The Nigerian economy is more often classified by the oil sector than by the non-oil sector even though there is larger growth within the non-oil sector, such as with telecommunications or fast-moving consumer goods. Do you think that the economy’s recent reforms and diversification are properly stepping away from being too reliant on the oil and gas sectors’ revenues, and going toward a more sustainable direction?
Yes, before now the economy was purely reliant on the oil sector, especially petroleum. That has put the country in a position where we are not actually growing our economy the way it is supposed to be.
Nigeria for at least the past two decades has been an economy, whereby what you need depends solely on what comes from oil. Based on what is going on in the global market, especially with oil, there is need for diversification because many countries are looking for alternative sources of energy, so that has put us in a situation whereby we need to actually look for alternative sources of foreign exchange. That is why right now our federal government is actually looking at agriculture, because before oil came Nigeria was purely an agrarian economy and most of our income was from agriculture.
I remember when I was in primary school, in about 1976, we used to learn about the groundnut pyramids in the north, cocoa in the west, and vegetable oil in the south. I think this is the time that Nigeria needs to go back to. Based on the declining demand for energy and petroleum around the world, we need to actually look for other sources of income, to generate income for the federal government.
Nigeria is blessed with a lot of natural resources, our agriculture is well favoured by God, and also in terms of minerals – we have a lot of mineral deposits in Nigeria that are yet untapped and many companies have come to Nigeria and explored these minerals for us, and have actually made use of them to develop industry or for export.
Director General of the Securities and Exchange Commission (SEC) Arunma Oteh spoke about how the capital market calendar is often argued as having a great correlation towards the economic growth of one’s country. The NSE has gone through a tough time in the past 15 years, but has recently rebounded quite significantly, especially last year. What factors do you attribute this rebound to?
Yes, if you recall the global meltdown actually happened in 2007 due to the financial crisis in the UK and the US. Initially we thought that the Nigerian capital market would not be affected, but we discovered that because of the influx of foreign investors into our capital market, there was a contagion effect that all those markets had on Nigeria. When the meltdown started, most of the foreign investors in Nigeria had to pull out their funds, which led to the stock market in Nigeria going down. Because the secondary market was not doing very well, it affected the primary markets, so the process of capital formation in Nigeria came to a halt. However, due to steps taken by the Securities and Exchange Commission, as well as the Nigerian Stock Exchange, we saw a lot of initiatives put in place to make sure that foreign investors are attracted to our market. The success of these initiatives led to growth on the demand side, which led to confidence gradually returning to the country.
Also, in the regulatory portion of the market, the federal government had to step in and make sure that there is structure, and this has led to them bringing in initiatives which have restored some of the confidence that was lost during the meltdown. This caused the markets to rebound. We saw it happen last year and up to the beginning of this year, and it is very amazing the rate at which our market has recovered from what we had during the meltdown.
Do you feel it is something that will be able to continue, going forward?
Yes. Looking at the market today, a lot of events that took place that led to the collapse of the market have been addressed. First of all, apart from the contagion effects that the global market had on the Nigerian stock market, the issue of margin facilities also added to the problem because they were not handled properly. Right now that has been addressed, AMCON has been set up to take all so-called toxic assets from the banks and even from the securities firms. So right now the market is a bit stable. Because of the downturn in the market, we saw a lot of companies becoming undervalued, which was the reverse of what took place before the global meltdown when some quoted companies were highly overvalued. Now everything has been addressed, the corrections have taken place, and what we are going to see now is that this upturn in the market will be sustained because everybody has learned from the market. Investors have learned that you cannot just invest in any company without value. Because of the lessons from the recent past, I think what we see now is sustainable.
What important effect has the emergence of market makers had on the NSE and how do you view this?
One of the initiatives that the Nigerian Stock Exchange has actually brought to the market is the concept of market making. Before the announcement of the commencement of market making, the market was down. However, the market reacted positively to the announcement. What triggered this is that the market makers needed to grow their inventory in order for them to actually play the role of market makers.
The effect of that was some of the stocks that were in the market used a professional vote, and were actually taken on by people who have come in to get all these stocks.
Before market makers came, we had a situation whereby if you wanted to take some stocks to the market, you would find that everyone wants to sell. Nobody is on the buy side. However, the market makers hold out so that where investors want to sell, they are there to take them out, and where they want to buy they are there to supply, which means they want to provide liquidity in the market. What was lacking, one of the things that actually affected the market was liquidity.
In the market we had there was no liquidity, which limited the number of participants in that market. With the introduction of market makers and the reversal in the previous trend, we have seen the market going up steadily. We can say that market makers actually triggered the recovery of the market, but not alone. When market makers came into the market, we also saw companies releasing good results, which was promising, especially the banks which had mostly declared losses in previous years.
So suffice to say, market making is a laudable objective of the Nigerian Stock Exchange and the Securities and Exchange Commission, which triggered the recovery of the market.
BGL Securities is regarded amongst the top five companies within this segment in Nigeria. You were established in 2007 under BGL Plc and you are aiming to distinguish yourself as the best-value creation company in this part of the world. My question is, can you tell me a bit more about the services being offered by BGL?
Maybe I should start by telling you the structure of BGL. BGL is a non-bank, investment banking firm. What I mean by that is we are not a subsidiary of any bank. We offer complete investment banking services to our client base. Now the holding company is BGL Plc, and there are three subsidiaries. The first one is BGL Securities Ltd
., which I am the managing director of, and which is a dealing member of the Nigerian Stock Exchange and is also registered by the Securities and Exchange Commission to be a capital market operator.
We also have BGL Asset Management Ltd., which is registered with the Securities and Exchange Commission as a portfolio manager.
The third, BGL Private Equity Ltd. is into private equity business. That is the structure that we have right now.
BGL Securities Ltd. has always been the flagship of BGL Plc. As a dealing member of the Nigerian Stock Exchange, we have also acted as an issuing house and financial advisor to many companies. During the era of banking consolidation, BGL actually took a leading role in mergers and acquisition exercises, which we provided for most of our clients.
Apart from that, BGL Plc. currently houses our corporate finance division, which is into equity capital raising for corporate clients. Then we also have the public sector advisory division, which is into capital raising and financial advisory for governments. BGL has provided financial advisory services on a significant number of the privatisation transactions in the country. We also have the structural finance division, which is into project finance and of course issuance of structured products into the market. Our research unit provides research services to our client base.
We publish a quarterly journal, which we christened the BGL Financial Monitor. It is one of the most widely read journals in this market, covering various sectors and topical developments in the economy. This has helped turn our research department into one of the best in the country. Of course, we also have regular equity analysis reports, some of which can be found on Bloomberg.
Now, BGL Securities Ltd., as a dealing member of the stock exchange, has maintained a top five position in terms of volume and value traded over the last seven years. The reason for this is our passion to deliver superior services to our clients, and we are known in the market for some strategic transactions in terms of block trades or what you call volume trades. We are entirely focused on satisfying our clients, when they are looking for large volumes of shares to buy, BGL is in a position to use our network of branches and also our contacts to make sure that we deliver this for them.
We also render services to institutional clients. We serve asset managers locally and internationally, who patronise BGL Securities Ltd. for the execution of their mandates on the floor on the Nigerian Stock Exchange, and apart from that BGL Securities is also the distribution arm of the whole BGL group. We sell the financial products developed by other arms of the BGL group. Currently, BGL Securities has over 65 staff members that are located in different parts of the country, especially the major cities.
We sat down with the investment bank Dunn Loren Merrifield a few weeks back. They spoke about how it is difficult to attract a proper amount of foreign investors within infrastructure, for example, due to fear or a lack of understanding or awareness, and it was said there is a need for more domestic investment to showcase that the yield makes sense. Is this something you agree with as well? If so, what steps do you think need to be taken?
I totally agree. When you listen to CNN or BBC reports on Nigeria, if you do not listen to the news about bomb blasts, then you hear news about other things, for example the south where all these people are disrupting our oil. This is what you hear about Nigeria. This has affected foreign investors’ perception of Nigeria.
Many people actually want to invest in Nigeria. Just as you said, it is one of the fastest growing markets in Africa, so we need to let them know the immense opportunities that are in Nigeria, both in terms of foreign portfolio investment as well as foreign direct investment. But it is a pity that you do not hear our voice. All they get is bomb blast here, bunkering there, so many people cannot actually understand how the country that is having these problems is the country whose market is doing very well. They cannot really see the alignments between the performance of the market and the country, which seems to be in serious trouble. I agree with the fact that it is time for us to tell the world who we are, what we do, and that Nigeria is not nearly as bad as it seems. I totally agree with him.
I wanted to ask you as well about your slogan, ‘starting out, starting right.’ Can you elaborate more about the meaning of the slogan and how you came up with it?
What the entire BGL group does, what we stand for, is wealth creation. We create wealth for people, but not just creating wealth. We want to make sure that that wealth is an enduring one. It is not enough to create wealth for people if after a while the wealth is gone. We want to create that wealth, and then we want it to be sustained. We do this by maintaining close contacts with our clients, and that is why when you come to BGL we provide complete investment solutions to solve whatever challenges you might have.
Just as I said, if you are the type that wants to make foreign portfolio investments, we are here at BGL Securities Ltd. to do that. When you want fund management services, BGL Asset Management is here to help you do that. If you need financial advice and services, we are here to equally do that for you. When you need finance for your business, we can arrange that for you. We also partner with other industry practitioners, like we have some insurance companies that we do business with, we have some PFAs that we do business with, and also we have some banks that we have advised one way or the other that we maintain business relationships with. Because of the kind of wealth that we create for you, we also make sure that your wealth lasts longer, and that is why our clients want to stay with BGL.
If you look at the interested foreign players, who or where should investors be looking at, in terms of industry sectors and players performing above the trend?
Also, are there any new IPOs coming up that would be of interest to our foreign readers and foreign investors?
Currently the activities in the Nigerian market are dominated by the banking sector, but we are trying to make sure that we realign the spread of activities in the market. We have some IPOs that are going to come up very soon, most especially by energy companies. By the time they generally come on board, most of them will be listed, so you are going to see them coming up with serious offers of initial public offerings, IPOs, that are going to deliver better returns for investors in Nigeria.
The sector that is actually moving now is information and technology, so you are going to see a lot of companies in this sector listing on our exchange. There will also be IPOs in the oil and gas sector that will add value to investments. These sectors, and consumer goods – that is another area that investors should be looking at – are going to add value to investments.
Transcorp was selling for about 50 kobo this time last year. Currently it is selling for about 150 kobo. That is about 200 per cent in one year. In our market we have a situation whereby companies generally return well over 50 per cent, so that shows there are a lot of opportunities in the market. If investors are asking which sector they should be looking at, I would look at consumer goods, oil and gas, and IT. In terms of foreign direct investment, we need investors to actually come into agriculture. The problem in Nigeria now is we have more subsistence farming than large-scale farming, so there is room for investments in agriculture. Both primary agriculture and in terms of agro-allied and agro-based, so we need investors who will come, and I will tell you if you look at people who have invested in Nigeria, if you look at their performance, they are reaping multiple billions in revenue every year. We need more investment in agriculture, and in infrastructure. There are a lot of opportunities in different areas for those who want to come – power, energy, communication.
What is BGL doing exactly to attract investor use yourself as a local agent, rather than any of your competitors?
We are capital market operators. Most of what we do is in terms of financial advisory for our clients because you may have ambition, but if you want to carry out something without actually having the financial capacity, there is no way you can do that. In the power sector for example, our private equity subsidiary is working with some of them to arrange forms for taking off for most of these companies. This is what we do as BGL.
Then aside from that, if you look at many of the companies that are quoted on the Nigerian Stock Exchange today, BGL actually brought them to the market, for one to make sure they get visibility, and also to raise capital for them.
Apart from that, as I have said, we have gone on road shows with the stock exchange, for people to be able to see the opportunities in Nigeria. What we do is also go around to educate people about the opportunities that we have, one in the Nigerian economy, and two the opportunities they can get from the market.
We have a lot of mandates, a lot of advisory mandates, whether they want to raise one form of capital or the other, or need our advisory services. This is our own contribution, to make sure that we grow the economy. When we do this, when we raise capital for them, they are able to employ more people in terms of their expansion, and that is also going to contribute to the Nigerian economy.
Apart from that, we also work with the government and private investors who want to increase their capacity. We discovered that the capacity utilisation in Nigeria really needs to grow for us to attain the projected GDP. So we are working with the private sector and the public sector to make sure that this happens.
You have been the managing director for almost a year now. You have been in the company for seven years and held several managerial positions prior to this. What is your own motivational carrot to keep on going? How do you envision yourself and BGL Securities in the next five years?
Thank you very much. This year represents my 10th year working for this organisation. For most of my senior colleagues in the group, what we do is create a platform for growth, so you want to develop yourself and contribute to the organisation. We have been given the space to actually do that. And that is what we encourage in BGL. We are moving the organisation from the typical Nigerian company to a world-class organisation. That is what we have been trying to do, to make sure that everything in our services and the way we conduct our business, we maintain international practices to make sure that we are giving world-class services to our clients.
Now you asked me, what is my own motivation or what am I doing to make sure that I am moving BGL forward? One of the things I would like to say is that the most important aspect of any organisation is the human asset, the human resource. What I would like is a situation where all my colleagues in BGL Securities Ltd are motivated in all areas. When we are motivated, we are going to get the best out of them. In terms of our recruitment in BGL, we make sure that we carefully select our people, people that we know can key into the objectives of the organisation, people that have the can-do spirit. That is what we are trying to ensure, that every member of staff at BGL has this can-do spirit. When they are home, wherever they are, they can actually achieve the best for the organisation.
In BGL, we do not take no for an answer. Yes we may have business challenges in some areas, but that does not make us any less effective. In all areas of our business we want nothing but to be the best. That is our primary objective, and that is what is driving us. Another thing that is motivating me is my passion for the work: passion for the business, passion for the market, and passion to ensure that the objectives of the organisation are fully realised at any point in time. I work with my staff to make sure that this happens. That is what we want to see, the kind of institution that we are going to leave behind. Even after decades, we have a place to point to and say, ‘I was here.’ That is the kind of thing that we would like to see.
I would like to ask you what would be your final message for the global readers in London, why they should invest in Nigeria and in BGL?
Firstly, I would like to tell you about the returns in our market. I recently spent a year in the UK, and when I was there, when you look at markets in all these developed worlds, you see that their returns…there was a time someone asked me: ‘Okay, what is the return you have on investment in your country?’ I was conservative, and I said, ’23 per cent.’ ‘Wow! 23 per cent? That’s lovely.’ But I can tell you that within the first three months of this year alone, our market has done 18.9 per cent. On February 25, the growth of the market was actually 20.41 per cent, but currently it is just about 18.83 per cent, that you can get in the margin market.
We would like to highlight the fact that the return on investment in Nigeria is very high, there are a lot of opportunities in Nigeria, and you know one thing. Just as you might have heard from Hon. Minister of Trade and Investment Mr Aganga, what we are trying to do is create an enabling environment for investment in Nigeria. I am sure you yourself have had a perception about Nigeria in the past few months you have been here. The security situation is not as bad as often portrayed, and the government is actually working to ensure that even in the parts of the country where we have this trouble, issues are addressed as quickly as possible. Nigeria is a destination where investors can come and get high returns on their investment. If you were in Nigeria a few years back and you look at our current infrastructure, it is improving, for example our roads.
If you look at the environment in Lagos State you will see that the country is actually changing, and they are not relenting on that effort. So, to investors in Nigeria, we welcome foreigners in our country.
They will be given adequate protection, they will be secure. Most of the foreigners in Nigeria now do not want to go, they want to stay in Nigeria. That is the kind of thing that we want to work on, to encourage. Every investor in Nigeria has their own portfolio set on foreign direct investment. Now, why they should choose BGL is because, number one, we ensure we have adequate facilities to render efficient services to them; with our information and communication technology facilities we are able to give our investors online access. We aim to ensure that we give them the complete experience that they have in their domestic environment.
That is what BGL Securities Ltd would like to provide for them. We would like to also ensure that we exceed their expectations in terms of giving them detailed information about the economy, about Nigeria, to just make sure that they feel as comfortable as they would if they were in Nigeria, the way and manner in which we relate with them. Whether they come physically to Nigeria or they are relating with us through electronic media, we want to take Nigeria to them, so that they can see Nigeria as if they were in Nigeria. That is our aim to make sure that they have the full experience of Nigeria; that is what BGL plans to do.
When a foreigner comes to Nigeria, and wants to invest in the Nigeria Stock Exchange, and you do the research, I know from personal experience because I did that, most of the people are advising that you should rely on a security house like, for example, Stanbic IBTC, because it is an easier way for foreigners to get the money out of the country in case you need it. What would be your competitive advantage compared to those really big security houses that belong to one of the big banks? How would you convince me if I wanted to invest my $10,000? Why would BGL be better than standard, maybe not for the huge investor but for the small investor?
We have a couple of investors that are individuals from the diaspora that are doing business with us. We also have many firms that have referred many people to us. One of the competitive advantages that BGL has is execution. Our clients will have no problems with the execution of their mandates. Then, also in terms of distribution, when you want to sell large blocks of your stock, we will not have a problem doing that. Right now, out of about 26 pension funds in Nigeria, we have relationships with 18 of them, so distribution will not be a problem. Also, when you are on the buy side, you are not going to have problems when you give us mandates.
Also in terms of research, our research is comparable to what you will get in Stanbic and RenCap, or anywhere else. As I already mentioned, we have a very popular quarterly research publication. We also have a presence in Bloomberg. The only thing that we do not have that they have is a physical presence internationally. What they do is because they have a customer branch in South Africa and before now, South Africa was a gateway for all investors that wanted to invest in Nigeria. When a foreign investor wanted to start, they would use South Africa as a gateway to come into Nigeria, and the only company that had presence in Nigeria was Stanbic. Stanbic was the custodian, and because of that when they got to Stanbic Bank in South Africa, they introduced them to Stanbic Nigeria, and through that they get most of their mandates done.
However, when you compare our services, I can tell you that people who have been doing business with us are very pleased with BGL. In terms of best execution, they are getting from BGL, distribution they are getting from BGL, and in terms of our research, they are getting good research from BGL. So these are the things that we have at BGL, and again, regarding the local market, we are very strong in terms of domestic distribution. Even when foreign investors want to exit their position, we have local investors that can actually take them out, so we create a gateway for them to invest and we create exit windows for them. These are the two things that BGL combines; with the competition, they create a way to enter, but when you want to exit it sometimes becomes a problem. We create opportunities for investors.