Excellent, wide-ranging conversation with Nigerian entrepreneur and investor Hakeem Belo-Osagie on Stanford’s Grit and Growth podcast. He shares his views on Nigeria’s development, his story of turning around UBA, the role of regulation in the future of fintech and what it takes to be an effective leader. Some brief notes included below (please note these are for my personal reference only – some parts are paraphrased and any mistakes in transcription are my own).
Macro outlook:
Cautiously optimistic about the long-term growth prospects for Nigeria. The fundamentals are that you have a large population, which has historically been very entrepreneurial, has a sense of initiative and does not feel dependent on government. That set of human resources is a huge advantage for any country as it intends to develop. Nigeria also has an oil base that, even during a time of energy transition, is important if properly used, because it gives you the capacity to build and fund an infrastructure that is important for the growth of any country or economy.
Having said that, he thinks that the initial movement away from oil will be recessionary for Nigeria. The country has gotten very used to the sense that there is a floor that a certain level of oil earnings gives an economy and it will struggle to adapt to that. But as that situation persists, a certain determination and resolution will have to kick in as they have their backs against the wall and know they have got to intensify efforts to develop the economy.
On the demographics – this can be an asset or a liability. On the one hand, a large market can simply be a ~100m people who have very little income and spending power, it can mean you have a problem of overpopulation, you can’t educate all the people concerned etc. On the other hand, it can also mean that you have a wonderful market within which to test products, perfect the products and then form the basis for going into exports.
What he thinks will determine which way Nigeria goes is the quality of leadership, not only at the business level, but more importantly at the political level. Leadership at the political level determines the framework which either allows business leadership to excel or constrains it. Cites the example of UAE and Libya in the 1960s. Both had a 1-1.5m bpd of oil, populations that were not largely educated. In many respects, Libya was ahead because it was in the Mediterranean and you’d have thought the proximity to Europe would have assisted it greatly. But if you look 50 years later, why have Abu Dhabi and Dubai taken off from desert towns to where they are now? And look at where Libya is now. That really came down to the quality of leadership.
Where does the impetus for good governance come from? 2 ways. First, the crises or difficulties that countries endure can trigger a certain introspection. Think Europe, Japan post-WWII, ushered in years of enormous growth in the 1950s and 1960s. Crisis forces nations to think again and rethink their model. Similarly, the energy transition, Covid-19 etc. will lead to a certain amount of rethinking. Second, he thinks there will always be vested interests and powerful groups who take care of themselves. But the crucial question is what is their long term vision for themselves and their countries? Is there a long-term vision where they still want to be on top but they have the sense that they have got to do enough for the base of the population to remain there? Do they have a picture of themselves as being the leaders of great countries? Can characterize several countries that are very much like that. Or is their vision very extractive, such that they don’t really care what happens to everybody else and they don’t really have a sense of patriotism.
Turning around UBA:
His first entrepreneurial venture in finance was a complete failure, the bulk of which was entirely his own fault. But it was a wonderful lesson and he was able to pick himself up and the second venture of his was a securities trading company went very well. Subsequent to that, he staged the takeover of a large government owned bank, which he only realized was effectively bankrupt after buying it.
What business did a guy who had never run a bank have jumping into that? There is a Japanese saying that you have to jump through a window not knowing what’s outside. The knowledge of exactly what the problems are is itself a constraint. If he had known too much about banking, he may not have done it. He wasn’t a professional banker, just an MBA who had a certain overconfidence that any problem can be analyzed, assessed as a problem of management, a strategy can emanate from it and then you should be able to execute.
There were many specific problems to solve – shifting the customer base, improving upon existing procedures etc. But the bigger challenge was getting the bank’s leadership and staff adopt his cultural mindset of what he wanted the bank to be. They had been accustomed to people coming in to see them as the banker. Didn’t really see banking as a service industry, more about the prestige of having people come to you to borrow money.
He recalls once time when he laid out the financial situation and why they would have to do certain kinds of things. He did it on a Thursday or Friday and on Monday, some of the management and workers had taken over the head office building and locked them out. They knew changes were coming but could not accept it and genuinely thought he was talking nonsense. He had to go sit down and talk to a whole lot of staff in a very hostile environment. Explained the path we are taking is going to lead us to the complete collapse of the bank, but they said it was never going to happen. They did not understand where it was going to lead because previous to that a lot of the accounts had been falsified, so they were declaring profits but effectively eroding their capital. Many of them were not aware of it. Needed to help them understand it was a crisis. Committed to metrics along the way so people could see what was happening.
Another aspect was that he had to understand why they hated him. Had to think about how he was appearing to them. A lot of the people who came into change the bank were people like him, rather than like the people who were trying to change. It became a cultural conflict as well. He realized that he needed to start bringing on other kinds of people to work with him who were closer to the people they were trying to change, because they could better sell what they were trying to do.
Thoughts on fintech and Nigeria’s startup ecosystem:
There is perhaps a lot of frothy excitement, but nothing unusual about that. There was previously a lot of excitement about the banking, oil & gas sectors too. The good thing is that you have a lot of competition. In the early years, it appears everybody is doing well. But inevitably there will be a shakeout. What happens is that some companies can no longer to continue to lose the money they are losing, special breaks are no longer there and they will fall by the wayside. But some will survive and will go on to be strong, profitable companies. Saw it in the banking, oil & gas sectors – a few strong groups will emerge. They will have a combination of a good business model and an effective management team that can successfully scale and handle that transition. They also need to maintain a good relationship with and understanding of the national regulatory environment that forms the basis of competition.
He thinks fintech companies will go much further than people expect, but the only thing that will restrain them is regulation. This is a regulatory environment that sees banks and the protection of them as #1. But in Nigeria, the biggest issue people have about the big banks is they haven’t benefited the wider population in the way that telecoms, for example, has. Started off only the well to do had phones, but today the poor have phones and pricing has steadily dropped. We haven’t had that same inclusive aspect to banking.
A lot of young people have grown up in an environment in which government was a bad thing – the less the better. Have got to move away from thinking about the government as a hostile group, got to explain to them what you’re doing, they have to understand the technology and ecosystem. When they don’t understand it, their instinctive reaction is to say no.
On how regulators can stay current – when he first started a securities trading company, he had to spend a lot of time talking to regulators, encouraged them to visit other countries that were 5 years ahead of Nigeria to get a sense of what the future is like. Also talk to regulators in these countries who have experienced this and seen it’s not as frightening as you think it is. Got to let the regulators know that they need to understand the issues and also hire people who are younger than they are to help with that. But participants in the marketplace also have to share information. There is a set amount of self regulation that needs to take place, have to sometimes call yourself out because that can help to build trust with the regulator.
On making credit more accessible and affordable for SMEs – start with the question of why banks don’t want to go into that area. 1) there has got to be enough predictive data about who repays and who doesn’t 2) what is the technology to allow us to access these customers and utilize this predictive data in a manner that drops the cost of doing so? Ultimately, the cost of acquiring a customer, going through the transaction and making enough successful repayments has to be less than the revenue generated from giving the loan. Question of data, technology and how it is done. As you crack that problem, will make progress. But it can’t be done in the traditional manner we have sought to do it until now.
One risk he sees is this desire for founders to move very quickly (launch and grow) before you have the key issues figured out. Part of the pressure can come from the investors – seems to be this US imposed 3-5 year cycle in investments. In his own experience, 3-5 years was not enough, he found it was really years 6, 7, 8 where he found his stride and then you get the growth. Investors need a longer term horizon and founders need to acknowledge they have got to do very diligent work before they roll things out. Once you have a vision you need to reduce that to the series of steps to move from where you are to hopefully where you want to go to. His worry is that a lot of young folks have got that big picture but don’t like the boring bit of this step, followed by this step etc. which is often mundane and tiring, but crucial.
On leadership:
Courage is vital in whatever you are doing. You are leading people down a path in which you pretend you can see the end of the tunnel as a leader, but you can’t really (he calls it the fog of business). Great leaders have the ability to live with not knowing all the answers, but being able to carry people along and solve those issues as they arise. They need to have a sense of security of saying to themselves they don’t know everything but will solve it as it comes along.
A leader also has to have an appreciation of the complete array of talents he/she needs and then work on bringing them together. This also introduces and confronts this issue of trust. You have to work with people that you often don’t know in a society (Nigeria) which is not heavily structured, not as much rule of law. Therefore the need to work with people you trust becomes essential. Problem of the founder is they oftentimes have difficulty trusting other people because they have heard so many stories of how A trusted B and B took off with the company.
Thinks business leaders in Africa are perhaps overrated – ultimate objective is only the maximization of shareholder value. Still haven’t found how the private sector delivers low-cost medicine, education, infrastructure to the broader population. Have to measure success by what has happened to the base of the population. You have got to have a system that enables great companies, allows enterprising people to make good sums of money, but also a system that lifts out of poverty large parts of the population.