Failing to withstand external shocks resulting from the global crash in crude oil prices, Nigeria has suffered two consecutive quarters of negative growth. With rising unemployment, soaring inflation rates and negative growth the country is looking for solutions sooner rather than later. The Nigerian government has undertaken some policy measures to help reverse the current predicament but the jury is still out on the effectiveness of these policies.
Ventures Africa spoke with Mark Bohlund, Economist at Bloomberg Africa and the Middle East, concerning the effectiveness of the government’s policy initiatives, the state of the Nigerian economy with regards to the exchange rate and Nigeria’s economic projections in the near future.
Ventures Africa (VA): Do you first think that the import ban imposed in Nigeria is the right approach?
Mark Bohlund (MB): Yes, I mean this is something that has been used with the cement sector successfully where Nigerian has gone from being a net importer of cement to being a net exporter, many thanks to the investments of the plants being built by Dangote cement. In that case, it has been successful and it is an example to be followed but you need to carefully pick, not bite too much of the apple or the tree and pick industries where you can become reasonably competitive within a given time frame. So I think this is a case in agriculture and manufacturing. But if you don’t do that (pick industries carefully) like say for instance in Kenya and East Africa. They were talking about banning the imports of second-hand clothes they call ‘Mutumba’ but I don’t think this is particularly effective because I don’t think you can effectively compete in costs with second-hand clothes that are sold in Thailand or US for a couple of dollars. So people instead of paying 100 naira or 200 naira for a shirt are paying 10, 15 thousand because it is produced domestically. It means they have less money to spend on other things, they have less money to spend on airtime and less money to spend on beer brewed by Nigerian breweries. So you need to be judicious in imposing restrictions. But I do think it is the way going forward in the agricultural and manufacturing sectors. There are a lot of other things that need to be fixed with the power sector and transport.
VA: With the currencies in Africa’s biggest economies losing value, how can investors be persuaded to stay in the country?
MB: Well, I think there needs to be a strong shift in government from creating problems for investors in repatriating their funds, access to FX, to actually creating solutions. Solutions to the power problems, the transport, the infrastructure. With all the oil revenue that Nigeria has gotten in the past decade they should have world class infrastructure on par with China but sadly this has not been the case. They have all been spent on importing goods that now people can’t afford to import and now that makes things a lot more difficult and makes the adjustment process a lot longer and you need to convince the foreign investors that it’s worth the risk of investing money, that if they invest in a power plant or manufacturing plant that they will have access to power and they will be able to repatriate the funds. But Nigeria is now at a disadvantage and I think all of the policies that were taken by the government, the authorities and the central bank over the last 18 months have just made people more sceptical about investing in Nigeria. So there needs to be a change in the mentality of the government in order to fix problems rather than creating problems.
VA: So the government’s policies are one of the biggest reservations that investors have about Nigeria?
MB: Yes, they’ve tried to do too much overnight. Just deciding that you are just going to lend dollars or give access to these manufacturers and they are going to create. I mean this is a longer process and you needed to get some easy wins and convince people that you are fixing some or at least attempting to fix some of these long-standing problems rather than giving out dictates on what people should do.
VA: Given that inflation rates are at record high levels, do you think that the government should be focused on monetary rather than fiscal policy?
MB: I think the main objective should be to fix the energy sector. I mean no one is productive if they don’t have access to energy. Your farmer can plant crops and harvest it later using basic tools but you need power to more or less do anything. This is a sector where Nigeria is very much behind the majority of other African countries when you look at the energy output per capita. Many countries produce as much energy as Nigeria does even though their population is a lot lower. So they need to fix this and if they can do that and give people confidence that they can solve other problems. I think that is what the government should be focusing on and let the market dictate more things when it comes to monetary policy and the value of the naira
VA: Do you think the financial sector has a role in alleviating the burden of producers in Nigeria?
MB: They definitely have but this is difficult. The financial sector in order to operate efficiently and lend to agriculture, lend to borrowers of retail, retail clients rather than oil companies they need to have access to credit information, they need to have the infrastructure that you have in well-developed markets. You have countries like Kenya, Uganda opening credit reference bureaus or facilitating for the banks to access credit. For the information they need to be able to take the risk to lend to smaller companies and all that and unfortunately in Nigeria, the oil and gas sector, because they had guaranteed revenue from their projects, which, unfortunately, are now a lot lower is creating the problem, was just the safest bet. That didn’t require too much work and it was fairly safe lending but it doesn’t create jobs like the agriculture the manufacturing sector do. So they definitely have a role in this transformation of the Nigerian economy but they also need government support to do that.
VA: Finally, what is your outlook on investment growth in Nigeria for 2017?
MB: I think 2017 will be a difficult year too, hopefully, we can get positive growth, meaning that 2016 will be the tough of this economic recession, this economic downturn but I do think this government needs to take more of a long-term perspective. Rather than just spend money to boost growth in 2017, they need to try to fix these problems with power and also put things in place to really have more sustainable growth in the medium term.