The Federal Government of Nigeria assured Nigerians that the country will emerge from recession by the first quarter of 2021. As a result, there are lots of expectations from Nigerians for the coming year.
The Group Chief Executive Officer, Ecobank Transnational Incorporated, Mr. Ade Ayeyemi, in this interview with Nairametrics, warned that nothing should be taken for granted despite the positive outlook.
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According to him, the government and the people still need to act in a way that is supportive of those growth expectations. Excepts:
What is your projection for Nigeria’s economy for the rest of the year and 2021?
The Nigerian economy will contract in 2020, which means the nation is in a recession because it has had two quarters of contraction. We think the economy will revamp in 2021 and that is the basis on which we are out planning activities for Nigeria.
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Nothing should be taken for granted, the government and the people still need to act in a way that is supportive of those growth expectations. So, we think that Nigeria will go back to growth in 2021.
The African Continental Free Trade Agreement (AfCFTA) will take off in January. What opportunities do you see for banks, and how is your bank being positioned to take advantage of the opportunities therein?
For the AfCFTA, we are one of the key supporters in trying to make sure that it sails through, which is done because it is something that is good for the continent and good for our customers.
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So, because of our Pan-African presence, we have been discussing with the governments and our customers to start to take another look at their businesses and understand that the market is bigger than what it used to be before. So, if your job in Aba is to manufacture bags for the Nigerian market, you now start thinking about how you can expand your manufacturing capacity to be able to export across West Africa and also other African countries, not just looking at Nigeria as a market alone.
And as you change your demand forecast, then you need to now improve your capacity to produce and that will mean importing new machinery, which will mean expanding your manufacturing base and being able to develop the market and hire people.
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The same for people in Aba manufacturing. It is also applicable to people producing sugar; they can now produce and send to other places. So, there is a whole range of clientele that we are working with that will enable that to happen.
We will then work with the likes of Afreximbank on ways to ensure people can now make payments in West Africa in a very smooth way because we are the platform that connects 33 countries today. It means that if you are in Nigeria and if the regulator allows you, which is what we do in other places by the way, if you want to send money from Ghana to The Gambia today, you can use Ecobank Rapid Transfer and the money goes there.
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It is only Nigeria, because of the exchange rate rules, that doesn’t allow that to happen instantly unless you are remitting out of a domiciliary account. So, the whole range of these, both at the institutional level, working with clients, repositioning our portfolio and making funding available to our customers, will enable us to deal with the AfCFTA in a way that creates good opportunity for Africans.
There is no need for Nigeria to import rubber from Malaysia when rubber is being exported by Côte d’Ivoire and the distance is not that long. It is better within the African space. So, there is a whole range of businesses that we are having conversations with – the customers, the governments and the African Union, because of our pan-African presence.
Don’t you think the issue of border closure will frustrate that?
It is our expectation that border closure will be temporary and my understanding is that it was put in place as a security measure. Nigeria has always played a key role in the continent, right from when it was the Organization of African Unity. Nigeria and Togo were the two countries that spearheaded the creation of ECOWAS, and we think that Nigeria understands its key role as an enabler of Africans coming together.
Can you take us through the numbers in your recently released nine months results?
Our 2020 nine months results for the period September ending, printed $91 million year-to-date profit before tax. That profit before tax of $91 million was as a result of specific one-off that we took. The first one was the question of the goodwill that we are holding in the book of the holding company, relating to the acquisition of Oceanic Bank that ETI did in 2011, which is almost nine years.
The second factor that impacted our number is because in Zimbabwe, we incurred a monetary loss of $33 million, due to hyperinflation.
If you all remember, two years ago or so, the Zimbabwe dollar was one-to-one at the beginning of the year, it later went to about 16 to one; right now, it is about 81 to one US dollars. So when you convert those things, they required that we convert the books at the current rate and when you do that, you incur a net monetary loss.
We also, during the period, did take a one-off restructuring charge to reduce people both at the head office, to close some branches in Nigeria and also reduce people elsewhere. All of these one-off issues came to about $205 million. But the one that is most impactful to the number is the $159 million goodwill write-off.
Now, a goodwill write-off does not affect the capital of the firm, because before you arrive at the capital, you always deduct the tangibles from the equity. So, it is a non-cash item, it does not affect the capital of the firm.
What is the impact of the write-off of the goodwill on Ecobank Nigeria?
The write-off of the goodwill has no impact on Ecobank Nigeria because the goodwill is carried in the books of the holding company and not in the books of Ecobank Nigeria. As we continue to manage that asset, we expect Nigeria to recover from its recession and, in the future, for Nigeria to be doing much better than it is doing now.
But, if you look at the 2020 year inflation for Nigeria, it is not single-digit. The belief was that Nigeria would get to seven per cent, nine per cent and 10 per cent growth rate, that has always been factored into the long-term development plan of Nigeria.
With this first nine months results, what are you looking at in terms of projection for the rest of the year?
For the rest of the year, which is one quarter, the performance should be consistent without a goodwill write off. Which means that without a goodwill write-off, our number will be about $80 million for the quarter and therefore you should expect that range of number for the fourth quarter.
How did COVID-19 affect your operations here and out of the shores of Nigeria?
I think if you exclude Nigeria from our numbers, you will see all other countries and then there is the Zimbabwe issue that I have mentioned. But we actually picked up a lot of new businesses for all our countries. Our deposit increased significantly and it is there in the numbers that we published.
From our Francophone West Africa, we actually had more opportunities to respond to some of the needs of our clients, so that is pretty good. In Anglophone West Africa anchored out of Ghana, we were able to respond again to the needs of our clients where we have seen increases in our businesses and our performance. Remember, in all those countries, we are the leading banks. So, when there is run to safety, the deposit comes to us.
When a customer needs specific solutions, we get approached; when the government need solutions, we get approached in those countries. If you look at the central, eastern and southern Africa, and you take out the impact of $33 million net monetary loss, again we were able to do very good in those 18 countries that formed those clusters.
So, across board we are actually able to substitute the losses that we expected as a result of COVID-19, with other income streams that we were able to get and a large build-up of our deposit base. And the impact of our technology, which is the same across board, allows our customers irrespective of where they are domiciled to continue to operate.
Earlier, you talked about closing some branches in Nigeria. What informed that decision?
Yes, we closed 114 branches. We still have about 250 something branches remaining. So, having 250 branches is massive when you consider the branch network that the rest of our competitors have. That is the first thing.
The second is the idea of using agency network as a means of being able to distribute banking services to people. The third thing is the idea that digital platform is now going to continue to be the preferred method of delivering banking services to people as we go forward into the future.
Those are the things that informed our decision and some of these branches were not profitable. Some of them were weak and that was the basis on which we made the decision to close those branches and merge their activities with some other branches that exists in agreement with our regulator, the Central Bank of Nigeria.