How Nigeria can sustain economic recovery, push SME drive

Dr Lizzie Kings-Wali is the founder and CEO of Blackstone Capital Limited, a financial institution focusing on providing credit solutions to SMEs and households. In this interview, she speaks on leveraging SME finance for inclusive growth in Nigeria, how to sustain Nigeria’s economic recovery and position it as an attractive investment destination and more importantly […]

Dr Lizzie Kings-Wali is the founder and CEO of Blackstone Capital Limited, a financial institution focusing on providing credit solutions to SMEs and households. In this interview, she speaks on leveraging SME finance for inclusive growth in Nigeria, how to sustain Nigeria’s economic recovery and position it as an attractive investment destination and more importantly boosting the role of SMEs as employers of labour and more, in achieving sustainable growth.

The Nigerian economy has recorded four consecutive quarters of positive GDP growth, an impressive recovery from the COVID-19 induced recession, what is your outlook on the economy?

The resilience of the Nigerian economy lies in the non-oil sector, and it is anchored on household consumption and private sector spending. While government spending is important in oiling the wheels of growth, especially as the public sector represents about one-fifth of the economy, stimulating household consumption and business sector spending are more critical in achieving sustainable and inclusive growth in Nigeria.

As you may know, household expenditure and corporate sector spending have a stronger multiplier effect and indeed have more productive fire-power compared to the public sector. So, to sustain the current economic recovery, the government must diligently implement reforms that empower the private sector. The 4.03 per cent growth printed in the third quarter of 2021 is partly reflective of the low-base effect and it’s really not strong enough to bridge the huge output gap of this country, given the potential to extract latent growth frontiers in driving economic renaissance.

I see the Nigerian economy growing in the north of 5 percent, which is the deserving growth path for a youthful economy, with huge productive potentials like Nigeria. Albeit this cannot happen as a miracle, it requires assiduous “Big Push” reforms from the government to unlock the potentials of the private sector in creating sustainable jobs that can empower youths, accelerate the velocity of money supply and improve standards of living, especially amongst the low- and middle-income classes that make up the bulk of the country’s population. 

With the election just about 12 months ahead and the rising politics, investors and perhaps the broader private sector are concerned about the impact of politics on the economic and investment landscape, what do you think?

Warren Buffet says be fearful when others are greedy and be greedy when others are fearful. I am a passionate advocate of this philosophy, and it has empirically been proven that the crowd is often wrong on investment decisions. With many investors seeing only risk in Nigeria, that’s where the opportunity lies. You can only make incredible returns when you invest in solving problems.

In fact, as the government saliently fixes some of the issues undermining the prospect of the Nigerian economy, the haze and fogs would soon be clear and of course, there is always a first-mover advantage. In fact, you can only make great returns, which economists call “abnormal profit”, in a market where there are inefficiencies because that is the compensation for cracking through the inefficiencies.

You see the valuations of many Fintechs coming out of Nigeria. It’s incredible and that is the reward for them solving some problems. Once those issues are fixed, the opportunities in those segments would narrow. In fact, let’s even look at the real sector, just to mention a few, how many cement companies make the type of production margins that Dangote Cement has and how come Nigeria is MTN’s sweet spot despite being in multiple countries in and out of Africa. It’s an incredible market for great returns but investors have to be genuine, long-term focused, and ready to roll their sleeves to earn the alpha. It’s not a market for child’s play or tea party…it’s a market for real business ladies and men! Nigeria is a market for genuine investors with real business cases!  

Nigeria is the largest economy in Africa and by no means the most populous country on the continent and indeed one of the biggest black nations in the world, how can it become Africa’s business hub?

The Africa Continental Free Trade Agreement (AfCFTA) provides a new opportunity for Nigeria to play the deserving role as a central market for the continent, especially within the West Africa coast, where it is a natural pivot for economic activities and indeed should be the pivot for the economic prosperity of the ECOWAS sub-region. We have the market size, human capital and natural habitat, such as seaports, that automatically position the country as a business hub. Albeit, we must diligently position our country by pursuing relevant reforms in key sectors, such as aviation, ports management, customs amongst others, in addition to investing in power and road infrastructures that can support manufacturing and commerce activities. The government needs to support local businesses in their expansion drive to be able to meet expected growth in demand and effectively compete on quality and production costs. It does not mean the government should throw money at these sectors, rather it is simply easing the bottlenecks and providing the environment for businesses to thrive. 

What are your perspectives on boosting investment opportunities and entrepreneurship in the country?

Boosting entrepreneurship and attracting investments require creating the right environment. Whilst the exigency of generating revenue for the government is obvious, it is important to balance the lever by ensuring the government creates incentives and a conducive environment for businesses to thrive, especially SMEs, which I believe has the capacity to create jobs and resolve the high youth unemployment crisis in the country and its associated social vices. It’s like a chicken and egg situation, the government needs to generate revenue but if it does not create the environment to stimulate domestic investment and attract foreign direct investment, it’s going to be like chasing a ghost. 

For instance, look at our special economic zones, which are known as free trade zones. It’s not as effective partly because some fiscal support and harmonisation of fiscal authorities in implementing the designated incentives are absent. The monetary policy authority may also need to take a second look at the foreign currency policy and consider some alternative or complementary approaches that can better enhance market confidence and the stability of the Naira.

Why are banks not lending to SMEs?

Lending to the SME is a specialty that not all banks have. The Nigerian market has its peculiarities and challenges, including weak loan remediation and bankruptcy systems and of course, the judicial process for loan recovery can be hectic. There is little or no consequences for loan default in Nigeria and in fact, you sometimes see loan defaulters living in luxury at the expense of the dying lender. So, it is important to understand banks’ resistance towards lending, especially to the SME, which is perceived to have a higher risk profile.

Indeed, lending to SMEs is risky but the risk is sometimes overblown. The risk of the SME segment of the market is not necessarily due to the lower credibility of the business owners, rather the relatively weaker governance, in the early stage of the business which often means it is less resilient to macro volatilities and a host of other systemic issues.

Many commercial banks often think it is less lucrative to put resources at understudying this segment of the market and more importantly investing resources towards creating loans and monitoring SME loan performance. They are small-sized loans and may require a lot more monitoring than even corporate loans. However, this is the most important segment of the economy, and we must do everything possible to develop a vibrant SME sector if we really want to achieve inclusive growth and create jobs. There are over 41 million Micro, Small and Medium Enterprises in the country and they account for about 96 per cent of commercial enterprises, some 50 percent of the GDP, and employ over 80 percent of the labour force but less than half of them have ever accessed credit. This is one of the motivations for me to collaborate with like minds in setting up Blackstone, which we hope to use to democratise credit to SMEs and also partner with relevant stakeholders in improving advocacy and stimulating interest of other financial institutions in bridging the credit gap at the SME and retail segments of the market.

Given your passion to change the face of SME lending in Nigeria, what would you consider your greatest milestones?

We have achieved a number of exciting milestones and I would just touch on about three. First, unlike many start-up firms, we ensured we institutionalised governance from the onset and I am pleased to say that we perhaps have one of the most experienced Boards amongst non-bank lending institutions given the diverse and unrivalled experience of our Board of Directors.

More importantly, we adopt global best governance practices, as we believe this is essential to the long-term growth and sustainability of the business. As you may be aware, Mazars, one of the top-10 globally respected international audit, tax and advisory firms is our external auditor. Second, I am excited that we broke even and became profitable in less than two years of operation, which is very unusual in this market and which again validates our focus on lending to the SME and the fact that SME lending is viable. More exciting for me is the number of small businesses and individuals we have impacted through our various loan products, having disbursed over N3 billion in loans to more than 5,000 customers in barely two years of operation and despite the impact of the COVID-19 pandemic.