Femi Aribisala, Chairman, Financial Nigeria International Limited

Follow Femi Aribisala

View Profile


Subjects of Interest

  • International Affairs
  • Politics

Heads up on Nigeria’s political risk 01 Jul 2013

In 1973, Maynard Jackson was elected as the Mayor of Atlanta, Georgia, making him the first black mayor of a major Southern metropolis in the United States.  That landmark election inspired my very first visit to the United States.  As an undergraduate student in a university in England, I applied for and obtained a scholarship to go to the United States and examine how Jackson managed to achieve this feat.  A new chapter certainly opened up in the political landscape of the United States, to which Barack Obama's more recent election as president is the apogee.
 
When I first went to Atlanta in 1973, the city had the highest crime–rate in the United States.  More people were murdered daily in Atlanta than in any other city.  If you went into a corner-shop in some neighbourhoods, you might find yourself separated from the shop-keeper by a bullet-proof glass.  You had to pass your money to him through a chute and he gave you your goods in similar fashion.

Notwithstanding; Atlanta's economy continued to grow.  It now ranks15th among the world's most successful cities and it is now sixth in the United States. Today, the city serves as the regional, national, or global headquarters for many multinational corporations, including such prestigious ones as Coca-Cola, Delta Airlines and AT&T.  The high crime rate in Atlanta did not prevent this inexorable growth in the city's economic fortune from taking place.

On a visit to Vancouver, Canada during one of the Commonwealth Summits, the First Secretary of the Canadian High Commission to Nigeria decided to provide me with a bit of unsolicited information.  He said: “The number of car thefts in Vancouver is 20 times that of Lagos.  The only difference is that a lot more noise is made about car thefts in Lagos.”  I could not agree with him more.  When the American television newsmagazine, 60 Minutes, wants to make a documentary on corruption, it comes to Lagos.  But this is disingenuous.  If 60 Minutes is really interested in corruption, it does not have to leave the shores of the United States.  There is more than enough corruption to deal with in New York City, which has less than half the population of Lagos.
 
Exaggerated crime
 
Nigeria and Nigerians are forever in the news.  The country is well-known for massive 419 or fraud; corruption; kidnappings; armed-robberies, Niger-Delta terrorism and, more recently, Boko Haram terrorism.  If anything good ever happens in Nigeria, you can be sure it will not be reported in the news in the United States.  However, the bad news make all the headlines.  But the strange thing about this phenomenon called Nigeria is that these negativities have not deterred investment in Nigeria; investors just keep coming.  You need to know the reason why.

I have been to some 35 African countries, and the truth is that Nigeria is really not more dangerous for the average business visitor than most of them.  As a matter of fact, it is substantially safer than many.  Violent crime does exist in Nigeria but the vast majority of visitors to Nigeria don't experience it.  Violent crime is even more prevalent in South Africa, but then the country is more beloved of the Western press than Nigeria, so it is not as stigmatised.

In spite of the bad press, Nigeria has made it into the top 20 global destinations for Foreign Direct Investment in the world.  Indeed, it receives the largest amount in Africa.  FDI inflows have apparently been unresponsive to the various crises in the country, and to Nigeria's bad-country image.  Indeed, they have been growing enormously over the last decade.  Nigeria retained the top spot for FDI inflows into Africa for the second time in two years according to latest report by the United Nations Conference on Trade and Development (UNCTAD).

If Nigeria can do this well with all the bad news in the world press, there must be something inevitable about the economic destiny of the country.
 
Nigeria's attractiveness
 
Nigeria today is in the same position China was in some 15 to 20 years ago.  Even though today, corruption is still a major problem in China, as admitted by its new Premier, China is now grudgingly recognised as an economic giant.  Indeed, it is already the second largest economy in the world.

The bet is on that Nigeria will follow a similar pattern.  The detractors of Nigeria will ultimately come to eat their words.  Time was when the CIA said Nigeria would disintegrate by 2015.  More recently, Obama sang a different tune, declaring Nigeria an economic giant in the making.  This means the Nigerian reality is already beginning to catch up even on the Americans, one of our most vociferous detractors.

The fact is that Nigeria's big population will soon turn into a big consumer boom.  The Nigerian market is the largest in Africa by far.  Just think about it: the entire economy of Kenya is only equal in size to that of Lagos State in Nigeria.

Many now recognise that, long before China will exceed the United States as the world's biggest economy, Nigeria would have exceeded South Africa as Africa's biggest economy, if it is not so already because the informal sector does not show up in statistical records.  Even now, Nigeria offers alluring returns for investors.  Says Charles Robertson, Global Chief Economist at Renaissance Capital: "We know it's not risk free, but look around the world and find another economy with 160 million people growing at 7 percent with such potential. It's a struggle to find them."

Nigeria's foremost industrialist, Aliko Dangote, concurs.  He says: "Nigeria is the best kept secret in the world. Anybody who doesn't invest in Nigeria only has himself to blame, going forward, if he misses out.  I don't really know of any place where you can make as much money as you make in Nigeria.”

As Africa's richest man, Dangote ought to know. Within the space of a few years, Dangote's investments in Nigeria boosted his personal fortune more than five-fold to 13.8 billion dollars; a bigger increase than anyone else on the Forbes list of world billionaires.  Referring to the presumed disincentive of Boko Haram terrorism for investment in Nigeria, Dangote maintains that: "Boko Haram have not destroyed any business here. They have not gone to any factory and planted a bomb."

It would be a big mistake for investors not to capitalize on the opportunities now opening up in a frontier emerging market like Nigeria for the simple reason that the demographic dividend is bound to be colossal.  Many countries and firms are beginning to take a long second-look at Nigeria.  Prominent among them are South African firms.  These include such notable ones as MTN, Stanbic Bank and Shoprite.

With currently over 100 million mobile-phone users, Nigeria remains MTN's biggest cash cow.  The company now makes over $2.5 billion in profits annually from Nigeria alone.  The success recorded by Shoprite in the supermarket business in Nigeria has prompted other international retail stores to join the fray, such as Spar, Massmart and Woolworths.  The CEO of South Africa's Shoprite, Whitey Basson, said he saw the scope for 700 Shoprite stores in Nigeria alone, up from the current eight, arguing that even if 60 percent of Nigerians live in poverty, the other 40 percent would still outnumber South Africans.
 
Governmental reforms
 
The Nigerian government is doing what it can to continue to encourage foreign participation in the economy.  One favoured method is the establishment of free trade zones.  By providing an enclave for foreign business participation, the free trade zones create a country within a country, immune from the problems and conflicts present in the larger Nigeria.  Free zones are regulated separately and this gives continuity and stability to them.  Some of them are already up and running in places like Kano, Lagos, Lekki, Snake Island, and Onne.

The regulatory regimes in these zones are liberal.  The incentives available are among the most attractive in Africa and they compare favourably with those in other parts of the world.  These incentives include exemption from all federal, state and local government taxes, levies and rates.  Those who set up shop in the zones take advantage of the large Nigerian domestic market because 25% of the production of FTZ firms can be sold in Nigeria.

As president, Olusegun Obasanjo returned Nigeria to fiscal responsibility.  He balanced the budget, achieved stability in exchange-rate regime, and negotiated debt relief with the Paris Club countries of Nigeria's creditors.  He completely cleared over 30 billion dollars of Nigeria's foreign debt, while still leaving behind some $ 45 billion in foreign-exchange reserves and some $ 22 billion in the excess crude account.

Obasanjo also jump-started the revolution in the tele-communications sector, and embarked on privatisation and deregulation of the downstream oil sector.  He also embarked on radical banking reform. The resultant bank recapitalization, continued even more aggressively under late President Umaru Musa Yar'Adua and President Goodluck Jonathan, has since produced in Nigeria five of the largest banks in Africa.  This has given Nigeria the financial muscle to fund projects with economies of scale as never before.  In this new environment, Aliko Dangote received enough encouragement to establish a $1 billion cement plant in Obajana, Kogi State last year, the largest cement factory in Africa.

Since 2008 the government has begun to show the political will to implement the market-oriented reforms urged by the IMF.  The banking system has been further restructured.  A significant part of the petroleum subsidy has been removed, even if with great political acrimony.

The country's GDP rose strongly between 2007and 2011 because of growth in non-oil sectors and robust global crude oil prices. Like President Obasanjo before him, President Jonathan has also established an economic team that includes experienced and reputable members and has announced plans to increase transparency, diversify economic growth, and improve fiscal management. Lack of infrastructure and slow implementation of reforms are key impediments to growth. Therefore, the government is working toward developing stronger public-private partnerships for roads, agriculture, and power.

The government is encouraging the diversification of the Nigerian economy away from the oil and gas sector. It is addressing the infrastructure deficit in the country and the development of the agricultural sector through modernisation and the establishment of staple-crop processing zones, with the value chain model to provide linkages to the manufacturing sector.

Today, Nigeria is already the largest producer of cassava in the world, although everything produced is locally consumed. But the country still has the capacity to double cassava production and bring down the price.

The opportunities in agriculture in Nigeria are immense.  The country is blessed in that it can produce virtually any and every tropical fruit.  It is through this comparative advantage in tropical agriculture that Nigeria must ultimately engage the world economy on a large scale.  If we start with agriculture, everything else follows. We have the people, the land and the weather.

In addition, there is heavy investment through foreign and private participation in the aviation sector, and in the mining and transportation sectors. In the education sector, we are seeing private participation with many private universities springing up.  In short, the economy is being opened up through private participation in all sectors.
 
Conclusion
 
I don't want to say Nigeria has come of age, but I want to insist that Nigeria must come of age.  The Nigeria Project is too important to be left to the government alone.  We all have a role to play.  The economic opportunities that are now opening up in Nigeria in particular are unparalleled anywhere in the world.  Therefore, we need to strengthen partnerships between Nigerian policy makers, private sector leaders, social sector leaders, international market actors and Nigerians living in North America, mainly Canada and United States of America.

In this process, it is important to recognise the valuable contributions of Nigerians in Diaspora to the development process of Nigeria.  The number of Nigerians living abroad is now estimated at over 17 million.  That is the size of some countries.  The “ethnicity of capital” means these Nigerians can be relied on for increasing levels of remittances back home.  As a matter of fact, it is on record that, during the last global financial crisis, remittances to Nigeria from abroad proved resilient.  According to various projections, including that of the World Bank, Migrant Revenue Remittances (MRR) into Nigeria is now in excess of 20 billion dollars annually; making Nigeria one of the highest recipients of impactful cash-transfers in developing countries.

Nigerians in Diaspora have continued to invest in Nigeria, while many have returned to participate in Government and are leading key market institutions and government agencies to support good governance in the country.

The article was adapted from Dr. Femi Aribisala's keynote presentation on the topic at the 4th Nigeria Development and Finance Forum 2013 conference, which held on June 4th and 5th, in Washington DC and was organised by Financial Nigeria.