A Director at Actis, a global pan-emerging markets private equity firm, Mr. John Opubor, spoke to Obinna Chima on the opportunities in the Nigerian economy with the rebased Gross Domestic Product (GDP) figure
What is your take on the rebased Gross Domestic Product (GDP) figure recently announced by the federal government and with the privatisation of power assets what opportunities do you see in the Nigerian market?
I think it is clearly an opportunity because there has been a lot of interest in Nigeria for a very long time. I think the story that Nigeria is a growing, interesting and dynamic market is not new. But I think what people didn’t really understand before was the scale, breath, and depth of the market. One of the challenges that we do have in Nigeria is being able to properly capture statistics such as the size of the population, the wealth in the nation among others. I think this helps because it defines the opportunity more broadly and I think it means that people will continue to look at Nigeria as a strong investment destination.
I think the opportunities for the economy with the on-going power sector privatisation are huge and even difficult to quantify. Just the amount of inefficiency that comes with not having stable power is crippling. If you think about the size of Nigeria, the growth rate and you imagine that power is so expensive and irregular, that tells you that if you get power figured out, this country would just be like a rocket. I think that is part of the opportunity that people are looking at. It is a testament of the ingenuity and entrepreneurial spirit of this country that the economy is growing despite the challenges.
Do you anticipate more private equity investors with the rebased GDP figure?
In the last few years, a lot of private equity firms have entered into the Nigerian market, whereas about 10 years ago, we had only few players. Presently, there are a lot of private equity investors in Nigeria. Also there are strategic investors, multinational corporation, from Asia, Europe and the United States that have large interest in investing in Nigeria. I don’t think it changes the willingness of private equity investors to invest in Nigeria, rather it makes Nigeria a more competitive market as it will make people who may have been on the sidelines before to decide that they want to participate. The reality is that Nigeria is a large country. Roughly one in six Africans is a Nigerian. It clearly defines Nigeria as the largest market in Africa. So, when you look at it from that perspective, it is going to be very hard for people who want to invest in an emerging market and to invest in Africa to avoid Nigeria. So, I think it just make things much more competitive.
So what do you think should be done by Nigeria to attract more private equity investors?
There are some things that I think are in place to help it grow. So, I think that we have a legal framework which is trying to really support private equity investments. I think we have a regulatory framework which has started a process of supporting private equity but can’t go further and I think it would be hard to achieve success without the cooperation of government. I think that the government is trying to cooperate and help private equity.
We have had an economy which had been centered around oil and gas for a very long time and I think that as we continue to look to expand outside of oil and gas, it would just mean more opportunities for private equity. For example, we are currently looking at the consumer market, the financial services, industrial services and also healthcare. I think as the economy develops and gets more matured, we are going to see more opportunities in other areas as well and with that, there would be more opportunities for private equity investors to help businesses grow. So, in some markets where there have been a lot of private equity and private investments for a long time, they have a body of case law which they can rely upon when they are analysing different cases. We don’t have such case laws being developed here, that is judgments or things that a judge can rely as a framework for deciding a case.
I think a couple of cases that happened last year would have been benefitted from such case laws. For instance, what happens in the case of a merger and there are some form of dispute around shareholders and valuation? These are the type of things we now find because businesses are changing and becoming more dynamic. So I think the case laws actually support deals being done. I do think that there is a benefit to institutional investors in the market because they help to push some of those things forward. They can help to propel the case law and develop the legal framework for the market.
What do you think is the size of the Nigerian mergers and acquisition market and what opportunities do you see for players in that market?
The mergers and acquisition market in Nigeria is smaller, but it is slowly developing. I do think it is interesting because you deal with many of the financial institutions here. What I find is that the quality of the M&A teams is actually strong because you do have a situation where people that are trained with big international banks but now work with local banks. So I think you can find from an M&A perspective that the practitioners are quite strong. I think that in Nigeria we have to start getting more comfortable with the idea of M&A and how it can be beneficial. May business owners don’t want to relinquish control of their businesses, but there are efficiencies that come with one company acquiring another and people shouldn’t turn off the opportunity to benefit from those synergies that come with acquisitions.
What sectors of the Nigerian economy does Actis have investment in?
From the Actis perspective, we do look at the consumer, industrial, financial services and healthcare markets. Currently, we have investments in all those areas except in healthcare here in Nigeria. So, in the consumer space we have investment in a Dutch wax print clothing company; we are investing in Mouka, which is a foam manufacturer. We do investments either through direct investment in a company or we buy stocks from the market. We hold such investments for about three to five years and sometimes a little bit longer and at the end of the period we exit. So we are a pool of funds that come from different investors and such funds have a life span, usually a 10-year life span and within that period we invest the money and then return it after the investment period.
What we do is to actually work closely with the management teams to support them in any way we can to grow the business and make it better ultimately. In financial services we have a stake in Diamond Bank Plc and we also have holdings in a firm called EMPH, which means Emerging Market Payment. EMPH has a local business here in Nigeria as well. We had invested in Seven Energy, which is oil and gas company, which is not an area we are focused on anymore. But we do look pretty actively at the fields services businesses as well.