By Farai Gundan, Forbes
Nigeria’s Wale Tinubu is on a quest to build Africa’s largest energy company
It has been more than two years since Wale Tinubu, Group Chief Executive Officer of Oando PLC, a sub Saharan African indigenous integrated energy group, described as the “plucky young eaglet,” covered Forbes Africa magazine. Back in November 2011, Tinubu ended his first interview with the magazine, saying “Africa is a challenging continent; you fight for water, you fight for food, you fight for shelter. We compete by nature, so it’s always difficult but we don’t always know it is difficult because we have a spirit of survival. Here at Oando, we deliver on the tough things.”
Fast forward to earlier this year, in April, I caught up with the consummate hard-working CEO at Columbia University, where he headlined the annual African Economic Forum as keynote speaker alongside Raila Odinga, renowned politician and the immediate former Prime Minister of the Republic of Kenya. Tinubu talked with me about his latest acquisition, building a billion-dollar company in Africa, diversifying his company Oando PLC and delivering on the tough things.
Standing in the lofty hallways of the Columbia University in New York City, dressed in denim jeans, crisp white shirt, dark-colored suede blazer and his signature horn-rimmed glasses, one could have easily mistaken Nigerian oil tycoon, Tinubu for an ivy league law or business professor; fashionably modern but unassuming even though he sits at the helm of a $1.7-billion energy conglomerate.
During the Columbia University African Economic Forum, he announced that in 2013-14, his company had acquired the Nigerian upstream oil and gas business of ConocoPhillips (NYSE: COP), an American multinational energy corporation in a USD $1.7 billion transaction (USD $1.5 billion after adjustments).
This exclusive interview appears as the feature story in the July 2014 issue of Forbes Africa magazine as “The Nigerian Oil Baron Buying Up America”.
Farai Gundan: It’s been almost three years since your interview with Forbes Africa. How is the situation now in Africa, from a business perspective?
Wale Tinubu: The business environment in Africa is changing rapidly due to the continent’s transformation. For example, if you look at the politics of the continent, more and more African nations are becoming democratic. There are now very few “life-time” Presidents on the continent. Most African democracies start off shaky – people’s expectations for a better life increase, their aspirations become louder and incessant – then you get a responsive government. On the economic side, one of the primary ways to drive the continent’s economy is using its oil sector. There is a substantial amount of economic growth in Africa being created by indigenous entrepreneurs. The biggest and most exciting aspect for me is the rise of the indigenous entrepreneur who enable capital to flow into the continent and effectively bridge the economic gap by pulling in global sources, technology, knowledge.
Gundan: Regarding political governance, Nigeria in particular and Africa in general, do you think that we are better off now or are we worse off, given some of the current dynamics?
Tinubu: Political governance in Africa is by far, much better than it has been previously. The continent has amazing leaders. Twenty years ago, about eighty to ninety percent of the continent was under military dictatorship. Today, there are only about three or four countries in Africa that do not run under a democracy. The Nigerian government has been quite good, when you consider the strides we have made; the government has definitely tried to create a better environment for the country and for doing business.
Gundan: What is you advice to investors, entrepreneurs, executives and those pursuing their education in the diaspora regarding coming back to Africa and navigating around a lot of the challenges on the ground.
Tinubu: I cannot see you doing twenty percent better in the United States than when you are back in Africa. I say this becausefor example, here in the U.S. you are one more competent executive amongst millions. In Africa, coming from America, you would be something special because you would have first-class education, you would have more corporate exposure and experiences, and you would have lived a first world life. For instance, at Oando, we look for people who are not only intellectually superior but people who have a curiosity and aspiration to understand how things are doing in other markets. In particular, having a “first world” mentality helps in the process of implementing and executing on things and in a manner that you can extract a valuable return.
Gundan: What are some of the core competencies you look for in your top level management and how are you continuously enabling them to adapt to change since Africa can be a very challenging continent to do business in.
Tinubu: First of all, to be in our organization you have to be super smart. I find that people with a certain intellectual capacity are able to deal with problems and challenges that we face. However, just because you are super smart does not mean you will make a smart executive. I also look for people with a “willing” attitude. It may be something as basic as confidence because to be able to deal with the kind of challenges that we encounter, you need confident people. I like people who have a sense of purpose, people who are willing to stand for what is right or wrong. In my experience, I found that the only way you are going to get someone to lead is if they are very knowledgeable in their area of expertise, they are confident and they have a sense of right and wrong.
Often times at the crossroad, the easy decision tends to be the wrong decision. So I look for people who are able to make tough decisions and are able to stick to their decisions. You need to have people who are tenacious, who persevere and not give up. Granted, these are a lot of qualities to have in one person, however in reality those are the qualities that we have required for our people to nurture and grow from level to level. We started 20 years ago with no money and today we are probably an enterprise of USD $3.5 to 4 billion. By the time we complete our latest acquisition, we will have a valuation of USD $6 billion with zero equity; it’s all minds and intellectual prowess of our people. That’s why our company has focused on minds.
Gundan: Let’s talk about your company, Oando PLC. You have been very bullish in diversifying your company’s operations, establishing a footprint along the value chain. How do you prioritize investment opportunities?
Tinubu: Investment opportunities return and certainly return on capital are a priority. I think what you find in Africa however, is that return cannot be your only priority because you don’t necessarily have the opportunity. It’s one thing to have an idea, or a team that can execute and it’s another thing to raise the capital for it. Most of the time, the capital is unconventional. My first loan was at 10% per month in interest and I paid back 120% a year.
Where we started from, the first opportunity we had was delivering fuel to companies who were going offshore to drill (offshore drilling had just started in Nigeria). The only asset we had was an old 1945 World War II tanker–The Carolina which was really slow, doing 5 miles and if the tide was against it, it would go backwards. But we got things delivered on time in an environment where things were always late (drills are late, buses are late). Being able to display first-world perspectives on certain delivery techniques got us a lot of clients. We took risks along the value chain and in most instances had to build the infrastructure, be it pipelines. Additionally we also had to create a regulatory framework which did not previously exist. For example, in Lagos, we built 130 kilometers of pipelines however the existing documentation with the regulator only accounted for 30 or 40 kilometers. We could not let that stop us from continuing to build because if we did not build, demand would be unmet. We decided that we could not allow the lack of a regulatory infrastructure hinder our ability to build further. I learnt that, regulations, particularly in our region, catch up with you as you go along. Most times you have to create an environment by developing the regulatory framework that you are judged by and often times it is an ever-evolving framework.
Farai Gundan: In 2014, what are some of the challenges that someone in your position faces?
Wale Tinubu: 2014 was an interesting year for us; we acquired American multinational energy company, ConocoPhillips’ Nigerian operations in a USD $1.7 billion transaction. We were looking to acquire a company that was three times our size. We had to do several rounds of fundraising, which we successfully did. We did a “rights of issue” first, then a private placement, and then we organized a corporate facility. We had about 5 to 6 work series running simultaneously in an environment where we were deemed not to be able to do the transaction because it was unheard of anybody in Nigeria wanting to do a USD $1.5 billion or $1.7 billion transaction in such a short space of time. Finance is still a challenge and has always been a challenge in Africa.
Our ultimate goal was to diversify our business to the upstream side, where there’s a substantial amount of profitability. So, we moved right across the value chain, not necessarily deciding where we would invest based on return but also based on what opportunities existed for us. We also looked at how our long-term strategies clear when we start to implement or execute within our local environment. I learnt something the hard way; never confuse a clear line or sight with a straight line of execution. In Africa, you will face all sorts of challenges in the process of getting to your goal, but you’ve got to deliver at the end of the day.
Gundan: Could you give us a flavor of how you view the bankers that you see; local, international, across Africa and which you found most approachable in helping you achieve your growth?
Tinubu: We have had to extract financing from different parts of the world and from different classes of institutions and put them together to satisfy the project that we do.
You’ve got your conventional method; for example, Africa has a lot of short term funding and very little long term funding. So you will end up having to build a four year project using bank over drafts which means that they have a right to call-in those overdrafts during the time you are building out the assets. So as we grew larger we found that we could take the short term funding that was available, raise equity; part of why we listed was to attract a different poll of investors but even then there’s a limit to the investors that would come into the Nigerian Stock Exchange (NSE). So we did theJohannesburg Stock Exchange (JSE) listing. There’s still a limited number of those that would come in via the JSE because the JSE is also a limited exchange though not as limited as the NSE. We ended up listing our E & P (exploration and prodution) company on the Toronto Stock Exchange (TSX). So bringing equity has also enabled us to access different kinds of financing because then you can go to the global debt providers and say you are a listed company and you’ve got ‘x’ amount of equity and you require ‘x’ amount of debt. You get rated for example and then you demand longer term funding which is invariably cheaper.
Gundan: Where does Oando stand in Corporate Social Responsibility (CSR ) and doing community outreach, especially in the Niger Delta area where a majority of your business is based? Additionally, during the Niger Delta militant crisis how were you able to manage your oil business and remain profitable, if at all?
Tinubu: CSR for us at Oando is primary education. We have about 86 primary schools, where we have expanded the schools and provide all the amenities. The next phase is teacher-training where we grant scholarships to our graduates for secondary and eventually, university education. We have a foundation where we contribute a percentage of our profit after tax. Through the foundation we build schools in every community that we work in. We focus on education because I think that giving people primary education is the first step in giving them the capacity to make choices. You get people out of poverty by simply giving them knowledge. In my opinion, the most important level of knowledge in Africa is primary education.
In terms of the Niger-Delta crisis, first of all there was a political element regarding the revenue derivation in Nigeria that has been fixed- 13% of all oil produced goes to the oil producing state. Then there was the criminal element which people attacked pipelines and siphoned crude oil in the middle of the night, put the crude oil in barrels and shipped them out. At Oando, we started improving our security; I think indigenous participation is critical to our security because once the community is involved in the production of certain assets they feel responsible for those assets. We have done a great job at encouraging and ensuring that we work hand in hand with the communities which we have our operations in. And that really helps us ensure we have relatively few disruptions and few incidents that we can’t resolve.
Gundan: What is your perspective on inter-country relations & commerce on the continent? Do you have commercial or business presence in other African countries? How can your business model be translated to a pan-African level?
Tinubu: It’s a big problem in my continent. I think the percentage of intra-country trade within Africa is 3% or less. A bulk of the trade is outside of Africa. It started from the colonial days where Africa’s natural resources from agriculture to minerals were transported from the mines or plantations to the coastal ports and ultimately to the colonial powers. The railway systems didn’t link the continent but instead went from the mine or plantation to the port for export. Therefore we could only look to our colonial partners to do business because that is what our infrastructure dictated.
I could remember in the early years when we first started trading oil, to sell a cargo to Cote ‘d’ Ivoire / Ivory Coast which is one and half hour flying, we would first sell the cargo to a French oil company who in turn would sell it to Ivory Coast.
We do need to increase the roads and rail networks between and withing the African markets to create a free common market. We’ve done it with the Economic Community of Western African States(ECOWAS) – if you get a green passport there’s freedom of entry, that’s step one. Step two is to now ensure the borders are free and people can move goods and services because often time it’s a lot easier to have goods shipped into Africa through Europe than to take a container across an African border. For example I need visas for most African countries and they give me a single entry visa however when I go the U.S.A I get a two-year multiple entry visa.
Then we have the hard work which we need to do; opening of our sea-ports, opening of our railways and roads to ensure that we can trade within ourselves and stop the leakage which we suffer as a continent because we have to continually rely on other parts of the world to provide us goods & services. Lastly people – it is rare finding someone from South-Africa working in Nigeria and vice versa but those barriers are breaking down.
Download the Forbes Africa magazine July issue for the full story on Wale Tinubu.