Beyond Oil Talking Business

These are the bustling streets of Lagos, Nigeria, the heartbeat of

West Africa and a strategic financial hub.

But Nigeria is in the throes of a recession and young

On this week's Talking Business, we ask

what does Nigeria need to do to resuscitate its economy?

Nigeria is one of Africa's top two economies,

the largest producer of oil in Africa.

It has a huge consumer market of 117 million people. But it seems as

though right now none of that really matters because Nigeria find itself

in the throes of an economic recession. It is not the first time

Nigeria is in crisis. The question is, why does this African giant,

that has the potential to rise and lead, find itself tripping and

falling? And what is it going to take to make Nigeria thrive? Here to

answer some of these questions, the chief executive officer of the

Nigerian sovereign investment agency, effectively the country's

sovereign wealth fund, and next to him, the chief executive of the West

Africa vocational education and then we also have the chairman of the

Nigeria mortgage refinance company. Thank you for joining us. It started

with the ball in the international oil price and quickly thereafter,

Nigeria found itself in recession. Why did those two things reinforce

each other? Sure, first of all, I think the oil price recession came

at the end of what was a stretch of eight years of oil price rally. It

is a cyclical product. The last 30 years, we have seen nine major

recessions, cyclical downturn in oil price. We were due for one because

along the line of the rising oil price, the rising oil price, it

brought in new suppliers, so fracking, you know, the United

States went from an importer to an exporter. We also had alternative

energy, electric cars. Quite a few things came together at the same

time to lead to what was a significant decline. Also, if you

looked at the important economies of China and Brazil, these economies

also went through their own downturn at the same time. All of this came

to a head and the oil price came from $100 down to as low as $27 at

one point and so that lead to that and it also happened at a time in a

new government was coming in. All of that put together was what led to

the situation we find ourselves in. But oil is 13% of GDP and my sense

is that it is important to the extent in that it is 70% of the

government's overall revenue but there's enough resilience in the

economy that we have start to come out of it and the oil price has

picked up. Is the economy resilient? Ordeal being a small proportion of

GDP but almost everything in Nigeria depends on it. Yes, it is to the

extent that Nigerians are the resilient ones that make Nigeria

resilient. We survive despite and in despite of government and in spite

and despite of the economy. So Nigerians will keep going until they

can't any more. I think that is what we need to put our bets on, what are

Nigerians doing and how do we best in their productivity because that

is the only asset we have and it's not going anywhere any time soon.

How has Nigerian business responded to this? It is not just the

recession. It is also the currency. Yes, we need to sort out the

exchange rate. There is a problem there. We need to supply

infrastructure and find a way to improve basic infrastructure, to

enhance productivity. Those are the two key problems facing business in

Nigeria right now. Explain the relationship between the economy and

the currency right now. Most of the international investors are buckling

under the pressure of this, should the currency be devalued or not? I

think the problem with the currency is that it has been fixed and

because it is not gloating, then people are uncomfortable about the

ability to invest and then get their money is out because it is at a

fixed price. That is a real concern. That relates them to the real

economy because if it is fixed, then it is very difficult, unless you are

able to get your dollars at the fixed price, to be able to

repatriate your profits if you have any. And if there is a differential,

if there is a difference between the official rate and the market rate of

40%, you would have to make a return, an equity return in excess

of 40% to enable yourself to be sure that you are making a positive gain

on your investment. OK, so it opens the system up to what they call

arbitrageur but this also impacts the ordinary man of woman. Almost

70% of everything Nigerians use and consume, from food to petrol, is

imported, so how are people really affected by what is going on? We

work with a lot of small and growing businesses and they are affected

because the cost of all the input has gone up but what is really

disheartening and worrying is that the only thing that they can sit on

his wages. So all my employer partners tell me they can't increase

salaries because everything else has gone up. But remember, for the

common man, coming to work every day, is transportation went up in

March, doubled overnight and so people are really struggling because

wages over the last three years have stayed the same if not the Clyde.

The minimum wage is not a living wage. It never has been. -- is not

declined. It is a challenge for the everyday man and for the small and

growing businesses which are the backbone of the economy. I knew you

don't represent the government body led up a government agency. What do

you say to people who say there is too many inefficiencies in the

Nigerian system and nobody is seriously trying to tackle them? I

have seen significant efforts to make changes recently, also from the

agency that I'm part. I will give you an example. Yesterday, we signed

an agreement to invest in a exchange. Now, it may sound not very

interesting to the ordinary person but the effect eventually, when we

are up and running and we want to be up and running in six months' time,

is we will bring transferrin to commodity pricing because there is

so much inefficiency on commodity pricing. Others are able to price is

much cheaper than small people can. We don't have enough transparency

there. We are also investing in logistics, so ER looking to improve

the movement of goods and agricultural commodities. We have an

agriculture fund. There's a lot being done there. We have also made

investment in creating an agency to help ease the cost of credit and

bring in funds. We could go on and on, there are so many things going

on which I think will eventually come to the surface. Let me symbol

fight, simple question, here is Africa's largest oil exporter and

it's probably Africa's largest importer of petrol. We should be

refining it, not importing it. That is an inefficiency. I agree and that

strikes and because I'm a chemical engineer by training and I worked on

some of those refineries many years ago. It's unfortunate, the state of

those refineries. What you may also have not noticed is that there was

an announcement made last year and a request that went out for refineries

and we are looking at some of these projects. It is not impossible to

build a refinery, for goodness sake. We used to have four functioning

refineries in Nigeria that could refine up to 2000 barrels a day. We

can bring those things back. I think it goes to the heart of what you

were talking about. 30% of African exchange usage is in finished

products. You need to solve that very quickly by refining domestic E

and that solves two things at the same time. What incentive is there

to solve some of these inefficiencies because those who

just look at the situation said, for as long as there is corruption, and

as long as people thrive in the face of corruption, there is no incentive

to address the problem for Nigeria? Absolutely right and there is a lot

of corruption but I think this administration is working on that.

On the corruption aspect, that is not where I think the biggest

challenge for Nigeria is right now. The big challenge for Nigeria is to

create market systems and transparency that would reduce the

ability to hide corruption. This is a process which needs to be done and

can only be done if you free up the market and you have an appropriate

management system. Everywhere I get interviewed, the first and second

question is about corruption. It is real. It is not unique to Nigeria,

by the way, and I say that because I've done business in places that it

is more sophisticated. But I think one way to solve corruption, number

one, is to minimise intervention by government that creates arbitrage.

That is number one. And to see that happen. Obviously there are still

issues with the exchange rate which was talked about but there are

things being done to solve that. But I can also speak to this from the

perspective of the organisation I run. You know, I hear of the

transparency index which is interesting but there's also another

index that measures the transparency and governance of sovereign wealth

funds and the Nigerian sovereign wealth authority is in the first

quarter, the top quarter, as of 82 sovereign wealth funds in the world.

There are three ways we go about that. The first way is

accountability. Accounts are published every quarter. The second

wave governance will stop there is a process which drives to the heart of

the organisation. The third way is the reinvestment, bringing

foreigners into investments. The point I'm making is that, and that's

just one, there are many other aspects to how this will be solved.

It can only be solved through minimally dimension, do not create

arbitrageurs and processes to solve it. Hold that thought because I'd

like us to talk about solutions in a second. We will continue discussing

what Nigeria needs to do to improve on its economic situation and get

itself out of crisis. Right now, let's get a thought from Colm O

Regan on this week's talking point. How difficult is it to rebalance the

nation's economic model, to shift from being in thrall to or oil, to

something more sustainable? Too much dependence on one area in an economy

can leave the whole model skewed in that direction and vulnerable if

something goes wrong. The Nigerian economy last year, in 2016, in the

second and third quarters, we were seeing double-digit contractions in

the oil sector, meaning that now, it only contributes around 8% of GDP.

It is what happens in the rest of the Nigerian economy that is much

more important. The difficulty, of course, is that oil still plays a

disproportionately important role in terms of generating foreign exchange

receipts for Nigeria. Roughly 95% of its foreign exchange income comes

from oil. So while it may not be the big driver of GDP, that foreign

exchange, that oil generates is still quite crucial for allowing for

activity in the rest of the economy. Bit of rebalancing or moving on is

required. To vaguely reinforce the metaphor, I'm going to move on from

this wonderful example of brutalist architecture... To this brand-new,

swanky, 21st-century building. Central-bank aficionados among you

will have spotted that the previous location was the old headquarters of

Ireland's Central bank. They are moving to the soon-to-be opened

building behind me. I like to see the move of Ireland's Central bank

down to their brand-new headquarters as sort of a metaphor for the way

Ireland's economy has tried to move on from it over dependence on the

property bubble of the previous decade. But rebalancing an entire

economy is not as simple as that. It's a bit more than a few grains

and some energy efficient glazing. As a small, open economy, you are

always vulnerable to market swings. Small, open economies tend to well

when the business cycle is growing, on the upside but they are also much

more vulnerable on the downside. Small, open economies like Ireland,

heavily reliant on the inflow of capital in finance, particularly

vulnerable. If your growth model is dependent on evangelisation, then by

definition, to a certain extent, you're much more vulnerable to

changes in capital flows. So if that is the outlook for small traders

like Ireland, what about a big oil like Nigeria? Governments always get

used to easy revenue and with the recent Opec agreement on production

cuts that has created some support to the oil price, the fear is that

this might weaken the reform process in Nigeria. If there were no choice,

if governments had to move quickly, try to mobilise revenue from the

rest of the economy, we would probably see a whole slew of

enabling reforms taking place very rapidly. But for as long as there is

the promise of perhaps more sizeable fiscal receipts from that

conventional source, from oil, it slows the reform process. It slows

the diversification process. There's always the temptation to borrow big

because you'll be able to pay it off with future oil receipts. So as I

suspected, rebalancing an economy easier said than done.

That is, Regan and for more of his videos, log onto the website. --

Colm O Regan. What is it that Nigeria should do to find solutions,

not just for the economy but for entrepreneurs and also for the

business community? You have got us talking about some of those

solutions, better financial reporting standards, more

transparency. What else can be done that will have an impact on ordinary

people? Quite a few other things. I think the one area that I think we

haven't truly addressed in the country is what it takes to

strengthen the manufacturing, so we can actually produce what we

consume. A country of this size and scale does not have a fairly

functional fizzy chemical sector, for example, or metals sector, that

is really functional. For the size of infrastructure needs that we

have, we need to be manufacturing ourselves. There has to be a way to

encourage entrepreneurs in this area so we can start to produce what we

need. The other thing that I think needs to happen in the economy also

is that while the economy itself, in my opinion, is diversify from oil

gets all the attention but it's less than 15% of GDP, government revenue

is not diversify. Tax as a ratio of GDP is under 5%. Most other

countries in the world is between 10%, or 14 or 15% in some cases.

There has to be accountability by the citizenship. People need to pay

their taxes when they have to do. 90% of Nigerian adults surveyed

believe that they have what it takes to run the red business. It

reinforces this idea that Nigerians are self-starters, enterprising

people. How can the country tap into that? That is always an interesting

statistic. We are very entrepreneurial but at the heart of

a lot of that is a lack of trust. Nigerians don't want to place their

future in someone else's hands. So they work for themselves, as soon as

they get in any classroom I walk -- Robidoux, and any of you want to be

owning your own business in five years? 99 of ?100 will go up. To

that end, productivity is going to be so important in this economy and

getting us out of the recession. There's a lot of talk in investing

in hard infrastructure. With a soft infrastructure, the education

system, it's going to be critical. As small business struggles to get

financing, but the only thing that gets harder across the world for any

business as you progress is people. Its talent. You can raise your

financing in year three or four but if you can't find good stuff, you

will be running your own business by yourself or the rest of your life.

Until we start to invest in people, increase our productivity, small

businesses will continue to struggle. Lead's talk about

solutions here. What could be done to incentivise the Nigerian private

sector and indeed small and medium enterprise to take more of a leading

role, to be part of the growth and the strategic direction of the

country? They are trying but when all the inputs are, you know, import

lead, it is hard for them. But I think what can be done, at least

after government level, is looking at what people need right now. You

are investing in hard infrastructure but in parallel, not waiting for

another ten years to fix the education problem or the health care

issues. A healthy populace and an educated populace is a productive

populace. I think one thing that sometimes gets left out as well is

if in the major megacities like Lagos and Abuja, people are spending

four hours on average per day in traffic, you will be even less

productive. There is some very low hanging fruit that we can put into

place to start to help people become more productive and that is really

what small businesses need. It is, give me access to the people, the

capital and the markets so I can do my thing. Sort out infrastructure is

what she is saying and it is not just the roads. It's the electricity

supply, for instance. On the infrastructure side, yes,

electricity wants to be realistic, we privatised it and it has not

worked. The collections are very poor, the companies are not well

capitalised, which I think major issue, to be honest. They need to be

recapitalised. A lot needs to be done on the electricity front. In my

opinion, I think it is the single biggest challenge we have in the

country today. Small businesses, you look at a typical small business,

the cost of production will be 20% higher than its peers just because

of electricity costs. We need to solve that. There are programmes in

place and this is not the forum to outline on this programme but I'm

hoping that in the next couple of years, there should be some

solutions there. Nigeria aspires to be edgy 20 economy. Yes. In the near

future. Nigeria says it is a natural leader in Africa. Economically and

on the peace and security front. For Nigeria to assume what it believes

is its rightful place in Africa and in the world, what does it need to

do? I think it is quite simplistic approach, to say so, but if we

improve the productivity the average Nigerian to $5,000 per head, for

example, that is when you get a dividend in this large country that

we have and we will catapult us into a G20 country. Does that mean the

life of the average individual is higher? Maybe not. A lot needs to be

done, health care, education and all that needs to be dealt with. But at

the moment, I think the most important thing we need to do in the

country today, and if I can add maybe one or two things, the

electricity infrastructure needs to be solved. The production and the

manufacturing sector needs to be fixed. You cannot build a strong,

sustainable economy if you don't manufacture enough to be

self-sustaining. What do you think? Whilst we still have this position,

which crowds out, really keeps out investment, whilst business is

unsure about whether the currency will be 500 this week or a thousand

at the end of the, I'll give you an example, if you invested in Nigeria

in 2008, the Nyro was 120 to the dollar at that time. If you had made

an investment then, even if you had made a 10% return every year, you

have still made a loss in dollar terms. It is against this backdrop

that they needs to be clarity. The differentiation of the currency is

not necessarily a bad thing if it is going to lead to an improvement in

the terms of trade. If it is going to lead to an improvement in the

level of growth if it means that domestic business is going to

actually benefit from that differentiation. But the absence of

good and construction, electricity done a proper education system, all

of these make the current position that we have and the monetary policy

framework ineffective. No nation can rise above the education level. I

was working with a 25-year-old yesterday, trying to assess his

basic arithmetic skills. This is someone who says he wants to earn

50,000. It could not do 696 divided by 12. We worked on it together and

he still couldn't do it and this is a 25-year-old who had been

short-changed by the education system. If you don't have the

competencies, you will not get the productivity. You can build all the

roads in the world and fix all the electricity, but if we show up at

the office and we don't know how to divide 696 by 12. So, you know,

everyone, all of us, not just the president, everyone needs to get

back to the basics which is skills. I'd like to thank you all for taking

time to help us understand the complexity of Nigerian economy. The

chairman of the Nigerian mortgage refinance company, the CEO of the

West Africa location and education and the chief executive of the

Nigerian sovereign wealth authority, or sovereign investment authority in

the country. Some of the problems we have discussed here are not unique

to Nigeria. They are African problems. They are problems that

affect oil producing nations. But the solutions need decisive

leadership on the part of the Nigerian government, innovation on

the part of business, and consideration for the potential of

the youth. You have been watching this edition of Talking Business

from Lagos, Nigeria. Tune in next week when the programme will come to

you from Washington, DC, brought to you by Michelle Fleury, as she

discusses the industry of fake news. From myself and the team, thank you

for watching and goodbye. I have got some hit and miss showers

out there