According to Blue CEO, Dave van Niekerk, Nigeria offers the most challenges, countered by the most potential and promise.
“Blue opened operations in Nigeria in 2008 and the lack of infrastructure is obvious. It is difficult for the government to address this issue with an estimated population of at least 190 million people and severe congestion - which makes infrastructure development more difficult. But Nigeria is committed to becoming the next powerhouse of Africa and has unashamedly admitted it intends on replacing South Africa as the continent's leading country. The foreign direct inflows are phenomenal and the stock exchange is constantly improving itself. There is the money, the will and commitment from the government to transform the country. The banking sector is an excellent example. It has been through a major restructure, and is now aligning itself with international banking standards and Nigerian banks are even opening their doors in the UK.”
According to Bue, the Nigerian microfinance market is significantly under-served and unbanked, with limited product offerings. Although there are 24 banks in Nigeria, less than 10% of their lending is to individuals. The average bank density is one outlet for 32,700 people in urban areas and one outlet for 57,000 people in rural areas. The Nigerian banking industry concentrates mainly on commercial finance, whilst consumer finance is limited to deposit taking and savings accounts. Consumers are constrained by requirements to have existing products with a bank before qualifying for further offerings.
These limitations have led to around 60% of the economically active population having to be serviced by informal financial sector players such as non-governmental organisations, unregulated micro-finance institutions, moneylenders, friends, relatives and credit unions.
To address these problems, in December 2005, the Central Bank of Nigeria launched its National Microfinance Policy and Regulatory Framework which aims to provide a conducive environment for the provision of sustainable financial services to consumers not adequately served by the existing formal financial system.
Bribery and corruption have traditionally been associated with doing business in Africa but Van Niekerk adds, this too is changing, although it will take time. “Governments are actively committed to reducing these unethical practices and the ‘brown envelope' phenomenon - the legend is that bribes are traditionally paid over in brown envelopes - should start disappearing as huge penalties, including jail terms, are imposed on those involved in corruption, and this includes civil servants. Mombasa in Kenya previously had the reputation of being one of the most corrupt ports on the continent, but this situation has changed significantly.”
Van Nierkerk says the key to establishing a microfinance operation on the continent is primarily focused on being granted a non-deposit taking lending license by the respective regulatory authority, although deposit taking licenses have been applied for or obtained as is the case in Nigeria. “But in many countries the micro lending industry is largely unregulated and unscrupulous operators are therefore not accountable for their practices. In several countries we are working closely with government to clean up the industry and establish policy and legal frameworks which makes for regulated and legal practices. In some countries, particularly those in North Africa, micro lending is not permitted at all, usually based on religious reasons, and we are again working with governments to facilitate a legitimate form of lending that is acceptable to these countries.”
Van Niekerk says that a noticeable trend for companies moving into Africa is to have a suite of funding provided by a variety of geographically-based lenders. “This means funds from several sources, being from that specific country, elsewhere on the continent and offshore. African finance is certainly more expensive than funding from SA, the US or Europe. But it has the benefit of naturally hedging against the local currencies which is an advantage.”
There are several other problems that come with operating in Nigeria. “One of them is an acute skills shortage and we spend a lot of time and money training local people at all levels. Our human capital policy is to have an expat country manager when we establish operations in each country but after a certain period, he would hand over to a local manager supported by a 100% local staff complement. In this way, the cross-cultural diversity gap is bridged since customers are served in their mother tongue. Regular power supplies are also problematic and we need generator backups in most offices. And extremely crucial is that companies moving into Africa must perform extensive due diligence checks on their potential partners and associates, as the downside of getting into business with the wrong people is huge.”
Businesses operating in Nigeria are faced with an extra cost for purchasing generators and diesel to operate due to lack of constant supply of electricity, daily.
According to Blue, despite its challenges, Nigeria is a very interesting market. Taking into consideration a few facts such as; it is the second largest GDP in Africa after South Africa with the largest population in the continent. According to the Africa Competitiveness Report 2009 released by the World Economic Forum report on doing business in Africa for 2009, Nigeria has a competitive banking system and functional regulatory systems which make it a benefit to operate in that populous West African nation. This has also enabled it to survive the financial economic crises.
There is existing potential for innovation in Africa. Additionally, Microfinancing and SME activities in Nigeria during 2005 - 2008 have increased, largely reflecting the rapid transformation of the financial services industry.
Van Niekerk concludes that Africa is captivating. “There is so much transformation and South Africa needs to realise it is at risk of losing its appeal as the gateway to the continent. Already we are seeing that countries such as Botswana and Mauritius are becoming the preferred destinations for holding company structures. Botswana's international credit rating is higher than that of SA and its foreign exchange policy is far more open. Blue was most pleased to have recently dual-listed on the stock exchange here.”
