Ambassador Desmond Akawor on Nigeria's 53rd Independence Day
Trade and investment drivers of
Nigeria's transformation agenda
The following article was contributed to The Korea Post for publication by Ambassador Desmond Akawor of Nigeria in Seoul on the occasion of the 53rd Independence Day anniversary of Nigeria.--Ed.
Various development experts have stressed the importance of increased investments in the face of current harsh global economic realities. Nigeria's 53rd Independence Anniversary Celebrations on 1st October, 2013 therefore provide an opportunity to highlight efforts in recent times that has made our nation a prime destination for foreign investment and one that ensures some of the highest Return on Investments (RoI) in the world.
The President of the Federal Republic of Nigeria, His Excellency, President Goodluck Ebele JONATHAN, GCFR has established an economic team that includes experienced and reputable members and has announced plans to increase transparency, diversify economic growth, and improve fiscal management.
Aside from reports revealing investment commitments of over USD500 billion and reports by world industrial giants that projects are at various stages of execution in Nigeria, observers have said that there is obviously a better image for Nigeria. This is as evidenced by the new interest in the Nigerian economy, shown by the continued visits of Presidents and trade ministers from advanced economies to Nigeria to explore win-win trade and investment relationships.
Gains So far
Recently, Nigeria was ranked as one of the four major investment destinations and growth areas in the world. KPMG, one of the world’s foremost audit, financial and tax advisory firms, said Nigeria’s newfound status followed the disappointing returns recorded by the BRICS, with the exception of China.
In the same vein, UNCTAD’s World Investment Report 2012, subtitled ‘Towards a New Generation of Investment Policies,’ released recently, also placed Nigeria as Africa’s biggest destination for Foreign Direct Investment in 2011, quoting total FDI inflows of USD8.92 billion. According to the report, Nigeria received USD8.92 billion in FDI, which placed it first in Africa. South Africa was ranked next with total FDI inflows of USD5.81 billion.
Friendlier Business Environment
There have been a number of efforts aimed at reforming the Nigerian investment climate and improving the country’s Doing Business ranking. Under two years, the Doing Business and Competitiveness and Investor-Care committees have been revived; the One-Stop Investment Centre at the Nigerian Investment Promotion Commission (NIPC) has been repositioned and strengthened to pave the way for efficient coordination of investment facilitation between relevant government agencies and achieve a 48-hour response target for all enquiries. The National Competitiveness Council of Nigeria has also been established to drive healthy competition in business. These were all spearheaded by the trade and investment ministry.
During the inauguration of a taskforce to review investment policies in Nigeria, the Head, Investment Policy Review for Africa, OECD, Mr. Alexandre de Combrugghe, said that the organisation’s decision to partner Nigeria was due to the growing global investment interest in the country. This corroborates similar pronouncements by international experts. Combrugghe said the economic reforms embarked upon by the Jonathan administration had helped to strategically position the country as a major investment destination.
Starting a Business
Registration of new businesses, which used to be so cumbersome, can now be done within 24 hours from Abuja and Lagos. There is an ongoing redevelopment of Corporate Affairs Commission (CAC) software systems to enable online registration of businesses. The potential annual savings to investors in this regard is estimated at USD16.3 million.
Nigeria’s Trade Position
Nigeria has embarked on a multi-focus trade strategy to tackle the various challenges for domestic, regional and international trade based on their peculiarities. This has been yielding results. For instance, the Central Bank of Nigeria in its ‘Nigeria’s External Sector Report 2012,’ said, “Nigeria’s trade balance improved significantly from USD8.62 billion in Q2, 2012 and USD1.60 billion in Q3, 2011, respectively, to USD12.37 billion in Q3, 2012. “Aggregate exports rose by 8.2 per cent, from USD22.53 billion in Q3, 2011 to USD24.37 billion in Q3, 2012 while aggregate imports (CIF) declined by 42.7 per cent to USD11.99 billion in the review period. The trade balance position improved due to lower imports of goods and services and increased exports earnings.”
This shows that the nation is shifting gradually away from being an import-dependent nation. Increasing export implies increased domestic production, job creation and wealth generation. And all these are invariably correlated to the rigorous implementation of growth-enabling policies in the key sectors of the economy.
Though the volume of trade between the Republic of Korea and Nigeria had recently hit USD2.8 billion, the trade volume was far below expectation, and there were huge opportunities that Nigeria can tap into to boost Foreign Direct Investment (FDI) from South Korea. For instance, Bonny Gas Transport (BGT), a subsidiary of the Nigeria Liquefied Natural Gas Company Limited (NLNG), has placed an order for six new LNG vessels from Samsung and Hyundai Heavy Industries (HHI) both of South Korea at a total cost of USD3.2 billion. Other major areas of FDI from Korea where we can leverage the opportunities to building our economy are in the areas of shipyard building such as the Ibaka Deep Seaport, Brass LNG/Shipyard and Koo Oil & Gas Complex; agriculture; mining, iron and steel development; security; construction industry; oil and gas; refinery and Petro-Chemical industry, Diaspora fund remittance and others.
New Investment Promotion Initiatives
Nigeria has commenced the implementation of the National Industrial Revolution Plan. The Plan seeks to increase the contribution of industry to GDP; develop priority sectors to top one in Africa and top 10 globally; reduce dependence on imports; and create jobs. The aim of the plan is to place Nigerian industries on the front seat of inclusive economic growth and development.
Nigeria is rigorously implementing the Backward Integration Policy used in the cement industry in other key sectors. It has developed a new Sugar Master Plan / Policy which will deliver about 1.79 million metric tons of sugar; 161.2 million litres of ethanol; 411 megawatts of electricity and 117,000 jobs when fully completed. It has also designed the Nigerian Automobile Industry Development Plan to provide the environment for the orderly development of the sector. These initiatives, have already laid the foundation for ample job opportunities for those in the working group.
According to statistics by the Manufacturing Association of Nigeria, industrial capacity utilisation has risen from 46.44 per cent in 2010 to 48.24 per cent to date. Capacity utilisation in the textile, apparel and footwear sector has also significantly increased from 29.14 per cent to 52.01 per cent.
The Federal Government’s intervention in the textile industry has, in addition, resulted in the reopening of moribund textile mills, saved about 8,070 jobs and created 5,000 new jobs through the disbursement of the N100 billion CTG Intervention Fund. The Q1 2013 economic report of the CBN also said the Federal Government’s USD1.13billion non-oil sector earnings in the first quarter of 2013 were driven largely “by receipts in the industrial sector.”
Many activities point to the fact that the Small and Medium Enterprise sector is being targeted for improved performance. First, the National MSME policy is ready for launch. This is the first time such a policy will be in place. To tackle complaints about non-coordination of the activities of agencies in charge of developing SMEs in Nigeria, Nigeria has developed the National Enterprise Development Programme (NEDEP). The Bank of Industry has also increased its focus on MSMEs to 85 per cent of its commitments in total. According to BOI, in the last year, there has been a 30 per cent increase in the number of cumulative loans approved, 67 per cent increase in cumulative value of loans and 161 per cent increase in jobs created.
The government is working toward developing stronger public-private partnerships for roads, agriculture, and power.
Nigeria's financial sector was hurt by the global financial and economic crises, but the Central Bank governor has taken measures to restructure and strengthen the sector to include imposing mandatory higher minimum capital requirements. Nigeria clearly has a competitive edge in the international capital market, and the country's economic growth is robust with inflation rate projected to remain within the single-digit band throughout 2014. The Nigerian economy grew on average above 6 per cent in the last decade and is projected to grow by 7.6 per cent in 2014. Total investment as a percentage of Gross Domestic Product was 22 per cent in 2012 and is projected to increase by 23.6 per cent in 2013.
The risk of overheating that makes international capital sometimes undesirable is minimal, as the economy possesses deep absorptive capacity especially in infrastructural investments. In fact, there is a renewed drive for public-private partnership (PPP) as a deliberate policy of government with several incentives. There is also the opportunity for higher returns on investments on account of the interest rate differential between the country and most developed countries.
Furthermore, the adoption of the International Financial Reporting Standards (IFRS) by all banks would enhance transparency and improve comparability in banks' financial reporting in a global environment. Specifically, the establishment of the Asset Management Corporation of Nigeria (AMCON) in 2010 had addressed the problem of non-performing loans in the Nigerian banking industry making it more sound and effective.
Besides, the positive response of investors to the most recent Eurobond issued by the federal government was indicative of the attractiveness of Nigeria's sovereign debt to the investment community. The interest on the dollar-denominated instrument was buoyed by the relatively high yields and the commitment of the monetary authorities to a stable exchange regime.
Important reforms in this respect include reductions to the domestic cost of doing business, a functional credit registry, and changes to property titling that allows the poor and vulnerable sectors of the economy extract value from their capital.
Sovereign Wealth Fund
The Federal Government has also established the Sovereign Wealth Fund (SWF) to shield Nigerian economy from adverse global shocks. The fund with about one billion dollars was created to redistribute oil wealth for the benefit of the present and future generations. It will also help in providing critical social infrastructure to stimulate private sector investments for economic growth.
Due to the various reforms, the nation's external reserves had increased from 44.2 billion dollars in December 2012 to 46.9 billion dollars in August 2013. Nigeria had become on investment destination in recent years because of its steady economic growth and favourable economic policies.
Total investment on GDP was 22 per cent in 2012 and we have a projection of 23.6 per cent for 2013. Inflation rate was 8.7 per cent in July and it is projected to remain within single digit band in 2014.
The Asset Management Company of Nigeria (AMCON) is consistently addressing the issue of loan repayments and the restructuring of bad debts in commercial banks. This has created a safer and less risk-prone banking system in the country. The government is also focusing on public-private partnerships that would drive the economy towards higher returns on investment.
The recent unveiling of special banks is to lend money at a low interest rate to the agricultural sector and micro, small and medium enterprises to enhance their growth. Nigeria had competitive edge in the global capital economy in spite of the recent global financial economic crises that had adverse effects on major economies in the world.
Countries controlling 75 percent of the world's GDP have issues today they' have not faced before - large budget deficits, fiscal consolidation, low growth. In Africa, we are now a high-growth environment. Six of the 10 fastest growing economies are in Africa, Nigeria being one of them. Seven of the 10 fastest growing by 2015 will be from Africa, and Nigeria will be one of them. We are in a very different economic and political situation today. Nigeria has grown at an average rate of 8.8% over the last 10 years. When you look at the debt to GDP ratio, it is under 20%. Average in Europe is 18.4. When you look at return on investment, we rank at number four globally with an average return of 35%.
Nigeria is far more stable and stronger. We have had unbroken democratic rule for the past 14 years. We have had three changes in government. In 2011 we had an election that was described locally and internationally as the freest and the fairest in the country ever.
When you look at the macroeconomic situation, exchange rates have remained stable. So it is not a surprise that Nigeria, for the first time, was the preferred number one destination in Africa for investors in 2011, attracting USD8.1 billion - 46% higher than in the previous year. In 2012 Nigeria retained that position.
As a country we have done very well in attracting investment. That is not a surprise because the UNCTAD (United Nations Conference on Trade and Development) World Investment Report ranks Nigeria at number four globally in returns on investment at an average rate of 35.5% compared to 7% on average rate globally. Based on those returns, our goal is to be attracting more than USD30 billion worth of investment per annum, because the opportunities there are huge.
In the past, we were satisfied with exporting raw materials and buying back finished products, which means exporting jobs. You use the proceeds from the sale of the raw materials to buy finished goods - a wrong policy that we have followed for decades. All that has changed. The game now is industrialization - it's about adding value.
For example, in agriculture we have competitive advantage because we have 84 million square hectares of arable land, and only 40% of that is cultivated. We have very good climate for agriculture and almost anything and everything can grow in the country. If you look at cotton, it will grow in 23 states in the federation. But it is not about the cotton, cocoa, sugar cane or palm kernel. It is what you do with those commodities. Rather than just exporting the raw material, now it is about industrial processing.
Cassava is another example
Yes, we are the number one producer of cassava in the world, but it is not only about producing the cassava. Textiles used to be the second largest employer in the country. Today we are reviving that. We want to go from cotton to garmenting to fashion, because it is the retail end that actually provides a lot of the jobs. If you look at the industrial sector, among the top ten most populous nations in the world, there are only two that do not have an auto program - Bangladesh and Nigeria. We are determined to get our policy on automobiles right, which is 99% complete today. We have been working round the clock to develop that policy, because I want the likes of Hyundai and KIA to come to Nigeria and start assembly.
In the oil and gas sector, we want a vibrant petrochemical refinery that will give rise to local plastic and chemical industries. While we will still sell our oil and gas, we will sell it to local people that are manufacturing and still get that revenue. That is the another area for foreign investors in Nigeria.
Action on Nigeria's longstanding power shortage
Our policies are making it very easy for investment to flow into different sectors of the economy. The bedrock of all this will be infrastructure and power. The electricity sector reform, which started in 2000 with the issuance of the National Electric Power Policy to unbundle the sector and develop a competitive electricity market, has made significant progress with the final acquisition of the power assets in the country.
For example, the ownership of 70 per cent of the gas-fired Egbin Power, Nigeria’s largest generating plant (1,320MW), and one of her best performing, was sold to KEPCO Energy, a joint venture between the Korean Electric Power Corporation and Nigeria-owned Sahara Energy, at a cost of USD407m in February 2013. The privatisation process has generally been well received, attracting hundreds of bids for the other generating companies. Power China is committed to building 20,000 megawatts of power in Nigeria in the next 10 years. That is about USD20 billion in investment. Electobras from Brazil has signed an MOU to build 10,000 megawatts of hydroelectric power at close to about USD10 billion. Siemens and GE have said the same thing.
To make it easier for investors and to remove the risk, we have set up the bulk trader to buy power from the generators and interface with distribution companies. For power generators, because of the bulk trader it is almost guaranteed income and is sustainable over a long period of time. You cannot lose.
Nigeria is also examining laws affecting investment in the country. We have an insolvency bill going to the national assembly. We have anti-trust and consumer protection bills going to the national assembly. So these are some of the initiatives Nigeria is doing to make sure that we have the right environment for investors.
Nigeria emerged Africa’s biggest destination
In 2011, Nigeria emerged Africa’s biggest destination for foreign direct investment with FDI inflow of USD8.92 billion, according to the World Investment Report 2012 by the United Nations Conference on Trade and Development. Investment in infrastructure will ensure that Africa remains on a sustainable growth curve. More FDI is likely to occur in countries with good physical infrastructure such as electricity, rail transportation and bridges. Good infrastructure increases the productivity of investments and therefore stimulates FDI flows. FDI inflow to Africa has exceeded official development assistance since 2005. While this is a welcome development the rapid rate of urbanisation has led to an increasingly urgent infrastructure gap.
Let me therefore charge our development partners in Korea especially the private sector to play a leading role in our commitment to localisation and a genuine development partnership. Government is working hard to modernise and harmonise the regulatory environment to become more competitive, more growth-friendly and investment friendly. Investor confidence is being sustained and strengthened by policy continuity and commitment to contracts and projects in place.
While underscoring the importance of investment security, there is also a strong emphasis on complete transparency, a strong judiciary and a good process for adjudication of disputes, law enforcement and improved civil society.
Need for Korea-Africa Centered Policy
Within 10-20 years, Africa’s annual production value will be between USD 1.5 and 2.0 trillion. The region has 80-90% of the world’s chromium and platinum group metals, 10% of its oil reserves of oil and 40% of its gold. Our continent also has some of the earth’s largest deposits of iron ore, uranium and copper. Our common fatherland has approximately 600 million hectares of arable land suitable for cultivation, of which 15% of this land is developed. Per capita water resource is 4,600 square meters, and this is more than that in Asia.
The African story however, is not only about natural resources. A great revival is taking place in our telecommunications, retail, finance and other sectors. More Africans are having more disposable incomes, the middle class is expanding, more than 60 million Africans have an income of USD3,000 a year and this is increasing to more than 100 million Africans in a couple of years. The Africa Development Bank now reports that over 350 million Africans, a third of the continent’s population, are in the middle class.
The media, particularly in the West is fixated on depicting Africa as a continent of conflicts and natural disasters. This image is definitely not the narrative of Africa today. More than 90% of countries in Africa have stable democratic regimes at peace with themselves and their neighbors. There are fewer armed conflicts now in Africa than ever before, and we are taking the lead in ensuring quicker return to stability in countries affected by armed conflict through more robust frameworks designed and implemented by the African Union, ECOWAS, and other regional organizations in the continent.
Democracy, political and economic stability are taking roots in the continent. Our economies are becoming more open, our societies more tolerant, and our budgets more balanced. Our debt burdens have declined and we are reducing rates of inflation all over the continent. The results are greater growth rates than ever before. Africa’s doing business rankings, transparency indicators and the number of companies in the race to invest in the continent is increasing. All over the continent it is becoming easier to register businesses; tax systems are becoming clearer, investment protection laws stronger, and fiscal management more prudent
Africa is the new frontier for economic growth and investment. We are the worthiest place for investment in the world; our consumer markets are growing; and the consciousness of return and the synergies for growth, dignity and freedom that this return could bring about are more robust.
Whilst there are some remaining challenges, we are in Nigeria, as in many other countries in the continent, moving on to ensuring international best practices in our mineral acts and providing fiscal incentives for enterprises in mining, infrastructure, agribusiness, tourism, value addition and renewable energy.
Since the Republic of Korea and the Federal Republic of Nigeria established diplomatic ties in February 1980, Nigeria has been one of the most important friends of Korea in the African continent. In 2011, bilateral trade volume between the two countries exceeded 3 million US dollars, making it the second largest trading partner for Korea in Africa. Many of Korea’s top enterprises operate in Nigeria, including various sectors such as trade, power and energy.
Exchanges of high level government officials have been active as well. Since the first visit of then President Obajanjo to the Republic of Korea in 2000, then ROK President Roh Moo-hyun visited Abuja in 2006, followed by the second visit by President Obasanjo later that year. In 2010, former Korean Prime Minister Dr. Chung Woon-chan visited Abuja as the Special Envoy to congratulate the 50th Anniversary of Nigeria’s Independence and the 30th anniversary of establishment of diplomatic relations. Most recently, President Goodluck Jonathan, GCFR, has visited the Republic of Korea to attend the 2nd Nuclear Security Summit.
In addition to its Embassy, the Republic of Korea has two other important institutions located in Abuja: the Korean Cultural Center Nigeria, and the Office of the Korea International Cooperation Agency (KOICA). The former is actively promoting cultural exchanges between Korea and Nigeria, while the KOICA Office is serving as a focal point in coordinating Korea’s grant aid implementation in Nigeria under the auspices of the Embassy. In Lagos, the Republic of Korea maintains a branch office of the Embassy and the Office of Korea Trade-Investment Promotion Agency (KOTRA).
To review some agreements already entered into between Nigeria and some Korean investors in Nigeria and strengthen our commitment to sustaining the economic growth being recorded in recent years, the Supervising Minister of Foreign Affairs, Prof. Viola Adaku Onwuliri has endorsed that the 5th Joint Commission between Nigeria and Republic of Korea be held in November, 2013 in Seoul.
Besides, Nigeria, in her transformation agenda, is also advocating for her firms to invest abroad. In an age of deepening relations between the Korea and Nigeria, the low number of Nigerian companies investing in Korea is a cause for concern. This means the need for innovativeness and flexibility in taking advantage of our cultural differences through bilateral cultural exchanges, and surmounting the financial and political obstacles, in such a dynamic environment. Deepening relations could arguably promote a better flow of goods, services, technologies, ideas, and resources between the two countries and unlock their potentially great markets. k