LBS Executive Breakfast Final

Global trends and their impact on Nigeria's outlook
Dr. Udo Brskamp, Partner, Global Head of Financial Services Christian H W Ch i ti H. Wessels, P t l Partner, H d of S b S h Head f Sub-Saharan Af i Fi Africa Financiall Services i S i
Lagos, September 1, 2010
20100827_LBS_Executive_Breakfast_final.pptx
Contents C t t
A Short introduction of Roland Berger Strategy Consultants
Page P
3 6 8 14 18 22 28
B Interdependence of three global trends and Nigeria's p p p g g perspectives > Next level of globalization and trade > Technology revolution > Emerging consumers > Nigeria's opportunities and role of the financial sector C Roland Berger's references
This document was created for our client. The client is entitled to use it for its own internal purposes. It must not be passed on to third parties except with the explicit prior consent of Roland Berger Strategy Consultants. This document is not complete unless supported by the underlying detailed analyses and oral presentation.
2010 Roland Berger Strategy Consultants
Roland Berger St t R l dB Strategy Consultants is a globall strategy consulting C lt t i l b t t lti firm We provide strategic advice to the world's top companies
Our profile
Founded in 1967 in Germany by Roland Berger
180 RB Partners currently serving approximately p y International specialists across 14 industry center 30% of global top 1,000 companies, 75% repeat clients 36 offices in 25 countries, with 2,100 employees USD 920 m revenues in 2008
Amsterdam I Bahrain I Barcelona I Beijing I Berlin I Brussles I Bucharest I Budapest I Casablanca I Chicago I Detroit I Dsseldorf I Frankfurt I Hamburg I Hong Kong I Istanbul I Kyiv I Lisbon I London I Madrid I Milan I Moscow I Munich I New York I Paris I Prague I Riga I Rome I So Paulo I Shanghai I Stuttgart I Tokyo I Vienna I Warsaw I Zagreb I Zurich
Source: Roland Berger 20100827_LBS_Executive_Breakfast_final.pptx 3
Founded Germany, we now h F d d iin G have successfull operations iin all f ti ll major international markets
Our offices
Chicago OFFICES Hong TODAY1) Kong K BudaZagreb 2007 Berlin pest Warsaw 2003 HamZrich 2000 burg 2008 Moscow 1997 Lisbon C s Casablanca 2006 London Bucharest 1994 2002 Bahrain Istanbul 1998 Paris 1992 AmsterDetroit dam 1990 1995 Beijing Shang1993 Stuttgart hai Brussels New Dsseldorf D ld f 1987 1991 York Munich Rome 1982 Tokyo Kyiv 1970 Prague 1989 1967 Riga Frankfurt 1986 1976 Barcelona Vienna 1969 So Madrid Milan Paulo
36
1) 2009 Mumbai in partnership with TATA Strategic Management Group

Source: Roland Berger 20100827_LBS_Executive_Breakfast_final.pptx 4
Roland Berger Fi R l dB Financiall S i i Services team for Emerging Markets t f E i M k t

Financial services expert team for Nigeria/Western-Africa
Global Head of Financial Services
Dr. Udo Brskamp (Partner)
Objectives
> Building lasting relationships with multinational & local institutions
Duce Gotora (Senior Consultant)
Sub-Saharan Africa f Financial Services

Christian H H. Wessels (Partner)
Team
Luisa Mller (Project Manager)
Oyin Solebo (Consultant)
> Establishing a permanent presence in Lagos/Nigeria > Further expanding the team with Nigerian and international hires
>C Competences iinclude strategy, t l d t t transformation of businesses, postBenedikt Wahler Ochuwa Akhigbe Daniel Jung merger integration, sales and (Project Manager) (Consultant) (Senior Consultant) operations programs
Source: Roland Berger
Roland Berger iis widely seen as th t management consultancy R l dB id l the top t lt with the strongest skills in strategy implementation and transformation
Perceived competence in relevant management topics1)
STRATEGY IMPLEMENTATION Rating 1 2 3 4 5 ROLAND BERGER 394 Management Engineers 374 Droege & Company 361 A.T. A T Kearney 334 Bain & Company 328 TRANSFORMATION 1 2 3 4 5 ORGANIZATION, LEADERSHIP Rating 1 2 3 4 5 McKinsey & Company ROLAND BERGER The Boston Consulting Group Booz & Company Bain & Company Rating 405 396 344 341 329 409 397 380 376 359
ROLAND BERGER McKinsey & Company The Boston Consulting Group Droege & Company Management Engineers
Strategy Implementation & Transformation are key strength of Roland Berger
1) Survey from Germany, 2009. 100 = very low competence, 500 = very high competence
Source: DGMF; Prof. Dr. Dietmar Fink, 2009 20100827_LBS_Executive_Breakfast_final.pptx 6
B Interdependence of three global trends and Nigeria's perspectives
Three l b t d determine Af i ' Th globall trends d t i Africa's and Ni i ' f t and d Nigeria's future d make a well-functioning financial sector urgently necessary
Global Trends
IV
GLOBALIZATION AND TRADE TECHNOLOGY REVOLUTION EMERGING CO S G G CONSUMERS S
II
III
FUNCTIONING FINANCIAL SECTOR NECESSARY TO SEIZE NIGERIA'S OPPORTUNITY
B.I Next level of globalization and trade
B.I
The Th world's most important emerging markets have improved th i ld' ti t t i k t h i d their growth fundamentals over the past decade...
Growth Environment Score in BRIC and the Next 11 economies
BRIC
7.4
Next 11: 11 most promising non-BRIC economies

1997-2009 Change 1997 2009 Ch 1997
5.3
5.2
5.1 4.0
5.2
5.0
5.0
2009 Average of all developing economies 1997 Average of all developing economies
4.9 4.4 4.3 43 4.3 43 3.8 3.7 3.3
Brazil
China
Russia
India
Korea
Mexico Turkey Vietnam
Iran
Egypt Indonesia Philip Bangla Nigeria Pakistan Philip- Banglapines desh
Notes: Scale is from 1 (lowest) to 10 (highest). The Growth Environment Score assesses Rule of Law, Corruption, Political Stability, Life expectancy, Inflation, External Debt, Government Debt Foreign Exchange Reserves, Schooling, Openness, Reach of Computers, Mobiles, and. Internet
Source: GoldmanSachs, Roland Berger 20100827_LBS_Executive_Breakfast_final.pptx 10
B.I
leading t an unprecedented iincrease iin iinternationall iinvestment l di to d t d t ti t t and integration of value chains across the globe
Globalization of capital as a megatrend [In billion USD]
11,770
... with particular momentum in Africa since 2000

80 70 60 50 40 FDI Sub-Saharan Africa (excl.SA) (lhs) FDI North Africa (lhs) FDI Africa (excl. South Africa) (rhs) 60 50 70
CAGR +33%
40 30 20 10 0
1,397 455 1990

Global FDI volume
1,689
30 20
2000
Global M&A volume
2008
10 0 1990 1994 1998 2002 2006
Economic power shifts towards emerging markets

Source: UNCTAD, IMF, Roland Berger analysis 20100827_LBS_Executive_Breakfast_final.pptx 11
B.I
With growing investment, Africa's trade links to the world have i i t t Af i ' t d li k t th ld h expanded strongly, tying the continent into the global economy
Commercial links between Africa and the world [USD mn]
2000 2009, Europe's trade with SSA grew by 2.3x in imports from and 2.4x in exports to Africa Imports 74,265mn Exports 74,744mn East Asia Developed Asia Imports: 9 607mn 9,607mn Exports 9,397mn
Europe North America 2000 2009 2009, North American trade with SAA grew by 2.7x in imports from and 2.6x in exports to Africa North Africa Imports 16,576mn Exports 61,028mn to SSA: 2,501mn to NA: 1,518mn Latin America Imports 5,970mn Exports 8,146mn Trade flows from and to Sub-Saharan Africa
Source: UN Comtrade May 2010, Roland Berger analysis
South Asia Imports 44,929mn Exports Imports: 50,379mn 15,076mn 15 076mn Exports 12,163mn 2000 2009, Within SSA: East Asia's trade with SAA 42,097mn grew by 5.8x in imports from and 1.5x in exports to Africa 2000 2009, Africa's exports multiplied by 2.9x from SSA
20100827_LBS_Executive_Breakfast_final.pptx 12
B.I
Strong growth iin emerging markets will continue t shift economic St th i k t ill ti to hift i influence towards the new players
Ratio of global GDP until 2030
[in %]
Economic Expansion 2000-2030:
New global players take on incumbents
38
42
43
45
50
55
CN 8.1 x IND 7.2 x

60
NIG 6 0 x 6.0
62
58
57
55
50 0
45
40
USA 2.0 x D 1.4 x
1970 1980 1990 2000 2010 2020 2030

Emerging markets Developed countries1) 1) USA, Canada, Japan, Western Europe, New Zealand, Australia
Source: UNESCO, EIU 20100827_LBS_Executive_Breakfast_final.pptx 13
B.I
as th move downstream along the value chain, capturing larger they d t l th l h i t i l shares of net margin in global division of labour
Example Oil value chain: opportunities for Nigeria
Steps in value cha ain Petrochemicals
Exploration
Production
Transportation
Refining
Distribution
Marketing
% of net margi o in
UPSTREAM 36 % 41 % 95%
Now Tomorrow
MIDSTREAM 5% 13%
DOWNSTREAM 4% 1%
Source: Petrostrategies, Roland Berger analysis.
14
B.II Technology revolution
15
B.II
Mobile h M bil phones and iinternet: leapfrogging to state of the art d t t l f i t t t f th t technology enables new business models in Africa
Increasing availability of modern communication Mobile phone users in Africa [in mn]
600 400 200 0 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 Users U 200,000 5,000,000 5 000 000 23,982,200 Population P l ti 142,895,600 149,229,090 149 229 090 149,229,090 % of f Penetration 0.10% 3.35% 3 35% 16.07%
facilitates new value-added business
+174%
Call center g offshoring
Internet usage in Nigeria 2000-2009

Year Y 2000 2006 2009
E-Commerce (e.g. for export & tourism) Agent-based banking
67,800 broadband internet subscribers as of Dec 09

Source: International Telecommunication Union, Blantyre, GSMA, Roland Berger
B.II
Alternative energy generation li it d Alt ti ti limits dependency on f il f l and d fossil fuels d offers small to large-scale solutions for African energy needs
Green Energy for Africa
Solar > Huge potential in Africa based on its solar intensity and amount of unused land > Wide range of uses including off-grid & low-tech solutions like hot water Biomass > Historically high usage of biomass in Africa to meet off-grid heating and cooking needs small scale > Simple, small-scale solution plus medium-scale plants feasible Wind > Very significant potential y g p along Africa's coasts and in highlands > Smaller wind turbines as y g community-based off-grid solutions feasible Hydro > By far the cheapest energy source but large start-up investment needed > Many African waterways with untapped potential small hydro-power even feasible for off-grid RB Sector Outlook: Green Tech > Roland Berger sees green technology as 21st century's lead industry > 2020 revenues of EUR 3,100 billion > Africa should target this strong growth industry Market example Germany [Sales EUR bn]
+567% Automotive Green Tech
570 280 150
1,000
2005
Source: IEA WEO 2009 , BMU Zukunftsinstitut, Roland Berger Strategy Consultants
2030
17
B.II
with strong growth iimplications: +9% GDP b iincreasing ith t th li ti by i availability of electricity by one hour in Nigeria
GDP 2010 (in bn USD) GDP per area (in bn USD) GDP after increasing electricity supply by one hour (in bn USD) GDP increase (in bn USD) GDP increase per capita
Rural1): 144.799 39% 366.728 61% Urban U b 2): 221.929
Rural3): 153.834 397.956 Urban: Ub 244.122 31.228 197 USD
GDP growth could be tremendous by making energy available to the approximately 81 million Nigerians who do not have any access to electricity
1) No electricity available 2) Electricity supply between 8 a.m. and 6 p.m. 3) Increased GDP through higher demand in e.g. electronic equipment or based on TV advertisements
Source: Roland Berger analysis 20100827_LBS_Executive_Breakfast_final.pptx 18
B.III B III Emerging consumers E i
19
B.III
The d Th dynamic growth of consumers in emerging markets stabilized i th f i i k t t bili d demand for Africa's goods and...
Retail Sales USA vs. BRIC states [% yoy]
36 30 24 18 12 6 0 -6 -12
Retail Sales USA vs. China [USD bn]

Change in Real Retail Sales Since Jan 2007
80 60 40 20 0 -20
%yoy
USD Billion Jan 2007
USA Russia
04 05
Brazil China
06
BRICs India1))
07 08 09
-40 -60 Jan-07
USA China
Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Consumer demand in BRIC states remained positive throughout the crisis

Notes: 1) Private final consumption data for India
Source: Goldman Sachs
Growth in Chinese retail sales more than compensated for lost US consumption
B.III
...and is already t d responsible f th majority of additionall d i l d today ibl for the j it f dditi demand in global consumption
Real contributions to world consumption growth
2.0 1.5 1.0 0.5 0.0 -0.5
~75% of consumption growth from emerging markets consumers
2004
2005
2006
BRICs
2007
Euroland
2008
USA
2009
2010
2011
Emerging Markets ex BRICs
Notes: 1) Calculated from consumer expenditure for India, US, Japan, Euroland, and other Emerging Markets. Brazil and Russia use private consumption and China uses household consumption. Annual averages 2004-2008, GoldmanSachs forecasts 2009-2010.
Source: IMF, Goldman Sachs, Roland Berger 20100827_LBS_Executive_Breakfast_final.pptx 21
B.III
Emerging consumers in Africa could play a major role iin th E i i Af i ld l j l the continent's future
Rising disposable income Growing GDP
5
> Personal disposable income is to increase from USD 411 to 498 until 2014. Increased value awareness and changing consumer behaviour open new business opportunities Changing consumer behavior / increasing value i i l 2 awareness > Consumer goods multinationals turn to "bottom of the pyramid" and mass consumers in emerging markets like African countries for growth. > Thanks to emerging consumers Africa is expected to be the fastest growing market in the world with highest investment returns over the next 20 years > Emergence of wider consumer base in Africa drives diversification in manufacturing and services
New product development / meeting local 4 preferences f
Emergence of new consumer needs
Source: EIU calculation, Financial Times
22
B.IV Nigeria's opportunities and role of the financial sector
23
B.IV
These three globall trends present Africa and Nigeria with an Th th l b t d t Af i d Ni i ith unprecedented opportunity for enhancing the lives of its people
Global Trends I Globalization & Trade Enhanced situation for African consumers & producers
More bargaining power for African suppliers & governments Increasing foreign direct investment Lower market entry barriers and new business models More product choice and lower costs for consumers Structural demand growth for commodities: rising prices IV
Historic development opportunity
II
Technology revolution
Lasting, ecologically sustainable as well as socially and sectorally diversified growth
III
Emerging Consumers
Increased earnings for rural population, agriculture

B.IV
As A a result the near term growth outlook for many countries in lt th t th tl k f ti i Africa, and Nigeria in particular, is very positive
Average annual real GDP growth 2007-2015 Nigerian GDP (PPP) groth [NGN bn]
GDP per Capita [NGN]
2000: 39,657
2009: 66,589
2015e: 83,110
6.5% p.a.
15,000
above 7% p.a. 5% to 7% p.a. p 4% - 5% p.a. 3% - 4% below 3% below 0% no data
10,000
8.8% p.a.
5,000
2000 2002 2004 2006 2008 2010 2012 2014

Source: World Bank, Roland Berger
B.IV
...but to lift the potentiall of th th globall t d f ll f Af i and b tt th t ti f the three l b trends fully for Africa d Nigeria, four hurdles need to be cleared
Major factors for Nigerian growth perspectives
Business Friendliness, Rule of Law & Domestic Peace Macroeconomic Stability Education Effective Financial Sector
Three Global Trends

African nations are still some of the most challenging places for doing business; Nigeria ranks 125th for Ease of Doing Business. Investors worry about political violence and corruption. Macroeconomic policies improved significantly with reforms, market liberalization and inflation heading towards single-digits. Nigeria s Nigeria's central bank policies maintained stability throughout crisis. Recruiting talent is still a major hurdle for growth in many industries Vocational training and postsecondary education are key for building a diversified economy.
Sustained & Diversified Growth
27
B.IV
Nigeria's fi Ni i ' financiall sector holds t growth potentiall with financiall i t h ld to th t ti ith fi i inclusion, agricultural finance and a focused SME offer as focus
Three major challenges for Nigeria's financial sector
1
Increasing financial inclusion
Expanding agricultural finance
> Some 74% of Nigerian population are unbanked g > Access to financial services is key for economic growth: > Build asset base and increase purchasing power > Mitigate impact from life-cycle risks > Enormous potential: USD 46.7bn annual low-cost funding for Nigeria's financiall sector* t b mobilized f di f Ni i ' fi i t * to be bili d
67 47
> Nigeria's most important sector ( g (40% of GDP): potential ) stronger growth impact than any other sector > Underserved with less than 5% of loan books > Agricultural finance allows enhanced fertilization and utilization of machinery to increase yields by >100%
40 30 20 10
Improvement of cereal yields [in dt/ha]

1980 1990 2000 2007
Potential +70%
Total Assets Nigerian Banks 2009
Unbanked Mobilization Potential
0
South America Africa
Focus on Small & Medium Enterprises

> Sector out of preference of many Nigerian banks, no specialized offer of credit and advisory services
> For diversified economy, broad base of dynamic entrepreneur-led companies is important
Source: K+S AG, Finscope/EFInA, Roland Berger
B.IV
Nigerian b k h Ni i banks have th potentiall to reap significant efficiency gains the t ti t i ifi t ffi i i from international best practices
Cost income ratio vs. revenues on assets [in %]
1 Refocus branch activities into operational improvements to deliver on value propositions to sales Realistic
40
Revenue drivers
target area
2 Differentiation sales and services 3 Pay for performance 4 Address all segments
50
Execution excellence (Cost- 60 IncomeRatio in %)

80
Cost drivers
1 Consolidate for economies of scale
Centralize ti d 2 C t li operation and
introduce leaner/faster processes 3 Change branch formats

100 7 8 9 10 11 12 13
4 Adjust employees/salary mix j p y y 5 Improve energy efficiency
Performance excellence (Revenues on assets in %)

Big banks Contenders Big failed banks Small failed banks
Source: Bankscope; Cowry Asset Management; Homepages; Roland Berger Research
29
Thank you!
30
C Roland Berger's references
31

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Global trends and their impact on Nigeria's outlook

2010 Roland Berger Strategy Consultants

Founded in 1967 in Germany by Roland Berger

1) 2009 Mumbai in partnership with TATA Strategic Management Group

Roland Berger Fi R l dB Financiall S i i Services team for Emerging Markets t f E i M k t

Sub-Saharan Africa f Financial Services

Luisa Mller (Project Manager)

Oyin Solebo (Consultant)

Source: Roland Berger

Strategy Implementation & Transformation are key strength of Roland Berger

B Interdependence of three global trends and Nigeria's perspectives

GLOBALIZATION AND TRADE TECHNOLOGY REVOLUTION EMERGING CO S G G CONSUMERS S

FUNCTIONING FINANCIAL SECTOR NECESSARY TO SEIZE NIGERIA'S OPPORTUNITY

B.I Next level of globalization and trade

Next 11: 11 most promising non-BRIC economies

4.9 4.4 4.3 43 4.3 43 3.8 3.7 3.3

Mexico Turkey Vietnam

Egypt Indonesia Philip Bangla Nigeria Pakistan Philip- Banglapines desh

... with particular momentum in Africa since 2000

1,397 455 1990

10 0 1990 1994 1998 2002 2006

Economic power shifts towards emerging markets

New global players take on incumbents

CN 8.1 x IND 7.2 x

USA 2.0 x D 1.4 x

1970 1980 1990 2000 2010 2020 2030

Source: Petrostrategies, Roland Berger analysis.

B.II Technology revolution

facilitates new value-added business

Call center g offshoring

Internet usage in Nigeria 2000-2009

E-Commerce (e.g. for export & tourism) Agent-based banking

67,800 broadband internet subscribers as of Dec 09

Rural1): 144.799 39% 366.728 61% Urban U b 2): 221.929

Rural3): 153.834 397.956 Urban: Ub 244.122 31.228 197 USD

B.III B III Emerging consumers E i

Retail Sales USA vs. China [USD bn]

USD Billion Jan 2007

-40 -60 Jan-07

Consumer demand in BRIC states remained positive throughout the crisis

~75% of consumption growth from emerging markets consumers

Emerging Markets ex BRICs

New product development / meeting local 4 preferences f

Emergence of new consumer needs

Source: EIU calculation, Financial Times

B.IV Nigeria's opportunities and role of the financial sector

Historic development opportunity

Lasting, ecologically sustainable as well as socially and sectorally diversified growth

Increased earnings for rural population, agriculture

Source: Roland Berger

above 7% p.a. 5% to 7% p.a. p 4% - 5% p.a. 3% - 4% below 3% below 0% no data

2000 2002 2004 2006 2008 2010 2012 2014

Source: World Bank, Roland Berger

Three Global Trends

Sustained & Diversified Growth

Source: Roland Berger

Increasing financial inclusion

Expanding agricultural finance

Improvement of cereal yields [in dt/ha]

Total Assets Nigerian Banks 2009

Unbanked Mobilization Potential

Focus on Small & Medium Enterprises

Execution excellence (Cost- 60 IncomeRatio in %)