Structural Transformation in Nigeria and Africa

By The Citizen

In the 35 years leading to 2005, crude oil exploration, production and export provided the only talking point on Nigeria in international business of scale. Over this period, the Nigerian economic outlook was impacted mainly by global politics and market events. The ripples generated in Nigeria, positive or negative, were too weak to travel far and wide enough to impact the country outlook in the estimation of the international community and systems that controlled global markets, except when the ripples were ultra-negative. We were susceptible to external shocks transmitted through the conduit of international oil market.

This scenario has been changing. Improvements in governance frameworks through multi-party democracy since 1999 and purposeful (market) reforms have been re-defining the influence of Nigeria in global politics, finance and investment. We see two recent evidences of this. One, in quick succession, JP Morgan and Barclays have listed the Federal Government Bonds in their respective emerging market indexes. Consequently, global demand for Nigerian sovereign debt issues has gone through the roof. It is the supply side of the market that has been exercising caution, quite appropriately; with the recent intent to link higher debt capital to delivery of specific infrastructure projects by the Federal Government.

Two,, the financial media outlet that provides heads up for Wall Street's top traders, alerted its audience and through NASDAQ, to growing evidence that Nigeria's influence on global portfolio performance is no longer limited to financial assets that enjoy the sovereign guarantee of the Federal Government. 'Nigeria ETF gets good news on glum day for global markets' was how Benzinga put it on a day Exchange Traded Funds tracking global markets sagged last month. The 'newly-minted' Global X Nigeria Index ETF, (only two months old), listed on New York Stock Exchange (NYSE), closed downward by marginal 0.9 per cent when emerging and developed markets tracker funds lost lowest 1.5 per cent value.

What inspired this? Your guess is wrong if you thought the Nigerian hydrocarbon sector provided the inspiration that made the fund tracking Nigeria to hold out above its seniors. Bloomberg reported Mallam Sanusi Lamido Sanusi, Governor, Central Bank of Nigeria (CBN), to say the ratio of non-performing loans (NPLs) at Nigerian banks to credit total fell to 3.8 percent in April 2013, from 35 percent in November 2010. The star performances of Global X Nigeria ETF and the banks (in relation to their aggregate low NPLs) are two of the several positive outcomes of the extra-ordinary intervention Sanusi led to rescue the Nigerian banking industry in 2009.

I have read reports which claim the intervention was very expensive. I say Nigeria could not afford the unravelling of her banking sector as it was bound to happen before the last intervention, which originated in Nigeria a tsunami that is still sending positive waves to the global market. Nigeria could afford the bailout and the needed investments to keep the banks alive and well, because the country's oil revenue could back efforts to save a very key industry that has been supporting the Nigerian economic might in some ways since the end of the banking industry consolidation in 2006. What else can we do with our petrol dollar? It definitely provides investment capacity for economic diversification and higher GDP growth.

Following my invitation to a high-level panel at the just-concluded Annual Meetings of African Development Bank in Marrakech, Morocco, I started interrogating the theme of the conference: 'Structural Transformation of African Economies'. Can Africa inspire growth across sectors of the national economies? Do we have needed infrastructures to support intra-Africa trade which is a necessity for national economic diversification in the continent? And, of course, what is the role Nigerian Export-Import Bank can play in the mix?

The Necessity
Structural transformation of the African economy is a necessity. The good news is that it is one agenda which we can deliver. Financiers look at how ideas like this can be delivered with the required financing. Over the last ten years or more, notwithstanding the minor setback during the global financial crisis of 2007 - 2008, balance sheets of several African countries have been strengthening. In Nigeria, we seized the opportunity of high oil prices to do a very smart deal to exit the Paris Club debt. Thereby, additional resources were freed, which otherwise would have been used for debt servicing. We also built savings buffers. The required institutional framework to counter pro-cyclical budgeting is now gaining grounds in several African countries including Ghana, Angola and Nigeria.

The market conditions that made these possible have since returned. We are seeing bright price outlooks for commodities. Several commodity-exporting African countries can generate the financial windfall to make secondary investments in agriculture (with emphasis on agro-processing), manufacturing, solid minerals and services. We call this our MASS Agenda for Nigeria at Nexim Bank.

When one looks at the strategic imperatives for this transformation, one sees that today we can still talk of the demographic dividend that is inherent in our population structures. Africa has the manpower, at least in the very basic sense, to support economic growth on the continent. The youth population is huge. They can be employed. They must be employed.

But can we go far with reliance on extractive industries? It is not necessarily a categorical and capital 'NO'. If that were the case, we might again be talking about a 'hopeless continent.' But that characterisation has been confounded. Therefore, the extractive industries of Africa can provide resources to invest in secondary industries. Mother Nature has blessed our continent.

However, the major problem with extractive industries, especially hydrocarbon, is that it employs very few people. The OECD says in its recent report that the extractive industries accounted for no more than between 1-3 percent of global employment. Even then, most of the jobs in the sector are highly skilled. In most cases, expatriates take most of the jobs. Therefore, we have to re-engineer economic growth in sectors where we can generate employment for our teeming youth population.

So, we have the two building blocks for the realisation of structural transformation of African economies. The necessity is quite obvious. The resources to make the initial investments are available. The combination of both encapsulates the frontier emerging market status of several African states. And that is generating the interest of global investors in our continent and in our country.

Trade Infrastructure
Africa currently contributes no more than 3 per cent to global trade. That is dismal, and it puts a glass ceiling on the prospects of higher GDP growth rates of African countries. For there to be an improvement, African countries must grow trade within. Intra-Africa trade must be a key strategy for private sector development and consequently job creation and elimination of extreme poverty in our continent.

Nexim Bank found that absence of direct maritime links between West African States constitutes serious barrier to cross-border trade within the sub region. Shipment delays, which arise from trans-shipment arrangements that are largely through Europe, prolong cargo delivery time to between 45 - 60 days within the sub-region. This can be reduced to 3 days in most cases when direct maritime link is established. Poor road infrastructure also drives up the cost of transportation, causes excessive transit time, and therefore makes intra-regional trade non-competitive within West and Central African.

The time and cost efficiencies the Sealink Project will bring about are immediately apparent. Beyond this however, it will unlock opportunities in the maritime sector through effective indigenous participation. Much of the annual maritime freight payments of average $5 billion from import / export tonnages will be localised. This will help in generating maritime-related employments on the continent. Additional investments will be stimulated in multi-modal transport infrastructure that will also link non-littoral regional member countries.

Nexim Bank is enjoying extensive stakeholders support for this project. The African Development Bank has endorsed it, so also the Ecowas Commission and Maritime Organization of West and Central Africa (MOWCA). The Federation of West African Chambers of Commerce and Industry (FEWACCI) is sponsoring it. The Sealink Project will operate as a private sector business. Accordingly, a special purpose vehicle (SPV) is in place to deliver the project.

Strategic Underpinning
Investment in education is very important to the realisation of the structural transformation of the economies of African States. Strategies for human capital development for up-and-coming young Africans must target quantitative and qualitative outcomes. At every level of production and service delivery, we need to train and re-train our people. Although I have talked about intra-Africa trade growth, there is nothing there that says we can circumvent global competitiveness. We must benchmark global standards.

The role of technological know-how has already entrenched in our present world. One can only imagine that technology will continue to dominate performances of future economies. Africa must connect with this reality.

Inclusive growth is important as well. We must ensure that our women are integrated in both policymaking and business. When the woman is empowered, the family-the critical building block of functional societies  is empowered. Civil society must continue to demand governance reforms. One of the greatest enablers of the growth we have seen in our continent over the last 10-15 years has been recovery from political instability in several African countries. A representative government; one that is accountable to the people and is transparent, would influence domestic stability and attract external support for economic growth and structural transformation.

*Orya is MD/CEO, Nigerian Export-Import Bank