Babatunde Odumeru, managing director of Brand Finance Nigeria, a firm that specialises in brand and intangible asset valuation, in this interview with BUNMI BAILEY, explains why Nigeria overtook South Africa as the most valuable nation brand in Africa and how to consolidate on the gains.
Please give us a brief background of Brand Finance and the services it provides?
Brand Finance is a brand valuation consultancy that ascribes financial value to branded businesses and intangible assets, notably brands and also nation brands. We advise organisations on how to maximise their value through the effective management of their brands and other intangible assets.
There is a visible lack of cohesion between the marketing and finance functions of most organisations. The marketing function is not as well represented as the finance function is at the board level. This stems from the lack of understanding of the strategic importance of brands on both sides.
In most cases, brands are still seen just as an identifier or a mere differentiator instead of the driver of business value that it is. Because of this, the necessary investment that is supposed to go into the brand is usually compromised. We help bridge this gap by enabling decision-makers to identify and justify the return on investment in marketing assets such as brands.
Having been in existence for over six years, how are local brands perceived in Nigeria?
I think it is more of a question of how we see our brands. Foreigners are likely to see our brands the way we see them. A prime example is how we see and treat the Nigerian Premier League.
The truth of the matter is that across all sectors of the economy, we have the capability of building strong brands in products and services that meet the needs and wants of people. And foreign brands and investors know this. But not many decision-makers take it upon them to monitor the strength and value of their brands. The importance of this is often ignored.
This truly represents a lack of understanding of what brands truly represent, and puts us at a profound disadvantage when dealing with sophisticated investors who understand how brands drive value. What is most important is how we see brands and understand what they truly represent.
Last year Nigeria took over South Africa as the most valuable nation brand in Africa ranking in $255 billon, making it amongst the top fastest-growing nation brands. How did the country achieve this?
The prominence Nigeria is currently enjoying as the most valuable nation brand in Africa is not something of an overnight success. It is not a simple case of Nigeria waking up one day and becoming such. There is a trajectory to this shift.
When Nigeria first made it into the Brand Finance Nation Brand Valuation League table, she came in as the third most valuable nation brand in Africa behind South Africa and Egypt respectively.
But by 2011, a couple of years later, Nigeria had displaced Egypt’s second position. That year Nigeria’s brand value stood at $67billion. Between 2011 and 2015, Nigeria grew its brand value from $67billion to $189billion at a rate of 63 percent, while South Africa managed to grow hers at 1.3 percent. From 2015 to 2019, Nigeria grew its brand value from $189billion to $255billion at a rate of 25 percent, while South Africa grew hers at 10 percent.
A couple of factors necessitated this shift. First, we have an inherent advantage of a large market, and GDP is always an important factor in calculating a nation’s brand value. But it does not constitute the whole story.
More crucial is the nation’s brand strength which reflects how well the government is managing the nation’s brand. This is what really drives the nation’s brand value.
So, in addition to our large market advantage, some sectors such as the culture industry which comprises film, music and literature have been creating awareness of culture through Nigerian movies, music, and literature beyond the Nigerian borders and shores, and thus creating brand promotion and cultural tourism as a result. This is enabling us to attract foreign customers.
The government needs to create a framework of intellectual property around this in order to maintain real value. The tech space has also made a contribution to this shift by creating new industries in which they are building growth-orientated ventures with footprints regionally in Africa and a standardised branding program that enables the brands to be traced to the country of origin.
There are also various reforms, some of which have led to a boost in manufacturing which we are beginning to see some local brands dominating their markets in sectors such as the food, paint, and construction etc.
What metrics were used in calculating the country’s brand valuation?
The general process for valuing any asset class, be it, a business, property, brand or even a nation brand is to estimate its future revenue, then determine and apply an appropriate discount rate to reflect the risk in order to arrive at a present value.
However, when valuing a brand, we need to determine that bit of the revenue that is attributable to the brand so we use what is known as a royalty relief rate. The name is simply what it states. It is a relief from having to pay royalties as a result of owning the brand. Just as one is relieved of having to pay rent as a result of owning the property.
So, it is based on the notion that owning the brand allows the relief from paying royalties and enables you to receive royalties as an additional income stream from licencing out the brand name.
However, this can only be enabled where the brand is strong. So, when determining the value of a nation, we first determine the brand strength of that nation.
We use metrics such as governance, investment, tourism, goods & services, talent etc. We determine how well the country is doing in each of these areas. We enquire how good is the country at attracting not just foreign investments but also local ones. How effective is the country at encouraging, again, not just international tourism, but also local tourism? How productive is the country at producing its goods and services? etc.
We score each metrics out of 100 and build a brand strength index. This is used to determine an appropriate royalty rate for the country which is then applied to the country’s estimated GDP which is a proxy for estimated revenue. This is to determine that bit of the GDP that the brand contributed towards.
Once we determine this, we then calculate a discount rate to reflect the risk across the national economy and use it to discount the estimated future GDP back to its present brand value.
How many brands were captured in your analysis?
In 2017, we carried out an analysis of the most valuable brands in Nigeria. We concentrated on indigenous brands. Indigenous brands constituted companies that were established in Nigeria regardless of the founders’ nationality. This ultimately rules out multinationals with a presence in Nigeria.
The idea is really to detect the country’s capability of producing strong brands especially in sectors that contribute the most to the GDP and employment. We valued 50 brands and released the top 25 most valuable brands in which the manufacturing sector claimed both the most valuable brand and the strongest brand.
The COVID-19 pandemic has affected a lot of brands in the country; do you see this affecting its strong brand valuation in 2020?
The pandemic situation has brought about a new reality regardless of whether we are yet in sync with it or not. This new reality is informing and changing the way we do things, including how we make our buying decisions. It has added an extra layer of the blow to an economy still reeling from the effect of the 2014 oil price shock.
Our usual challenge with an inadequate infrastructure that does not enable businesses to efficiently connect their brands with their consumers is now compounded with necessary regulations that restrict movement that enables connectivity. This is going to have an adverse effect on revenues, profits, margins, and brand values.
We are also likely to see a decline in the aggregate demand for brands, as a resultant effect of households needing to prioritise their spending needs. However, the level of impact will differ across sectors of the economy.
What is your outlook for Nigeria’s brand valuation in 2020?
The pandemic has had a huge impact on brand values and also on enterprise values all over the world. Nigeria is no exception in this regard.
As I mentioned earlier, we have the inherent advantage of a large market size in terms of our GDP. But what is important is the quality of brands being built in these sectors that constitute and contribute to the GDP. Of course not all brands operating in the sectors of the economy are affected equally.
Some sectors are more impacted than others. This will also depend on the owner’s risk. In situations like these, the stronger brands will emerge across all sectors because they are usually resilient to the impact of any kind of economic shock. How does this translate to the nation brand valuation?
With a slow growth in GDP and an equal marginal decline in brand strength, there is a likelihood Nigeria may see a marginal decline in her brand value, but will still maintain the lead as the most valuable nation brand in Africa.
However, looking at the long term, we need to focus on building our brand strength in which we only ever fare averagely. South Africa has a stronger brand than Nigeria. Although recent economic and political activities plus the Xenophobia incidents might have eroded the strength of its nation brand, it still has a stronger manufacturing base, better infrastructure, and creates stronger brands recognisable beyond its borders.
