Chidoka: Policy Consistency Important Key to Attracting FDI

In this interview, the Managing Director/Chief Executive Officer, Kairos Capital Limited, Mr. Sam Chidoka, speaks on how to reverse capital flight from Nigeria, recent policies that affect the economy and other pertinent issues. Nume Ekeghe presents the excerpts

Nigeria just recorded 5.01 per cent growth in GDP in the second quarter of the year, can you elaborate on what steered this growth and where do you think Nigeria’s GDP would settle in Q3 and Q4?

With the GDP figures, I think what we are having is the base-year effect because we are looking at year-on-year GDP. Q2 2020, we were at negative 6 per cent, that was the first negative and in Q3 we were at negative again and then we went into recession. So, if you compare where we were then and where we are now, you see why we have 5 per cent positive. It is not because the economy has grown by 5 per cent, but is because the base was very low. It was the first time we had a lockdown. So, there was basically no activity, but now there is no more lockdown, everywhere is open. Comparatively, if you look at the GDP numbers, all you have to do is to look at the real GDP numbers and naira terms. In Q2 2020, we were at N16 trillion or thereabout, still we are about the same place now. So, give or take, all we have done now is we’ve recovered to where we were pre-COVID. But it’s not like we’ve had 5 per cent growth. Then if you dig deep into the numbers, the different industries and what’s causing the growth, I think one of the things that should worry us in Q2 is that agriculture has not quite done as well as it’s all done in other quarters. And it’s very simple, for agriculture, people cannot go to the farms when there is insecurity, when there are herdsmen or bandits, terrorists or whatever name you choose to call them, preventing people from going to their farms. So, you’re going to have agriculture not growing as much as it ought to grow. Agriculture has been a major contributor to GDP. The service industry is the highest, followed by agriculture, while oil and gas is just 8 per cent of GDP. We need to look at the next quarter and ensure that we solve these security problems so that agriculture can come back to is pride of place in our GDP growth.

For our next quarter, I think it’s too good to be positive, maybe somewhere around 3 per cent, but it will still be a base-year effect.

The Fintech space has been regarded as the new oil for Nigeria. However, in recent times there has been a lot of regulation and limitations placed on them. What’s your take on all this and what do you think should be done to actually encourage development of that sector?

With technology as a whole, we have a goldmine in technology and it is not farfetched. If you look at India that provides call center services to many countries in the world, they have a billion people. All they have done is to use their population to their advantage. With 200 million people we can use our population to our advantage. I read a report of a boy that was making drones and some school from Finland has taken him away. So, anything technology we have to enhance support, and we have to make it work, especially FinTech. Yes, there is a talk around regulation, yes, there is talk around people who are trading in the cryptocurrencies, they were putting pressure on the Naira because they were demanding for Dollar. And that demand for Dollar also was putting pressure on CBN dollar availability. But, I do not think that the easy solution of banning things will not work. What I think should work is putting the right regulation, and finding a way to collaborate with all of these firms. And if you look closely, they are young people doing this, people below the age of 30. And we have one of the youngest populations in the world.

So you’ve got to make regulation, find a way to work with them and not work against them. FinTech has come to stay. The funny thing is that the big banks, the traditional banks, are switching to FinTech. I was watching the chairman of Fidelity Bank in an interview on Arise News where he said, they’re asking CBN to give them permission to close their branches because the branches are just there, nobody’s walking into the branches, everybody’s going through digital channels. All the banks are providing digital channels, and it will continue. So, whether it is a big bank, whether it is Flutterwave, whether it is Piggyvest, whoever it is, just find regulation. But they must continue to grow because when you’re dealing with 33 per cent unemployment, you’ve got to find a way to keep people employed.

What is your take on the recent developments with foreign exchange policies?

We have a supply side problem as far as USD is concerned, and we need to try and solve that problem. We do not have enough supply to meet demand.

But of course, the CBN is also bothered because there is a lot of arbitrage happening and there are a lot of people who are taking advantage. And it is clear why they’re taking advantage; the CBN rates and the black market rates has a big gap. If you can get dollar at this rate, and use at this rate and sell at this rate, you make money. Once you have arbitrage, people will do it. So what else is CBN has been trying to narrow the rates and the different platforms. They need to continue in that direction or continue to narrow that arbitrage. So, even if you ban the BDCs and turn it over to banks, banks are fewer and easier to regulate. There were 5,000 plus BDCs, over 3800 operational and now you have 24 banks, so they’re easier to regulate right. At the end of the day, I’m not sure it’s just so much about regulation than it is more about just not having enough FX. We need to solve our supply side challenge. How do we solve that? We need to encourage more exports; we need to export everything we can, including human capital, because the diaspora Nigerians bring in a lot of money into the country. We need to export, beyond oil. We need to export non-oil products, we need to allow the FinTech companies export their services and get paid in USD. We need to have, like I mentioned the India situation where you have call centers and where companies are encouraged to come and set up offices in Nigeria, where you don’t have to force them. This whole thing with Twitter, we are basically twisting Twitter to come and set up in Nigeria. Well, you know that if we provided the enabling environment, Twitter would naturally come and set up in Nigeria. Regulators across board must understand that even if you’re a regulator, they must see the big picture, see the big picture about GDP growth, see the big picture about unemployment, dealing with unemployment, see the big picture about dealing with the exchange rates, see the big picture about dealing with interest rates that affects people’s ability to borrow and can be productive.

On remittances now, because if you’re saying export of human capital that is another way to bring FX into the system, what exactly are we lacking here and what should be done to actually make sure that remittances are done through the right channels?

In the current state, I don’t think it is so much about what we’re not doing right; I think the pandemic has affected us. In 2018, Nigerians in diaspora brought in more money into this country than we made from oil sales. So, it is not about what we are not doing right, it is about the fact that with the lockdowns and lock-ins that happened in Europe and America affected people’s ability to earn and people’s ability to send money. Today, with a higher number of people being vaccinated, I think America has crossed 100 million persons mark, the UK has totally opened up, they even allow people to go and watch football matches, because lots of people have been vaccinated and other countries are getting ahead in terms of vaccination. As that happens, Nigerians abroad will work some more and make more money and would always support Nigerians here. And so you will expect that we will see more remittances in the second half of this year than we have seen in last year, and maybe perhaps also in 2019.

And I do not think that we have major challenges. I think we have channels through which people can send money. Perhaps, the channel remaining for us to find a way to make work is through cryptocurrencies.

All the world over, today people are transferring and moving value through cryptos across economies. We must find a way to make it work.

Instead of outrightly banning it, maybe we can form regulation around it and find a way that makes it work.

On Foreign Direct Investments (FDI), there has been a lot of capital flight in recent years, how can this trend be reversed?

In terms of FDIs, it is about policy flip flop. We’ve just got to be more circumspect with how we change policies. Change is constant, but you have to engage, you have to carry people along. You don’t just do things by fiat. A man who has dollars in the US and puts it in the bank, we get less than 1 percent. He brings it to Nigeria trades in Nigerian bonds, he’s getting upwards of 9 per cent to 12 per cent, depending on the tenure of the bond that is available, and then he hedges himself for maybe 1 or 2 per cent. So overall, he’s better invested in Nigeria and investing in his country. However, he needs to be sure that he is not going to make the investment today and tomorrow you have a policy that makes it impossible for him to do business in Nigeria. Once he is afraid, especially when you look at the Twitter ban, and you can’t do things like that. So it makes other companies go, how are we dealing with Nigeria, they can wake up tomorrow and ban Facebook. So, you’ve got to be consistent. Policy consistency is important in getting FDIs. You’ve got to also understand that money is fungible and people are not going to put money in Nigeria because they like Nigeria, it is because they’re going to get good returns, so you’ve got to compete. Egypt, South Africa, Kenya, Ethopia and Rwanda are competing with you for FDI. So you’ve got to step up your game, and know that there is a competition here. We are getting more Foreign Portfolio Investors (FPIs) and that’s ‘Hot Money’, they would come in and they will leave. For people to come and make investments in this country, they have got to be sure that you don’t come in when the currency is trading at 400 Naira to the dollar, and as soon as you bring in money, there’s a massive devaluation and you’ve lost money in the first instance. So, we’ve got to get it right.

Can you tell us about your firm, what are the major milestones you’ve had in recent years and what can we expect from you in the coming years?

Kairos Capital as a matter of fact will be three years old on the third of September. And in the last three years we’ve done our best to stay afloat, and to try and close some landmark transactions. One of the transactions we’ve done last year was being part of the advisors that raised N100 billion bond for Lagos state. And we’re also working for Lagos state in another fundraiser they are doing now. We’ve also tried to be creative and try to add value to our clients. In the last three years, we’ve done appreciably well, in terms of milestones and some tombstones and in terms of transactions we’ve closed. We’re trying to position ourselves as a boutique investment bank of note that when people see what we’ve done for other people, they want us to do business with them. And so far, so good. We had a fantastic 2020 regardless of the lockdowns and the pandemic and we are hopeful that 2021 will yet to be better. But more importantly, one of the things we tried to do is to provide bespoke and top-notch execution for our clients. We don’t provide one size fits all, we realise that we have different clients, we are sector agnostic. So we work with every sector but we’re product specific. So, we offer capital raise in terms of debts in terms of equity, financial advisory mergers and acquisition. We try to recruit the right people who have the right experience, and we try to provide for our clients solutions that meet their basic needs. So far so good, we are looking forward to better years ahead.