Rand Merchant Bank Nigeria Limited has urged businesses to adopt strategies that would enable them to manage risks in a VUCA environment.
“We believe Nigerian businesses can become resilient and sustainable by adopting strategies to adapt to and manage risk,” said Michael Larbie, CEO and managing director, RMB Nigeria, and West Africa in his introduction to the third session of the RMBN Economic and Business Conference.
The session focused on how Nigerian businesses can respond, proactively prepare for and thrive in a VUCA environment.
A VUCA market is one that is characterized by volatility, uncertainty, complexity, and ambiguity.
Neville Mandimika, global markets research analyst, RMBN, contextualized the West African market within this framework against a matrix of growth, fiscal strength, and monetary room. He noted that Nigeria’s current growth is currently averaging at 2.2 percent, which is lower than previous annual cycles. Locally, concerns remain around fiscal strength and monetary room.
While there are legitimate reservations about the price of oil rebounding to pre-COVID 19 levels, it does seem to be trending upwards. However, the future comes with several risks to contend with, including the impact of US elections, a possible second wave of infections, the US’s relationship with China, as well as the Ghana and Ivory Coast Elections.
The session was moderated by the Founder of Graeme Blaque Advisory, Zeal Akaraiwe who highlighted the steps investors can take to mitigate a VUCA environment. He emphasized that systemic risk though unavoidable can be managed through measurement and mitigation. Banks can manage the risk posed to their assets by a focus on asset quality and portfolio monitoring.
Bola “Koko” Onadele, CEO, FMDQ Group emphasized the need for the adoption of technology via the adoption of digital tools to measure and monitor risk, complemented by competent risk management teams tasked with managing and reporting the risks. He advised that Corporates and Institutions putting together a risk strategy should always start at a macro level and then drill downwards using the investor’s philosophy, corporate architecture, leadership framework and business strategy as the guiding principles.
Toyin Sanni, CEO, Emerging Africa Capital Group noted the current risks of playing in the open market operation (OMO) market and listed some attractive alternative investments such as commercial and corporate bonds by investment-grade issuers, as well as sub-national bonds. She mentioned that medium to long-term solutions is needed, which include reducing the dependence on foreign products and the dependence on oil. The markets are vulnerable to volatility in the oil prices because of their dependency on the proceeds of crude sales, which has reinforced the need to strengthen alternative sectors such as agriculture, solid minerals, and value-added exports. Nigerian also needs to engage with the diaspora, encouraging and supporting diaspora flow.
David Alao, CEO, Leadway, Asset Management noted that institutional clients are asking for more collateral or guarantee-linked investments, or investments structured as repos or reverse repos. He emphasized that the market is trending towards more structured type instruments and said that while institutional investors don’t have control over external risks, they do have control over their portfolio. They can act prudently and hedge Naira exposure, creating a diversified portfolio of investments.
The moderator, Zeal Akaraiwe summarized the session by stating that Risk Mitigation in a VUCA environment is indeed possible. Investors need to proactively identify risks, employ competent risk managers, and monitor risks with the right tools. Even in times like this, there are still sectors that do well and Investors, therefore, need to diversify the nature of the instruments in their portfolio, as well as the sectors they invest in.
The RMBN webinar series concludes on July 9, 2020, with the Investment Landscape: Opportunities for Private Capital webinar. The registration details are available on their website www.rmb.com.ng and you can email firstname.lastname@example.org for more details. RMB Nigeria is a subsidiary of FirstRand, one of the largest financial services groups in Africa