Friday, March 29, 2019 6:00PM / Stanbic IBTC
Recently, Bolatito Ajibode, the Head, Industrials and Mining shared insights about theIndustrials and Mining Business of Stanbic IBTC, and how it has helped deliver a comprehensive banking solution to clients within the sector.
A: The Industrials and mining business in Stanbic IBTC is quite extensive. It is an arm of the business units in Corporate and Investment Banking that delivers comprehensive banking services to clients in Diversified Industries, for example - Conglomerates, Paper and Packaging, Automobile, Maritime, Aviation, Logistics, Chemicals, Healthcare, Iron and Steel sectors. The team also manages Real Estate portfolio for the bank and lately, is responsible for developing the Mining sector.
We have built a leading franchise supporting our clients in maximizing value in their businesses, through our specialized offerings and creative solutions in Global Market and Investment Banking. This has earned us the status of a trusted partner to our corporate clients from our diverse industries.
Q: Government has been talking about diversification now for quite some time. How much of this has impacted the local industries? Will diversification in any way enable the country to have enough for local consumption and exports at the same time?
A: Nigerian oil earning contributes 80% to government revenue; hence we experience shocks every time there is global slump in oil price. Government needs to diversify its revenue to mitigate the concentration risk and susceptibility to commodity swing. This is already being vigorously pursued, going by recent efforts to increase tax base as well as grow other critical sectors of the economy that have direct impact on industries - agriculture and mining sectors. Industrial players typically suffer oil price impact considering that foreign inputs account for about 70% of raw materials. Some of the key players have also embraced backward integration strategy by sourcing their major raw material inputs locally. We have witnessed this in food and beverages, where conglomerates and Large Local Corporates are supporting out-grower schemes to support farmers for their inputs. In paper and packaging, operators are recycling used cartons as against importing tons of craft paper from across the globe. In iron and steel, we have seen the entrance of other players recycling scrap metals to reinforced bars, angles and channels for construction. Lately, there has been keen interest and huge investment in iron ore mining and production of steel products.
Simply put, industrial diversification is the use of cheaper production inputs, and being competitive to facilitate local consumption, consequently significantly reducing reliance on imported products and driving the export potentials of made-in-Nigeria goods.
Q: In terms of foreign exchange generation and boost to the economy and the country’s foreign exchange reserves, how will diversification come into play?
A: The first impact of diversification is foreign exchange savings through local sourcing of raw materials. When that happens, we will see a reduction in import bill for raw materials. Cost of production will reduce significantly, local companies will become competitive and will play in the world stage and begin to generate foreign exchange.
Q: Quite recently at Mining Business Conference held in South Africa, you were quoted to have said that “Nigeria is well positioned for a mining rush with high quality reserves in the global cost curve for most minerals. Due to the absence of majors, there exists a first mover advantage to access the high grade and low-cost reserves”. Can you please expatiate a bit on this?
A: Nigeria is currently at the mining jurisdiction stage like South Africa and Australia were decades ago. First movers have the opportunity of acquiring and prospecting acreages with tremendous potential.
Q: Are we looking into other solid minerals in the country?
A: The government has identified 7 strategic minerals - gold, lead, zinc, bitumen, iron ore, coal and barites. In addition, there has been a lot of attention in lithium and nickel for battery production, because of growing interest in electric vehicles (EV) and clean energy.
Q: What lessons can Nigeria learn from other African nations especially the ones in which Standard Bank operates and where mining and solid mineral industry is at very advanced levels?
A: Anyone would be right to describe Standard Bank as a mining bank, having supported mining activities in South Africa for over 100 years. Other African nations have leveraged on Standard Bank’s depth of knowledge in mining and Nigeria has a lot to benefit from the same. Thankfully, Stanbic IBTC is a member of Standard Bank, and therefore well positioned to provide the required support in this area.
Q: The solid mineral industry in Nigeria is still largely untapped but what is its current contribution to the GDP and what in your opinion is the real economic potential of the industry?
A: According to the Government Sector Strategy document, mining accounts for 0.55% of GDP. This is abysmal when compared to its contribution of about 18% for South Africa; 25% for DR Congo and 40% for Botswana. The Government aims to improve the contribution to GDP to about 3%($27 billion) by 2025.
To demonstrate the potential in just two minerals, out of forty-four (that is - Iron ore and Coal) using a production rate of 2% and average commodity price, our reserves would have grown by $4.5billion from the two commodities between 2015 and 2017, due to the lack of an active mining industry.
Q: What’s your expert opinion on the option of privatisation and liberalisation of the industry? Shouldn’t the government be considering privatising Ajaokuta for instance, to revive it and get it running at full capacity?
A: Privatisation or liberalisation is typically the preferred option to drive efficiency of a government enterprise. I believe government is doing everything possible to revive and bring Ajaokuta back to life.
Q: There’s been a remarkable improvement in accessing forex compared to a few years ago. What has been the experience for your clients?
A: As you may know, Stanbic IBTC Nominees, our Investors services/custody business, controls about 50% of nominees’ business in Nigeria. In the heat of foreign exchange scarcity in 2016, 2017 and 2018, our clients benefitted immensely from our access to foreign exchange. We not only met their needs within the bank, but also sold foreign exchange to other banks to meet their needs.
Q: A few years ago, Stanbic IBTC organised an Iron and Steel session, seemingly a one-off, since the initiative was not sustained. Any particular reason why the bank didn’t consolidate on this platform and are there other things Stanbic IBTC Bank is doing to stimulate the sector?
A: Stanbic IBTC banks key players in the iron and steel sector. The initiative is primarily to discuss how to move the industry forward. Stanbic IBTC has been having strategic engagement with operators, supporting them. We are particularly keen to support the sector because there is a direct correlation between per capital consumption (PCC) of steel and national development. Nigerian PCC is 7.0kg compared to South Africa at 89kg. We can only experience real growth if we grow the sector that feeds other sectors – that is, grow construction, transport (automobile, maritime and aviation) oil and gas, white goods (refrigeration and electronics) and packaging.
Q: The packaging sector is another thriving industry in Nigeria. How would you appraise the sector and how is Stanbic IBTC Bank playing in this space?
A: The packaging sector is very resilient to economic cycles given 95% exposure to food and beverages industries. Opportunities for market growth are numerous due to a rising middle-class resulting in higher disposable income, increasing urbanisation giving rise to lifestyle changes towards wellness and convenience. All these have greatly influenced consumer preference. Stanbic IBTC had identified the sector as strategic to the FMCG multinational corporates and developed a value proposition to partner with the industry leaders across the key packaging segments - can, glass, metals and plastics. Our team has in-depth sector knowledge and the ability to partner with product partners across our full range of products, including corporate financing, Global Markets, treasury operations, wealth management, personal banking, capital market equity raising, Insurance, Trusteeship, and so on.
Q: When you look across the banking sector, NPL (Non-Performing Loans) remain a major issue. Risk levels vary from sector to sector; how strong will you say your risk assessment framework is for your portfolio?
A: Risk and Conduct is one of our strategic business drivers. We pride ourselves of doing the right business the right way and our clients have come to appreciate us for that. Whilst our risk framework is very robust and flexible to meet ever changing risk conditions, our Fitch rating is AAA.
Q: Over the years, Stanbic has been involved in projects like the malls; with the likes of Actis and a few other developers across the country. In spite of the prevailing economic challenges, more malls are still being developed to drive retail. How has the bank been able to rise above these peculiar challenges?
A: Stanbic IBTC has supported and will continue to support development of malls and commercial real estates in Nigeria to bridge the huge gap. We have a strong Real Estate Finance team who are experienced in appraising and structuring a Real Estate project. The team collaborates with their counterparty in Standard Bank to deliver world-class malls and first class commercial properties across Lagos and Abuja.
Q: How many of these malls have Stanbic IBTC Bank been involved with?
A: We have our signature on major malls in Lagos and Abuja. In Lagos, we financed Ikeja Mall, Novare Lekki Mall and Circle Mall Lekki, and also First Festival Mall in Amuwo Odofin. In Abuja, we sponsored developers of Apo Mall, Gateway Mall, Jabi Lake mall and Central Office Park.
Q: Given the specialised nature of the segment you oversee and the type of clients you manage, is the expertise resident within Stanbic IBTC or do you rely on Standard Bank to drive this segment?
A: You are right to describe my portfolio (Industrials, Real Estate and Mining sectors) as being specialised. The portfolio is equally diverse, hence there are dependencies and supports from in-country specialists and Standard Bank. One of our strategic intents is client centricity; we not only meet the clients’ expectations, we do our best to surpass it. We therefore reach out to our product and sector specialists across Standard Bank group in South Africa, London, Beijing and New York to deliver bespoke products and services to our clients.
Q: Why do you strongly believe that now is the best time to invest in Nigeria’s solid mineral industry?
A: Nigeria has focused on the oil and gas industry for over 50 years and kept solid mineral under the radar, despite the mineralisation of Niger and Benue basins and deposit of over 40 solid minerals. The Nigerian minerals are of high grade and are just being explored in open pit. The production cost is comparatively low and investors can easily recoup their investment in medium term. Most importantly, the fiscal incentives are globally competitive.
Q: How committed and well positioned is Stanbic IBTC Bank and Standard Bank to support driving this industry in Nigeria?
A: Our purpose, “Africa is our home, we drive her growth” echoes our deep commitment to the growth of the continent and Nigeria in particular, being a growth region. Stanbic IBTC’s mining desk offers a unique value proposition, leveraging on mining expertise of Standard Bank across the continent. Our existing and prospective clients will have direct access to our team of experts in Mining Geology, Mining Engineering, Project Finance and Commodity Trading.
5.10. CBN Debits the Account of Stanbic IBTC Bank In Respect of N1.886bn Regulatory Fine