Mixed verdict: International businesses adjudge Nigeria
Last week, I wrote about this year’s Global Trade Review (GTR) Africa conference, held in London. The conference was attended by about 300 people, over80% of who represented European companies with business interests in Africa. Although trade, on which I spoke, was a key theme of the conference, it was not the only subject. Elizabeth Stephens, managing director of Trendline Analytics, gave an interesting talk on “Africa’s shifting geopolitical landscape”, and Robert Besseling, executive director of EXX Africa, spoke on “Managing Africa’s debt burden and meeting its infrastructure requirements”.
But the most interesting parts were the panel discussions and interactive sessions, during which several international business people – bankers, financiers, traders, insurers, risk analysts, lawyers etc – gave their views on Africa but more frequently on Nigeria. Indeed, there was a specific session on Nigeria, entitled “Is Nigeria in rude health?”, chaired by Edward George, Country Head, UK Representative Office and Head of Group Research, Ecobank.
What came through in all the discussions about Nigeria was a mixed picture. There was a clear view about the Buhari government’s inertia and failure to undertake critical economic reform, but also a recognition of the central bank’spartial liberalisation of the foreign exchange regime, which has improved the liquidity situation in the country. Worryingly, however, there was consensus that electioneering might frustrate the economy’s tentative recovery, and that foreign investors were suspending investment decisions because of uncertainties about next year’s elections. That’s the summary, but, now,let’s unpack it!
The starting point is that the international business community sees the Buhari government as patently incompetent in the management of Nigeria’s economy. The president’s lack of business experience, his perceived antipathy towards the private sector and his protectionist rhetoric and policies have certainly fuelled the perception that his government is weak on the economy. As the managing director of a company with strong business interests in Nigeria put it, protectionist policies such as restriction on accessing foreign exchange to import certain goods, outright prohibitions of several imports and high tax on outputs “inhibit the objectives that the government says it wants to achieve”.
Several business leaders made unfavourable comparisons between Nigeria and other African countries, such as Kenya, Ghana and Rwanda. For instance, one recalled that when he met President Uhuru Kenyatta, the Kenyan president told him, “I want jobs, what do you want from me?” It is hard to imagine President Buhari saying that to any business leader. Yet, that’s the attitude that any leader who recognises that businesses, not governments, are the real job creators must have. Positive references were also made to Rwanda, described as “a little Singapore”, and Ghana, credited for its transparency and efficiency. One chief executive said: “When I meet government agencies across Africa, I use Ghana as an example”.
By contrast, Nigeria, according to the business leader, “lacks the ability to get things done in a cohesive manner”. There is a wide gap between what Nigeria needs to develop and the structure to make that happen, one pointed out. Another said that Nigeria should be growing at around 4 or 5% like Egypt, but for government inertia and stalled reform, coupled with political, security and regulatory risks.
Nigeria’s image came up in one of the panel discussions. The question was: “What can be done to change the perception of Nigeria among outsiders?” The general view was that some of the negative perception was undeserved. As someone put it, “Nigeria is terrified from afar, but when you get in it’s not a terror”. He was, of course, talking about the general friendliness and hospitality of Nigerians!
But virtually everyone agreed Nigeria doesa lot of damage to its own reputation with self-inflicted harms. As one business leader said, “I don’t think that Nigeria Plc cares a lot about its image”. The government’s heavy-handed handling of the MTN case, which sent a shock to the international community, was widely seen as a terrible mistake. And, of course, since then, two world-renowned banks, HSBC and UBS, have closed their offices in Nigeria. The Buhari government’s intemperate response to HSBC’s criticism of its economic policy, including accusing the bank of aiding money laundering without evidence, certainly feeds the narrative about the government’s anti-business orientation. Elsewhere, large businesses criticise, or disagree with, government policies without risking an administrative backlash. Truth is, the MTN, HSBC and UBS sagas are bad PR for Nigeria, further harming its image.
However, there was a good story on the country. The question of whether Nigeria is in rude health triggered positive comments about the management of the currency. Two or three years ago, some recalled, no one was willing to work with any of the Nigerian banks on any long-term basis, but now things are changing. This is because, thanks to the central bank’s partial liberalisation of the currency regime, there is now significant liquidity and certainty in the forex market. That said, one corporate lawyer pointed to the problem of stamp duty and said that “If you want to address the issue of finance in Nigeria, look at how you deal with stamp duty registration”. But there was real excitement about the increased liquidity and certainty in the forex market; of course, there still exist multiple currency exchange rates, which must be unified for greater economic efficiency.
Interestingly, Nigeria’s debt capacity was regarded as one of its attractions. Nigeria’s low Debt/GDP ratio, with total debt representing about 20% of its GDP, means that it has “a huge capacity to take on further debt” to fund its gaping budget deficit and infrastructure need, a credit analyst said. Of course, that view contrasts with the discussion rightly going on at home, and supported by the IMF, that the focus should not be on Nigeria’s relatively low Debt/GDP ratio, but rather on its unsustainable debt service/revenue ratio. As the IMF said recently, “Nigeria’s Debt/GDP ratio at between 20 and 25% is quite low but debt servicing, which takes about 50% of revenue, is certainly high”. It’s not rocket science that when you spend about 50% of your revenue to service your debt, there is no comfort in saying that your debt level is low. You must either increase your revenue or cut your spending, or both; failing these, you must think seriously about accumulating more debt. Yet, the Buhari government has an insatiable appetite for borrowing!
From the liquidity situation and the debt position, the discussion turned to what someone described as “the elephant in the room”: next year’s elections. First, there was a sense of uncertainty about who will win, given that the presidential race is currently “too close to call”. Secondly, there was the question about the differences between the two main candidates, the incumbent, President Muhammadu Buhari, and his main challenger, former Vice President Atiku Abubakar. A chief executive put it starkly. The choice, he said, was between “an ineffectual president who perhaps have good intentions and an effectual but not well-intentioned president”.
That, let’s face it, is how Buhari and Atiku are being characterised in the West. As I wrote in this column recently, Buhari is seen as an incompetent leader who nevertheless seems serious about fighting corruption, while Atiku is perceived as a competent and market-oriented leader, who would, however, be laxed about fighting graft – a major reputational issue for Nigeria. The truth is that, in politics, perception matters, and Atiku would serve himself well to confront the corruption perception head-on!
But the more immediate concern about the 2019 elections is that they are already affecting investment decisions. As the Head of Africa Desk of a major international bank put it, “There is a wait-and-see attitude”, adding that “investors are sitting on key investment decisions until the elections”. While current projects are not being stopped, they are being slowed, and new investment decisions are being suspended. The question, one financier said, is this: “When push comes to shove, would I sign before the elections or would I sign after?”. He added: “I think we would sign after”. This is not surprising, of course. Money will go where it will get the best and safest returns, and there is hardly anything that inhibits investment decisions more than uncertainty. Which makes it imperative that next year’s elections must be free, fair and peaceful so that the current wait-and-see attitude does not crystalize into negative investment decisions.
The GTR Africa conference was a good barometer of the international business community’s views on Nigeria. The views are mixed. There is certainly a good story on the forex front, but also a view that the economy is suffering from inertia and stalled reform, including in the oil sector. Even more worrying is the view that electioneering and uncertainties about next year’s elections may worsen the economic situation.
For me, tying all this with the theme of last week’s piece, it’s interesting that the countries being used as role models in Africa – Ghana, Kenya and Rwanda – were among the first to sign and ratify the AfCFTA agreement. They are the real reformers and liberalisers in Africa. Nigeria must join their ranks. It must sign AfCFTA and embark on far-reaching reforms. Of course, it must conduct free, fair and peaceful elections next year. Then, and only then, would the verdict of the international business community be wholly positive, rather than mixed!
Olu Fasan