BusinessDay’s Publisher Frank Aigbogun and senior analyst, Lolade Akinmurele, caught up with Hans-Paul Buerkner, global chairman of the Boston Consulting Group (BCG), during his recent visit to Lagos, Nigeria. Here are excerpts from the interview:
We would like to welcome you to Lagos again. As you go around countries where BCG is established, what do you look out for?
I think the key really is the people, the entrepreneurial spirit and the effort to get things done.
It is always investing in people, investing in infrastructure, investing in institutions and investing in markets, financial inclusion is also very important. These are the four key pillars and I still see good moments around the world.
I know everyone talks about the trade conflict, increased polarisation in many countries and societies and climate change as key challenges, but I think overall the world is in reasonable shape, growth rates are quite reasonable and so I’m still optimistic we will continue on a good path. Even though, of course you know there are some catalysts that have slowed down but I think one should be realistic of what to expect.
I’m going to come back to the global economic environment but allow me take you further on the question I asked. What stands out for you in countries that you visit and what lessons can Nigeria learn from your observations?
Of course what you notice are two things; one is the infrastructure, from duly built airports to ports, railroads and highways, and of course the other thing is the discussions with people, when they talk about their lives and the lives of their children, about education, business and about how they feel.
I think these are the two most important issues and the key thing you see in emerging markets is that there is improvement in infrastructure. What you physically see is that moving from the three months to the next three months, a road that had not been finished in the last quarter gets completed. In the developed markets in Europe and North America, people are actually satisfied with what they have but are really worried about the future and everybody expresses this.
In emerging markets, people are not satisfied with what they have but they are optimistic about the future and they are willing to engage on the future. So that is something which you’ll hear all the time and that is why I like to be in emerging markets, which is where I spend most of my time because people are very optimistic and willing to take their destiny into their hands.
There are many places like Nigeria where the struggle with building infrastructure is prevalent and I want to ask what the global concepts that are working for developing infrastructure at a rapid pace and how can Nigeria tap into that knowledge.
First of all, I would say except for China, all countries are struggling with this and all new high ways and ports or airports take a long time.
In China you decide to embark on such projects and in two years you are done with it and everybody has to move aside. There is nowhere else in the world where that is possible and of course I’m aware in Nigeria you have particular issues with infrastructure but I don’t think it is something completely unusual. You find connectivity within Africa overall still with lots of room for improvement.
Same in Asia and Latin America but I think they are making progress because you find leaders like President Joko Widodo in Indonesia being much focused on infrastructure and really putting himself on the line and trying to remove obstacles.
Where there are issues, say with a village because a highway is supposed to move close by, he engages with the villagers and this has been on several occasions. He has tried to convince them and get things done. It still takes time but progress is being made. In India, the kilometres of roads being built per day has moved to up to 30 kilometres because within the government, there are specific people who really have the will and determination to get things done.
In India, we are working with the minister of transportation who is also in charge of building roads and he really is getting things done, public sector ports, increasing capacity, engaging the people. I think that’s what it takes, you have to have people-champions- who drive this and remove the many obstacles that are clearly there.
You alluded to the challenge of will and courage that is required to breakdown some of these barriers. In Nigeria we see an amplification of funding challenge for building infrastructure especially at a time where government revenues are flat, perhaps declining with rising debt service costs. What should Nigeria be doing to crack the funding challenge?
I think the key thing about infrastructure is not so much the funding. Again, I don’t know the details for Nigeria or Africa but I think it’s interesting to see that the money usually is there. In Asia certainly, maybe that’s also true for Africa, Chinese, Japanese and Koreans are really trying to build and also provide cheap finance. The development banks, the multilateral development banks are really engaged and there is also a lot of institutional investment from pension funds and insurance companies, who actually look for infrastructural investments and to have a steady flow of income. The key is getting these projects off the ground and get going. This is why many people hesitate because when you say you will build a new toll road, and then it takes about 50 years before you get started because there are a lot of struggles with all kinds of regulation, land disputes, court cases and so forth. The real issue in many places is not so much the money but the ability to get moving.
The reason we see funding as a challenge here, is not necessary due to the unavailability of capital, but unlocking it through creating a good asset class that people can invest in; like a good pipeline of projects that private equity, pension funds can invest in. In Nigeria we see government only, there isn’t a PPP project that I have seen come to the market in the last three years.
Different countries have different experience with PPP. For some, it has worked well but for many it has not, including developed markets. I think one of the key ways of financing is to sell existing projects; airport, ports, highways, railroads and then use the money to finance new projects because when you have brown field projects you know what you have, the investors are clear they can really size what they are getting. Whereas for Green field projects, you never know what would come and when it would come. So that may be a way of not only getting the money but also unlocking the funding by selling existing assets at a good price and with the proceeds building the next round of high ways, railroads and airports. I think we have been also working a lot on how to finance infrastructure, the uncertainty has been the major issues for most of the investors-the primary investors. If you can remove this by having specific projects, then it is a much easier task.
BCG is big on infrastructure globally, what would you say is the impact that the work your colleagues in Lagos has had on moving the needle in the area of infrastructure in Nigeria and what more can be done?
I think it’s always important to find the champions within the government or certain institutions that really want to move things forward. We have been working with a number of airports and help to create big expansions to increase the flow of passengers, to increase revenue and so forth. We have been working at ports, at terminals, increasing capacity significantly with very limited investment and I think the starting point has to be somebody who has the determination whether it is the head of the port in Jakarta, Indonesia, the head of the airport in Singapore or the minister in India who says he wants to really improve the public sector port in India and really expand with limited resources.
These people- the champions within government- are usually concerned with how they can make those places more effective and efficient. I am sure there are also champions in Nigeria, but I think this is the key part for me as it is not something one can do from the outside. You need to have someone, whether it is the public sector or private sector who really wants to get it done and is personally committed to engaging and removing the obstacles. There are many obstacles, not only here but also abroad.
You spoke earlier about global growth and that there have been concerns about the trade war between Unites States and China, do you think these days that it might not be as bad as most analysts had envisaged?
Well, we should say that there is not only a trade conflict between US and China. There is also one between US and Europe, one between US and Japan and another between Europe and China. In other places, you’d see trade barriers and tariffs being reintroduced by many countries. So I think there is a general concern about trade flows and that’s why we see trade as a percentage of global GDP stagnating and even decline some years ago, but it’s up again. At the same time we see more exchange of service and data. Globalisation is not dead or declining; it continues to move forward but takes a different form. So product has been the core, increasingly services, and of course data. The exchange of data is massive and so what we will see is an on-going globalisation but not quite as physically visible as we have seen it before and we need to address those conflicts and frictions between the various trading blocs and I am pretty sure we would find solutions because everybody would be hurt if we have a real imposition of massive tariffs, 35 percent or whatever the number on a large chunk of the world’s trade, everybody would suffer.
Retaliatory actions hurt different parts of the economy in different parts of the world but I think we should clearly see that especially, the conflict between US and China would continue beyond any trade agreement, because it is a conflict about being the strongest or super power of the world. This is not new thinking. The fight between US and the Soviet Union has now moved on to the friction between US and China.
Back to the issue of the economy, what should business leaders and CEOs be doing at a time like this when there is so much concern about growth and trade and as established relationships and partnerships are being tested as vigorously as we see today?
It is important to remain ambitious but at the same time be realistic. Whenever we see the economic growth forecast for the world in 2019 and then three months after they are being reduced by the IMF or World Bank, I think we have to be realistic once it’s global.
Europe would grow 1 to 2 percent, it can be 2 or maybe higher but it can also be 1 or slightly lower. US can grow 2 to 3 percent; Asia is around 5 to 6, Latin America maybe around 2 to 3 depending on commodity price, Africa too is also dependent on commodity price and while we have some countries growing quite high at 6,7,8 percent, the big ones like South Africa, like Nigeria and Egypt are growing more at the lower end of 2 to 3 percent.
I think it is very important not to always have inflated expectations because of the demographics certainly in Europe but also in countries like North America. The growth of productivity and also the debt level do not allow you to artificially create lower growth just by pumping more money. You have tried this before the recession, now you have seen that it has its limitations. With the technical population in Europe, you will have 1 to 2 percent growth.
The second element is business leaders should really think about their overall portfolio businesses. You need to question what businesses we are doing. By the way, there are no bad industries. In every industry, there are outperformers and underperformers. Although some people say certain industries are very bad, there are examples of outperformers in these industries. The difference between the outperformers and under-performers is significant. When you are looking at your portfolio, always look at yourself and ask where you can do better. You ask if you are really creating value in that sector.
If you are not getting the right answers, sell it off. The focus should be where you can create value and differentiate yourself.
For everyone it is important to look at the opportunity created by digitalization. Every industry, sector and company is digitalized one way or the other. The big-tech companies are putting themselves between you and your customers. The big-tech companies have a much higher valuation and have more currency to make acquisitions. Everyone has to think of what digitalization has done for them and how they can benefit. They need to also ask what the threats and challenges are.
Secondly, I think every company needs to start thinking global. It doesn’t really mean you have to be everywhere. But you should ask yourself; where are my customers? How can I really reach customers? Where can I supply or find suppliers in the world? Where can I find relevant data? Where can I work with others to create eco-systems?
The third one is given that there is so much criticism of capitalism or market societies, I think just focusing on shareholder value is not long and sufficient, you would have to create value for all your stakeholders; and I think it’s really important to talk about your customers, your employees, your suppliers, government entities and your investors. You have to engage with all of them and create value for them; otherwise you may even lose your license to operate.
Typically CEOs around the world that you meet will ask you your view about certain businesses. What message do you take back to them about Nigeria this time?
Well, certainly, I will say it is important to invest in Africa, but it must be a long-term plan. There are lots of portholes on the road. I think the key is building step by step. It takes a long-term view to have a strong base, and a base which goes beyond commodity. There is opportunity to produce in Africa and to really export from Africa to the rest of the world.
Did you notice any change on the airport road when you came out of the airport?
It took me 40 minutes to get to my office from the airport and that was really a surprise.
Any other surprises?
Yes, of course. But you know that growth is slow in Nigeria. Unemployment is high.
I had the feeling that four or five years ago, there were a lot of Nigerians coming back into country to seize one opportunity or the other, but now there is a net outflow. Everybody seems to be speaking of Canada as the place to go to. That has also caught me by surprise.