His name may not particularly ring a bell to many Nigerians. Billionaire ArifMasoodNaqvi, is a big believer in Nigeriaâ€™s potential to be great. According to him, the big three themes – urbanisation, increasing middle class and a young population – all of those factors fit Nigeria.â€™â€™ Naqvi is the founder and Group Chief Executive of The Abraaj Group which he established in 2002. Under his leadership, Abraaj Group has emerged as a leading investor in growth markets with US$ 8 billion in assets under management and returning. US$ 4 billion to investors.
With over 25 years experience of investing in public and private companies, Naqvi has led the Groupâ€™s involvement in some of the most notable private equity transactions in growth markets over the last decade. Naqvi who is making his first visit to Nigeria since his company debuted in the country about ten years held talks with the Minister of Trade and Investment DrOlusegunAganga. His Abraaj Group has considerable stake in Computer Warehouse Plc, Custodian and Allied Insurance Plc amongst others. In this interview with ShakaMomodu, he talks about the opportunities here, and stated that Nigeria is clearly on the move. Excerptsâ€¦â€¦â€¦.
What is the first thing you have learnt since arriving in Nigeria?
The first thing I have learnt is that this is one of the most exciting investment destinations in the world. I have had the privilege of investing across the world in close to 50 countries and we have operations in over 30 countries. So if you look at the landscape, the opportunities that are available in Nigeria today, in my opinion, are probably greater than available almost anywhere in the world.
So what brings you to nigeria?
What brought me here is the fact that we have a lot of friends in Nigeria. We have a long history of being in Nigeria. My colleague here Ravi Sharma has been running our business for close to 10 years. Weâ€™ve made 12 investments in our existing funds and weâ€™ve exited three of them fully and extremely profitably because we are in the private equity industry. We buy companies to sell them eventually after we have enhanced their value and ultimately, made them better, stronger businesses. We still have five very strong investments within the country and we are very keen and focused on doing much more. In our opinion, Nigeria is a very high capacity investment destination given the stage of development that itâ€™s in, and we think that the opportunities span across a wide range of sectors.
To explain what I mean let me take you back a step. Why does Abraaj invest in certain sectors and not in others? Itâ€™s because we follow a very macro strategy where we think through why we should be investing into a market or geography. Once weâ€™ve understood the macro theme of why we should invest in a market, then we go into the micro fundamentals, and we drill down and find the investments and companies that fit our criteria. On a macro level, one of the most interesting and exciting things about the world today is that it is becoming exceedingly urbanized.
More and more people are living in cities than has ever been in the history of mankind. More than 50% of people live in cities today. Youâ€™d be surprised to know that that number is increasing by a million people every week. Thatâ€™s the equivalent of 8 New York cities in a year. So thatâ€™s the scale of urbanization growth and with that, comes the middle class. There is a rising middle class in these markets, in what we call â€˜global growth marketsâ€™ and the rest of the world by mistake I believe still calls â€˜emerging marketsâ€™.
I think emerging markets is a patronizing term. I think the real term is growth markets because this is where the worldâ€™s growth will come from. Two thirds of the worldâ€™s growth will come from these markets in terms of GDP. As a result of urbanization, you have an increasing middle class of about 1.4 billion people across the world. Then there is the youthful nature of the population. In Nigeria you are actually blessed because the average age is about 19 years old and if you look at the average age across our other growth markets, itâ€™s actually 26. So when we apply these big three themes of urbanization, increasing middle class and a young population, all of those factors fit Nigeria. Then within that we start drilling in Nigeria to find the opportunities. So because we believe in the growth of cities in the future, we believe that the opportunities are in Infrastructure, Real estate, Healthcare, Education, logistics, consumer products, financial services and so on. Even if I just look at 10 sectors that are our core sectors of growth, we think that there are billions of dollars to be deployed in Nigeria.
To be honest, I think people tend to take themselves too seriously. Life is actually very simple and if you look at things and break them down as a disaggregation of complex issues and then deal with them in a simple way that actually will help drive your investment philosophy.
Has this particular trip of yours got to do with fresh investment prospects?
This trip is a long overdue trip. Itâ€™s a long overdue trip because like I said we have so many friends in Nigeria and these are friendships that have developed over time. People that we got to know in other markets, people inside government, and people outside government, stakeholders, young people and companies that weâ€™ve already invested in. So it is long overdue and it is my misfortune that I wasnâ€™t here earlier.
Can you put a size to your investments so far in Nigeria
Over $600 million across West Africa with the vast majority in Nigeria. The last deal we did was Fan Milk, a large component of which is right here in Nigeria.
Why FAN milk?
Because of the reasons I mentioned earlier, if you go back to my hypothesis talking about urbanisation, middle class and a young population. Fan Milk has 31,000 points of distribution across West Africa. We are talking about a better known consumer brand than Coca Cola in its local market. This is a Nigerian home grown business. It fits all the criteria we are looking for and it is a fabulous company to invest in.
Does the same approach apply to your other investments in insurance and information technology?
I think again it is the strength of the sectors. So if you think about the number of Nigerians that need insurance products and donâ€™t have them, you are looking at 98% of the population, with only 2% having some form of insurance in a population of 170 million people. It means that the insurance industry has a got an upward trajectory. So thatâ€™s why we find this sector a compelling one to invest in.
Are you not afraid that Nigerians are just not inclined towards insurance as in other countries?
Every society goes through evolution. 30 years ago most Nigerians didnâ€™t drive cars. I think as development happens and as education enters the workforce and more people think of planning for their future, this becomes inevitable. The reality is that insurance is a business that provides a roof over your head. Insurance gives you the same safety as the house that you are living in. It gives you the ability to plan for the future without the fear that tomorrow a big expense will come up relating to your health or anything like that you didnâ€™t plan for and God forbid it hits you all of a sudden. I think as the market gets educated, you will find as health becomes more of an issue and as more and more hospitals come on stream, more businesses are going to start insuring their people in order to give them a better standard of living. So I assure you that insurance will come to Nigeria.
It looks like you have a more a long term investment approach on this particular one?
We always think Long term. We donâ€™t believe in headline hysteria. Our views are always 8 to 10 years.
So why donâ€™t you ever keep the businesses you invest in instead of always exiting at some point?
Because, it is our business model. The private equity industry globally was built around a group of investors that donâ€™t have access to opportunity giving money to a group of people that do have access to opportunity. They make returns and then they exit those companies in order to give the capital back to investors. Our job is actually quite developmental. We take a company from one stage of development to another stage of development. We take a company from being very well known in one city to being well known across the country. Then we take it to becoming a regional business. So we take each company to scale and then we can let someone else take it forward.
So what sort of transformation do you really bring to these businesses?
So our business model is all around growth. We like to buy companies that have very clear criteria when we look at them. Do they have a management team that is willing to adopt world class policies? Do they have a management team that is willing to transparently show their results and is governed by a set of criteria that is world class in nature? So if the answer is yes, then that is the first step. Second, do they have a product that is capable of market domination? We then evaluate the opportunity within the company. Is this a sector that has not yet been exploited?
Insurance was a classic example. Once we get into a company we also define its growth trajectory. We ask ourselves what we need to do in terms capital and management team increase to take that business from being a good business to becoming a great business. We havenâ€™t just done this once or twice, we have done this 200 times around the world. We manage close to $8 billion. That makes us the largest private equity firm in the world that operates in the southern hemisphere. Having done this for over 20 years, we can confidently say that we know exactly what works, and what doesnâ€™t work in these markets.
Another core area of transformation that we bring to these businesses is the fundamental inclusion of environmental, social and governance practices (ESG). Our ESG practices are inextricably linked with our investment decisions and we believe this is value add that only enhances the effectiveness, and ultimately profitability, of the business. So for example, we created the Abraaj Sustainability Index, which is a proprietary tool that tracks and measures the impact of our partner companies across more than 70 indicators. This has enabled us to measure impact in our partner companies, and secondly, helped us rank partner companies in relation to their peers and transfer knowledge and best practice across our constellation of companies. The ASI, in my view, is transformative in our industry and we intend to share this tool more widely going forward.
Do you have any regrets in making all these investments?
You always learn when you make a mistake. The one very good thing in the Abraaj story that I am very proud of is that our total loss across board in 200 companies and with $8 billion in assets has been less than 2%. So that tells you that we are very focused on making sure that we donâ€™t make mistakes but 2% of $8 billion is still a lot of money, that is $150 million across four or five companies. So we have learnt from those mistakes and how not to do certain things. We are less focused on what we do well and much more focused when we make a mistake. The one thing I have tried to push into our corporate culture again and again into our 300 people around the world is that you cannot think you are smart but be humble and learn to work consistently along a certain path. Also donâ€™t focus on your successes but learn from your failures. Life is constantly about learning and innovation. I think the more my colleagues are beginning to embrace that and adopt that the better we have done globally in our investment strategy.
Tell us how difficult it has been to manage all the different cultures and risks across all 200 companies around the world
Well, I am a very young man and I used to have black hair (laughs). Of course it is difficult but the important thing is to use technology, peopleâ€™s willingness to talk to each other, and to have a common platform. All our people around the world are connected to each other on the same platform of knowledge. So tomorrow, say Ravi (Sharma) wants to invest in cement. We have invested in cement in other countries. So there are other people that have learnt from those experiences â€“ and as a Group, we share those experiences and knowledge actively to keep growing. We use technology to accomplish this. We have a technical tool called OPERA that ensures that Ravi cannot proceed with an investment in cement without consulting with his colleagues across the globe who have experience with cement investments.
As a person how do you cope managing such responsibility as $8 billion of investors money?
I believe in the most fundamental principle which is to forget whether you are smart or not, you have to work hard. Everybody has to work hard and not take themselves too seriously. So I work hard. So when I work hard, all my colleagues also work hard and we have a culture that is known to be very focused on delivering value for our shareholders. I manage also by surrounding myself with very good people. Our team in Nigeria for example is in our opinion the best team in this country for private equity. Itâ€™s a proven team that has a very strong track record that is as good as any other team globally. So when I have colleagues like that it makes my job much easier.
How did your meeting with the minister of trade go?
It was very interesting and I found it exciting. I find that he is quite a young person and full of energy. He is driven in terms of doing the right thing and I believe there are many other people like him that really want to put Nigeria on the map and move forward. I have to tell you something that you folks might not have seen in Nigeria. When I was at the World Economic Forum in Davos earlier this year. Iâ€™ve been going every year for the last 14 years.
The reception that Nigeria hosted to showcase itself and to tell the world about how staggeringly good the opportunities are in Nigeria was the best reception I have ever been to at the World Economic Forum. What that means is Nigeria has now learned to stand on its feet and tell the world how good the opportunities are around here. I think it is only a matter of time before more people follow us. The other good thing about us is that behind us are 400 of the most important investors in the world. So when they see us doing this they themselves want to come here as well. So apart from being investors we are also a catalyst for further investment.
What have you learnt so far from your visit to nigeria and how has it changed or re-inforced your perceptions?
That is a difficult question to answer because I am a student not a teacher. I learn more than I try to teach and I am still learning about the marketplace. The one thing that is very clear to me is that more and more Nigerians need to believe in Nigeria. I think you should have a national campaign that goes down the lines of â€˜I am proud to be Nigerianâ€™. I think the government and private sector should all jump in and really awaken this population to the opportunities in this country, the capabilities of this great country with the desire to work together and make this a great place.
What businesses have you tried and failed at?
We have lost money on 5 different occasions out of 200 companies. We lost money either because we forgot our basic principles or we took risks that were outsized to the level of investment. What weâ€™ve learnt is how not to do that again. We have learnt that the only way to make investments is in a very disciplined and consistent manner, focusing on both the risk and the opportunity. If you focus on only the opportunity then youâ€™ll end up losing money.
What in particular drives or motivates your business decisions?
It is exactly what I was saying earlier. The businesses that we buy have got to have a strong growth trajectory ahead of them; they have to have a uniformly strong management capability to drive that company forward; they have to aspire for market leadership. Once those criteria have been fulfilled we look at the integrity of the management and our alignment with management. We look at their willingness to embrace world class governance structures. If all of that is satisfied then we look at the quality of the asset, the market need, the returns, the opportunity and how we can add value.
Very often if we find that itâ€™s a great business but we canâ€™t add value, we donâ€™t invest. It has to be driven by what we can do for that business. We absolutely insist on the right to drive the growth agenda of each of our businesses. Once all those criteria have been met then we look at the risk that is prevalent behind that opportunity and we ask ourselves if we are willing to take that risk in order to make that opportunity. That has delivered a world class investment return which over billions of dollars has resulted in us returning double the capital that was invested with us. I canâ€™t give you statistics from investment performance because Iâ€™ll get into trouble (laughs).
Is there anything you regret in life personally?
Life is an ongoing journey and I think you would have worked out by now that I donâ€™t take myself too seriously. So when you ask me these questions, I am humbled by that and I am privileged that you are asking me these questions. An important element to consider is that I need you, the Nigerian marketplace, my colleagues and the stakeholders we work with to realize and understand that going forward, the opportunities tomorrow, are so much greater than they are today. What really drives us is just the sheer passion behind what we do. We are a group of people that love what we do and are excited by it. So space and time for regret doesnâ€™t really exist. Because if you learn from what you have made as a mistake and you go forward realizing that every day is a learning experience, you will always be much richer as a result.
How do you balance running your business ventures and your family expectations?
What balance? There is no balance (laughs). Look my kids are all grown up. Theyâ€™re both out of university, living in different places around the world working hard as well and have the same ethos, thinking and culture that I have inculcated in them. So I am very comfortable today that my business takes my priority and my time. Simply because I am so excited by what I am doing and enjoy what I do. For me relaxation is also inside that business. One very important factor is that my colleagues are my family too. I believe that we are one big group of people that have to look after each other, understand each other, and we tend to focus on the entire group as one big family. I think it is also a big source of our success.
If you were to change anything in your life what would that be?
I know it sounds a little bit blasÃ© but you canâ€™t run before you learn how to walk and we have spent the last few years learning how to walk properly and we have built our business building block by building block. Weâ€™ve not being in any hurry. Weâ€™ve not gone out and taken short cuts and because of that our platform of investments today is so strong and so robust that we feel very comfortable and confident that going forward weâ€™ll be able to continue to add value.
So if I could go back and change something, I really wouldnâ€™t know what that is because we have just done this in a very deliberate and sensible manner. Over the years what we have earned is the right to say what works and what doesnâ€™t work. So we are very confident about our investment strategy, our investment philosophy and our approach. The one thing I havenâ€™t talked to you about is the very stakeholder way in which we focus on our business. We are not just about making investment returns. We are entirely focused on growing the communities in which we live and operate as well. We have a program which we call ASSET ( Abraaj Strategic Stakeholder Engagement Track) because it is our asset, among the other initiatives we focus on in that program, is a firm wide program called 5 + 5 + 5. Five percent of our top line revenue (what a manufacturing company would consider sales -not even profit – so thatâ€™s a lot of money), goes into sustainable stakeholder engagement causes in the regions in which we operate. So we are very focused in entrepreneurship, education and health.
These areas are where we put out our community service. All our people have to spend 5 days of their time every single year working in the communities in which they operate helping people achieve scale. It could be helping a young entrepreneur and mentoring him. It could be working on a charity that is focused in providing healthcare. It could be going inside a school and teaching and I think all this is a large cause of our success. Finally, we encourage our employees to donate 5% of their bonus to our community programs and as a result of the generosity and empathy of our employees, we have been able to put capital to work in some of the most underprivileged parts of the world and helping people achieve a better life, be that in education, healthcare or community development. The bonus donation is an optional program which almost all of us have adopted on an anonymous basis.
What is the size of your workforce you mentioned about 300 earlier?
We have about 300, 000 people in our partner companies but the holding company, our global team, is a total of 300 employees.
Compare the opportunities here and in other African countries you have invested ?
Iâ€™m in Nigeria not by accident. I am in Nigeria because I believe that going forward in the future even though Africa is a big continent, it is not a monolith. People should realize that its geography can encapsulate half the world put together. Itâ€™s a population that is growing, whose middle classes are also growing but everybody looks around Africa and looks at it as a story around resources.
I look at Africa and see it as a story of people and consumers. Thatâ€™s how we invest. Inside that we look at four very distinct hubs. We look at Nigeria as a hub to grow our business in West Africa. We look at Southern Africa and obviously South Africa as a hub to grow there. We look at Kenya and Ethiopia in the east and in the north we look at Egypt and Morocco as being hubs, so every one of them has their strengths, capabilities and capacity. Every one of them has different features driving them. So to understand Africa you have to disaggregate Africa.
Then when you try and re-aggregate Africa, you realize that the opportunities are now bigger than you can imagine right now. You still canâ€™t travel freely and easily from one country to the other. Imagine the growth in trade when you can do that. Imagine what tomorrowâ€™s trade in Africa would be like and you can work out for yourself that once governments are aligned, people will always trade with each other and the opportunities will keep increasing.
I believe I have learnt something about my initial hypothesis that my friend Ravi has been telling me about for the last year, which is that todayâ€™s Nigeria is very, very different from yesterdayâ€™s Nigeria, and tomorrowâ€™s Nigeria is going to grow even faster than predicted in the marketplace.
So, I can see very clearly that Nigeria is a country on the move and must avoid the pitfalls and mistakes made by other countries. Nigeria should be careful about protecting its currency value. Nigeria should be focused on driving governance and transparency systems. If it does that, and also focuses on education, healthcare and infrastructure and uses the enormous wealth of human and natural resources that it has, then the country is in for an absolutely fantastic ride.