Botha: Nigeria's Cash in Circulation is Thrice that of South Africa

Mr. Stephen Botha

The outgoing Managing Director of Integrated Cash Management Services Ltd (iCMS), Mr. Stephen Botha, spoke with Kunle Aderinokun about the challenges and opportunities in the budding cash management business in Nigeria, even with the cash-lite policy of the Central Bank of Nigeria. Excerpts:

In retrospect, when you first came into Nigeria, how did you perceive the country against the notion you had before?

I was pleasantly surprised when I came to Nigeria the first time. The expectation was a dark country where it is unsafe and where you need to have policemen accompanying you, infrastructure not in place, among others.

I was received by my friends the first time, afterwards, I came into the country on my own. I have told everybody that for the time I have stayed here, my family is safer than they were in South Africa. But one thing that impressed me most, was the development and the advances in Nigeria, specifically in Lagos, in terms of infrastructure, development and making things more approachable with services working.

Did you have the opportunity of going to the restive area in the Niger Delta?

I was advised not to go but I did go to Abuja, Katsina and the report is the same, that I feel safe here. It is a country with immense business opportunities.

You came into the country to manage a relatively new business. Describe your initial challenges?

What happened was that we had to put together a Nigerian business with South Africa culture and we had to try and watch those things. To me, the most difficult thing in the whole merger was understanding the Nigerian way of doing business. The South African way of doing business is different, not because it is right or better, it is just different from the Nigerian way of doing business. So, the most important and difficult thing was understanding the cultural differences, getting the management team of South Africans and Nigerians to work together on the same goal, and we have been able to achieve that, looking at the successes of the company.

Can you elucidate on that?

We started as a small company with contracts with banks. At the moment, we have five contracts with 16 of the banks in Nigeria. We started with 14 vehicles and at the moment, we have in excess of 70-80 vehicles and by June, we would have an excess of 150 vehicles in our fleet. We were one of the only two companies registered to do cash-in-transit. Two more companies have been added but we are still one of the two companies registered to handle cash management. Our cash management licence is provisional and we believe that would be resolved before June.

So, we also have regular interactions with the Central Bank of Nigeria (CBN) and we have played quite a leadership role in Nigeria, in moving this industry forward.

Against your initial projection, how will you assess your operational profile now?

 

The company grew slower than we anticipated due to two things. First of all, the CBN brought out a policy that banks can’t do cash-in-transit services themselves, especially not with soft vehicles. The banks are not adhering to that and the CBN’s cash-lite policy is rolling out slower than we hoped for.

The third thing is that the IT footprint that everybody is working on is going to be 40,000 ATMs at the end of three years. That is also growing slowly than anticipated.

   In terms of the business environment and the expectations, we have certain limitations within that.

You mentioned the cash-lite policy. How has it impacted on your business?

The cash-lite policy is a policy we fully support because on the one side, we believe it will reduce the operational costs of banks. It also changed the profile of our business because we also have to do more work for retailers but we believe it will be a very nice springboard in taking our business forward because it would create a totally new system within the cash environment. It will add to the safety of people within the retail store and people transporting cash.

How do you mean, because we expected that the cash-lite policy will impact negatively on your business?

 

It doesn’t matter where you look through the world, cash grows on a year-to-year basis. What will happen with the cash-lite policy is that we will be able to manage cash more effectively so that it will have impact on the banks as well as the CBN. So in the long term, if it is managed properly, the CBN would have to print lesser notes, which will cost the taxpayer less.

The banks will have to keep lesser notes in the vaults because you now have cash centres where you circulate and distribute between the parties.

So, even if the numbers of notes go down, which we believe will go down, it will still have a positive impact on the growth of the business. Remember that, at the movement, the cash has only utilised about 20 to 30 per cent. we still have about 70 to 80 per cent scope of business as the banks come on board.

One would have rather expected that you would be strategising towards building hubs around Nigeria for logistics reasons and improved operational efficiency. How far have you gone in that direction?

There are two models you can implement in Nigeria. The first model is where you build big cash centre that is very expensive that will not necessarily provide the banks with cost benefits they can give the end user, the man on the street.

The routes that we are following, which is the trend developing in the world and we are actually in Nigeria, a little ahead of South Africa because we are starting to implement this and that is, moving to the use of smaller cash centres with existing infrastructure.

The implication of that is that you can move much faster and it would cost you less to move cash. With the interests off, it would cost you less to offer services to the banks.

We have already identified six areas where we believe we can move and we grow the business with the banks, we believe we can have between six to 10 cash centres.

Which are these six areas?

We would start off in Lagos, then move to Abuja, Port-Harcourt, Kano, Onitsha and some states in the West and East.

Can you relay some of incidents that have happened, because we believe you would be coping with some security challenges in moving cash around? What has been your experience so far?

What I experienced in Nigeria was quite positive. The risk issue in Nigeria, specifically, from the cash-in-transit view is lower than in South Africa. So, it means there’s less attack on cash-in-transit in Nigeria than in South Africa or England.

From a strategic point, the vehicles must be protected from firearms smugglers with AK-47. All our vehicles are protected against the minimum of AK-47, and maximum against 556.

The experience has been positive. There are some areas where it is more dangerous than others.
For instance, in Port Harcourt, harbour road is a very dangerous area but we have liaised with the army and they have supported us to improve our services.

So, it is about identifying the specific areas, the strategic points and working with the police and army to improve the services we need to provide.

How have you been able to indemnify your business against such risk? Like the employees and the resources you put into it?

In the almost four or five years that we have had this business, we never for once suffered the casualty effect.

   We believe it is due to the following reasons: the quality of the vehicles, the quality of the people, they go through a very strict recruitment process and that includes our corporate governance procedure, we have also used voice-tracing analysis technology.

In all, the time that we have been here, we have lost cash only once because money was transferred from one vehicle to the bank and was lost. That was all and it was a very small amount.

It is all about your people. We take their welfare seriously in terms of their salary, specific insurance and even insurance for the police.

In Nigeria, we still believe that the potential in cash management has not been fully tapped?

 

I think that is absolutely an understatement. We have not started tapping into it. If I can use the South African situation, the South African cash business is worth about N120 billion. In Nigeria, the cash in circulation is thrice that of South Africa. So, if you do a quick calculation, the potential in Nigeria is about N400 billion. If you look at the CBN, the apex bank alone spent N192 billion in the past year on cash operations that excludes any cost from the bank. So, N400 billion, we believe is a conservative figure compared to the potential in the market.

At the moment, you have signed 16 banks and we have over 20 banks. Do you have the prospect of including other banks?

Yes, three more banks were registered, Savannah Bank, Heritage Bank and FSDH Bank. We are already in discussion with two of them to work with them. At the end of the day, it might be two or three banks that will fall outside our scope. Two of those banks have exclusive contracts with one service provider.

Looking at the nature of your business, one would think the bank should automatically key into it without prompting?

 

What we need to keep in mind is that cash is an essential product of the bank. For me to outsource one of my key products to a company is very difficult. We believe we have done a lot of groundwork with the banks.

We actually now have five banks that say if we go ahead with our cash-in-transit, they are going to outsource it to us and we believe that through that, we can show to the banks, the cost benefit and we believe the market would be follow.

Apart from the areas you have listed as your strength, what are the unique selling propositions that could give you leveraging?

One of the important things is that our shareholders in South Africa see our cash-in-transit business as one of the best in managing risks in the world and that is reflected in the fact that we never had any loss due to the attack on the vehicles.

Secondly, we have an IT system that we are now bringing into the country that would offer an IT solution from the bank’s vault up down to settlement between the different banks and that would link into operations so that we can provide industry solutions.

The third thing is that except for the fact that….is good at risk, they also no cash centre and that expertise, they can bring into the development of our cash centre. We are able to ensure that our cash centres are up and running in three months compared to the two years in the industry. So, we can move fast based on our Nigeria context and knowledge as well as expertise and software that we are bringing into the business.

Cash generation is a result of activities within the economy, especially in production areas. You have been in the country for a while. How do you see the economic activities against the policy regime?

I am not an economist but in discussions with the Vice-chairman and just looking around, Nigeria has got the potential within a few years to be bigger than the economy in South Africa and if they do everything the right way, the Nigerian economy would grow tremendously.

That should also be tied to the number of notes in circulation if that happens, more notes would be circulated and I also believe that more people would be financially included, thus having a positive effect on our specific business.

How would you assess the financial inclusion programme of the CBN?
The most important thing is the rollout of 40,000 ATMs. To me, the implication of this is that people would have increased access to cash but this can only be done when you have a bank account and I believe that it is the most important thing as immediately creates 40,000 additional service opportunities that would grow the business environment that we are in.

What is your impression about the Nigerian economy?

I believe the Nigerian economy has a lot of potential, if it is well managed correctly. We know the role politicians play in this economy. However if the young people get the economy running, I believe the potential would be relieved.

How long have you been in Nigeria?

 

I came here the first time in 2005. I have lived here for more than five years.

Now that you are leaving, what structure would you put in place to attract Foreign Direct Investment (FDI) into the country?

If you look at what is happening in our company at this moment through our Vice-Chairman, additional investments are coming in. Secondly, we have investment companies outside that indicated interests in these things but we are taking our time. So, there are two opportunities, one is already given while the other is waiting.

Looking at some of the policies of the CBN, which has impacted negatively on cash at the disposal of banks. Has that in any way affected your business?

 

As I said earlier, we support the CBN’s drive towards cutting operational costs. One of the ways to do that is for the banks to manage cash as well as cash-in-transit. Everything that the CBN is doing would be in the long term to our benefit. What we do hope is that the CBN would move forward on some of the policies they have already proposed, as that would promote the industry much faster.

Over the years, to which extent have you been able enhance the capacity of workers whether through training or other reasons?

We need to look at two things here. The first is the welfare of our people and the other one is capacity. From the welfare perspective, we took out additional insurances from staff and the police that work for our vehicles.

For the senior staff, we have sent them to South Africa for training with the SPV services.

They will be trained and we make sure they situate such trainings within the local context of Nigerian environment.

For our low level staff, we have training plans for them and they all go through training of at least a minimum of once a year.

Going forward, we have approved our training plan for this year and their trainings are not just job related but intelligence training on how to protect themselves and our cash better and to give us an advantage when it comes to risk management.

What would you say is your contribution to Nigeria’s economy in terms of cash management? Would you advocate a common platform for banks in line with the shared services of the CBN, because there is unity in strength?

 

In the long term, I believe the CBN cash strategy will very much be in line with what you mentioned. We would have a common platform, a shared service providers working under a common platform in providing services to the banks.

From a cash perspective as well as cash-in-transit perspective, that will drive down cost. Our calculation is that we can save the banks up to 45 per cent of their operational costs if we get to work together or shared services.

The impact now is not what it can be but that it would reduce operational costs and have impact on the ordinary man on the street.

Source: ThisDayLive