Recession is tough, but full of opportunities, say CEOs
The ongoing recession forecast to end in third quarter has been adjudged a morale booster for innovation, which has led many corporate organisations to profitability despite the general economic hardship.
Already, optimism is high that the worst of the recession is over, although businesses that suffered erosion in bottom lines, and forced them to tweak models to stay in business are still reeling under the effects.
Consequently, chief executive officers across sectors, at the Nigeria Stock Exchange-Bloomberg CEO Roundtable, were unanimous that the recession provided an opportunity for entrepreneurs to display dynamism, as it has become a matter of “innovate or die”.
The newly appointed CEO, Stanbic IBTC Bank, Dr. Demola Sogunle, admitted that the last two years have been tough for Nigerian banks, as the quality of the loan book both personal and corporate portfolios were “affected” negatively.
According to him, in 2015 people were just not able to pay and the loans became impaired and the situation was the same in 2016, exacerbated by foreign exchange illiquidity.
But considering companies to do business with in these periods, he said his bank looked at firms that were able to source raw materials locally, and whose reliance on foreign currency was moderated, or those that earn foreign exchange to support their import.
Also, to deepen innovation in tune with times, his bank went more digital, scaled down branch networks, which led to rationalisation, changes in terms of channels and internal operations, but then fostered delivery of service to customers. “We scaled down on sectors. In agriculture for instance, we identified key subsectors to work with.”
The Managing Director, Okomu Palm Oil Company, Graham Hefer, said in agriculture, there were significant revenue, leading to aggressive lowering of cost, although there were also issues having to do with import and the lack of foreign exchange.
Hefer however, affirmed that the recession helped his company aggressively lower costs, while guarding foreign exchange that it obtained.
“To bolster our foreign exchange sourcing, we devised a system of selling palm oil locally and selling rubber to the international markets. On productivity, we’ve looked at vertical integration within our company and we are looking for better yielding crops so that we don’t look for more land,” he said.
The expert also stressed the need for value creation, if agriculture will deliver the promised benefits.
The CEO, Africa Finance Corporation (AFC), Andrew Alli, noted that in the last couple of years, there hasn’t been any new large scale infrastructure project due to the fact that the recession had constricted ability to pay, even by government.
“Shortages of dollars have caused a rethink around innovative products that will allow financing in naira. But cheap funding in naira given the macro environment is difficult and these things take time. So, in the meantime, the industry is resorting to the use of technology to manage cost,” he said.
The CEO, Main One, Funke Opeke, admitted that telecommunications companies’ capacity to pay is coming to a grinding halt.
According to her, it is because they are no longer able to approach the market because of foreign exchange shortage, and the lack of local substitutes, leading to rationalisation of services, cost and consolidation.
“There is loss of skills as experts depart the local market,” she said, adding that the ability to deliver virtual businesses is impaired as interested parties are focusing on competing markets like Kenya, and South Africa, because of the macroeconomic environment.
“There’s the need to create structures that make it easy for private capital to come in to the telecommunications industry and allow investors repatriate their funds. On the demand side, since consumers have less buying power, which has to be addressed in the same way, the government has to aggressively implement its policy,” she said.
Bloomberg Intelligence Economist, Mark Bohlund, pointed out that agriculture is going to be the biggest contributor to the economy in the next two years, but advised that the country doesn’t have to reinvent the wheel, but simply look at what the Rwandans and the Zambians are doing.
“It is one of the sectors that can benefit from weak naira and improved cost competitiveness. This is also because it is not as dependent in energy as other sectors like manufacturing,” he said.