We’ll promote private equity investment over govt ownership –Yahaya, Board Chairman, DBN

Mon, Aug 19, 2019
By publisher
8 MIN READ

Business

SHEHU Yahaya, the Chairman, Board of Directors, Development Bank of Nigeria (DBN) Plc says he is on a mission to grow the fortunes of the bank by swelling its capital base and attracting more private investors.

This mission will lead to new private sector investors taking equity from government’s stake in the bank to pave way for the much-needed funds and expertise to grow the brand in the years ahead.

Since its establishment in 2014 as a plc., and commencement of full operation in 2017, the Development Bank of Nigeria has operated with $1.3 billion consisting of equity and development partners’ funding from the World Bank (WB), KfW (German Development Bank), the African Development Bank (AfDB), the Agence Française de Development (French Development Agency) and European Investment Bank (EIB).

But unlike other development banks, it is focused on supporting small businesses defined by size and not by sectors.

So far, majority of the beneficiaries of its credit are women whose robust entrepreneurial capacity and capabilities have convinced the bank’s management that they deserve more of the existing financial support to grow bigger.

It’s Chairman, Yahaya, has a flourishing career in the academia and development finance, having held several management and executive roles, including Executive Director at the African Development Bank and member, Monetary Policy Committee of the Central Bank of Nigeria.

Prior to being appointed the Board Chairman in March 2017, Yahaya was the bank’s Interim Managing Director.

He had served as Deputy General Manager at Nigeria Export-Import Bank (NEXIM) and was at various times, a lecturer in Macroeconomist at the Department of Economics at the University of Sussex, United Kingdom and Head of Economics Department in Bayero University Kano, Nigeria.

He is also a Board member of American School, Abidjan, State Vice Chairman of the Nigerian Economic Society and Sub-Dean, Faculty of Social Management Sciences, Bayero University, Kano.

He holds a Bachelor’s Degree and a Master’s degree in Economics from Ahmadu Bello University Zaria, Nigeria, as well as a Doctorate of Philosophy in Industrial Economics from University of Sussex, United Kingdom.

In this interview held on the side-lines of the maiden DBN annual lecture, Yahaya speaks about the bank, its support for the MSMEs and the plans ahead.

Priorities

At DBN, we’ve done a five-year strategic roadmap. The strategy is focused on much greater effectiveness in terms of deliberate support for MSMEs in Nigeria. It will involve substantial expansion in capital of the bank in order to support more businesses and getting many more participating financial institutions like commercial banks and microfinance banks to participate with DBN. Thirdly, it will involve our establishment of a credit guarantee company that will help guarantee some of the lending’s from commercial banks so that they can use much more of their resources to support the MSMEs sector. That way, we can expand the businesses substantially.

Capital expansion 

At the moment, the plan is to attract additional equity from impact investors, as well as multilateral development institutions. That is the way we intend to expand. Although the government will remain a shareholder, the relative ownership of the government will be substantially diluted in favour of private and multilateral development institutions.

For now, the funding comes Department Bank of Nigeria, the Nigerian Government, AfDB and the European Investment Bank.

Collaboration with SMEDAN

DBN participates in MSMEs clinics, which is essentially spearheaded by the Office of the Vice President and is substantially done in collaboration with SMEDAN, the association of MSMEs so that we can think and collaborate together to achieve our mission. There is regular contact and collaboration at the technical, as well as at the field level to provide information, activities and all other resources.

DBN and National Microfinance bank

The proportion of commercial bank lending that goes into the MSMEs sector is very small, not more than seven per cent. Actually, it has declined over time. At about the year 2000, it was over 40 per cent but now it has gone down substantially.

Less than 20 per cent of the financing needs of MSMEs are met. Therefore, we believe that even if the National Microfinance bank comes into existence, it will help fill the financing gap in terms of the requirement of the sector, but there are still a lot more that needs to be done. So, there is room for collaboration, so we will just expand the financial space. It won’t fill all the gap. It will have over a capital of N500 billion and it will be established in all the local governments of the country.

Recapitalisation target

Yes, we’re planning on recapitalising but we don’t have an exact amount yet. But we do have a timeline. Within the next two years, we should begin to do that. Two things I would like to see happen; bring in additional equity investors and then the DBN will be in a much stronger position to issue its own security so that it can expand that way.

So far, thanks to our owners, led by the FGN, AfDB and EIB; strong support from the World Bank, AFC, kfW, who have provided loans, grants and intellectual support; as well as the highly-experienced and skilled board of directors, management and staff of the DBN.

About DBN

Development Bank of Nigeria exists to alleviate financing constraints faced by Micro, Small and Medium Scale Enterprises (MSMEs) in Nigeria through providing financing, partial credit guarantees and technical assistance to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.

I wish to say a few things about why the DBN was set up.

First, jobs and employment creation are among the most important challenges of our time, for at least two reasons. Unemployment deepens poverty, worsens Y-inequality and creates profound social and political challenges. It also undermines human dignity and self-respect and engenders desperate behaviours.

Nigeria’s GDP grew at an average of 8per cent a year between 2000 and 2013. PCY had surged from US$646 in 2004 to US$2,937 in 2013. In 2004 poverty level was 63 per cent and unemployment stood at 12 per cent. After ten years of rapid growth in 2014, poverty level had increased to 68 per cent and unemployment had doubled to 24 per cent. Youth unemployment was around 34 per cent jobless growth; increased income inequality. Currently, unemployment is at 23.1 per cent, nearly a quarter of the workforce of 90.5 million. Youth unemployment is around 29.72 per cent and graduate unemployment at 25.2 per cent

African context

The story in Africa has been roughly the same. Between 2000 and 2013, SuB Saharan Africa grew at about 5 percent a year. Yet, poverty and unemployment had remained high and youth unemployment had marginally reduced by only 0.9per cent during that period.

According to the AEO, growth in Africa from 1958 to 2016 had only accelerated employment intensity by 0.008percent. This is because the elasticity of employment growth with respect to GDP growth was a paltry 0.41 per cent, meaning that each 1percent GDP growth raised employment by only 0.41 per cent. In the meantime, the labour force grew at about 3 per cent a year. Consequently, 38 out of 47 African countries had employment growth rates lower than GDP growth rates

Between 2000 and 2010, the Gini coefficient in Africa rose: indicating increased income inequality. The problem is therefore on the development model.

The key factor has been that; in both Nigeria and Africa in general, GDP growth has intensified demand for capital and imported consumer goods, including consumer durables, thereby exporting most of the jobs abroad, while Africa has been experiencing de-industrialisation.

The future path must, therefore, involve the translation of growth, investment and human skills to boost, amongst other things: local value addition; stronger organic links between local production and manufacturing/processing; between MSMEs and larger enterprises; progress from low productivity informal enterprises to more formal higher productivity enterprises. This is what it takes to achieve transformation, accelerate growth, generate enough jobs and engender a more equitable income distribution

However, studies and surveys by DBN, SMEDAN, the CBN and others have identified finance as a major constraint for MSMEs. The WB Enterprise surveys have also clearly indicated that SMEs have cited finance as the 1st out of 15 major challenges facing them. Yet, commercial bank lending to MSMEs, already low had further contracted- 48.8per ent of lending in 1992, down to 5percent by 2015. This is why the establishment of the DBN is particularly essential- so that it can act, along with other DFIs, DMBs and MFBs, to support MSMEs which play a critical role in promoting growth, jobs, and help address the challenges of poverty and Y-inequality.

There is a need to acknowledge the efforts of the current government to articulate, through the ERGP, the transformation needs, and the implementation of a number of programs, for example through the Social Investment Programs and the agricultural production and value addition programs, to address jobs and poverty.

Sunonline

– Aug. 19, 2019 @ 17:51 GMT |

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