All eyes are on Adeniyi Adebayo, Nigeria’s newly appointed minister for industry, trade and investment, to rebuild an already collapsed investor confidence in an economy still struggling with weak growth.
Foreign direct investments (FDI) into Africa’s biggest economy tanked after a 2014 collapse in global oil prices, coupled with an agitation in the Niger Delta region, which caused the country its biggest nightmare in more than two decades.
Data from the National Bureau of Statistics show that investment into the country dropped 53.5 percent in 2015 to $9.8 billion, from $20.7 billion in 2014. At the thick of the recession in 2016, the figure reached its lowest levels at $5.1 billion. Not until the country exited recession in 2017 that investors started building up interest again.
“Nigeria is faced with liquidity challenge and unless the government rolls out far-reaching policies that would attract investments, the country would remain cash-strapped and not generate the needed revenue to achieve inclusive growth,” Ayo Terriba, CEO of Economic associates, said recently in Lagos.
Even though FDI in Africa’s biggest oil- producer has seen an uptick, the numbers are still wide off the mark when compared with 2014 levels.
But attracting investments comes with strict policy reforms.
Nigeria’s West African neighbour, Ghana, for the first time, overtook Nigeria in attracting investment in 2018, according to data tracked by the United Nations Continental Trade Agreement (UNCTAD). Ghana attracted investments valued at $3.1 billion ahead of Nigeria’s $2.2 billion.
At $2.2 billion, investments into Nigeria were the lowest in 13 years, UNCTAD noted in the report.
The World Bank Doing Business report put Nigeria in 146th spot out of 189 countries, a ranking that experts say foreign investors look out for when making investment decisions.
The Washington-based lender outlined key recommendations for Nigeria, including speeding up registration of properties, payment of taxes and fixing infrastructural deficits.
Industry experts say in order to build investor confidence, Adebayo must work closely with the Central Bank of Nigeria (CBN) to align fiscal policies with monetary sides.
Since 2016, Nigeria has held onto a multiple exchange rate system, which has produced mixed results.
The system was implemented with a view to cushioning the effect of dollar shortages as foreign investors dumped the naira to flee to other markets.
Even though the situation appears to have eased, the country has taken stance in defending the Naira by keeping multiple windows.
The International Monetary Fund, in its article IV released earlier this year, urged Nigeria to scrap its multiple exchange rates, remove fuel subsidies and review electricity tariff.
Though the issue of FX lies with the CBN, the investment minister must work closely with him to eliminate the inefficiencies in the FX market that hurt investors.
The World Bank raised a red flag in its 2019 Doing Business report scoring Nigeria as low as 28.89 percent in registering property.
Adebayo must, therefore, collaborate with the power minister to resolve pending issues around electricity supply. This is biggest energy occupies 30 to 40 percent of investors’ expenditure.
“Nigeria needs to fix the problem of electricity if at all it wants to make head way in attracting investments,” Muda Yusuf, director general, Lagos Chamber of Commerce and Industry, told BusinessDay.
This means that Adebayo and his minister of state Maryam Katagum must understand the enormity of their responsibility and the need to collaborate with other ministers to achieve results.
Manufacturers are confronted with high production costs caused by poor infrastructure such as bad roads and absence of railways which are cheaper for logistics.
In the first quarter of 2019 Manufacturers CEOs Confidence Index (MCCI) report released by MAN, 92 percent of CEOs interviewed said multiple taxation was their biggest impediment. But in the second quarter, the number rose to 95 percent.
“This is substantiated by the numerous taxes, levies, fees and other charges that manufacturers pay to agencies of the federal, state and local governments,” the report says.
“Consequently, there is the need to streamline multiplicity of taxes and ensure that only approved taxes/levies/fees are charged,” MAN suggests.
The CEOs complained that delays in clearing raw materials and machinery often result in high demurrages which increase production costs and slow down manufacturing operations.
A 2018 report by the Lagos Chamber of Commerce and Industry (LCCI) had supported the CEOs’ point. The report by the LCCI had disclosed that 5,000 trucks seek access to Apapa and Tin Can ports in Lagos every day even though they were originally meant to accommodate only 1,500 trucks.
The report said that Nigeria loses N600 billion in customs revenue, $10 billion (N3.6trn) in non-oil export sector and N2.5 trillion in corporate earnings across various sectors on annual basis due to the poor state of Nigerian ports.
The LCCI report further noted that 25 percent of cashew nuts exported from Lagos to Vietnam in 2017 went bad or were downgraded owing to delays at Lagos ports. Similarly, only 10 percent of cargoes were cleared within the set timeline of 48 hours while the majority of cargoes took between five and 14 days to clear. The report added that some cargoes took as many as 20 days to be cleared at the ports.
Just like the LCCI report of 2018, MAN’s survey generally shows that CEOs are frustrated by the state of the ports. Many of them want the federal government to improve the state of ports outside Lagos to decongest Apapa and Tin Can.
This is one serious issue hurting investors. Delays of raw materials and export products have no other effect than lower margins for firms, thereby cutting jobs and reducing the GDP.
The ministers must understand that unless they get involved in resolving Apapa and Tin Can problems, they may not achieve much. This is one area pervious ministers have failed, and industry players say the new ones must guard against it.
Think about funding. Nigeria’s benchmark interest rate is among the highest in Africa at 13.5 percent. Ethiopia’s is 7 percent; Kenya’s is 9 percent; South Africa is 6.75 percent; Zambia is 10.25 percent, and Cameroon is 4.25 percent.
Similarly, Rwanda is 5 percent; Mauritius, 3.5 percent; Algeria is 8 percent, and Senegal is 4.5 percent.
The National Bureau of Statistics (NBS)’s recent MSME report shows that 85 percent of businesses could not have access to external financing within 2013 and 2017.
In fact, only 5.3 percent of SMEs had access to bank credit, even with 40 percent of them having relationships with banks.
Due to high inflation rate and the monetary policy rate, deposit money banks give out loans at 20 to 35 percent interest rates per annum with a usually 12-month tenor while development banks like the Bank of Industry capable of issuing loans at single-digit interest rates lack the required capital to keep up with demands.
A CEIC data show that the lending rate of Nigerian banks dropped by 7 percent, from 16.08 in February to 14.92 in March 2019.
Data from the NBS show that banking sector credit to the economy declined by 2.9 per cent, from N15.6tn in Q3 2018 to N15.1tn in Q4 2018. Similarly, the number of customers borrowing from commercial banks also headed south.
In 2018, MAN said in its economic review that lending rate to the manufacturing sector dropped to 22.21 percent in 2018, from 22.84 percent in 2017. But analysts see that rate as high and incapable of rejigging the majorly comatose productive sector.
What the ministers can do is to recapitalise the Bank of Industry which they supervise. The BOI is the only bank that truly funds production at single-digit rates. The Bank of Agriculture (BOA) is also desirous of funding the agric value chain at single-digit rates, but it is abysmally cash-strapped, with the CBN doing some of its work.
Recapitalisation of the BOI is, therefore, key to enabling it free money for productivity, which will cut the precarious unemployment rate of 23.1 percent. Poverty rate is almost 50 percent. The investment, trade and industry minister has a role to play by ensuring manufacturers and investors get cheap loans to produce and employ.
Lack of infrastructure reduces productivity, constrains business potential and hinders the capacity to create jobs. Working with the transport minister to improve logistics and movement of goods from one end to another through the use of rails and sea ports will boost productivity and reduce the cost of production, analysts say.
Similarly, the minister must be part of the African Continental Free Trade Area (AfCFTA) agreement negotiations to ensure that Nigeria gets the right deals. The Common External Tariff (CET) failed Nigeria because of poor negotiation and it must not be allowed to repeat.
Due to poor negotiation, the CET created a number of complications for Nigeria, with finished medicines from ECOWAS countries entering the country at zero duty while raw and packaging materials came in at five to 20 percent tariff. Though this has been reversed, it caused a distortion in the pharmaceutical market.
ODINAKA ANUDU, MICHAEL ANI & GBEMI FAMINU
