Nigeria’s insurance industry is a “screaming opportunity” while demand for good quality schools far exceeds supply. So says Danladi Verheijen, managing partner and co-founder of Verod Capital Management, a Lagos-based private equity fund manager which invests across multiple sectors in Nigeria and Ghana. In the second of our two-part interview with Verheijen, he discusses opportunities in the insurance and education sectors, and reveals the greatest risk facing Nigeria’s economy. Read part one of the interview: From fish to pharmaceuticals, investor bullish about import substitution in Nigeria.
Why are you bullish about Nigeria’s insurance industry?
The current size of the insurance industry in Nigeria is a screaming opportunity. To give you a sense of what I mean, Nigeria’s insurance density (gross premium per capita) is about $6.20. Morocco is about 16 times larger and South Africa is 123 times larger. So we are literally at the starting point.
We see a few factors driving demand for insurance in Nigeria. The first is regulation, where proof of insurance is now required for more things, e.g. accessing bank loans, pension accounts, etc. These new regulations are really pushing people – especially corporates – to insure more. Nigeria’s demographics are the second factor we see contributing to growth in this sector. Our current population of 200 million people, growing at 3.2% per annum, is expected to double by 2050 (which is not that far away). Nigeria’s average median age is 18 years old, and this young, growing, and dynamic population is great for the insurance industry. The third driver is new insurance products that meet the needs of the population, and the fourth is building significant awareness for these products.
Thus far, we have invested in life and general insurance companies and we are looking at also investing in health insurance firms. We’ve learnt you need to create insurance products that are simple to understand and easy to buy. We’re also exploring ways to let people move from paying annually for insurance, to making quarterly or perhaps even monthly payments. There is a lot of room for innovation in this sector.
Verod also has several education investments. What opportunities do you see in this sector?
We think the education space is extremely interesting. Families prioritise educating their kids to the best extent possible and will send their children to as good a school as they can afford. Historically, the best schools were government-run, but over the years, the quality of public-sector education has declined. There have always been private schools in Nigeria, but most were linked to religious institutions; now there’s a growing number of for-profit schools. Nonetheless, there is still a deficit of quality educational facilities in Nigeria and Ghana, with demand for good schools far exceeding supply.
We started by investing in K-12 private schools in Nigeria. We’ve now invested in two schools that collectively have eight campuses and close to 4,000 students. We’d like to increase these numbers significantly. We are keen to invest in more schools that have great academic programmes and administrators, and where we can provide capital to help them grow. We also consider how we can create more value for our existing schools: i.e., can we offer after-school programmes or summer programmes? Or can we cut costs by consolidating purchasing supplies and services across our schools? We also think about how and where we can expand – for example, one of our schools opened the first standalone special needs school in Nigeria, for which there is massive demand.
In addition to the K-12 space, we have also invested in a university in Ghana, which operates a branch campus of Lancaster University UK. Students can therefore attend Lancaster University Ghana and receive an education with the same materials being used at Lancaster University UK and professors who teach by video conference or fly to Ghana to teach in person for a while, all at a fraction of the cost of going to the UK. This creates an incredible opportunity for students to receive a high-quality education in West Africa, and we hope to invest in more educational institutions like this.
We’re also interested in investing in vocational training schools, but have not yet found any investible players operating in this space in Nigeria or Ghana.
Are there any sectors in Nigeria in which you’d be hesitant to invest?
Yes, we don’t invest in oil and gas companies. There are a lot of opportunities in this sector, especially in Nigeria, being one of the world’s largest producers of oil, but we don’t invest in it because we simply don’t have the expertise. We know many people have successfully invested in the oil and gas sector, but we just don’t really know this sector and the volatility of commodity prices are a deterrent. After all, if the brilliant folks at leading investment banks around the world can’t predict the price of oil in a year or two years from now, then how can we? The same goes for mining or commodity-based sectors in general.
The other area where we don’t invest is large infrastructure projects. Nigeria has a massive need for these infrastructure projects – we need more roads, bridges, ports, railway networks, etc. – but these are not well-suited for standard private equity investors like us. We also don’t have much experience in this sector, and have instead chosen to focus on our core areas of expertise.
What do you see as some of the greatest risks in Nigeria’s economy today? What keeps you up at night?
One of the greatest risks is not having enough jobs to meet the needs of our growing population. I think about this a lot. Our population boom could be a blessing – it means a huge source of potential workers, if there are the industries to hire them, and a massive consumer base to sell into, if they can earn decent wages. But if we don’t create those jobs, then there’ll likely be unrest in the future.
Also, this situation is not just a problem for Nigeria (or Africa), but for the world as a whole. If some countries have concerns about immigration from Africa today, what happens when the African population doubles in 30 years or triples thereafter? Creating jobs for this growing population is a global issue. That is my biggest concern.