Nigerian Economic Summit Group (NESG) urges review of sold power assets, electricity tariff

The Nigerian Economic Summit Group (NESG) has recommended a review of the privatisation of the power sector.Minister of State for Budget and National Planning, Zainab Ahmed, disclosed this at the end of summit yesterday that the Federal Government would raise a committee to implement the recommendations.

The summit, which also recommended a review of electricity tariff, said it was necessary to make the sector attractive to investors, just like the telecommunications sector.

The NESG added that the proposal would ensure the attainment and the optimisation of the summit’s theme “Opportunities, productivity and employment, actualising the economic recovery and growth plan (ERGP)

Ahmed explained that a review of the electricity tariff would increase the sector to what investors refer to as cost recovery level to attract investments.She added that a review was needed in the distribution sub-sector, because it had remained epileptic due to inadequate injection of capital by the current concessionaire.

According to her, the poor funding has made it difficult for effective metering and other infrastructure to enhance delivery and supply of power and to boost productivity and wealth creation in the country.The minister disclosed that the review would begin with the Electricity Distribution Companies (DISCOs), which has been noticed to be problematic.She said: “The recommendations would require the stakeholders coming together to agree on what stake they would give off to the new investors.

“As you are aware, we have not had investors in the petroleum sector for almost seven years because of the non-passage of the Petroleum Industry Bill (PIB), because investors feel that the prices are not cost reflective enough.’’

Among other recommendations is the removal of all regulations stifling the development of off-grid electricity solutions, to encourage the use of renewable energy and increase electricity access and reduce poverty

The NESG urged also canvassed the promotion of willing buyer and seller agreements for gas without government interventions on prices, and acceleration of investment in gas and renewable energy by providing fiscal incentives like 10 years or more tax holiday.

Meanwhile, the immediate past President of the Federation of African Engineering Organisations (FAEO), Mustapha Musa has explained the cause of power outage.

According to him, the inability of the DISCO’s to remit money collected to Market Operators (MO) and Nigeria Bulk Electricity Trading (NBET) is hindering stable power supply in the country.

He stated this in Abuja yesterday while speaking at a lecture with the theme “Energy Situation In Africa: Opportunities and Challenges” at the 26th Nigerian Society of Engineers (NSE).

He added that the failure of Generating Companies (GENCOs) to pay for fuel have denied suppliers the needed funds to maintain their plants.He added that the failure of GENCO’s to pay for fuel denied the suppliers the needed funds to maintain their plants and expand their networks adding that most of the operators have delinquent credit exposures to banks.

Africa focused digital payments and commerce company, Interswitch on Friday 6^th of October 2017 launched a multi-channel low-level retail lending without collateral service known as the Interswitch Lending Services Platform. Interswitch is doing this in partnership with six leading banks and three innovative credit providers.

“We have done this to provide accessible credit for the financial needs of customers who are presently underserved by mainstream finance, or who are excluded in one way or another from being able to access credit through currently existing conventional channels. We are doing this by addressing the problem of access, reach and risk in a novel way that ensures that we can achieve nationwide scale,” said CEO for Switching and Processing at Interswitch Group, Akeem Lawal.

This service essentially revolves around the ‘missing middle’ challenge by providing a holistic proprietary credit analysis, scoring & management technology which bank and non-bank credit providers can leverage to provide non-collaterized micro and nano-loans to individuals and SMEs across various channels. It bridges the gaps currently existing in Nigeria as far as access to credit between deserving but underserved individuals and SMEs as well as credit providers. Interswitch will be able to achieve this by means of reliable lending and de-risking engines based on customers’ transaction history and digital footprints.

According to Interswitch, customers who access loans through this platform can conveniently make their loan repayments through a variety of channels such as – using their cards, at ATMs, online at quickteller.com or through bank branches.

Customers can use any ATM, mobile banking apps or USSD channels to access loans, essentially achieving the goal of allowing different customer segments to meet personal and small business needs, thereby accelerating growth in business activities within Nigeria’s resurgent economy.

The solution focuses on enhancing financial inclusion by providing a tested and reliable end-to-end credit administration infrastructure, which is open and flexible enough to accommodate both bank and non-bank lenders. The Platform has been integrated by Interswitch to what is perhaps the largest customer database, allowing almost 16million Nigerians (which includes active customers on Quickteller) to be assessed for possible qualification for a loan. Interswitch had formed strategic partnerships with a number of credit providers to efficiently target customers who are available on those partner platforms, offering nano-loans at attractive interest rates and based on available credit history and predictive analytics through information technology to determine credit-worthiness.

Another important consideration is that customers who typically use electronic channels or embrace cashless transactions are more likely to get better loan offers than others who have not embraced e-payments, simply because most of the historical data is generated on the basis of usage of e-payment channels, such as Quickteller.com.

The bank partners who are on board Interswitch Lending Services include FirstBank, UBA Bank, Heritage Bank, Unity Bank, Fidelity Bank and Ecobank. The lending partners are Kwikcash, Paylater and Ferratum.

What you need to know about this service

• You can get a loan on this platform through the participating banks/partners mobile apps, USSD or ATMS
• You can get between N1000 and N200, 000 although it depends on how much cashless transactions you do.
• To qualify for a loan all you have to do is open a bank account and do more electronic transactions.
• The interest rate for the loan depends on the lender’s risk evaluation. It is usually between three percent and 15 percent and from 10 days to 180 days.
• If you don’t pay back the loan you will be blacklisted and reported to several entities and won’t be able to get a loan in the future.

N100 billion seven-year debut Sukuk offer Oversubscribed by 6%

Defying its critics, the N100 billion seven-year debut Sukuk offer by the Debt Management Office (DMO), which closed last week Friday, has been oversubscribed by 5.87 per cent.
The sukuk, a project-tied investment facility, according to a statement Tuesday by DMO, attracted investors from across a broad spectrum of the public comprising pension funds, banks, fund managers, institutional and retail investors.

DMO added that the total subscription to the sukuk offer was N105.88 billion.
Reacting to the development, the Director General of DMO, Ms. Patience Oniha, said that the acceptance of the offer was an indication of the viability of the instrument as an investment option as well as a demonstration of utmost faith in the economy.

She commended the federal government and in particular the Minister of Finance, Mrs. Kemi Adeosun, for the policy support that led to the success of this initial offer, which industry watchers acknowledged as another window that has been opened to the government to raise funds to fill the nation’s yawning infrastructure gap.

In the run up to the offer, Nigerians developed tremendous enthusiasm, as they embraced the investment instrument advertised nationwide through roadshows by officials of the DMO, Ministry of Power, Works and Housing and Central Bank of Nigeria (CBN) in Lagos, Port Harcourt, Kano, Abuja and Kaduna, the statement said.

The awareness campaign, which drew attention to the projects that the sukuk was aimed at, include the construction and rehabilitation of 25 roads across the six geopolitical zones and aroused in the investors the patriotic fervour that led to the oversubscription.
Investment experts were optimistic that with this issue, a new instrument, the sovereign sukuk, had been introduced to Nigeria’s capital market, and has added to the variety of products available to domestic issuers and investors.

They pointed out that the sukuk, as a novel investment platform, achieved one of its aims, which was to offer new investors an opportunity to participate in Nigeria’s growing capital market.
A look at the investors that subscribed to the sovereign sukuk revealed that another significant objective was achieved through the participation of over a thousand retail investors from across the nation who accounted for over four per cent of the total subscription.

With this positive development, the DMO has been energised to continue its role of meeting the government’s funding needs, as well as introducing new instruments to develop Nigeria’s capital market, the statement added.
DMO also expressed hope that the success of this offer and the proceeds from it would enable the Ministry of Power, Works and Housing to commence work on the road projects in earnest.

The future of FinTech is bright, according to Accenture’s report, which found that investment in FinTech around the world has increased dramatically from $930 million in 2008 to more than $12 billion by early 2015.

The FinTechs employ Artificial Intelligence, Big Data and Machine Learning to glean the credit habits of customers from their mobile usage, and bank customers are gradually tilting towards the services of FinTechs.

According to Okere, the operators of FinTechs were becoming more innovative and at the same time, disruptive in their service offerings that seek to fill important niches in the credit markets.

“They enable people who have historically been shunned by banks to get loans in order to expand their businesses or to pay off credit card debt at low rates. International money transfers, which have long been a thorny issue for entrepreneurs, are getting easier as well. For smaller transactions, services like PayPal automatically convert currencies, so it’s easy for a customer to purchase goods from anywhere in the world,” Okere said.

Call for collaboration 

The financial experts advised Nigerian banks never to feel threatened by the emergence of FinTech operators in the financial space, but to rather see them as technical partners in business and make haste to collaborate with them.

The financial experts were of the view that banks would lose greater percentage of their customers to FinTech, if they ignore collaboration.

They explained that customers taste and lifestyles were fast changing with technology evolution in such a manner that customers are seeking better technology solutions that will enable them carry out financial transactions from their mobile devices without going to the banking hall and without even opening a bank account. They said such solutions were currently being offered by FinTechs, and that the way forward is collaboration that will drive efficiency and sustainability.

Okere who spoke extensively during a panel session at the conference, said Fintech companies in emerging markets had shown that with the right technology, it is possible to leapfrog to new forms of banking.

“Truth be told, banks are best placed to continue to influence the future of financial services because of their huge branch network, solid reputations, and risk controls, as well as years of customer cultivation and loyalty, and they seem to have come to appreciate their own strengths. For instance JPMorgan’s $9.5 billion budget on technology, with $3 billion spent just on innovation according to their 2016 annual report is quite a significant pile. Banks however, have to radically change the ‘we win when you lose’ mindset,” Okere said.

FinTech regulation 

Addressing the issue of regulation, Elegbe said technology should not be regulated for the sake of regulation. He, however, said that since people were involved in the use of technology to achieve certain goals, then those involved should get some forms of protection, and that is where regulation comes in.

“Regulation is not meant to stifle growth but there is need for regulation,” Okere insisted.

One of the Directors at the Central Bank of Nigeria (CBN), Musa Itopa, who represented the Director, Banking and Payments System Department at CBN, Dipo Fatokun, said: “The banking operation is gradually shifting from physical bank to banking services, driven by FinTech and the regulation has to change from what it used to be.”  The essence of regulation, he said, was to maintain financial stability and ensure fair play between the banks and the FinTechs.

Contrary to the perceived threat of technology disruption to the banking sector, experts have allayed those fears, insisting that Fintech can and will revolutionise banking. Emma Okonji reports

Financial technology (FinTech) experts who assembled in Lagos for a two-day  disruptive innovation conference held recently at the instance of Interswitch, a major player in the FinTech space, identified collaboration as the way  forward, with transaction banks and fintechs leveraging their respective strengths  and minimising their weaknesses.

They were of the view that technology disruption, especially in the financial space, which is changing the traditional and expensive ways of financial transactions, will assume a new dimension in the near further, in such a way that banks will begin to lose customers to Fintech operators if they refuse to collaborate.

FinTechs are technology solution providers, whose solutions are currently disrupting the traditional ways of carrying out financial transactions, thus threatening the continued monopoly of banks as custodians of customers’ bank accounts.

Given the evolution of disruptive technology across all sectors of the economy, the financial technology experts were of the view that banks would lose greater percentage of their customers to FinTechs, should banks down-play the essence of collaboration.

Brainstorming of FinTech 

Giving reason why he had to assemble financial technology experts to discuss the future of banking, the CEO, Interswitch, Mitchel Elebge, said Interswitch, through the Interswitch Connect, had been involved in engaging technology financial experts in the past years, geared towards proffering solutions to the challenges around financial transactions. According to him, in the past, the focus had been on open interaction on the perceived challenges in the banking sector. He, however, explained that this year, they decided to bring together, fintech experts from within and outside the country, to discuss disruptive technology innovation in the banking sector, with focus on FinTech disruptions.

“We are gathered not to sell Interswitch products but to discuss the latest trends of technology disruptions, especially as it affects the banking industry, with a view to reposition the banks for effective service delivery. The gathering is designed to benefit all players, including the FinTechs, banks and partners.

We chose disruptive innovation as the focus this year because so much has been disrupted with technology and there is need for synergy among various players that have similar goals,” Elegbe said.

He explained that one of the experts, Brett King, an Australian entrepreneur and author who co-founded a New York mobile banking company called Moven and published several books, has repository knowledge in disruptive innovation, hence he was nicknamed the ‘King of Disruptions.”

Elegbe was optimistic that knowledge gained from the event would help in key management decisions in the daily operations of the banks and FinTechs.

“Interswitch had always been a technology provider to banks for the past 15 years, having pioneered several firsts in the banking industry like Automated Teller Machines (ATMs), Point of Sales (PoS) machines among others and we will continue to support the banks to enhance customer experience,” Elegbe said.

Traditional banking

The Nigerian banking system dates back to the colonial period, occasioned by the activities of the extra territorial merchants in the former West African colonies and the establishment of settle territorial government created needs.

During the period, the bank for British West African was established in Lagos mainly to facilitate commerce between Nigerians and their British counterparts in business.

Thereafter, the Barclays Bank, the National Bank of Nigeria Ltd, and the African Continental Bank, were established.

The technologies driving the banking system then were crude, as customers needed to obtain tally numbers and queue for hours before they were attended to by few cashiers. The traditional system of banking as introduced by the western world later changed as technologies evolved. The use of cheque books and slips for deposits and withdrawal were introduced to ease baking translation, and this later metamorphosed into the use of Automated Teller Machines and Point of Sale (PoS) machines to facilitate cashless economy and ease of banking.

New trends in banking 

As technologies evolve, customer taste and lifestyles also changed, prompting the development of technology solutions that will meet customers’ needs and lifestyles, as they relate to financial transactions.

The emergence of FinTechs changed the whole narrative in the banking sector as the FInTechs continue to come up with disruptive technology solutions that have changed the face of baking globally.

The new trend is that customers are gradually shifting from the physical banks, to operate outside the banks, using their mobile devices, enabled by apps designed and develop by FinTechs.

Some of the apps allow people to store money electronically, and also have access to the money through their mobile devices, without opening bank account, thus breaking  the monopoly of banks who hitherto were the only custodians of customers money, through deducted bank accounts.

The experts who spoke at the conference, insisted that the current trend of opportunities for banks was not about building physical bank branches, but by creating banking apps that would bring about ease and comfort to financial transactions and that the best way to achieve it is by aligning with FinTech to develop new technology apps.

Experts’ views

In his keynote address at the Interswitch Disruptive Africa conference, one of the speakers, Brett King, gave analogy of new technology trends that are shaping the entire globe. He said technology would rule the world and would develop more robots that would take the jobs of humans. He focused more on artificial intelligence (AI) in technology evolution, and explained that given the rate of technology growth, Africa and the entire globe would soon be ruled by AI technology applications. He advised all sectors, especially the banking sector, to be prepared to embrace the disruptive innovation that would come with artificial intelligence.

King said banking transactions have moved from Bank 1.0, 2.0, 3.0, to 4.0, and advised banks to adapt to the changes through collaboration with FinTech, or lose their bank customers to FinTech players that are already creating apps that enhance banking transactions.

Founder, CWG Plc, Austin Okere, an Entrepreneur in Residence at the Columbia Business School, New York, who spoke on regulation as an aftermath of the emergence of FinTech, said: “The world is tilting towards digital currency, a situation where banks will no longer be custodian of physical cash, and this calls for a new regulatory framework that will enable FinTech thrive in the financial sector.”

The Chief Executive of Officer of Diamond Bank, Uzoma Dozie was of the opinion that the traditional method of banking acquired from the western world, are becoming too expensive to the banks, owing to the increased size of bank customers, and that the new wave of banking is digital. He therefore, admitted that banks must coexist with FinTech to provide more efficient and cost-saving services to bank customers.

The performance of the Nigerian banking industry is largely dependent on the macroeconomic environment, as well as the performance of the top five banks, a report has stated.

The Banking Industry report by Agusto & Co. obtained wednesday also showed that about 47 per cent of the banking industry’s impaired loans are collectively held by the top five banks.

The top five banks in Nigeria are Zenith Bank Plc, Guaranty Trust Bank Plc, FirstBank Nigeria Limited, United Bank for Africa Plc, and Access Bank.

According to the report, the impaired loans were mainly in the oil & gas, transport & communication sectors, accounting for 37 per cent and 11 per cent respectively of the industry’s total classified loans.

In the oil & gas space, also disclosed in the banking sector report, the top five banks accounted for 60 per cent of the loans disbursed to this sector, “which heightens concentration risks.”

A breakdown of the oil and gas sector loan disbursement showed that the top five banks granted over 66 per cent of the banking industry’s total exposure to the upstream; 64 per cent of total exposure to the midstream and 73 per cent of the total loans granted to the downstream.

“On an average, each of the top five banks have disbursed over N500 billion to the oil & gas sector. This makes them vulnerable to the financial performance of this sector which has been enfeebled by global circumstances.

“Of the impaired loans to oil & gas sector (about 37%), the top five banks account for 77 per cent of these impaired loans. These loans largely granted in foreign currencies were further exacerbated by the volatility of the domestic currency.

“There have been arguments that given the sheer size of the top five banks’ loan book, they will continue to account for a sizeable chunk of the banking industry’s impaired loans especially in periods of weak macroeconomic fundamentals,” the report stated.

The top five banks also account for 57 per cent of the industry’s total assets.
The last two years saw intense weakening of the macroeconomic fundamentals against the backdrop of lower crude oil prices – Nigeria’s major revenue source – and the unorthodox demand management in the foreign exchange market.

“However we believe that these industry leaders need to strengthen risk management framework particularly in the areas of concentration risk, early warning signals and enhanced oversight governance.

“The undue concentration to oil and gas could become the Achilles heel for the top five banks. Crude oil, like most other tradable commodities has boom and bust cycles which are quite difficult to predict,” the report stated.

According to Agusto & Co, to mitigate risks in the industry, Nigerian banks will need to adopt time tested values.

“In December 1863, Hugh Mc Cullock, then Comptroller of the currency and later Secretary of the Treasury in the US, addressed a letter to all national banks. In the letter he said, “distribute your loans rather than concentrate them in a few hands,” the report stated.

It warned that concentration risks in oil and gas (downstream) and margins trading (equities) led to the 2008/2009 banking crisis in Nigeria which led to the nationalisation of some of the most vulnerable institutions and the bailout of the industry.

As the disruption of the industry increases, banks face a multitude of choices. Change is inevitable, but the prioritization of change investments is a challenge. At Accenture, we believe banks need to optimize and transform their existing business models while actively exploring new models that will be better suited to the emerging digital economy and will create new value for customers and the organization alike. We call this ‘pivoting to the new’: transforming the core business to reduce costs and maximize growth, and then using the funds released in this way to create space for investments in a new business model and innovative digital ventures. As these new ventures mature and confirm their potential to generate real value, the organization prudently shifts its focus from the core and scales up ‘the new’ (Figure 13). Whatever change strategy you adopt, your change capability will be critical to the outcomes you achieve and the bank you become. Here are seven steps you can take to thrive in ‘the new’.

Ensure the organization has a clear understanding of the change that is required. If this is lacking, it may be necessary to challenge its existing orthodoxies and explore its future direction. Develop a flexible roadmap for heading in this direction. Strive to deliver outcomes and value more rapidly, and accept that your vision and roadmap will evolve constantly as you learn from your experiences and as the world changes around you. Spend time with leaders at all levels, building their commitment to this vision. And where leadership is weak or trust is broken, take action quickly.

PRIORITIZE INVESTMENTS IN ‘THE NEW’

Balancing change investments across the core business and ‘the new’ can be challenging. Increasingly, these investments are converging, moving from ‘digital on the side’ in a standalone unit or internal challenger, towards investments that both benefit the core business and build the new business for the future. The change portfolio intended to realize these two goals should be re-prioritized continually, and new change should be initiated all the time. Balancing resources between ‘run the business’ and ‘change the business’ is a key leadership responsibility. However, leaders also need to make sure that ‘change the business’ activities are not just enhancements at the margins of existing business models, but actually create new robust and sustainable value streams.

In ‘the new’ there is a need for greater balance between larger programmatic investments, seed funding for innovation and tranche funding for continuous change. These need to be made and managed in different ways. For instance, applying lighter business case disciplines and governance to seed funding allows innovation and reduces time to value. There will be significant inhibitors to change. Large incumbents, in particular, must overcome the complexity of customized legacy systems and data – most new entrants have flexible technology and better access to high quality data. A two-speed approach to change can help you slowly sort out your legacy, while application programming interface (API) layers allow you to move more rapidly to digital. This will become even more important as cloud becomes widely accepted across the industry, for both platform as a service (e.g. Amazon Web Services) and software as a service (e.g. WorkDay).

INNOVATE AND SCALE FOR VALUE

As the deluge of emerging technologies grows, it is essential that you undertake innovation for the right reasons. Experimentation and scaling thrive in the right culture, with the right funding, talent and infrastructure. Being able to execute proof of concepts and pilots quickly is essential to understanding potential value. Many banks are doing this, but are struggling to scale innovation and join up innovations around new customer propositions and value-chain plays. Where there is no clear value or the innovation does not work in your new business model, stop quickly, learn from the experience, and shift your investment of time and money elsewhere. Where there is the potential for real value you need to increase the investment and clear obstacles to iterate rapidly and scale the innovation to drive real business and customer value.

While some banks innovate on the fringes, in experimentation labs or in partnership with fintechs, others are working to transform the organization in its entirety, embedding innovation throughout the business. Both approaches have their pros and cons, and the choice need not be binary – a fit-for-purpose model may well produce the best results.

Change leaders rate their organization as being significantly more agile than other banks do: 94 percent vs. 55 percent score it 4 or 5 on a scale of 1 – 5. As a measure of their ability to change, this speaks loudly of their current and future competitiveness. This is supported by other findings that show they are better at executing change. Change leaders complete more of their programs on time and within budget (Figure 10), although being an effective program manager is relatively imitable. More importantly, these leaders truly understand the dynamics and challenges of making transformational change happen. Almost all change leaders have a dedicated change function, and are developing professional change capabilities and disciplines to help them lead the way (Figure 11). Probed about their change capability, they demonstrate a diverse range of professional change skills and capabilities (86 percent vs. 60 percent), a consistent set of change management methods and tools (81 percent vs. 61 percent), and strong governance and transparency (83 percent vs. 62 percent).

Change leaders are also more likely than their peers to prefer strategic change partnerships to tactically buying support (81 percent vs. 55 percent). Agile methodologies are key to their change capability – change leaders use them much more than other banks and apply them with more discipline. They use agile for 57 percent of their change on average and are increasingly using it for larger programs. Change leaders are notably better at making agile work – and they give it credit for better change outcomes, faster delivery of outcomes, better collaboration and innovation, improved stakeholder engagement and greater change efficiency (Figure 12). This is most likely due to the way they use agile, emphasizing frequency and consistency of the basic disciplines such as release planning, participation / prototyping, playbacks, product owners and multi-disciplinary teams.

Data and advanced analytics also play a key role in change leaders’ capability. They are more likely to apply the insights derived from analytics to make better change decisions. Seventy-eight percent of them (vs. 63 percent of other banks) believe their leadership have the change data and insights to make the right decisions. This, combined with a more agile approach to change, means they can quickly learn and adapt. While their focus is clearly on financial benefits (81 percent), change leaders also look at a much wider scorecard of success measures than their peers. In particular, they use non-financial goals such as customer service metrics (89 percent vs. 64 percent). This broader approach to delivery measurement – which includes behavioral changes over time – gives banks a better understanding of what is working and helps them inspire workers to embrace continuous improvements and innovation.