Onyekachi Izukanne is the Co-founder & CEO of TradeDepot. He is an entrepreneur with 17 years’ experience in technology and consulting. He has over 11 years in management consulting, specialising in consumer products, energy and financial services.
TradeDepot is a distributor and retail aggregator that was launched in 2016 with a mission to consolidate Nigeria’s fragmented informal retail supply chain, by connecting the world’s top consumer goods manufacturers to retailers in Africa. TradeDepot’s technology was built to accommodate the varying needs of its customers. It currently has about 60,000 micro retailers in its network.
TradeDepot could have gone into other segments, why is the company passionate about solving issues in the retail distribution sector?
Our focus is distribution, which is a very feasible problem because to purchase whatever item we need, distribution is necessary in getting it from the maker to us. Whether it is a shirt, food, or digital item, there needs to be distribution.
Now especially, the biggest commercially used case you could make for distribution is the movement of consumables, personal care items and other essential supplies. Items that are fast-moving, due to the high velocity of their usage, require frequent replenishment. This creates the biggest challenge as far as distribution is concerned.
If you look at a typical distribution outlet, which is a retail store, the majority of what you will find them selling are fast-moving consumer goods. So, it wasn’t so much for us a choice of should we do FMCG or other things; we need to build reliable distribution, and if you are building a reliable distribution, the biggest thing that we’ll need to move through that pipe will be fast-moving consumer goods.
What is the key driver of the impressive growth in TradeDepot’s distribution network?
Our current network is currently nothing compared to the number of micro retailers in the company, and this is one of the key drivers for growth. It is important to understand that the market where we operate has over 1.5 million stores, and this shows that we are still very early in the business, and I think there is some relevance if you are a distribution platform, with more footprint in this segment.
If you are a manufacturer and there are 1.5 million retail outlets across the country that consumers in Nigeria patronize, and you are looking for which distribution platform to work with, the more of that 1.5 million outlets base you can get from a distribution platform, the more relevant that platform is to you, and that is what’s guiding us.
We realize that to be essential to manufacturers, there needs to be an aggressive focus on expanding our footprint. Another thing is that the business makes more sense from an economic standpoint, as profitability gets better if you can increase the density of your supply base.
Despite the potentials for growth, what can you say have been major challenges of the company in reaching retailers, with the retail sector highly fragmented and 98% of players in the industry operating in the informal sector?
We show up where the people are. There are more convenient and cost-effective ways of trying to reach customers—through digital channels and so on—but to the extent that the target customer is not available on those channels, effectiveness will be quite low.
So many times, we had to get out with actual field operatives, going store to store, to interact with them and have them understand the value proposition.
Another thing is that the value proposition has to be simple and also make sense. These people are informal, yet they are a bunch of very resilient entrepreneurs who have built their businesses with almost zero help from anybody, and they are not looking for a “savior.” If you show up, you really must have a value proposition that makes immediate sense, for them to even contemplate changing what they have been doing that has worked on some level for them, to explore this new direction.
I would say reaching where they are and having a simple value proposition that makes sense has been key things that worked. There is a lot of work that must be done in figuring out better ways of doing what we are doing faster, and that’s the work we would continue to do.
The obstacles to our business remain those things you would expect, like resistance to change, inadequate infrastructure, etc., which we constantly figure out how to navigate.
You obtained financing of $10 million in July 2020. What will the company invest it in?
Technology is the primary thing that we are investing in to drive better economics. The distribution industry has been around for a while. However, we are betting on the opportunities for technology and innovation to change the way distribution happens.
We are investing significantly in leveraging technology to drive optimization, using data and tech which tell us where to focus. They also guide us on which store we need to onboard. They play an important role in determining how we deploy logistics assets like vans and other vehicles, and how to get the best utilization for those assets because these are the things that have the most direct impact on your variable cost.
The other thing is optimizing your margin and having the right consumer insight, in using an effective mix of cost and margin optimization strategy to plan for supply and demand; this plays a very important role in helping you optimize your inventory holding cost.
It also helps optimize promotions that you are passing on to your retailers. We believe that we win when we are able to use data and technology to really help us optimize these key costs of doing what it is that we do.
We are also actively investing in expanding our footprint and kicking off operations in more states across the country. We have also invested significantly in the lending programme which we kicked off last year, and are still running a pilot for. These are the key things that will identify our value proposition, attract more retailers, and make this whole thing work better for the retail store owners.
How many states has the company been able to cover, and what will the company be doing to reach out to more states?
There are key markets across the country that we are either exploring or getting active in. Our goal is to ultimately have coverage across the major commercial centres in the country, both in the North East and in the West; this is our strategy. This year, we expect to cover at least 10 states and keep expanding into more of the commercial centres in the country.
I noticed the company uses a full suite approach in its distribution strategy, as it looks at the products which the retailers want, down to inventory control, warehousing, distribution and financing to the retailers, with key costs coming from this approach, compared to a fragmented approach which leverages on other distributor aggregators in the industry, what is the rationale for this?
There are scenarios in which it makes sense to work with other distributors, so we partner with them sometimes when we find out that our offerings are complementary. For instance, we have a stellar programme in which tier 1 distributors of FMCG work with us to provide inventory that will then help drive our distribution, and we also have a platform that allows distributors drive payment and collections at the retail stores.
The key is always about finding the levels to which the services are complementary.
There are also certain sides of the value chain that we are keying into and gaining control over, just to the extent that it is important to do so to guarantee service level. When we engage a store, there are certain promises that we make; we identify what they need, promise them what they will get and the timeframe when they will get it. In line with the promises that we make, the focus will always be to ensure as much control of the process as is required to enable us ensure that these promises are fulfilled.
What has been the impact of the COVID-19 pandemic across segments?
The biggest impact was in the relative performance of the categories, and this was as a result of the change in consumer behavior, as food items became bigger contributors to the basket versus other categories.
Overall, we identified that, across the retail sector, the pandemic led to an increase in store owners exploring alternative channels of reaching, acquiring and servicing customers, especially online and social media. For TradeDepot, services increased by 500%, with a 300% increase in transaction value and volume on the back of the pandemic.
Consumer buying patterns shifted slightly towards more food items, with growth in purchase of food and essentials as opposed to other categories. Our data revealed that there was a 10% increase in the overall contribution of food items to the distribution volumes, compared with 2019.
In the beer and drinks category, the lockdown affected the ability of manufacturers and distributors to sell to bars, restaurants and clubs, which usually account for about 60% of the bulk of their sales; however, many shifted their attention to Mom-and-Pop stores, and retail outlets to cushion the impact.
We also found suppliers of electrical appliances doing more volumes than they did previously. Suppliers in the home building-related sector like the manufacturers and so on had a decent year compared to previous years. We observed that some restaurants that embraced home delivery earlier tended to have a decent year as well.
What is the impact of this dramatic shift on TradeDepot and its services as a player in the retail industry?
On the demand for TradeDepot services, there was a positive impact. In the heat of the lockdown for instance, when you couldn’t go to the market or get on the road because there was no movement, probably you had the option of reaching out to TradeDepot through our ShopTopUp platform where you could get what you needed.
Based on this, we saw relatively higher demand than normal. We were able to drive more volume than we typically did. However, we weren’t able to drive enough volume to meet demand, as some of the health situations occasioned by the COVID-19 pandemic affected our supply chain.
What is the company doing in terms of creating value for your customers and retailers in your network?
I won’t be able to answer in as much details as I would have wanted to because there are a couple of things that we are yet to formally announce; however, on the high level, our commitment is to figure out ways to help these SME retailers.
It starts with the more commercial thing we can do to help them provide access to inventories as well as provide access to credit. It goes to supporting services that we realize are useful to them which include providing them training and access to knowledge around the things that they do. We have this town hall event which happens twice a month, where we gather virtually or physically with social distancing rules and guidelines observed with the retail store owners, talk through their challenges, hold trainings and help them understand how we can help them run their businesses better.
We have seen that these sessions also help them to become more financially smart about how they manage their cash flows. However, we are looking beyond this because we have seen other ways that we can help not just them, but their dependents, and other things that we are working on which in due time we would be announcing.
What are your thoughts on the things that are expected to change in 2021?
I think the consideration is what behavior we will revert to when Covid-19 doesn’t look as much of a threat as it currently does; we are probably not talking about 2021, because there is nothing to suggest that 2021 will be remarkably different from 2020 in that respect.
We expect, at least for the first half of the year, a lot of similarities with what last year looked like—just from a general pandemic consciousness and behavior. In terms of habits of consumers, we envisage a situation of “caution fatigue” in which people are less inclined to take the precautions that they took last year.
We should know that there are habits which we have adopted because they have made us more effective. I will use a general example: people do more virtual meetings today than they did this time last year; it has become way more normal for estates to have their meetings on zoom, and for people to work from home versus going to the office and getting into traffic, we have figured out how to make that work.
If we didn’t have to stay at home, probably we would be going out more, but that doesn’t mean we are throwing away benefits. On their own, there are benefits we have gained by not having to be in traffic four hours every day or just leaving the house and budgeting an hour before and after every meeting. These benefits won’t disappear when the pandemic ends.
How does a bank make N19 billion a month?
The strategy for banks globally is to attract deposits at a lower rate than it lends out to borrowers.
How does a Financial Services Group make N19b a month, post a Profit After Tax figure of N230b in an environment where global commerce virtually ground to a halt in 2020?
The Zenith Bank Plc (Zenith) Year-end 2020 final results are a blockbuster, not just in the quantitative, but the qualitative as well. In all major headline numbers, Zenith posted growth on a Year-on-Year basis, specifically, Gross Earnings are up 5.2%, Net Interest Income up 12%, Customer deposits up 15.3%.
Somehow Zenith grew her loan book by 18% in a recession and reduced the volume of Non-Performing Loans in the same period. Zenith was also able to post a higher revenue number from non-interest income even as yields on fixed-income fell across Nigeria. I must stress, Zenith has posted these results by servicing her target segment of the high-end corporates in Nigeria.
So how did Zenith achieve this? I want to do a deep dive into how to make profits in a recession. However, it is important to start with a background on how banks make money which is basically in two ways;
- Interest income: which is income generated from the bank gathering deposits from customers and investors and “renting” out these funds to individuals and corporates for a fee called interest. Interest Income is seen as the main business of banks. It is a measure of how well the bank has fine-tuned its people, process, and systems to generate returns from a commodity called cash.
- Non-Interest Income: This is the income the bank generates from deploying its brands and people to juice revenues from activities that do not necessitate a transfer of cash. For Example, a bank asset management business leverages the bank’s skillsets to earn fees by providing investment advice to clients. Does a business want to expand? The bank can advise on the process to make that happen.
The strategy for banks globally is to attract deposits at a lower rate than it lends out to borrowers. This allows the bank generate a spread between cost and revenue. The bank’s interest spread can be magnified by the number of quality loans it creates as Interest Income rests also on the quality of the loan book. Positive spread drives the funding of other banking services and is supported by the banks internal competencies to manage risk
So a bank makes profits by
- Attracting cheap deposits
- Earning positive spread
- Providing value addition for a fee
- Effective Risk Management
All these have to happen simultaneously. A bank that sources expensive deposits by paying higher rates generates a lower spread. Lower spread exposes the bank to cost overruns and will prove fatal to long-term growth.
With this in mind, let’s review Zenith FY 2020 Performance
- Attracting Cheap Deposits: In 2019, Zenith’s total interest expense, which represents how much it paid to get deposits was N148b, that figure dropped in 2020 to N121b. this means the bank was able to grow deposits by 25% but at a lower cost. How? Zenith changed her deposit mix, reducing borrowed funds/leases and time deposits by 41% and 38% respectfully and increasing the share of current accounts by 155%. By swapping the deposit mix, the bank’s cost of funds ratio fell by 18mn%.
- Earning Higher Spread: Zenith grew Net Interest Income by 12.2% in 2020. This figure represents income earned from the deposits and investments of the banking group. Again, this was achieved by asset mix reorganization. In the face of falling rates especially on shorter-dated FGN instruments, Zenith shifted allocation from Treasury bills to longer-dated FGN bonds which paid a higher yield. Zenith’s Non-interest Income also grew to N275b a 5% jump from 2019. This is driven largely by extraordinary items including foreign currency revaluation gain, which is the gain realized from the revaluation of foreign currency-denominated assets. I must highlight this. Zenith was able to post a gain of about N43b which is a 256% gain from FY 2019 based on the Naira being devalued to the US Dollar.
- Providing Value Addition: Value addition will include all non-core banking services Zenith Group provides to the public including subsidiaries like the Zenith Penson Custodians which has N4t in assets under custody. Commission on agency and collection was a big contributor to Zenith’s non-core banking revenue.
- Risk Management: Zenith was efficient in deploying its internal competencies to minimize and avoid risk and impairments from the ordinary and extraordinary course of business. Zenith like other financial institutions saw a pullback in commercial activities from her clients. Take the Commerce subsector, the Non-Performing Loan share in that sector grew from 9% to 24%. Zenith, booked an increase in the number of NPLs by volume to N125m in FY 2020 but the bank was able to keep the NPL ratio down to 4.29%. An extraordinary feat.
Overall, the bank was able to navigate a difficult year and post a good return and a handsome dividend of N3 to investors. Zenith was able to achieve all this while increasing the staff strength by 4.6% to 7555 employees.
However, there are red flags as well:
- Net Interest Margin was down in FY 2020 as yields declined. If yield continues to stay muted, can Zenith keep finding profitable avenues to invest that N5.34 deposit base?
- Interest income positive in FY 2020 at 420b but when compared to 2017, interest income is falling.
- If you ignore the revaluation gain, then Non-Interest income will be considerably muted, possibly negative in FY 2020
- Fees on electronic products fell 36% in an environment where online banking has been not just sound business practice, but life-saving as well.
Overall, in an environment with months of local and international shutdowns, Zenith has posted good numbers and demonstrated it is possible to eke out gains from a hard environment. When one looks at the dividend yield, P.E. Ratio of the bank, for me, this is a Buy.
Unemployment, underemployment needs to be addressed with urgency in Nigeria – Jobberman
Femi Balogun of Jobberman Nigeria has highlighted some of the challenges employers and job seekers are currently facing in Nigeria.
Unemployment has been a bane of many countries, especially in Nigeria, as there are projections that the nation’s unemployment rate will reach an all-time high of 31.4% in 2021.
In this interview with Nairametrics, the Head, Research, Evaluation and learning efforts at Jobberman Nigeria, an online career portal, Femi Balogun, explained that not enough jobs are being created. In 2018, he said Nigeria only created about 450,000 new jobs while over 5 million people joined the labour force.
To him, limited interaction between employers and job seekers as well as policy and cultural constraints are at the core of the employment challenges the nation currently is facing. Excerpts:
How would you assess unemployment in Nigeria, especially with the second wave of Covid-19?
Unemployment has been a critical issue for the country and this has deepened due to the COVID-19 pandemic. According to the National Bureau of Statistics (NBS), between Q3 2018 and Q2 2020, Nigeria’s unemployment rate rose from 23.1% to 27.1%, while the underemployment rate rose from 20.1% to 28.6%. Recent projections also suggest that, in 2021, Nigeria’s unemployment rate will reach an all-time high of 31.4%.
A number of factors contribute to this. Firstly, is that not enough jobs are being created – in 2018 for instance, Nigeria only created about 450,000 new jobs while over 5 million people joined the labour force. Furthermore, gaps within our education system also contribute to this challenge as World Bank data suggests that 18 – 20% of tertiary graduates will require training interventions for about 1 – 4 years to become employable. At the same time, limited interaction between employers and job seekers as well as policy and cultural constraints are that core of the employment challenge we are currently faced with.
The issues that mitigate such high levels of unemployment and underemployment needs to be addressed with urgency.
If Nigeria is home to about half of West Africa’s young people, what size of the population are jobless?
With a population of 200 million, young people make up half of the country’s population. According to PWC unemployment is highest amongst youth between 15-34 years (41% amongst 15-24-year-olds and 31% amongst 25 – 34-year-olds), and this group constitutes 35% of the country’s population – one of the largest in the world.
Data from the Nigerian Bureau of Statistics has also shown that the number of unemployed 24-year-olds [40% of the youth labour force] in the country has almost tripled to 14 million since 2014.
How would you assess skill gaps in Nigeria and what sectors are most affected?
Our evaluation of the jobs market shows high competency in digital skills at entry-level positions but as the skills required advance, there is a dramatic fall in qualified candidates and applications made. For instance, there is an overwhelming skills gap in three subsectors – Software Development, Digital Analysis and Network & Cybersecurity.
Within the Software Development cluster, our findings indicate that 73% of job seekers rate their proficiency at a beginners level across skills such as computer programming, cloud infrastructure, UI/UX, web design, mobile development and design thinking. Likewise for Digital Analysis and Network & Cybersecurity clusters.
This creates a demand gap for positions such as Security Engineering, Data Science, Cyber Security and Security Architecture with a demand scale ranging between 10% and 45%.
Within the Digital Marketing sub-sector, data suggests growing competencies in social media management and content development with proficiency ratings above 40% at advanced levels. Identifying a skills gap in Sales, Marketing Campaigns and Search Engine Optimisation with proficiency levels as low as 8.13% and no higher than 16.92%.
Based on your experience and available data, what are the factors responsible for this gap?
Although young people are described as digital natives, there is a digital literacy gap which excludes young people from harnessing the opportunities that the digital economy presents. This can be attributed to challenges such as insufficient access to the internet, dated curriculum and lack of career development courses.
This challenge can, in part, be linked to gaps within the education system that prevents young people from developing skills (technical and soft skills) and gain the required confidence to be employable.
This gap in human capital optimisation is at the core of the inefficiency in Nigeria’s labour market as Nigeria captures only 49% of its full human capital potential, compared to a continental average of 55%, ranging from 67% in Mauritius to 44% in Chad
What role do you think the government can play in addressing these issues?
The improved performance of the digital sector is, in part, derived from improvements in reforms and governance. In order to take advantage of emerging opportunities within the digital sector, the Federal Ministry of Communications and Digital Economy launched the National Digital Economic Policy and Strategy (NDEPS). This has helped to forge partnerships towards advancing an inclusive digital economy.
To achieve the goal of lowering the access barrier to digital tools for the citizens, the government has set a benchmark of 95% digital literacy rates to be achieved in the next ten years (2030) through States and LGAs support.
It is expected that through the policy, young people will be equipped with the necessary skills to acquire decent jobs while transforming Nigeria into a leading digital economy.
What precisely do you suggest government should do?
There are a number of things the government can do: One is to invest in Human Capital Development. The government can do well by strengthening education institutions and supporting reforms in education to develop industry-relevant curriculum for improved skills, while also galvanising support for digital skills and soft skills training especially for women and marginalised communities.
Another is to Create an Enabling Environment. A friendly regulatory environment is imperative for the digital economy to grow. Similarly, investing in infrastructure that enables ICT adoption (such as broadband internet and electricity) are crucial.
Support the Innovation Ecosystem: Courting public-private partnerships to stimulate and sustain the demand for the use of digital platforms as well as advancing policies that improve business climate will be useful in boosting investment opportunities.
What are the most sought after roles businesses are looking out for in the employment market based on the data from the Jobberman site?
We have seen an increase in roles in the technology sector since April 2020, when we ran our “Unity in Adversity” campaign. Technology had most of the new jobs with 18.79%, followed by banking, finance and insurance with 9.27% and education and training with 6.78%.
What can we do differently in our educational system to better prepare our graduates for the jobs out there?
A transparent jobs market which gathers live data about the various sectors, job demands and skills required will help to strengthen educational institutions and support reforms in education, as well as develop industry-relevant curriculum. Jobberman is striving for a 100% transparent market which will only be achieved when all jobs are posted online.
We are on the cusp of the Fourth Industrial Revolution, children in primary school need to be developing IT skills so they can make the transition from school to work.
What are the challenges you go through gathering data?
I think it’s mostly the availability of accurate information. Data capture and storage is becoming increasingly important on the continent but we are just starting to build. We had to go through extra effort to make sure that all the information we provided in the report was true and up to date.
COVID-19 has made it even more difficult to collect data both quantitative and qualitative. Now we have to conduct interviews and focus group discussions online. The pandemic has also helped us to realise that online data collection is a growing culture with a wide gap to cover.
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