Full Address By The Honourable Minister of Finance To The Nigerian Economic Society – 25th October 2010
Your Excellencies, Honourable Ministers, Officials of State here present, Chairman and President of the Nigerian Economic Society, Investors, Financiers, Captains of Industry, Members of the Press and Distinguished Ladies and Gentlemen. It is indeed my deepest pleasure to be here today to speak at the Nigerian Economic Society’s 51st Annual Conference.
As you know, Nigeria has a lot of potentials, and while we must continue to applaud and be grateful for this, we are now taking the concrete steps that are needed to realise this potential; the country as a whole is now moving from talking to taking action. There is clearly a lot of work to be done and this Administration is dedicated to realising this dream for Nigerians under the strong and focused leadership of the President, Dr Goodluck Ebele Jonathan.
However, the Government cannot work alone. It can work to create the enabling environment for investment but cannot generate all the capital that is required. As an example, the size of Nigeria’s infrastructure deficit is estimated at more than US$100 billion. This is a very significant amount of capital. Therefore, the Administration’s actions are aimed at increasing the attractiveness of the investment climate through the adoption of liberal and market-oriented economic policies. And we are asking both local and foreign investors to partner with the Government not only to achieve its own objectives but also for investors to achieve attractive returns. Investing in Nigeria is a win-win situation for all stakeholders.
Nigeria is a nation with significant human resources, with a population of over 140 million people, close to three times the population of South Africa which, for now, is the foremost destination for investment in Africa. By 2050, Nigeria is expected to be the 6th largest country in the world, with an estimated population of 287 million people. It is the largest market in Sub-Saharan Africa with a potential that stretches into the West African sub region. In addition, a significant proportion of the labour force is educated, intelligent, hardworking and available to work at attractive economic prices. The size of the Nigerian market is all the more attractive because of the growing and upwardly mobile middle class and the on-going consumer explosion that is being experienced. As an example, the story of the telecommunications sector is one that many are familiar with. It is one of the fastest-growing sectors of the economy and was only privatised less than ten years ago. There are 75 million mobile subscribers, yet there is only a 53 percent penetration level. This is just the tip of the iceberg as Nigeria’s large population makes it a ready market for investors in manufacturing, agriculture, mining & solid minerals, construction, information technology, hospitality and entertainment.
In addition to our vast human resources, there is an abundance of other natural resources - oil & gas (Nigeria is the sixth largest producer of crude oil globally and is now a major player in gas supply with a gas reserve of 160 trillion cubic meters), solid minerals (the Geological Survey Agency of Nigeria has a record of 33 exploitable minerals that have been proven to occur in commercial quantities) and agricultural resources that are yet to be fully exploited. As I have mentioned, we have had a stable democracy since 1999 with a Government that is committed to ensuring economic growth and development as well as peace and stability.
On the economy, Nigeria’s GDP growth has continued to be very robust, especially in the context of the challenges emanating from the global financial crisis, the accompanying economic recession as well as the infrastructure deficit. Real GDP growth in 2009 was 6.7 percent. When compared to the average negative GDP growth of -0.8 percent globally and -3.2 percent for advanced economies, 2.1 percent for emerging countries and 5.6 percent for India. Real GDP growth for 2010 is projected to be 7.75 percent. For half year 2010, real GDP growth was 7.4 percent compared to 5.9 percent in 2009. In the same period, the oil sector grew by 3.9 percent compared to a contraction of -3.0 percent in 2009 and the non-oil sector grew by 8.4 percent (8.1 percent in 2009). Revenues are also up by 48 percent.
Nigeria is performing relatively well but there is room for improvement. The pattern of Nigeria’s growth shows that achieving sustained double-digit growth is well within reach with the implementation of an improvement in the supply of power, increased provision of credit to the real sector and continued peace and security in the Niger Delta leading to improved oil production.
With respect to the composition of Nigeria’s GDP, agriculture continues to be a mainstay and driver of the economy, contributing 42 percent to the real GDP. Given the limited shares of the service, manufacturing and retail & trade industries to the overall GDP, there are clearly significant opportunities to further enhance economic performance.
The fiscal balance sheet remains strong and Nigeria has ample liquidity and low levels of external debt. The debt position remains sustainable with a total public debt stock of US$29.6 billion at the end of June 2010 of which external debt was US$4.3 billion, about 85 percent of which is in the form of concessionary loans. The total amount of borrowing is about 15 percent of GDP. Our emphasis going forward is on the quality of the Nigerian loan book and to ensure that such loans and indeed any expenditure delivers measurable economic and social returns. Nigerians must get value for every Naira or Dollar spent.
However, we recognise that there are still a few challenges. Nigeria has a National Competitiveness ranking of 127 out of a 133 countries. The key reason behind this ranking has been identified by the Government, investors and stakeholders in various sectors as the lack of a constant, reliable electricity supply and the existing infrastructure deficit. We are organising a forum on competitiveness with the World Economic Forum (WEF), the authors of the Global Competitiveness Survey, to identify and work on the areas where we can boost the ranking. The Government is also taking active, credible steps to address these issues directly.
The National Economic Management Team (NEMT), a body that is constituted of all the key economic Ministries and Agencies of the Government, of which I am the Chairman, acts as a forum to develop, execute and drive economic policy with a view to delivering enhanced economic growth. The NEMT has worked to develop an Economic Growth Strategy that aims to deliver double-digit growth over the near-to-medium term and to achieve the aspiration of this Administration to become one of the top 20 economies globally by the year 2020. There are four pillars of our strategy: (a) Firstly, the sourcing and allocation of capital, this is to enable the real sector of the economy to have access to cheap and long-term capital and to also remove the barriers to bank lending; (b) Secondly, creating inclusive growth, with a view to fostering economic growth and job creation by providing opportunities to the Nigerian populace for economic and human capital development; (c) Thirdly, enhancing productivity, by reducing the infrastructure deficit and facilitating improvement in the supply of power; (d) And lastly, improving the business climate and governance, so as to enhance Nigeria’s competitiveness and strengthen the environment for doing business. Significant progress has been made on all these fronts and the pillars are closely interlinked. I will briefly touch on some of the areas that we have focused on, which are of concern to investors: a. After consulting widely with stakeholders in the financial sector, we have identified that there are major issues that result from contract enforcement and are looking at making the relevant legislation more creditor-friendly and have now succeeded in getting approval for the establishment of three Commercial Courts to expedite dispute resolution. b. The President has approved the formation of the Asset Management Company of Nigeria (AMCON). AMCON will soon be operational and will act as a resolution mechanism to stimulate the recovery of the financial system through the acquisition of non-performing loans from banks in order to improve their capital and liquidity positions. In addition, the Central Bank of Nigeria (CBN) has implemented or announced a suite of measures designed to improve regulation, governance and transparency in the banking sector. c. The National Economic Council has approved the establishment of the Nigerian Sovereign Wealth Fund (NSWF) with a sum of US$1 billion set aside as seed capital. The Fund will reduce the vulnerability of the economy to external shocks, ensure inter-generational equity and serve as a catalyst for attracting investment for critical infrastructure. It will have three components: (i) Inter-generational savings, (ii) a stabilisation fund and (iii) An infrastructure fund. The infrastructure component is expected to be the largest portion of the NSWF. It will co-invest in Nigerian infrastructure alongside domestic and international investors, with the aim of closing the infrastructure deficit. The co-investment structure will provide additional comfort to investors in making their investment decisions. In addition, the utilisation of the stabilisation fund will be based on well defined, robust prudential guidelines. Our intention is that these measures will provide a powerful and positive signalling effect to the investor community, in terms of our enhanced macroeconomic and fiscal framework, which should have an associated positive impact on Nigeria’s sovereign credit ratings and cost of investment capital. d. We plan to issue a benchmark US$500 million Eurobond in the international capital markets before the end of the year. This will help to provide investors with a pricing benchmark for risk capital they are investing in Nigeria. The aim is to ultimately reduce the cost of investment capital being channelled into the country and to make it easier for corporate entities, including financial institutions, to have access to longer term capital. e. The President has launched a Roadmap for Electricity Sector Reform which lays out the implementation plan that will lay the groundwork for the much needed inflow of private investment into the power sector. The Roadmap lays out the strategy for the divestment of the Government’s interests in generation and distribution with the overarching aim of achieving 40,000MW of generation capacity by 2020. f. Where it is required for the most critical infrastructure, Nigeria will leverage its balance sheet as efficiently as possible through the provision of sovereign guarantees. We are putting structures in place to manage the risks to our balance sheet and the additional impact of these contingent liabilities. With the aid of the World Bank, we are in the process of establishing a Sovereign Risk Management Unit to do this. As a demonstration, we are also working with the World Bank to structure Partial Risk Guarantees (PRGs) for private sector power generators. The individual IPPs will obtain MIGA political risk insurance to mitigate the political and termination risks. g. We also need to develop a pipeline of bankable, core infrastructure (transport, housing), projects that will lay the foundation for private sector participation on a larger scale. As a first step, the Director-General of the Infrastructure Concession Regulatory Commission (ICRC) is leading a committee, sponsored by the NEMT, to create a Roadmap for Critical Infrastructure. The Roadmap will identify a handful of critical projects that are ideal for private sector participation and Public-Private Partnership (PPP). These projects will then be prepared and presented to the investor community. h. We are implementing reforms, driven by the Securities and Exchange Commission (SEC), to restore confidence to the capital markets, strengthen market institutions and restore market integrity. Measures are being taken to punish market abuse and follow through on zero tolerance for inappropriate behaviour. i. In addition, the Government has embarked on comprehensive tax reforms to promote an investor-friendly tax system with relevant incentives and to eliminate multiple-taxation. At the same time, the Ministry of Finance and the Federal Inland Revenue Service (FIRS) are about to launch a National Tax Policy that is aimed at clarifying and modernising the tax administration and system in Nigeria. It is our vision that Nigeria will take its place as the premier investment and capital destination globally and on the African continent. I invite you all to partner with us in order to achieve this objective. I want to assure you that this Government is working extremely hard to deliver the promise of Nigeria to its people and to the world under the guidance of a determined president. We are reasonably optimistic about reaching our goal.
In fact, Professor Jeffery Sachs, the leading development economist, expressed the same hope on his recent visit to Nigeria, that this could be Nigeria’s decade. We want to affirm that. This will be Nigeria’s decade. Once again congratulations on organising this Conference and again, I invite you to partner with us as we transform this country and our economy. I look forward to receiving your report. Olusegun O. Aganga, Honourable Minister of Finance.