Kola Karim: Bullet-proofing your business

As the CEO of Shoreline Energy, Kola Karim is at the coalface of Nigeria’s private sector, especially as he is involved in the country’s most important economic field – oil. We met him in London after he had just signed an MOU with Portuguese construction giant Mota-Engil. Here are some of his observations about his own industry and Nigeria today.

Our commitment is to Africa. The continent represents an amazing opportunity compared to anywhere else. We are invested in real estate in Europe and there are some niche businesses that we’re looking at getting involved with, but until then, Africa is where the focus is because the returns are here.

In Nigeria, Shoreline, as an oil producer, like many others in the sector, suffered from the fall in the price of oil. But the real blow came when the militants in the Delta region blew up the Escravos pipeline, crippling on-shore producers, which is where many of the indigenous oil and gas companies operate.

Our saving grace was that during the boom years, between 2011 and 2015, we paid down a lot of debt, leaving us much less exposed than our competitors, who in any case had paid more for their assets than we had.

When the international oil companies [IOCs] started to divest their on-shore assets, we were one of the early buyers, at a time when oil was $35 a barrel.

Following the sabotage of the pipeline, we had to halt production for 15 months, until April 2017, but today we are back to producing 60,000 barrels a day, making us the third-biggest indigenous company in the country [after Aiteo and Seplat].

The situation is much calmer in the region now and there are no issues with the militants. Over those 15 months however, everyone suffered and everyone realised it was much better to sit down and talk through issues.

At the end of last year, we signed a $300m JV with Shell to supply gas around Lagos Island, an area of the commercial capital – that’s a market of 8m customers. This project, which involves building a 110km network of gas pipelines, will be complete by the end of 2020.

Imagine, when we’re done with that, how that will change the face of Nigeria. If you can turn on cooking gas at home, access gas from the grid, the potential for industrial growth and job creation  is immense.

Views on politics

All a businessman or investor seeks is stable and predictable policies. The government’s new gas masterplan made it easier for a company like mine to undertake this investment. But there should be a much closer dialogue between public and private sectors.

The current dialogue through the National Economic Council is not inclusive as it could be; not all views of the private sector are represented.

My suggestion is that any company with revenues in excess of $100m should be sitting at the table, as well as the unions and other stakeholder representatives.

In 2002, 2003, there was a quarterly meeting between the President and the heads of the major businesses in Nigeria. We need to have a proactive approach to delivering value because at the end of the day, after government, these sectors are the value-drivers of the economy.

People talk about tensions because of rising ethnic polarisation but I categorically disagree with that. People are aggrieved because they struggle to make ends meet – divisions along ethnic or religious lines are not as bad as people make out. 

Looking at the Nigerian economy, it’s in a reasonable state, helped by the price of oil and a stability in production. It is still inextricably linked to the oil and gas sector. However, security, especially in the North, is still an issue. The government has come a long way but there is still a long road ahead. And having suffered from the unrest in the Delta, this is the number one priority government should focus on.

A necessary wake-up call

In many ways, the crisis Nigeria went through and survived was a necessary wake-up call. There has been a greater emphasis on economic diversification since and there have been success stories – such as in rice.

There are also many ongoing transformative projects, such as Dangote’s oil refinery, all of which will make the country even more resilient to future shocks.

I am a pan-Africanist at heart so I am not too worried at the fuss being made by Nigerian manufacturers about the Continental Free Trade Agreement [CFTA]. The focus is wrong though. We shouldn’t worry about dumping [the idea that signing up to the CFTA would cause Nigeria to become a dumping ground for finished goods from elsewhere]; we should worry about our competitiveness internally and that can only make us better. 

I don’t buy the idea of dumping because we are bigger than most African countries. So, which manufacturer in Ghana would build his skill set to be as efficient and as price sensitive as a manufacturer in Nigeria? By sheer volume, we’ve got size. Potential dumping from others outside Africa, such as from China? I believe that in general across the continent we have negotiated terms that are too favourable towards China. The relationship is very one-sided, but I don’t think it is one-sided because the Chinese wanted it that way. I think it’s one-sided because the people negotiating on the African side have no experience.

All we see is free money and at the end of it, infrastructure. No one is checking to see if that infrastructure represents buying at a good price or whether we are being ripped off.

Why are Chinese infrastructure projects not popular in South Africa? Because they’ve got a more robust, sophisticated society, with quality benchmarking in place.

Accessing capital

The MOU signed with the Portuguese construction giant Mota-Engil will enable us to take advantage of the massive construction and large infrastructure works the country will be embarking on over the next decades.

With an established European partner with a track record in terms of quality and delivery, we will have a strong chance to win tenders, as well as access international and EU funding.

There are many opportunities but one has to be cautious about investments, as many companies got burnt in the boom years by over-extending themselves in dollar-denominated loans, such as in the power sector.

We were shielded from the fall in the value of the naira because the majority of our earnings are in dollars. One thing I’ve realised about the continent is that to be a global player, you have to operate with an export-dollar-earning type business. So, that way, you bullet-proof your business against the parts of the economy that you can’t control.

Access to international capital has been more difficult, largely because of Basel 3 and also because international banks have tightened up on who they lend to. But local banks have much stronger balance sheets and have been adept at raising capital through the markets, although their rates are higher.

We have been tapping into non-traditional financial services companies and going to hedge funds in the US, for example. They are sitting on large pools of capital, and to lend $100m from a $20bn to $30bn fund at 7 or 8% presents them with a good return with minimal exposure. We have made two such transactions and will probably use this channel again. In the future, we would also look at issuing a bond to finance more acquisitions. NA