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Transcorp, the “credible local partner”

Interview - March 14, 2013
Active in agri-business, energy and hospitality, Transcorp creates synergies and provides an ideal platform for talented individuals to flourish and businesses to grow. World Report meets with Obinna Ufudo, the company’s President and CEO
Last year was a very challenging year in the economic landscape globally, with Brazil and the US slowing down to 2% GDP growth. However, Nigeria performed admirably with 7.4% GDP growth rate. We have spoken time and again about how Africa and Nigeria in particular are lands of opportunity. Why do you feel that now is the time for UK investors to avail themselves of opportunities in Nigeria and that this is not just another false dawn?

Nigeria is richly endowed with abundant natural resources e.g. oil and gas, solid minerals, agriculture, etc. However, the country lags behind in areas such technological development and innovation, having a consistent regulatory environment, transparency and good governance, all of which are critical precursors to sustained economic development and growth.  
These factors, coupled with the slow growth rates predicted for other countries around the globe, including the “BRICS” whose supersonic growth as being forecast by experts not so long ago, have combined to position Nigeria favourably so much so, that Nigeria is being classified potentially as a 21st century global economic powerhouse. Provided the Nigerian Government continues to create a conducive regulatory environment for growth, I can confidently say that investment opportunities in the country and Nigeria’s potential emergence as one of the stronger emerging economies is not “just another false dawn”
Now, I believe that African nations and Nigeria in particular could and should be targeting double-digit growth rates. To achieve this however, we need to address infrastructure, human capital and governance deficits. Nigeria’s and indeed Africa’s best brains live and work in the Diaspora. We want these technocrats/experts to return home and join the vanguard to transform Africa’s emerging economies. The private sector, rather than Government, will be at the forefront this emergence. Within the private sector, conglomerates such as Transcorp are better placed to effectively allocate limited resources in terms of human capital, funding and technology across multiple industries thereby reducing exposure to market and other inefficiencies. 
In my opinion therefore, these are very “early” days in Africa’s transformational growth. I see huge and exciting potential for greater growth in the near future. 
Recent reports on the depth of Nigeria’s oil and gas reserves have estimated that these reserves will be exhausted in approximately 43 years. Nigeria must focus and intensify its efforts to diversify the revenue streams feeding the national coffers. Job creation and value addition must be at the forefront of everyone’s mind. In what areas must Nigeria look to diversify the economy?

Right now agriculture is the highest employer of labour in Nigeria and it is this sector in particular, on which we must focus in order to diversify the country’s revenue streams. The Nigerian agricultural sector is, however, grossly undercapitalised in terms of both skilled human and financial capital. The sector consists predominantly of small-scale, fragmented subsistence farming for domestic consumption with very little being produced for export. Nigeria is capable of producing, in many instances, much more agricultural produce than we can consume, yet we are highly reliant on imports. 
Rice is a good example. Nigeria imports approximately one billion naira’s worth of rice everyday and that is because our rice farming and processing practices are inefficient and mostly archaic. We have not been able to install the necessary water irrigation systems with which to grow rice for more than one season, annually. 
Beyond irrigation, farmers need access to high-yield seed varieties, tractors, fertilisers and other inputs at affordable prices. Without these, locally produced rice cannot compete with imported rice. The Nigerian Government has recognised these challenges and the Ministry of Agriculture and Rural Development is working hard to fix the rice value-chain. The rice story is retold in the case of other crops that we grow in Nigeria. 
The lack of facilities in the country to efficiently process raw materials represents a huge opportunity and it is here that Transcorp has elected to position itself in the agri-processing sub-sector. We have set up the only juice concentrate plant in Nigeria. Ten years ago, the Nigerian Government recognised that we produced far more fruits than we could consume with approximately 60-70% going to waste, post-harvest. So the Government reacted and banned the importation of fruit juices into Nigeria. However, they didn’t ban the importation of juice concentrate. So you still have a situation where fruit juice manufacturers are importing concentrate from South Africa, Brazil, France and Spain, etc. But were you to go to Benue State, described as the breadbasket of Nigeria, and invested significantly in the orange value-chain, you would probably produce enough orange concentrate for all juice manufacturers in Nigeria and still have a surplus leftover for export. 
So Transcorp took the bull by the horns and our juice concentrate plant in Benue State was inaugurated 9th of March [2012] by the President himself. The plant has the capacity to process 26,500 metric tonnes of orange, mango and pineapple. But this does not even begin to scratch the surface in terms of existing demand. So there is plenty of room to scale up operations. We will be looking to build a plant in the near future, which will be considerably larger than the existing one. The benefits for everybody will be immense. The farmers in this region currently live off selling about 50% only of what they produce, with the rest going to waste. While trading with us they will find they will be able to sell a larger stake and possibly all of their produce, thus increasing their wealth and incentivising them to increase the volumes they produce.
One of the obstacles to the emergence of a vibrant juice concentrate market is the ability of local processors to compete with international imports. How do you plan to create a competitive advantage?

International imports enjoy a range of advantages in operating conditions in comparison to us in Nigeria. The cost of powering a factory in Nigeria is vastly more expensive than that of an international counterpart. The governments in most of these countries provide various forms of subsidies for their farmers. So we have to find other ways to compete. 
Our lower labour costs and proximity to market represent huge competitive advantages. We are able to supply to customers just-in-time, reducing their warehousing and storage needs and cash flow pressures, which can assist companies to manage their working capital optimally and in turn generate the sales that we require to sustain profitability. In the longer term, our ability to encourage better farming practices will lead to improved yields for the farmers and ultimately reduce the cost of our inputs and allow us to compete more effectively with international manufacturers. 
The Teragro juice concentrate factory in Benue state is a huge success commended by the President and an example of an extremely successful public private partnership between Transcorp and the Benue state government led by Governor Gabriel Suswam. Has the phone stopped ringing from other governors looking to implement projects within their states? 

The phones have been ringing off the hook, however we have to be realistic. We only have a set amount of capital at our disposal – both financial and human. We must also be mindful of the fact that we are pioneers in the operations we are pursuing. If we do not do the correct feasibility studies and instead rush into operations and consequently fail, it is possible that these sectors will remain untouched for a considerable amount of time afterwards. We must be rigorous in our analysis and ensure the opportunity is there. Now that we have done this in Benue State, we will look to scale up and hopefully this will be the beginning of a flourishing juice concentrate industry in Nigeria. 
We have also begun to look at two other agriculture products, cassava and rice. We are doing our own analysis and want to be reasonably comfortable that, all things being equal, when we invest, it is going to be a success. People are looking at Transcorp and wondering what we are going to do next. We are hoping to spawn a number of new local industries as people follow our success. With our projects, we ensure communities, and not just individuals, benefit and with this, we are assured of the necessary support from stakeholders across the board. 
Transcorp is a huge conglomerate operating in energy, hospitality and agro-processing sectors. One of the key strengths of Transcorp has been its ability to attract and develop key human capital competencies rapidly in new areas. How have you managed to be so successful in doing this?

I mentioned earlier the importance of the large Nigerian diaspora and at the end of the day that might be the smoking gun for Nigeria because we have talented people. The CEO of our agriculture business, Dr Jide Adedeji, being a case in point. He has six patents registered in the USA. There are people like him who have reached the top of their fields and are looking for organisations who will give them the right support to bring their talents and global experiences home. In our energy business we are going to do it with a core of Nigerian employees led by Dr Tony Chukwueke who, without being immodest, is one of the very best in the Nigerian oil and gas sector, having served as Director of Department of Petroleum Resources, the technical arm of Nigeria’s Ministry of Petroleum Resources. 
So the talent is there and all that was missing was coordination. Coordination is what you will find in the Transcorp Group. We have structured our organisation along three lines – energy, agri-processing and hospitality – led by sector experts and we have a corporate centre which provides strategic support and coordinates the financial backing necessary for each arm of the business to thrive. We create synergies by helping each subsidiary with their branding and corporate services etc, allowing them to get on with solving operational concerns in bringing product to market. It is a model which works and a model that is being perfected by Transcorp.
Transcorp’s activities are very capital intensive in nature. What are the financing tools used and favoured by Transcorp to make these projects a reality? Are there investment opportunities for The Independent readers within Transcorp?

We are a listed company on the Nigerian stock exchange and have the option of raising equity and debt across a large pool of investors through the market. In Nigeria as across the globe, debt financing is readily available to companies that are able to present their projects in a bankable fashion showing clear return on investment and repayment potentials for loans. 
Transcorp is particularly effective in terms of debt fundraising in which we have a strong track record. Furthermore, as a result of the nature of our projects all of which entail job and wealth creation for ordinary Nigerians, we have been able to work with Federal and State Governments at various levels. We also talk to Development Finance Institutions (DFI’s), as well as project finance players to offset loans against eventual cash flows from projects, so as you can see we have a number of options available to us in terms of raising financing. 
You have recently won the rights to Ughelli Power generating plant which was thrown open for privatisation. What are your plans for the next one to two years for this venture?

The most important thing that we bring to this project is private sector discipline in attitude to work. A lot of the major problems encountered at the Ughelli plant have been bureaucratic in nature, slow decision making and delays in important areas such as equipment maintenance and upgrades. One of our first tasks will be to instil best practices and processes throughout operations at the plant. 
The first thing to focus on is the acquisition of owning company of the Plant. We won with a bid of $300 million so we must raise the financing for this. On the operational side, one of the first things we have to do is revisit the turbines and equipment which we reviewed when putting together our bid valuation to ensure that in the interim, nothing has changed and ensure that we haven’t underestimated the amount of repair work required. Once we have validated our business plan, we will turn our attention to investing in refurbishing the turbines and scaling up capacity utilisation within the Plant. 
The Ughelli Plant has a capacity of 972 MW and currently produces about 300 MW. We will bring the turbines back online and once we have done that we will put in place definitive maintenance plans to ensure they never drop down again. So what we will bring to this venture is rigour, discipline and excellence in the way the plant is run. The privatisation process has looked at all the links in the chain and we are all ready to move forward together. Nigeria should be looking at an extra 500-700 MW within five years from this plant.   
Transcorp is a company which is setting the pace in Nigeria. What projects are coming up that investors can get excited about? 

In energy, we are looking at getting our oil block OPL 281 into production in the next year and of course completing our plans for the Ughelli Plant. In the hospitality’ sector we hope to add to our existing portfolio of hotels in Abuja and Calabar. We see an opportunity to do one or two in Lagos, one in Port Harcourt and do more with the one we have in Abuja and perhaps expand to have a second in Abuja. In agriculture, we are closing in on an investment in a greenfield processing facility. So each of my CEOs has his target and we in the corporate centre are providing the necessary support and creating synergies. 
The appointment of sector experts is a recurring piece of the successful puzzle of Transcorp. You are a finance expert having received a Masters’ Degree in Investment banking from University of Reading. What do you feel has been the skill which you have developed over the course of your career which is best serving you now as President and CEO of Transcorp Group?

I have been very fortunate with my career. I started in banking, moved to treasury management with an oil company, National Oil – a local subsidiary of Shell. I then returned to banking where I got my lucky break when I started working with Tony Elumelu, then CEO of Standard Trust Bank and now Chairman of Transcorp. 
As a special assistant to a CEO, you learn very quickly the need to develop a broader skill set and be very disciplined. You became a generalist, seeing the bigger picture, rather than an operative’s somewhat tunnel vision. So, first is luck. Then being able to see and understand the big picture. Next is tenacity; you really have to be on the ball, morning and night. Lastly, integrity is extremely important. It allows you to just get on with your job. When you have integrity you are not worried about regulators or committees or law suits, etc. You just focus on your job of creating shareholder value. So I wake up each morning and focus on just doing my job and that is what I try to imbibe in my people. We have tenacity; we refuse to give up and we just keep at it. My finance background is also very valuable as it allows me to dispassionately assess what investments will make us a stronger bigger organisation.
Where does your passion for Nigeria come from?

I look at my country every day and visualise what Nigeria could be. What energises me most are the challenges I see around me and a deep belief that these challenges can be overcome.  This drives me to work hard, find and implement solutions. Nigeria is my home and this is where I get my passion for Nigeria from.
What would your final message for the readers of The Independent be? 

I leave you with an African proverb that says the first animals to the stream drink the cleanest water. This I believe is quite apt. The opportunities won’t be here for long. So potential investors who want to cherry pick investments and guarantee a good return should get their skates on. On a final but important note for any foreign investor ready to invest in Nigeria and indeed, across the continent, my advice would be to find a credible local partner such as Transcorp who not only has local knowledge but a genuine understanding of the terrain, culture and local practices and rules.