Fatogbe: Risk Management Can Become an Economic Development Enabler

 

The Chairman of Risk Management Association of Nigeria, Folakemi Fatogbe in this interview speaks on the necessities of embedding risk management practices in corporate and the government sphere citing it as essentially important to mitigating economic downturns and enabling economic development. Nume Ekeghe presents excepts:

Could you introduce yourself and speak to your career antecedents?

I am the Founder and Chief Executive Officer of The De-Risking Lab and the Chairman of the Board of Trustees of the Risk Management Association of Nigeria (RIMAN).

My career antecedents and professional experience span over thirty years in central, development and commercial banking, consulting, strategy implementation and entrepreneurship. I recently came to the end of my tenure as the pioneer director of risk management at the Central Bank of Nigeria (CBN) where I also served as a special adviser, banking reforms and risk management to the then CBN Governor, Governor Sanusi Lamido Sanusi, in the heat of the 2008/9 Global Financial Crisis.

Prior to joining the CBN, I worked extensively in the United Kingdom, in organizations such as: The Bank of England/ The FSA where I supervised euraope Middle East and Africa (EMEA) banks: The Natwest Group as a Corporate Banking Strategist; Lloyds TSB Financial Markets as a Basel II Risk Consultant, NCR Teradata as a Programme Director for Banking and, the Royal Bank of Scotland as a Risk Consultant. I also gleaned entrepreneurial experience from working in Property Development and Business Consulting.

In addition to RIMAN I also serve on a number not-for-profit boards as permitted by Public Service rules including, Fountain Holdings the investment arm of the Ekiti State Government, Hampton Preparatory School, Lagos and Ileri Foundation.

I hold an MBA in Finance & International Business from Cardiff Business School and a Bachelor of Arts degree in Communication Arts from the University of Ibadan.

Not many people, including economists, would typically associate economic development with Risk Management, you suggest that there is a linkage between the two; could you explain the nature of this linkage?

Having worked across continents in two different central banks, a number of commercial banks as well as an entrepreneur, I have come to appreciate the critical role that risk management can play in economic development.

Hence, I am a strong advocate of risk management for economic development. I therefore constantly seek ways to leverage my varied work experience beyond traditional risk management into risk and opportunity management as a means of achieving inclusive and sustainable economic growth. I see significant scope in using this uniquely progressive, albeit less well known, take on risk management to help attract capital to Nigeria and the rest of Africa thereby aiding job creation, poverty alleviation and economic development.

It is this link with opportunity management that serves as one of the primary means through which risk management can become an economic development enabler. They say nothing good comes easy, no gain without pain and therefore, no development without risk. Embedding efficient and responsible risk management practices enhances a country’s ability to withstand adverse events and better exploit economic opportunities. It is for this reason that in the aftermath of the devastation caused by the Covid-19 pandemic that the UK government is considering the recommendations of experts from the universities of Oxford and Cambridge contained in a report titled “Future Proof” regarding the appointment of a chief risk officer (CRO) and the adoption of a risk management “three lines of defence” model to improve the country’s co-ordination and management of extreme risks and resilience.

An organisation for Economic Co-operation and Development (OECD) study found that central governments in the six countries under study have each undertaken a more systematic approach to country risk management featuring concepts familiar to the private sector ‘s risk management culture.

Given the multitude of issues that Nigeria faces at the moment, including holding the unfortunate sobriquet of being “the poverty capital of the world”, it is clear to me that embedding risk management in the centre of government would complement the great risk management work already being done in the private sector and in some parts of the public sector. Ultimately this would be to the benefit of the already stretched public purse as well as the people.

Could you also tell us a bit about RIMAN including what it stands for and what it does?

RIMAN was founded on 29th March 2000 to promote best practices and advocacy in risk management in Nigeria. RIMAN is the foremost non-profit professional Association for risk management Practitioners in Nigeria. It was established by Nigerian banks as a means of addressing the risks inherent in the financial services industry.

RIMAN is the pioneer and largest risk management association in Nigeria. Since its inception RIMAN has remained at the forefront of risk management in Nigeria, assisting its members, operators and regulators in the financial and non-financial services sectors to develop critical risk management skills to build capacity and thereby strengthen resilience across the various sectors of the economy. RIMAN partners with all stakeholders, both within and outside the country. It has institutional, individual and student members.

In furtherance of its professionalisation of Risk Management in Nigeria objective, the Association runs a professional Risk Management certification examination for Risk Management professionals. RIMAN also partners with regulators to ensure smooth implementation of government policies to enhance effective management of first, the financial sector and now, other sectors of the economy, RIMAN currently

In advancing best practice risk management over the years RIMAN collaborated with the CBN to see to the establishment of Credit Bureau in Nigeria.

Currently membership of the Association has gone beyond deposit money banks as pioneers to other Non-Financial Institutions, regulatory bodies, manufacturing / Real sectors as well as public sector in appreciation of the existence of risk management in every facet of our business and personal activities. Undoubtedly, RIMAN has in over the last twenty years helped strengthen the financial institutions to avoid the avoidable collapse that happened before and after the banking sector consolidation.

Having been the pioneer Director of Risk Management at the Central Bank of Nigeria what guided your decision to join RIMAN and not any of the other Risk Management bodies/associations?

It really was a no-contest. I did some research both within and outside the risk community to ascertain which risk management association was not just the most prominent but more importantly which was the most professional in its service to its members and the wider financial services community. RIMAN came out tops. I have had no cause to reconsider my position given the manner in which the Association conducts itself, the quality of the Board of Trustees and ExCo as well as its mission and vision.

RIMAN’s track record of risk leadership, collaboration and, capacity building is well known.

Why do you think that Risk Management has become more prominent in the last decade or two?

The profession of risk management has gained in its prominence in the last decade or two for a number of reasons. In my view, based on my own career antecedents, risk management truly came into its own and went mainstream during the Basel II global regulatory event. This saw the beginning of Risk Management’s move from being just a back-office cost centre to gaining a seat in the C-Suite table. Basel II gave banks clear line of sight to the financial benefits that would be derived from having robust risk managements systems, staff and governance.
The benefits and advantages enjoyed by banks became noticeable to other sectors, this is why risk management has also made significant inroads into other industries most noticeably in energy, telecommunications, insurance, manufacturing and now even government.

Given the clarity that you have just highlighted in respect of the positive correlation between Risk Management and Economic Development, how best do you think that a country like Nigeria should best leverage Risk Management to accelerate Economic Development for Her citizens?

Risk Management is not just about building risk defences and resilience; it is also about achieving prosperity by maximizing the benefits to be had from pursuing opportunities. The management of risk is an important part of being able to take advantage of economic opportunities. Research has shown that people in developing countries like Nigeria are not deriving the full benefit of economic opportunities. The path to economic development is paved with risks and opportunities. Opportunities come with risk; the idea is to minimise risks in order to leverage innovation opportunities.

Data shows that Nigeria has the highest number of people living in poverty in the world, this means that millions of Nigerians need to be enabled to pursue opportunities in a way that does not unduly expose them to risks.

Risk management can be applied to address a number of our current issues such as governance, risk management comes with strong governance models that allow for accountability, transparency, monitoring, rules, standards, reporting and consequences. Diversification as Nigeria has a long-standing unresolved issue regarding the need for FX revenue diversification. Risk Management seeks to address diversification issues backed by governance structures to ensure that diversification targets are met.

Threat and Crisis Management, which risk management has a role to play in the maintenance of National Security. Key Risk Indicators had flagged as far back as 2007 in the north-east region red flags in the areas of youth restiveness, unemployment, poor school enrolment rates etc. as early warnings to the security issues that we are seeing today. Risk Management seeks to ensure that risk data is translated into concrete policy actions. I listened to a very insightful interview by Mr Rotimi Sankore over the weekend that confirmed my view in this regard.

Infrastructure investment is integral to poverty alleviation. Applying risk management to the way and manner contractors are selected and monitored will ensure higher success rates of national projects. Risk practitioners are uniquely placed to assist in closing the long-term infrastructure financing gap. By helping to identify and de-risk areas of market failure in order to bring in the private sector. Long-term finance has a fundamental role to play in generating higher economic growth/ development and welfare.

A lack of infrastructure comes at an enormous economic and social cost

Opportunity exploitation embedded risk management will also put Nigeria in a better position to tap into innovation and opportunities in a de-risked manner. The inability to manage risk properly poses significant obstacles to poverty alleviation and shared prosperity. Various reports like that of the World Bank show that effective Risk Management can be a “powerful instrument for development” in that it can help save lies, unleash opportunities and prevent or lessen financial losses. Risk management helps corporate to effectively hedge against volatility and these lessons can be more widely adopted.

Experts have maintained that governance risk and risk culture have remained key challenges in the public and private sectors of Nigerian economy. What are your thoughts on this?

Having already considered and confirmed the linkages between risk management and economic development, it is clear to me that embedding effective and responsible risk management within government and more widely across the public and private sectors will go a long way in creating the type of risk and accountability culture that will facilitate a more judicious and therefore a more inclusive spread of our economic resources thereby helping to reduce poverty.
Embedding risk culture will also be beneficial in our ability to use data as early warnings to prevent some of the other socio-economic shocks by linking dots between different issues e.g. out of school children, high teacher student ratios, unemployment, radicalization, poverty and insecurity.

What in your view are the key Risk Management lessons from the COVID-19 pandemic?

The COVID-19 pandemic has even made it clearer that to survive in the new normal, countries and organizations need Risk management more than ever before. For example, the Pandemic accelerated digitization and created new business models i.e., remote working. The speed of change and innovation brought about by the Pandemic came with their own risks – one of the most noticeable ones being the heightened cybersecurity risks that arose from the widespread accelerated digitization and remote working which involved huge numbers of staff connecting to office systems from offsite locations.

In consideration of the emerging risks, the RIMAN 2021 conference was focused on Risk Management in a Digital Era. We deliberated on the proactive steps that risk practitioners need to take in order to mitigate the emerging risks to their businesses. The recommendations that came out of the conference included: The need for the CRO to be a member of the crisis response/ business continuity team, the need for risk functions to develop IT and digital skills

The need for realistic and tested business continuity and disaster recovery plans, the need to convert business processes to digital processes where possible and the need to give more consideration to rare and extreme risks aka Black Swans.

Also, there is need to revise strategic plans with current realities with risk management central to the discussion train the first line of defense to be able to identify risks in their activities especially for those remotely working and design policies for extended remote working

At RIMAN we have adapted to the then ‘new’ normal by adhering to many of the outcomes of the conference and allowing for more flexibility in the way and manner with which we conduct business with and communicate with our various touch points.

What is your view about risk uncertainty and investment decision making in the current climate?

Since the Pandemic, the acronym “VUCA” is often used to describe the current investment/ risk management climate. We often hear or read about “Investing in a VUCA World” or about “Leadership in a VUCA World.” VUCA is an acronym that stands for Volatility, Uncertainty, Complexity and Ambiguity

The four terms are related and clearly illustrate the need for deep risk: return expertise and analyses given by investors as a result of the prevailing high-risk VUCA environment. However, with high risks come the potential for either high returns or high losses. The key thing that investors need to bear in mind in the current VUCA environment is the need to understand individual and/or corporate risk appetites and hence be comfortable with the risk return trade off of whatever investment they decide to make.