigeria and other African countries. These investments are not actually going into the real sectors. That is why you don't see them in agriculture, and manufacturing. They are basically portfolio investments and do end up in the money and capital markets. And that is why there is so much demand in the bonds, treasury bills and the equity free markets. Last year, the Nigerian equity market rose by 47.7 per cent, and it was adjudged one of the best. The reason is because so much liquidity has been committed to that. Last year, the Federal Reserves invested $85 billion month-on-month into the U.S. economy. But when the economy could not absorb, some of them were finding their ways into Nigeria, the emerging markets where the returns are very high.
That explains the rise in the equity market in Nigeria. With effect from this year, the Federal Reserve started reducing their investment, beginning from January where $65 billion was invested. At the moment, the amount has reduced to $55 billion. They will just continue because they believe the US economy is strong enough without that support. What we are seeing is that there is reversal of flows and that is what has been affecting the market. The investors have started moving the money back to the US to cover their position. Now, whether we are going to see that investment go into treasury bills is a question that must be answered. The answer to me is yes.As long as the Nigerian economy remains attractive even after the rebasing. We are told that the economy will grow by as high as 6 or 7 per cent. That is very big, compared to the growth of 1.8 per cent in the U.S., or 0.8 per cent in the Eurozone.
It is still very attractive. I believe that once we have a stable exchange rate... because the investor is not only looking at the value of the exchange rate but the stability... So, once they have that confidence that there is stable exchange rate, money will come in. On whether it affects our products, we are still doing our lending, providing services. It only provides liquidity to the capital market. We want a situation where the liquidity will be channeled to the real sectors such that there would be meaningful impact on the economy. We want to see it in infrastructure, agriculture and manufacturing.
Have you considered the corporate governance issues in all of these?
Now in terms of governance, each particular subsidiary has its full board. It is operating as a full licensed entity regulated by the host country central bank and Nigeria's central bank. So, it is a dual regulation. There is no form of regulatory arbitrage. If anything at all, it is stricter than a single country operation where you are regulated by only one entity. In the case of the subsidiary, you have multiple regulations by various regulators both from Nigeria and the host countries.
Why the rush for the expansion, has the expansion come to an end?
The expansion has not come to an end. But for now, we have finished the first phase. When we started the African expansion, we decided to phase it. We have countries that are in first phase and what we are doing right now is consolidating. And we are through with that, we can now move into phase two. First phase covers the major economies in sub-Saharan Africa and we have achieved that. We didn't include South Africa because of some factors. The only country we have not entered in first phase is Angola. We don't have a banking licence in that country. Once we have it, we would enter the market because of the robustness of that economy. We have completed the first phase. Currently, we are in the consolidation mood which is deepening the wallet share which has necessitated the restructuring.
Now, on the question of why the rush, it does not last forever. If you recall that the CBN said it would not approve any plan by a Nigerian bank to recapitalize its subsidiary with funds from the group. That window was shut but we were very lucky. The other issue is that most countries have a limited number of licenses they can give. So, these opportunities don't last forever.
Secondly, if you invest say five years ago and now on the same thing, it will cost you more. That is why whenever such opportunity arises, it is important to take it. That is why we saw the opportunity and utilized it. And our objective was to set up the banking infrastructure, set the processes, get the people and don't drive business yet and move on to get other licenses, and replicate the same thing. It is just right now that we want to drive the business
What improvements are you bringing to the table in terms of product offering so that Nigerians can benefit?
Nigeria cannot lose. We want the Nigerian business to keep growing. We want our Nigeria entity to compete with all the other banks in Nigeria. That is why we have Nigerians at that senior level that are driving the process. It is not going to wait for other countries to grow. It is a moving target. There are some benefits associated with what we are doing. We have centres of excellence in different countries and where we have better offerings (services, products and processes) coming from other countries, we will import it. If there is any offering also from Nigeria, we will export it.
For instance, our e-banking space is going to be driven out of Africa because a lot of these African countries (particularly Kenya and East Africa) are far ahead of Nigeria in terms of e-banking. Over there (in Kenya), you have mobile banking agency banking, Mpesa. We will rather import those superior ideas into Nigeria and use it to run in Nigeria. It will not necessarily have to come from Nigeria. If there is any other from Nigeria too, we would export it.