How did your expansion plans progress in 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, which is why we 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, and financial advisory services. We also have Cowry Treasurers, a mutual fund manager, and 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 uplift in the economy in 2018?
Some aspects of our business saw a major increase, such as 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, so we enjoyed a lot of referrals throughout the year.
Are you trying to keep a balance between corporate and individual clients?
Around 60% of our clients are high net worth individuals, but corporate clients give us more volume but less income. For visibility you need the corporate clients, even though they give minimal income.
In 2Q2018 the oil sector shrank by 4%, whereas the non-oil sector and services grew by 3.1% and 2.1%. Does this make you more optimistic?
In 2018, the oil sector shrank by 4% in Q3 but still contributed 8.8% to GDP. 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. If the rate of production is higher you will see an uptake in terms of that sector's performance, but if the performance is lower you will see a decrease. The reduction we saw in terms of crude production was more than compensated for in terms of crude prices. 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, telecommunications, manufacturing, oil, and construction. If you look at non-oil sectors, the agricultural sector slowed from a 3.2% to a 3%. Manufacturing and telecommunications also slowed down, while trade 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 steep: the petroleum tax is about 95%. It is high compared to all other industries. Corporate tax in Nigeria is 30%. In addition, 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, and hence 20% of the economy off the bat is not taxed. The trade sector accounts for 16% of GDP, but again, many traders do not have formal structures so 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 a 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 conventional banks. You can have somebody that will call you at 1am just to clarify something or ask you a question, which 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?
2019 will be interesting both for the company and country. To look at the prospects for the former, we need to consider the outlook for the economy, which starts at the political level. With the elections now behind us, investor confidence will be restored. Some people think the economy will boom, but we do not. We expect 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 fell 9 to 10 times to among the lowest in Africa today. That means that people who bought into Nigerian equities before the elections are now seeing a recovery, which means we see a lot of investment opportunities. We also expect a lot of FDI in the form of equity in corporate entities. These are areas that will play major roles where we guide foreign investors on where to invest. We also help local institutions invest, either within or outside the country. Finally, we think the bond market will recover in 2019 and generate good returns.