Investing in a year the economy took a beating from the Coronavirus pandemic and yields were also low was not an appealing prospect to many people. Peter Ashade, group CEO, United Capital Plc in a written response to interview questions by Iheanyi Nwachukwu, explains how the company surpassed expectations in a challenging year.
With recent data on the Nigerian economy, what is your outlook for the economy?
As observed in the latest GDP report by the NBS, showing a mild recovery in Q4-2020, the outlook for the economy is broadly positive in 2021. I believe that the low base effect of the 2020 economic contraction will support a fragile V-shaped recovery in 2021. Thus, there is an optimistic view about the sustained pace of recovery in the aggregate level of economic activities. While growth in Q1-2021 may be muted due to a high base effect of Q1-2020, the informed optimism feeds largely on potential for more robust recovery in Q2 and Q3-2021 relative to the negative growth observed in the corresponding quarters of 2020.
Specific to the non-oil sector, expectations are that there will be improved performance in the services sector, to be sustained as people become more confident to go about their daily activities. FGN’s move to acquire vaccines and its efforts to inoculate the population is laudable and may even spur growth quicker than expected.
While it is anticipated that growth in the Agricultural sector would build on the gains of 2020 as demand remains strong, and weather conditions improve, security and social-political crisis remains a significant concern for growth in the space. In the oil sector, recent rebound in oil price towards $70/b is clearly positive for domestic output level in 2021. Although cap agreement under the OPEC+ quota may limit growth, it is expected that OPEC+ will gradually return production to pre-pandemic levels following recent price gains and positive sentiments from increased rate of vaccinations, which could spur demand for travel and consequently oil. Give or take, I expect the economy to rebound by 1.7% to 2.0% in 2021.
What is your opinion on the issue of national debts and how best can Nigeria optimise debt for more impact on national growth and development?
So, for me, debt is not essentially an issue; it all depends on the context, countries in the West have debt-to-ratios well above 100%, and there isn’t any imminent risk of default. The DMO has revised Nigeria’s threshold to 40%. Debt to GDP ratio becomes an issue when your government’s fiscal revenue base starts to dwindle, as seen in Zambia and Argentina recently. The FGN, in the last five years, felt the best way to tackle its fiscal handicap and spur growth was to borrow more, as two recessions have hit the economy in five years. Regarding debt optimisation, the FGN’s oil revenue base has not been consistent due to external headwinds such as, the trade war and Covid-19, which halted demand. On the non-oil side, the government has looked to boost its revenue by hiking the VAT rate. We saw rapid increases in Company income Taxes (CIT) -these were on the rise but were halted last year due to the pandemic, so it isn’t for the lack of trying. The debt to revenue ratio in H1-2020 was around 44% of the revised budget, slightly on the high side.
It is way more efficient and productive when debt is reserved for capital and infrastructural or human development projects which will add growth in the medium-long run.
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Your company’s financial result for 2020 was better than pre-COVID-19, is it accurate to say Nigerian corporates were less susceptible to the negative impact of COVID-19?
No! Corporates cannot be separated in entirety from the rest of the economy. We operate in the same tough environment as other stakeholders. How does an FMCG or manufacturing firm keep costs down during a pandemic when there are FX shortages? For instance, if you look at the results of corporates submitted to the NSE, you will notice that performances are mixed. Operators in the ICT, Healthcare and Food processing sectors seemed to have had a good year compared to those in the diversified household goods, breweries or oil and gas. For those of us in the financial services, the results are mixed. What we have done at United Capital is to take bold steps in a time of crisis leveraging our expertise in investment management while aggressively growing our volumes.
Again, I like to note that United Capital is entering a high growth phase. We have implemented and executed our strategy fully and our result seemed to be better than we even expected. We have been religious about what we set out to achieve. Nigerian corporates are very susceptible to the impact of Covid-19, it just depends on the sector you look at. While sectors such as ICT, food processing, and healthcare have done well, others have not been so fortunate.
The value of naira, exchange rate, inflation rate and monetary policy stability have been front issues in the market, what are your suggestions for achieving balance and growth?
In response to rising inflation and in a bid to stabilize the currency market, I imagine that the CBN would begin to tighten its monetary policy stance at some point in 2021. So, on the exchange rate, I expect a potential convergence of FX rates when the CBN begins full intervention at the I&E window. Thankfully, rising oil prices may help to support accretion to the external reserves. As such, it is anticipated that the parallel market will appreciate from N470/$ towards the NAFEX rate which is around N410/$. So, to achieve a balance, the recommendation would be a well-coordinated policy framework that ensure rising price level is brought under control, to bring about a positive real interest environment that can spur investment and aggregate productivity.
Again, to promote market stability, the CBN should guide markets to minimize market distortion. This improves long-term planning, reducing the risk of investing in our market. Moreover, it provides FPIs with clear guidance, which would help to reduce the capital and finance accounts dependency on dollar-inflows therefore, improving the exchange rate.
The year 2020 witnessed an unprecedented decline in the yield environment and galloping inflation, how did United Capital manage to retain its huge clientele base in the face of negative real return?
We remained committed to providing the best value proposition to all market segments while striving to exceed client expectations. Interestingly, we doubled our client base during the year amid the low yield environment resulting from technology-driven acquisition drive. Furthermore, our mutual funds grew to N162billion in 2020 from N37.2billion in 2019, and emerged as 3rd largest in terms of value from 10th position as at 2019 among other business growth parameters.
We have consistently delivered the best possible returns while adhering to a robust risk management policy to grow and preserve value of our clients’ investments. We will continue to create innovative solutions that address emerging needs and the growth achieved in 2020 reflects strong client confidence in the United Capital brand, providing stability even in times of uncertainty.
From an issuing house and a Trusteeship business point of view, would you say the low yield environment was positive for your businesses?
The low yield environment, which prevailed through the year 2020, limited the availability of low-risk financial instruments providing significant real returns to investors. Notwithstanding, the low-yield situation was positive for debt issuances due to relatively lower cost of funds, thus presenting corporate issuers excellent opportunity for tapping the domestic debt market. Consequently, United Capital played a lead or joint role as Issuing House or Trustee, across several debt capital market transactions during the year. We always strive to navigate our operating environment towards achieving the best possible outcomes across all our businesses.
How did United Capital Plc navigate the tough terrain towards delivering solid performance in 2020?
United Capital Plc is an integrated financial services group serving diverse client segments with bespoke solutions that address financial and investment needs. In preparation for the 2020 financial year as part of a three-year strategic planning cycle, we had begun prospecting key market segments that will present the greatest opportunities across all our businesses in the locations that we operate.
We outlined clear action plans to pursue growth strategies within the domestic and international markets. Our organisation was also realigned to improve service delivery and be more responsive to our clients. The impressive financial results in 2020 validates the effectiveness of the planning process, strengthened execution capabilities, growing client patronage in the brand, and increasing stakeholders’ confidence in the strategic direction of the organisation. We strive to exceed client expectations across every interaction, and we see the current unprecedented environment as an opportunity to reinforce that commitment.
Can you share some of the notable milestones from 2020?
United Capital emerged top 3 Mutual Fund Manager from 10th position in 2019, with Funds Under Management valued over N160billion from N37.2bn in 2019. United Capital was ranked top 10 in terms of value of equities traded on the NSE surpassing our initial target of top 10 for the Securities Business with a 360-degree turnaround in Revenue and profitability contribution. Our Private Trust portfolio grew in leaps and bounds, deepening our retail market penetration and improving our Trusteeship Business sustainability.
In addition, we concluded maiden United Capital N10billion 5-Year Series 1 Bond issuance, achieving 124% subscription amid the COVID-19 pandemic, a first among issuing houses in Nigeria, reflecting investor confidence in the brand and strategic direction of the organisation. Furthermore, we surpassed N1billion in terms of transaction value of investor assets processed on our flagship digital platform InvestNow from N0.5billion in 2019. Our client base doubled during the year, thanks to our technology driven Consumer Finance Business. Our Corporate Rating Improved to A- (Agusto) with a stable outlook.
Furthermore, our affluent segment proposition grew into a sustainable business line and contributed significantly to income generated during the year. We also launched United Capital Sukuk Fund in December 2020 targeted at a growing segment of ethical investors, bringing our mutual funds to seven (7).
What can we expect from United Capital Plc in 2021?
We will continue to work with regulators towards deepening the Nigerian Capital Market and strengthening the broader financial system as the domestic economy continues the path to recovery in the year 2021.
Clearly, the unprecedented environment has created new challenges and opportunities for us and our clients. Consequently, we will be investing in new competencies and forging strategic partnerships to improve our value proposition across all segments while also creating income buffers such as earnings on longer-term investments.
We are unwavering in our commitment to all stakeholder groups and we expect all our businesses to remain profitable and competitive in the near term.
