Managing Director/CEO of Meristem Securities Limited, one of the leading investment banking firms in Nigeria, Mr. Wole Abegunde, said in this interview that one of the critical ways to revitalise the Nigerian economy is to have a lower interest rate regime. He spoke to Goddy Egene. Excerpts:
What are your comments on the current economic recession?
A lot has been said about the economic recession. Of course you expect that economic recession will attract many negative comments. But it is a part of the life of any country. There will always be a period of boom and there will always be a period of recession and it goes on and on like that. There is what we call business cycle, it follows the same pattern. Even in individual lives, there are periods of ups and there are period of downs. So there is nothing unusual about the economic recession. What the government needs to do at the moment is to put heads together and see how we can come out of it. In doing that we have to look at the past. We have to look at how we got into the recession and we have to work on the variables so that we can come out of the recession. But I do believe that the major cause of the recession in Nigeria is the oil price. Not only did the price drop but the quantity that we are able to sell also dropped and the demand for our type of crude oil also dropped. All these worked together to reduce the amount of dollars that we are able to earn as a country. And given the dominance of oil on our economy, you can then understand why we are in recession this time.
The government has realised we are in a recession and is making efforts to ensure the situation is addressed. Are you confident that the measures will take us out of the recession very soon?
I believe that coming out of recession is not just a one bullet point action. The solution is a series of well-coordinated action. It is not just a one day action or reaction that will take us out of the recession. Do not forget that we did not get into the recession in just one day. And we will not get out it in one day. The most important thing for us now is to see how we will be able to generate more income as a country and how we can diversify the economy away from oil. Hitherto our source of income has been coming from one commodity. But one of the things that government is trying to do now is to have more income generating commodities asides oil so that in future, if there is a drop in one, then the others can generate revenue. The more the number of items you have in the portfolio, the lower the portfolio risk. So the government wants to increase the number of products in our portfolio and reduce the risks. So I want to believe that the government is taking the necessary action. There are many technocrats in the government of President Muhammadu Buhari, and a lot of decisions are being taken. Do not forget, many of the decisions may not be obvious to the public. I know that the Minister in charge of solid minerals, Kayode Fayemi has been working on that area. Same goes for the Minister of Agriculture, Audu Ogbeh who is working assiduously on the agriculture sector. Farmers are being motivated. All the concerted efforts that the government is making at the moment, I believe will take us out of the recession.
As a key player in the Nigerian capital markets, is there any way the capital market can play a role in the recovery of the Nigerian economy?
One of the variables that are used across the world to push an economy out of recession is the availability of funds. And interest rate is very important in this regard. Interest rate has to be low to help production. With low interest rate, production will increase because producers will have access to funds to increase production. That is on the debt aspect. The capital market is able to help in raising cheap funds by selling financial instruments to be able to generate funds for production. But there is a difficulty here at this time. In a time of production, people have little access to funds. Savings is being depleted and when you have insignificant amount of savings then you can’t invest in financial instruments of the capital market. However, the capital market will still make all efforts possible to mobilise funds to jump start the economy. But it is better done with low cost debt instruments. In other jurisdiction, you will see a situation where the United States government is brining interest rates to almost nothing for people to lend and do business so as to provide cheap liquidity. I believe that is one area that we really need to look at now.
Still talking about the capital market, despite the huge population, the market still records low participation. How can investor participation be deepened and more new listings attracted too?
Let me put the Nigerian population in proper perspective. I think the figures being bandied about are 150 million to 180 million Nigerians. But the question is that of this 180 million for instance, how many people have the economic power. I want to believe that in terms of economic power, people that are living above $1 per day is not up 40 per cent of the population. And therefore, when you are talking about the capital market and raising fund from each Nigerian, you have to look at people who can put money in the market. The estimated number of accounts with the Central Securities Clearing Systems (CSCS) today is about 5 million, compared to 180 million Nigerians. So there is a high level of restriction in the number of people who can put money in the market now. That has been helped by assets management and pension funds. Pension funds have not been putting money in the market because of what they lost in the past. If the appropriate financial instruments are developed, with very good yield or return and hedge against foreign exchange rate, I believe we will be able to attract funds through the capital market. Because today, if people are looking for high returns, inflation is high so that they won’t have negative return, any capital market must provide that. Secondly, the rate of the depreciation of the naira is very high and any financial instrument that is sold through the capital market must be able to hedge against the depreciation of the naira. I believe that we can still raise significant amount of money through the capital market if all of these are taken into consideration. But I am aware that the capital market is looking at derivative products and derivative products are able to take care of some of the concerns of potential investors in the market.
The economic headwinds have affected all facets of the economy, how will you describe the situation of operators in the capital market given the tough economic situation?
The fortune of operators is dependent on the economy. We normally say that the capital market is the barometer for the economy. If the economy is down the market is also down and the operators in the market are also down. So I must say that the situation with operators in the market is challenging at the moment. Many operators are struggling to survive because there are no activities in the capital market as it used to be and I believe that the regulators have recognized this and some actions they had planned to take in the past in regulatory arena have softened their stance because the operating environment is difficult for everybody. But this is the time that innovation and creativity come to play. In any environment you find yourself, if you are creative, you set yourself apart.
Some firms have reduced activities while others have folded up. What do you think is the staying power for surviving firms?
Well like I have said, there are realignments in the market. Some operators have reduced their level of activities or category of business they can do. Some have reclassified into sub-broker, some reclassified from broker dealer to either only broker or dealer. However, basically, their staying power has been the structures they have put in place before now. They have proper structures in place to run the organisation, efficiency in the running of the organisation. They have also kept cost low as much as possible. Many of them have also reverted to their reserves in order to survive. Like I said earlier on, recession will always be there but there will be a time that you will get out of recession. These are some of the things that operators have done for now that has helped them to remain. But the principal among them is the desire to want to give what it takes diligently to remain in business and focusing on recovery beyond recovery.
To be specific, Meristem Securities Limited, is one of the firms that have maintained a top position despite not being a subsidiary of a bank. How have you able to do this over the years?
Well, as a company. The fact that we have been able to survive without the support of a bank shows that we have the proper structure and strategy in place. We are determined to remain a top player and have put the resources in place to be a top player. We have high quality personnel that run the organisation. We have high level of capital to run the organisation and more importantly, we have diversified within the capital market into five fully independent companies. We have an asset management company, stockbroking company, registrar, a trustee and an advisory company. All of these come together to help us to stand as a strong company. We are also very innovative. In a period like this, innovation sets you apart and innovation helps prevent your legs from buckling. Innovation helps you to become a monopolist because when you create or develop a product, you render those products and services, it will make you a monopolist and be able to help you to generate income in the period of recession. So as a company embraces high level of corporate governance and comply with regulations in the market, it helps you to stay as a company.
In terms of structure, we have Meristem Securities Limited as the holding company and the company through which we render our corporate finance and financial advisory business. We have Meristem Wealth Management Limited, which is a subsidiary that renders wealth and asset management services. We have Meristem Trustees Limited, which is another subsidiary rendering trusteeship services. Meristem Registrars Limited is our subsidiary offering registrars services and we have Meristem Stockbrokers Limited, that renders stockbroking services. Each of these subsidiaries has its own managing director and there is a group managing director who oversees all of them. So, you can see we have a sturdy structure in place.
What are your future plans for existing and potential clients of Meristem?
We as a company are focusing on the recovery of the economy. We have put recession behind us. We are looking at what will happen at recovery and how we give better value to our customers who have lost value in terms of their assets. We are focusing on how they can recover some of the value they have lost. We are focusing on how they can make more money. We are focusing on the services that we would render to them that will make them better off. We will help monitor their portfolio and help them achieve their investment objectives. There will be new products and services to achieve this. We will up our game in our customer service delivery where we have always held the ace cards over the years.