Jan. 13, 2019

Johnson Chukwu


Johnson Chukwu

Managing Director, Cowry Asset Management

“Some aspects of our business saw major uptake in 2018, for instance wealth management.”


Johnson Chukwu is Managing Director of Cowry Asset Management.

How have your expansion plans progressed throughout 2018, including opening a South Africa office?

We modified our strategy and are working on setting up a banking license as we feel there is space within the commercial banking sector, so we have broadened our service offering to ensure an enduring customer base. We currently have the investment banking business which is Cowry Asset with an issuing house, underwriting, financial advisory services and we have Cowry Treasurers which is a mutual fund manager. We also have Cowry Realty, which came about due to the needs of our customers. Many of our customers have their wealth in real estate, therefore we set up Cowry Realty to manage their real estate assets.

Did you see an uptake in the economy in 2018?

Some aspects of our business saw major uptake, for instance wealth management. The size of the portfolios we manage tripled in 2018. Because of the economic downturn, many investors did not want to manage their resources themselves, therefore we enjoyed a lot of referrals throughout the year.

Are you trying to keep a balance between corporate and individual clients?

Currently, 60% of our clients are High Net Worth individuals. However, corporate clients give us more volume but less income. For visibility you need the corporate clients, although the corporate clients give minimal income but they boost your volume.

In 2Q2018 the oil sector shrank by 4% whereas the non-oil sector and services grew by 3.1 and 2.1% respectively. Does this make you more optimistic this year about economic growth?

What happened last year was that the oil sector shrank by 4% in 3Q but the oil sector contribution to GDP was about 8.8%. When you look at the oil sector performance you are looking at volume of production, which was about 1.8 million barrels per day, while the government target was 2.3 million. To measure the GDP contribution of the oil and gas sector they look at what is the economic activities that the oil and gas sector is creating. If the rate of production is higher you will see an uptake in terms of that sectors performance, but if the performance is lower you will see a shrinkage. The shrinkage we saw in terms of crude production was more than compensated for in terms of crude price. When you have negative volume but positive price variance, the implication is that the other sectors of the economy will still report a decline. The oil and gas sector contributes around 8.5 to 9% to GDP, but the main contributor to the GDP is the agriculture sector followed by trade followed by the telecommunications sector and then the manufacturing sector and the oil sector, followed by the construction industry. If you look at non-oil sectors, the agriculture sector did not contract but slowed from a 3.2% to a 3%. Manufacturing slowed down, the telecommunication sector slowed down, while the trade sector came out of recession.

40% of tax revenues come from the oil sector which only represents 8.5% of GDP. How can this be changed?

Other sectors have to grow. The tax rate in the oil and gas sector is very steep: the petroleum tax is about 95%. It is high compared to all other industries. Corporate tax in Nigeria is 30%. Also, because the hydrocarbon tax is calculated in dollar terms, when you convert it to naira it is even higher, while other taxes are calculated in naira. For that to reverse, a couple of things need to happen. The economy needs to be formalized, as a lot of economic activities are not taxed correctly since the government cannot track them. The largest economic sector, agriculture, is not formalized, hence not taxed. Therefore, 20% of economic activity has no tax coming from it. The trade sector accounts for 16% of GDP, but again, many traders do not have formal structures so they are not taxed. You need major formalization to generate tax revenue from these huge sectors.

How competitive is the sector for the type of services you provide?

We provide more personalized service than most of our competitors and in a lot of instances we end up creating a close personal relationship with our clients. They cannot get this kind of personalized service from the conventional banks. You can have somebody that will call you at 1am and just wants to clarify something or ask you a question but this cannot be done with most of the financial institutions. We have developed a culture that fits into the Nigerian social fabric. We build a personal relationship so that the client feels attached to you. That is the key element to private banking which a lot of large institutions do not have the capacity to provide.

What is your outlook for Cowry in 2019?

I think 2019 will be interesting both for the company and for the country. To look at the prospects for the company we need to consider the outlook for the economy, which starts at the political level. We believe that regardless of who wins the elections, investor confidence will be restored. Some people think the economy will boom but we do not believe so. We think as long as the election is peaceful, the economic environment will calm down immediately afterwards. We see investment opportunities in the country which people are not tapping into because of political risk, however this will moderate at the end of March. The second factor is, especially if a business-oriented President is elected, there will be a scramble for Nigerian assets. The Nigerian stock market lost close to 18% of its value, but beyond that, the Price-to-Earnings ratio of any of these companies has fallen 9 to 10 times, to among the lowest in Africa today. That means that people who buy into Nigerian equities at a time like this will be almost certain that market prices will recover next year, which means we see a lot of investment opportunities after the election. We also expect a lot of foreign direct investment in the form of equity into corporate entities. These are areas that will play major roles where we guide foreign investors on where to invest and we also help local institutions invest, either within or outside the country. Lastly, we think the bond market will recover this year and will generate good returns.