• Sunday, December 03, 2023
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Economic notes from Moscow



In a remarkable 20 years, Russia has successfully transformed from a central planning based economy to a market based economy. In those 20 years also, Russia has, perhaps, been training itself to become accustomed to the volatility and crisis sometimes associated with largely capitalist economies.

The country suffered its first crisis in 1998 and just a decade after, the economy is reeling from the most severe global economic crisis after the 1929 depression.

Indeed, the impact of the ongoing global economic crisis on Russia is best understood by a decline in its economic activity in 2009 by about eight percent. At the early stage of the crisis in Russia, the government had sought to defend the dollar rate of the rouble in 2008, but was forced to devalue the currency after oil price fell. Not so coincidentally, some will argue, net capital outflow was US $52 billion last year. But since the forced devaluation of 2008, the rouble has become stronger and stable at the back of increasing oil prices since 2009.

It is very easy to compare Russia with Nigeria, and there are indeed some striking similarities. For instance, to the extent that Russia depends on oil and gas revenues for foreign exchange earnings and significant percentage of government revenues, as in Nigeria, there is acute similarity. However, the Russian economy is quite different from that of Nigeria. In terms of scale, oil and gas revenue is more than five times that of Nigeria; oil and gas only represent 45 percent of government revenue in Russia, while in Nigeria, represents over 80 percent.

Now, the motivation for this piece was the Renaissance Capital investor conference I attended last week in Moscow. It is essentially an emerging market conference, as Renaissance itself is an emerging market investment bank. For a conference held in Moscow, by a bank with headquarters in the city, and with majority of its staff, and indeed, the top five executives, non Africans, it is remarkable that Africa was extensively discussed and the emergence of Africa as the next economic frontier in the global economy was taken very seriously.

From Nigeria to Kenya, Angola to Ghana, and Egypt to Mauritania, the African story of the last decade has been largely different from the ones before it. This different story is largely written in the reforms that have been undertaken within the same period and, not unconnected, the large debt relief programmes during the same period. The economic reforms and debt relief combined to attract more investment into these economies, and it must be added, not only foreign investments, but domestic investments as well. At a single stroke, debt forgiveness helped remove the risk of the incessant devaluation or depreciation of African currencies, something that always frightens investors.

Throughout the conference, analysts were very bullish about African prospects, led by their assessment of Nigeria. Most of the analysts weigh in on Africa as presenting the most attractive investment opportunities in the global economy today, and more so, in the coming decade. Of course, three characteristics make this assertion a serious one. First, natural resources have become increasingly important within the last decade, and set to continue, as global economies search for resources to support their economic production and growth. Second and related to the first, Africa is becoming an increasingly robust market, as demand and general economic activities rise on the continent. Third, Africa today is more stable than it was a decade ago, despite the pockets of wars, famine, and disease. Reforms have led to a more politically, economically, and socially stable continent than over a decade ago. This stability is bringing in investments more than ever before.

But, are we there yet? The simple answer is no. The truth is that no African country, besides South Africa, can be called an emerging market yet, but the greater truth is that many are truly on their way to becoming one. The main characteristics that prevent but are required for many African countries to be considered truly emerging markets are the same. They remain: infrastructure, improved stable polity and governance, and the existence of viable institutions. There are varying details from country to country, but these three parameters are critical to the investments required to make progress in many African nations.

Nigeria, as expected, was well represented, led by former president Olusegun Obasanjo, and Tunde Lemo, a deputy governor of the Central Bank of Nigeria (CBN).  And this country, perhaps, has the best potential in Africa, but everyone also recognizes that until seriousness is attached to that potential, the potential will only remain what it is, potential. With every parameter that should be our strength also come our weakness. Our population and demographics are supposed to be our strengths, but they are also our weaknesses due to lack of skills and sufficient education for every level of our needs.

In the same way, our diversity, which is supposed to be a weapon of strength, is daily being used as a divisive weapon, politically. Nevertheless, Nigeria can develop into an emerging and serious investment destination if we just make progress on our institutions, power, and reduce the lever of government in the economy.