INTERVIEW (Ugochukwu Obi-chukwu, Founder & CEO, Nairametrics)

The Nigerian Economy in H2 2019 – Funding Opportunities 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, Ugochukwu Obi-chukwu, Founder & CEO, Nairametrics gives valuable insights on “The Nigerian Economy in H2 2019 – Funding Opportunities for SMEs”.

 

Q: WHAT IS YOUR OUTLOOK ON THE NIGERIAN ECONOMY ESPECIALLY WITH THE NEWLY RE-ELECTED ADMINISTRATION?

Ugochukwu: I think it’s a cautious outlook to the economy because no one really knows clearly what trajectory the government is going to pivot into. We are unsure if the government will stick to the same economic policies as they have in the last four years or if they will try something new. For some pessimists, they believe the same draconian economic policies will apply where we contract the economy just to keep inflation down and the exchange rates stable, which is hurting SMEs a whole lot. However, if the government decides to pivot out a bit and be a lot more aggressive, then I think things might start to be better. Personally, I do not think things will get worse, I think the worst is over, but it also as bad if things are just slow and stable, the way it has been because it will bring about a slow death. So over the next few months, we expect the government would have to change cause to something more aggressive to where small businesses can have a bit of a breather. Currently everyone is kind of choked. By and large it’s a bit of pessimism, but let us just wait to see the cabinet and who will be running the economy.

Q: WHAT ARE THE BRIGHT SPOTS FOR SMEs IN H2, SOME THINGS THAT SMEs CAN LEVERAGE ON?

Ugochukwu: To a large extent, this administration has actually tried to provide support – maybe not the right support, to SMEs and has done a lot. Recent data showed that this government through BOI, that is the Bank of Industry has disbursed about 260 Billion Naira as loans to SMEs in 2018, which is 130% jump from what was disbursed in 2017. The government has tried to help SMEs in other non-oil sector especially through disbursing loan at single digit interest rates. The agric-sector is one area the government has tried to open up and through various partnerships with government parastatals and state governments. Most people prefer the government to use private partnerships and not governmental conduits to prevent the perception that these intervention funds are just another way of siphoning funds from the government and stealing funds from those who actually need it like the farmers. However, growth is still very slow, the agric-sector grew the fastest last quarter, but still has a very slow GDP growth rate. We are making strides in the non-oil sector of the economy and the federal government has done a lot to invest in the non-oil sector, but Nigeria is still very much oil dependent and there is still a lot to be done.

Q: WHAT IS LIMITING THE FLOW OF FUNDS TO SMEs THAT REALLY NEED IT?

Ugochukwu: Government data shows that they have disbursed these loans to about 165,000 SMEs, but many more SMEs say they have not been able to access these funds. A lot of people do not know where to access the information on how to get these loans. A lot of people do not know you can get interest free loans or what to do to be eligible to get these loans. I know a lot of people who have applied for these loans up to a million Naira interest free loans, so the money is out there and available. Most lack the financial literacy to be able to apply for these loans, but they do exist. We will acknowledge that some of these loans get into unscrupulous hands: which is the unfortunate reality of our country. But, it is true these loans are being disbursed though partnership with commercial banks like Fidelity and other development finance institutions that cater to the needs of SMEs. We also have the private sector through venture capitalists.

Q: WHAT IN YOUR OPINION IS DRIVING THE ACCELERATION OF FUNDING IN THE STARTUPS ECOSYSTEM?

Ugochukwu: A number of things actually is driving the ecosystem of startups in Nigeria. Nigeria is the largest economy in Africa, and in population and market, we are also in the positive despite the challenges of the ease of doing business in Nigeria and the insecurity in the country. There is also the budding startup community where you have a lot of young people in the technology space beginning to do interesting things. Also labor is kind of cheaper here and a lot of funding is coming in especially as we have now concluded the election. We should expect that more funding will inflow and more startups and hubs will open up. These younger people are braver and more willing to take the risks and will require funding. There is also an incubator community within Nigeria where people are raising money for Nigerians in Nigeria are funding a lot of startups and not waiting for foreign investments – this is also going to pick up especially with the type of community we have where we have a lot of young Nigerian becoming serious about opening their businesses and being entrepreneurs, so you will see more interest in Nigeria. Also interesting to note is the internet space and access to the internet is increasingly more accessible with more Nigerians being able to get on the internet with ease which continue to grow. Currently Nigeria is at par with Kenya, but I expect that we will overtake them in the next couple of years.

Q: WHY IS THERE AN ASYMMETRY IN INFORMATION: OUTSIDERS WANT TO INVEST IN NIGERIA, WHILE NIGERIAN WANTS TO LEAVE THE COUNTRY?

Ugochukwu: I read about a right share startup from Indonesia. In his interview about how he started his company, he said he went online ad googled country with the most population and Nigeria came up. He got into a plane and came to Nigeria was then started his business because he had the available funds to do so. The bottom line to me is that most Nigerians will stay back if they had access to Capital. For any business one wants to do, it is important to have patient capital, as you cannot start business with debt. It is typically advised to start business with some kind of spatial equity that understands that you probably need like over 5 years before investors start to see profit. These foreigners that come into the country have these capital and equity and also have the know-how of these businesses. It is not enough to conceive an idea; you must also know how to execute the business idea. These foreign investors are looking for the next big market as USA and Europe have saturated markets and that is in Africa and in Africa, Nigeria has the largest market and that is why most of them like to inflow capital into the country.

Q: DOES FIDELITY BANK GIVE ZERO INTEREST RATES LOANS TO SMEs (CALL IN QUESTION)?

Ugochukwu: No. Fidelity Bank does not give zero interest rates for loans to SMEs, but have very attractive rates for businesses. Please visit any of our branches, or follow us on Social Media @fidelitysmes or call the fidelity SME desk to be advised better on what loan is suitable for your business and can even help you in structuring your business plan. Fidelity Bank is very committed to SME excellence and through this show have also gotten funding.

Q: SMEs IN NIGERIA NEED TO THINK BIGGER, WHAT CAN WE DO TO CHANGE THAT MINDSET?

Ugochukwu: Currently we do attract capital but not enough, Foreign Direct Investment (FDIs) to Nigeria is still pretty much very low compared to Foreign Portfolio Investment (FPI) for a number of reasons as foreign investors are still wary about investing in Nigeria because of our FOREX policies. The forex policy still tilts towards capital control, which means that if you bring in more money into Nigeria, you are not sure you can outflow it with ease and that is because of the exchange rate issues we have in this part of the world which is a major challenge. Nevertheless, you still have a lot of internal companies raising capital for startups. Our startup community in Nigeria is still less than 10 years old compared to other countries. Also in terms of purchasing power, we are not yet there even though we may have the population of a 180 million, not many of them have the purchasing power to afford the goods and services of SMEs. In terms of other economies, Asia for example, we are still very much behind, but that should not deter us. Two billion dollars (FDI) is still very paltry for a population like Nigeria, we should be doing a lot more. It is not just affecting SME; a lot of established businesses also face the problem as stock market capitalization is still small of only about $13 Trillion Dollars compared to the percentage of our GDP. The upside is that there is a lot of room for growth if we get our acts right and the government has to do a lot more to attract private capital into the country.

Q: WHAT SHOULD SMEs DO TO LEVERAGE OPPORTUNITES AND WEATHER THE STORMS IN THE H2?

Ugochukwu: For SMEs, information is very important and access to the right information. Also financial literacy is a must to survive in harsh conditions. Funny enough, when there is turmoil, it gives the perfect opportunity for business to start up and also thrive, but it is contingent on how much information the business owner is privy to and in Nigeria that is lacking. It is important to belong to a lot of circuits, small business circuits that operate around your industry, so that you are aware of information and opportunities available in your industry space. If you isolate yourself, you miss out on a whole lot that happens that will be beneficial to you and your business.

Q: WHAT SPECIFIC ADVICE WOULD YOU GIVE AROUND COSTS AND REVENUE GROWTH TO SMES, ESPECIALLY CONCERNING SOME OF THE CHALLENGES HIGHLIGHTED?

Ugochukwu:For a lot of SMEs, the cost challenges they usually face revolve around, electricity, fuel, taxes, and capital – borrowing money from Micro-Finance Banks (MFBs) at exorbitant rates. To actually reduce these, a lot of small businesses need to be innovative in funding their businesses – tilt a lot more to equity than debt, plug into intervention funds from requisite government parastatals to scale your business. Businesses are also finding new ways to keep overhead costs and other costs down like relying on technology to drive your business. A lot of SME owners do not know how to separate business money from their own personal money, so they are not aware if they become profitable or not, so it is very important separate. In terms of revenue, business owners need to realize that for their bottom line to grow, they have to have the right price point, and also continue to increase their customer base, they will win at the end of the day. So they should pay attention to competitive pricing and also customer populace service and satisfaction.