Familiar problems mask Nigeria’s dynamism

by FT

November 8, 2017 | 5:36 pm
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Any business thinking of investing in Nigeria faces a daunting prospect. Public bureaucracies are labyrinthine, slow-moving and notoriously corrupt. Basic services such as electricity and water are unreliable, if available. Skilled and semi-skilled workers are often hard to find. Just getting about is a hazard, with gridlocked traffic in cities and crazy driving on potholed highways contributing to one of the world’s highest rates of road deaths.

Added to all that is an economy bumping along the bottom after a deep recession, and an alarmingly high rate of unemployment that has driven many young people into the arms of criminal gangs and violent insurgents.

All this is true, and more. Yet once such investors arrive they also find a parallel reality: a country buzzing with creative energy, many of its people convinced that things will soon improve.

“We are not a poor country,” says Bolaji Balogun, CEO of Chapel Hill Denham, an investment bank that recently launched Nigeria’s first listed infrastructure debt fund. “We are a wealthy country that has not managed its opportunities and resources very well.” Nigeria, he adds, “has no shortage of remarkable entrepreneurs or of people with the work ethic to go out and put food on the table.”

Such dynamism is immediately palpable in Lagos, not only in its vibrant comedy scene, for example, but also in its world-renowned music and fashion, its increasingly sophisticated cinema and in its literature. It is also evident in the city’s fast-growing digital economy, where hundreds of new companies are springing up with the potential to create thousands of jobs.

“For the first time if you’re in Abuja or Lagos or Ibadan or Port Harcourt you have connectivity that would rival central London,” says Pule Taukobong, a founding partner at South Africa’s CRE Venture Capital, which has invested in several Nigerian start-ups. “We’re at the point where you can begin to have people pay for things online.”

Nigeria’s agriculture sector, too, is bursting with dynamic individuals. One such is Ibiyemi Fakande of Living Hope Care, a charity that began looking after the orphans of HIV/Aids victims and is now helping them build a future through farming.

Another is Rotimi Williams, a former investment banker who is taking rice farming from the north to Ogun state, just inland from Lagos, in one of many enterprises bringing producers nearer to the country’s biggest market.

Not all sectors are as effervescent. The banking industry has been hammered by the recession that followed the collapse in the oil price from mid-2014, thanks to its heavy exposure to deeply indebted oil companies. Analysts worry that banks have yet to recognise the full extent of their non-performing loans, although some have done well from the devaluation of the naira.

Nigeria has long suffered from the oil curse — an over-reliance on its considerable reserves as a source of foreign earnings. This has made it complacent about developing other export sectors while failing to put its resources, particularly gas, to good use as an energy source at home.

Nigeria’s other longstanding problem is the fragility of its infrastructure. A small number of investment funds are rising to the challenge of attracting capital to what is a frustratingly slow-moving sector.

Part of that frustration stems from what many say is a puzzling lack of initiative from the federal government in Abuja. President Muhammadu Buhari came into office in 2015 on a promise of change and with a mandate to tackle corruption, security and the economy. But his tenure has been interrupted by long trips for medical treatment abroad.

Insiders in Abuja talk of an administration that is aloof, uninterested in the day-to-day work of government and suspicious of the business community in Lagos. The corruption that sickened many voters during the previous administration of Goodluck Jonathan has been replaced by what one senior figure describes as “legalised theft”, made possible, he argues, by Nigeria’s multiple exchange rates that benefit those near the centre of pow

Meanwhile, complaints of corruption in everyday life are as loud as ever. For one business leader, the best thing the government could do to help ordinary Nigerians would be to “get out of the way”.

Yet the Buhari administration is running out of time. “All eyes are on [elections in] 2019 — there’s a lot of electioneering going on in the background,” says Adedayo Ademuwagun, a Lagos-based analyst at Songhai Advisory. “That’s going to hamper decision-making and prospects for reform.”

Critics concede that Mr Buhari’s All Progressives Congress coalition has made some progress in easing tensions between the mainly Muslim north and the mainly Christian south-west, while also making inroads against the Boko Haram Islamist insurgency in the north-east. However, the resurgence of a separatist movement in Biafra in the south-east, where the coalition is less popular, is causing concern.


Another problem is that the government in Abuja does not operate as a single entity. Different parts run at different speeds. During Mr Buhari’s absences, his vice-president, Yemi Osinbajo, has pushed ahead with pro-business reforms. Yet this also contributes to uncertainty.

In the words of Andrew Alli, chief executive of the Africa Finance Corporation, a multilateral lender whose biggest shareholder is Nigeria’s central bank: “The government’s stated policy is to be more business friendly, but it is happening faster in some cases than in others.”

A senior banker in Lagos puts it differently: “There is no policy co-ordination. Policy is rhetoric, nothing more.”

But there has been progress. Nigeria rose 24 places to 145 in the World Bank’s latest ranking of countries according to ease of doing business. Although still low, its leap made it one of the 10 most improved countries.

Mr Balogun at Chapel Hill Denham insists that Nigeria’s dynamism is waiting to be unleashed. In a previous role he was co-founder of Airtel, one of Nigeria’s biggest mobile phone companies — an industry, he notes, that has grown to 140m users in a population of 186m from a standing start in 2001. That is what happens, he says, “when you allow tariffs to be cost-effective”. He argues that the same could be true of electricity provision in a competitive market.

That, indeed, is the challenge for politicians in Abuja: to allow Nigeria’s creative energy to overcome that other parallel reality holding the country back.


Jonathan Wheatley

Additional reporting by Matthew Green

by FT

November 8, 2017 | 5:36 pm
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