Posted on: Mon, 21 Apr 2008
Novare Director, Derrick Roper
South African investment consulting business, Novare, acquired a stake in two Nigerian financial services companies. Jaco Maritz spoke to Novare Director Derrick Roper.
Derrick Roper, Director of Novare, seems very at ease and confident about his company's recent entry into Nigeria's financial services market.
At the end of 2007 Novare bought a 30% stake in two Nigerian companies: First Guarantee Pension Limited and Index Asset Management Limited. "We decided on Nigeria because it is one of the wealthiest countries in Africa and has the largest population. There are also many South African businesses that moved into Nigeria with great success," says Roper.
Novare's core business is to consult pension funds and other institutions on their investments. The company however also manages a number of sizeable funds. It is 51% owned by South African business magnate Tokyo Sexwale's Mvelaphanda Group.
Novare decided on First Guarantee largely because of recent reforms in Nigeria's pension industry. Since 2004 the National Pensions Commission (PENCOM) started regulating the industry and new legislation requires that all businesses with five or more employees have to make a contribution to a pension fund for its employees. Pension funds have been responsible for a massive surge in money invested in the Nigerian Stock Exchange (NSE) and other equity markets. It is estimated that pension funds currently account for about 9% of the NSE's total market capitalisation.
"With around 140 million people the amount of people that work in Nigeria is massive. The market is very big, much bigger than South Africa. The investment industry in Nigeria is going to see significant growth over the next five to ten years," says Roper
Because of the relative infancy of Nigeria's pension fund industry, First Guarantee was also very keen to take on an international partner to teach them the necessary skills. "They came to Cape Town to meet us and it went very well. In turn, three of our senior managers went to Nigeria in November last year to have a look at how the operation there works. I think it was just a very good fit between them and us. We felt very comfortable to do business with them.
"They have built-up a good infrastructure over the past three years and are one of the bigger players in Nigeria. We saw it as a good opportunity to make an investment in a young upcoming company and industry. We also thought that we can contribute a lot to their business," says Roper.
Novare didn't just buy shares in First Guarantee but plans to play an active part in the business. "They wanted us as a partner because of the expertise we bring to the table. Our staff will be in Nigeria on a monthly basis to help them improve their business. Nigeria is still a young economy without the experience of a South African market. This is not just a 30% investment, together we are going to expand the business."
Before signing the deal, Novare thoroughly did their homework. "We did a lot of research on Nigeria and their financial services industry. We met many Nigerians working in the industry, as well as the deputy governor of the central bank. We also met with people from South African companies that do business in Nigeria to get a better idea of the risks and opportunities."
Although Roper admits that Nigeria's financial services industry faces many challenges, he is rather optimistic about the future. "You don't have the same amount of financial instruments that you have in South Africa or the rest of the world. Nigeria's stock market is limited. The fixed interest market is limited. The money market is limited. It is just not as sophisticated but it is developing very fast, and they are moving in the right direction."
The company is also not too worried about any political threats to their investment. "Yes, there is a certain amount of uncertainty about the political situation but it seems as if it's under control. During our research we met with many politicians and even went to parliament, it looks as if the situation is relatively stable.
"Nigeria is a developing country. Traffic is a problem. Infrastructure and electricity are problems. To travel is a problem. It is not as easy as it is to fly to London, to get on a train and to do business. But the opportunities make up for the problems."
