INTERVIEW (Funke Okubadejo, Director, Actis Investment)
Attracting and Managing Funding for Sustained Value: Key Imperatives for SMEs
The Fidelity SME Forum is a weekly radio programme organized by Fidelity Bank Plc to educate, inform, advise and inspire budding entrepreneurs in Nigeria with knowledge and expertise that will enable them build sustainable and successful businesses. The interactive radio programme features subject matter experts and model entrepreneurs as guests on a weekly basis to share their insight and unique success stories. In this interview, Funke Okubadejo, Director, Actis Investment gives valuable insights on “Attracting and Managing Funding for Sustained Value: Key Imperatives for SMEs”.
Q: TELL US A LITTLE ABOUT ACTIS, ESPECIALLY FOR THOSE NOT IN THE FINANCE INDUSTRY?
Funke: Actis is a leading growth market investor. We invest across a lot of growth markets in different continents like Asia, Africa, and Latin America. We invest in some key sectors like energy and power generation and distribution, consumer financial services and real estate.
Q: HOW WOULD YOU DESCRIBE OUR ECONOMIC PERFORMANCE IN H1 2019 AND WHAT IS YOUR OUTLOOK FOR H2?
Funke: The numbers are out, with a growth of about 2.1% recorded in the first quarter, a position of sustained growth that we have now had for two years. The key issues are to look at how we can achieve and boost growth beyond our population growth, such that we are beginning to grow incomes and personal wealth. There has been some lack of progress in terms of key economic policies for economic transformation, probably due to the elections. We are quite optimistic that, with the new government, there will be a number of economic policies that will be implemented that will boost growth, such as improving on infrastructure and promoting Foreign Direct Investment (FDI) in the country. If the government does what it said it will do, I believe we will see a big change. It’s not a case of being optimistic about the future, but it’s more of a case of circular growth. If the government does what it says it will do, then, irrespective of what happens, we have some willing massive growth drivers for Nigeria with our growing high population. The youth as a percentage of the population is also growing strongly, so we need to make the right policies so that we can be able to create wealth by keeping it productive. The other growth driver is our rapid urbanization. We are urbanizing rapidly, with over 50% of our population now living in urban areas and this means that there is a chance for increased productivity. These are what we call circular growth drivers; they drive growth irrespective of the government policies. However, we still need government policies to create the enabling environment.
Q: HOW DO SMEs ATTRACT ALTERNATIVE FUNDING?
Funke: Prior to working in Actis, I worked for a company that focused on SME investment. Most people will say that lack of financing is an SME’s biggest challenge, but I think it goes beyond financing. Having the right enabling environment, the right access to markets, and even the right information in terms of how they operate their businesses is more crucial. Right now I do spend some time to work with entrepreneurs so that they can see the opportunities set in different ways. An entrepreneur has to be able to think outside the box and have some level of ingenuity in creating financing and approaching business generally. One of the key drivers for businesses is cash flow. The circular opportunities that we have in Nigeria are massive, so entrepreneurs should invest in alternate ways to finance their business and access their markets. I always challenge SMEs to see how they can be different.
Q: AS A REAL ESTATE ENTHUSIAST, WHAT WOULD YOU SAY ARE THE BRIGHT SPOTS IN THE REAL ESTATE SECTOR FOR THOSE WHO WANT TO EITHER INVEST OR GROW THEIR BUSINESSES IN THE SECTOR?
Funke: I like to think of real estate as more than just a sector, but also an infrastructure that provides a particular need. One of the things people need to see is the opportunity in that sector – what problem will they solve? That’s where a lot of business ideas come from: who is and how do I meet the needs of the target market? Opportunities are not necessarily about something new, it’s about how you understand the opportunity and how you can position yourself.
Q: HOW DOES EQUITY WORK IN THE REAL ESTATE SECTOR?
Funke: For every business, real estate included, you need to have some sort of equity, which are contributions made through a person’s savings or third party investors, such as institutional investors like Actis. Equity is relatively patient; patient in the sense that it will give your business time to mature and not make any demands on your cash flow and allows your business to settle. If equity is brought into real estate, you have to finance some part of the process with equity, like the development costs. When the project is almost in completion, that’s when you can think of going into debt because you are closer to cash flow. One of the things you need to be careful of is forecasting when you will begin to have cash flow, otherwise you will run into problem. A major problem people have is that they get into their business with debt and finance projects with huge debts and they are still far away from cash flow.
Q: IN THE REAL ESTATE SECTOR, ARE THERE OTHER OPPORTUNITIES THAT SMEs CAN TRY TO TAP INTO?
Funke: Although housing is still a major need, areas that support infrastructure including hospitals and schools are also in urgent need and are essential. Also coming up and of great importance are logistics parks, warehousing and industrial estates as licenses. There are quite a lot of opportunities especially within the guidelines of sustainability. There is no monopoly of ideas, but in how the ideas are implemented.
Q: WHAT IS ACTIS’ INVESTMENT PHILOSOPHY?
Funke: We have a top-down approach where we first look at the opportunity of where we should invest in. Then from there, we think of who we want to invest with after perusing the players in that space. The way we run our business, investing in ethical businesses, is very key. We invest in businesses that adhere to good environmental, social, and governance practices. We also look at business that do not have a high risk, according to their corporate governance and records, both financial and operational. Businesses need to be compliant with all the rules in the market. As an SME, it is good to differentiate yourself by services rendered and by business practices, where things are conducted in a wholesome manner. By doing so you are thinking about the value of your business in a long-term manner, regardless of short-term costs, and that will be more profitable to you, as it will help you to attract investors like Actis.