Why adequate FDI will continue to elude Nigeria
BY DELE SOBOWALE
“God loves us as a country. The recession is therefore an opportunity to do re-thinking.” Professor Pat Utomi, at a seminar tagged “Succeeding in a recession”. August 23, 2017.
“To sleep over problems before they become a crisis is far better than lying awake about them afterwards.”
VANGUARD BOOK OF QUOTATIONS, VBQ, p 201.
We have many problems in Nigeria; particularly economic problems which now keep us awake. They might cause the nation more anguish than restructuring and quit notices. The sooner we admit we are in serious trouble the better for all of us. Fortunately, some of the solutions are also readily available – if only we are ready to make the shifts required to grab the opportunities which always accompany all crises.
The Nigerian economy went into recession in 2016 for the first time in over thirty years. An economy is regarded as being in recession when the Gross Domestic Product, GDP, records negative growth for two consecutive quarters. The GDP contracted by 2.6 per cent for the entire 2016. There was little respite in the first quarter of 2017 when the economy again recorded negative growth – although at a lower rate. Nothing done so far by the administration is designed to provide the strong stimulus to get us back to strong GDP growth in the next few years. Instead what we are getting is the same “stale stew warmed up and served in new plates.”(apologies to Babangida).
For reasons difficult to fathom, the second quarter of 2017 ended on June 30, 2017 and the Nigerian Bureau of Statistics, NBS, has not announced the result for the period. Participants at the seminar must therefore have had a preview of what the result would be. Although, Professor Charles Soludo sarcastically remarked that, “Nigeria will be out of recession soon, technically. When you achieve 0.01 growth, you are out of recession. But the scars of recession will remain.” One of the scars that will remain and one of the major reasons we are in a recession is well known to all of us. The flow of Foreign Direct Investment, FDI, has slowed down to a trickle. Granted, given the sharp and seemingly intractable drop in the global price of crude oil, the investments coming to promote oil were bound to reduce. But, for a country urgently needing to diversify its economy and having the vast material and human resources to do so, it is a great puzzle that investors are not flocking into Nigeria which one US economist has called “one of the last great bonanzas on earth.”
Utomi, disclosed one of the reasons why we have not received positive attention from global investors when he pointed out that “a recent investment report rated Nigeria as the last place to do business in Africa.” Something is wrong when a country which is expected to have the fourth largest population in about thirty years, and which should be one of the largest markets is ignored by global investors.
The first thing we need to do is to discard the idea that the avoidance of Nigeria is an act of God. As Utomi said, God has been kind to us – perhaps because the Almighty knew in advance that we will one day have so many of us to feed, clothe, house and for whom other social services will have to be provided. Only three nations now have populations of over 300 million people and their current GDP makes ours pathetic by comparison. None of them grew rapidly without the influx of foreign investments accompanied, as they often are, by foreign technology. Even “God’s Own Country” – America— collects investments and borrows ideas from abroad.
Nobody knows better than Soludo that GDP growth of 0.01 per cent, even if sustained, represents a road to hell for us when the population is growing at three per cent and inflation is in double digit. It means that the average Nigerian will rapidly get poorer as per capita income invariably heads for the basement. We certainly need more than three per cent. But, when you take a look at the current position and extrapolate to year-end, it is clear that the Nigerian economy will not grow at anything close to three per cent in 2017. It will be a miracle if the GDP grows at the 0.8 per cent estimated by the International Monetary Fund. Forget the government’s own forecast of 2.6 per cent.
Furthermore, a look at the Medium Term Expenditure Framework, MTEF, provides no reason for optimism. It is based on seriously faulty foundations. Anybody expecting Nigeria to export 2.3 million barrels a day of crude from 2018 to 2020 must be deluded. For the last five years 2.2 million per day was used as the basis of our annual budgets. In five years, Nigeria had failed to achieve it. Until the foreseeable future, global demand for fossil fuel is going down. Oil exporting countries have multiplied; conversion to renewable sources of energy is accelerating worldwide and the Organisation of Petroleum Exporting Countries, OPEC, has pegged our export at 1.7 million a day. Finally, nobody can guarantee peace in the Niger Delta. So, even if global constraints are not working against us, the enemies at home might hinder the nation.
Moreover, even if we were to accept the overly optimistic forecasts of the Economic Management Team, EMT, it still leaves us far short of the quantum of investments we need to grow the economy at seven per cent annually for ten years and to lay the groundwork for the total diversification of our economy. The budgets for 2016 and 2017 and the budgets for 2018 to 2020 covered by the MTEF rely on heavy borrowing, low capital investment and high debt repayment to succeed. The 2016 budget was a signal failure because it did not achieve its cardinal objectives. Instead of growth, the nation ended with a recession. That is a fact that cannot be denied. It is not “fake news” – to use the term borrowed by our copy-cats in government. At the moment, despite the tardiness in releasing the second quarter result, there is widespread feeling that the nation is still in a recession. From all indications, most of the targets set out in the 2017 budget will again not be achieved. Budget 2018, unless totally overhauled, makes no sense and will certainly not deliver up to three per cent GDP growth.
The MTEF as presented is designed to make Nigerians poorer by 2020. On account of the three per cent population growth rate, at least 6 million Nigerians have been added to those needing social services since 2015; close to 275,000 graduates of universities and polytechnics have graduated searching for jobs; millions of secondary school leavers roam around. By 2020, over 20 million new mouths will need food. The Misery Index is rising and there is nothing in the MTEF, even if accepted at face value, to relieve the pressure.
The question now is: what is missing? The first answer is: several elements supporting high and sustainable growth are missing. But, if asked which is the most important, the answer will have to be FDI. Former President Jonathan was partly right when he claimed that the economy was growing at over six per cent from 2010 to 2013. It slowed down from 2014 and would have been in recession in 2016 even if GEJ was re-elected. The growth stimulus was the robust FDI which the nation enjoyed. (See the Table below). Granted, most of it went into the oil and gas sector, and would have tapered off as crude oil prices plummeted, there were other investments which were made because the economy was growing so fast and was projected to continue to do so. Just as a rising tide floats virtually all boats, a rapidly growing economy creates collateral benefits in banking, insurance, housing, legal services among others.
Note that more FDI was recorded in the fourth quarter of 2012 alone than in each of the all the three years following it and more than 2015 and 2016 combined. The GDP grew by close to 7 per cent in 2012 and 6.0 per cent in 2013 as a result. Growth dropped below 3 per cent in 2014 and a predictable recession occurred in 2016.
For some reason, still unfathomable, Buhari’s EMT, talks about loans and debt restructuring as if these alone can guarantee rapid growth at the level we need to reverse the trend towards deepening poverty. Nothing can be further from the truth. Loans, even at the lowest rates, always constitute a liability and an obligation which must be repaid — even if applied to capital projects expected to repay the debt. Funds have to be taken from current revenue to service the loan. The problem arises when the loan is used to discharge obligations which promise no return on investment – salaries, pensions, Social Welfare Programme, Highways constructed without toll gates etc. The more a project is more commercial in nature, the more it is unsuitable to finance it with loan. All the fast growing economies have allowed the private sector to take over such functions – especially foreign direct investment.
FDI: THE MOST VITAL NEED OF AN ECONOMY IN RECESSION.
Adequate FDI remains the most important element in the economic development programme of Nigeria. We have had a lot of it before. In 2012 to 2014 Nigeria received the highest share of FDI inflow in Africa. Perhaps it was a coincidence that the upsurge came immediately after the re-basing of our economy in 2013 when the country’s GDP was then said to have reached $501 billion. Until then, South Africa was regarded as the largest economy. Foreign investors came in droves to examine opportunities in every sector – mostly agriculture, power generation, housing and food processing. The vast potentials they saw are still in evidence. But, interests have waned. The question is: what happened?
The brief answer is: we turned them off. Like the adorable girl or boy seen at long distance but on getting closer turns out to have bad odours and terrible mannerisms, prospective investors found Nigeria a terrible place to do business. When last month the NBS announced that public servants in Nigeria pocketed N400 billion in bribes annually, it was not a new development. Bribery has been so endemic that virtually nothing gets done in Nigeria without it.
Meanwhile, nations in search of FDI are like sophisticated beggars going to Government Reserved Areas. The first things the beggars develop are good manners. Unfortunately, that is the last thing Nigerian Civil servants have developed. They believe they are doing everybody a favour – including the investors – and they demand to be paid for routine services. Allied to that is gross abuse of power by virtually everybody from Ministers down to the gateman. The power to hurt rather than assist visitors is the one most often on display everywhere. The most prevalent manifestation of this is arbitrary nullification of contracts. If Nigerian civil servants have ever heard about the sanctity of contracts, it does not show in their conduct of government affairs.
Foreign investors will generally put up with insults from public servants if the returns on investment are attractive enough. They start to withdraw when the profits decline or the risks increase beyond a certain level. They also start to shelve plans for investments when they discover that even Nigerians are treated badly in Nigeria. Two Nigerian examples will illustrate the point – Aliko Dangote and Dr Babalakin.
GIVING HELL TO NIGERIAN INVESTORS
Each time one reads in the papers that Alhaji Aliko Dangote plans another investment in another part of Nigeria, the thought that comes to my mind is that this fellow deserves more than the national honours GCON given him. Perhaps we should consider a unique honour for this man for his demonstration of patriotism each time he ventures out to face another set of challenges created mostly by Nigerians. It is quite possible that no agro-allied project he embarked upon anywhere in Nigeria had failed to present him with challenges he would not experience in Ghana, Botswana or South Africa. Yet, this is home. His foreign partners are often aware of the difficulties and they return to their countries with their mostly negative impressions of Nigeria as an investment destination. Unfortunately, the few who cause all the problems for Dangote and other investors represent all of us. Foreign investors take their cue from the experience they have with the very few unpatriotic elements from the Arrival wing of any airport.
Some of us can recall Dangote’s experience with the FG when one of our ever ailing refineries was sold to him. Up to the time of privatizing the refinery, the capacity utilization was less than 20 per cent – meaning that it was down eighty per cent of the time while most of the staff were idle and getting paid from public purse. Additionally, billions of dollars and naira had been spent on several attempts at Turn Around Maintenance, TAM, to no avail. For several years Nigeria was spending almost twice as much on each of the idle refineries than the cost of setting them up. In reality, it would have been regarded as a favour to us if anybody took those scraps off our hands for nothing. Dangote paid.
Then “Nigerians”, or particular vested interests, got going. Because “in a sick country, every step to health is an assault to those who live on its sickness”, as Bernard Malamud has reminded us in his book THE FIXER, those who had been profiting from the refinery’s idleness – especially the Nigerian Labour Congress, went to war until the next FG voided the agreement and the refinery returned once more to idleness.
Let us quickly look at what would have been lost and gained by Nigeria if Dangote had been left with the aging refinery. On the loss side, the country would have lost one old refinery over which it would no longer have control and which politicians would no longer be able to use for patronage. That is all. By contrast the benefits are innumerable but a few will be sufficient for our purposes. First, Nigeria received some money which could have been used to fund other social programmes – education, health and social welfare. Second, the perennial maintenance costs draining funds from the national purse would have been eliminated for ever. Only God knows how many billions we have spent since then on the scrap. Third, the private businessman would have ensured that the refinery works; that it produces as much as possible; save us from fuel imports and the associated scams and makes a profit from which taxes would have been collected.
The people who made the decision to void the contract with Dangote could not have been more than one thousand. All 180+ million of us are suffering from the consequences today. Despite that, any proposal to privatize the refineries today will still meet with stiff resistance from the NLC and PENGASSAN – two of the beneficiaries of sick refineries. Their standard argument that the refineries don’t work because of official corruption overlooks the fact that there will no longer be official corruption once the refineries change hands. The risks would have been transferred to someone else who has an interest in making them work.
Today, Dangote is working on a refinery in Lagos State which when completed will actually send the refinery denied him to the graveyard. That shows the short-sightedness of the selfish people who opposed the deal at the time. Unfortunately, Dangote did not escape without a scratch. He had started the process of overhauling the old refinery in order to modernize it. People had been recruited or redeployed and moved to site when the FG caved in to pressure by “know-nothings”. All those expenses went down the drain. That is the part which scares investors about Nigeria. It is bad enough when agreements are torn by new governments; it is worse when the investor is left with horrendous losses by governments which don’t seem to care about the damage they do to the national economic interest. It is not for nothing that Nigeria is the least preferred investment destination; it is because we have earned the reputation of being nasty customers. Why should they prefer us to others who woo them relentlessly with incentives guaranteed?
When the mind turns to Bi-Courtney led by Dr Wale Babalakin, the heart bleeds. It is one of the ironies of modern day Nigeria that when the Academic Staff Union of Universities, ASUU decided to go on strike in August 2017, the Federal Minister for Education called on Babalakin to intervene in the hope of persuading ASUU to shelve the strike. Meanwhile, Babalakin’s Bi-Courtney is owed over N160 billion by the same FG which government had failed to acknowledge and address. Every kobo of the amount arose from government’s breach of contract and disregard for the rule of law. Let me hasten to point out that the Buhari administration inherited the mess created and left behind by Jonathan’s government. But, foreign investors cannot distinguish between one Nigerian government and another. At any rate, they expect all governments to take to heart the timeless observations of Justice Louis Brandeis, of the US Supreme Court when he wrote that “In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously.” With regard to Bi-Courtney, the FG failed to observe the law scrupulously – not once, not twice but virtually in every instance there was transaction between Bi-Courtney and the FG and its agencies. The most notable are the Ministries of Aviation, Works and Federal Airports Authority of Nigeria, FAAN. A few examples will illustrate the extent of government’s lawlessness and its consequences for our nation’s growth and development.
On account of various court judgments, including the Supreme Court of Nigeria, and an Arbitration Panel, the Federal Government has, since 2012, been expected to pay N132 billion to Bi-Courtney. That is not all; Bi-Courtney was also expected to have received “an account of all the monies collected by FAAN through its unlawful operation of the GAT [terminal]” and FAAN was ordered to pay the amount to Bi-Courtney. Finally, FAAN was expected to have handed to Bi-Courtney, the GAT Aviation Terminal which was illegally reconstructed by the FG under Jonathan in flagrant violation of a long standing agreement.
It needs to be repeated that the Buhari administration inherited this mess which arose out of previous FG’s lawlessness and politicization of a simple agreement. Igbo Ministers of Aviation and heads of FAAN made no attempt to disguise their hatred for Wale Babalakin. Jonathan, focused only on his re-election campaign, paid no attention as his government became an outlaw. The reconstruction of GAT by Stella Oduah summarises the impunity and lack of patriotism and as well as short-sightedness characterizing the FG until 2015.
From information available GAT now runs at a loss; the loans cannot be fully repaid from its operations. That demonstrates incompetence.
MMIA2, the airport developed by Bi-Courtney was recently voted the best airport in Nigeria. That is an understatement. It is one of the best in Africa. No airport in Nigeria comes close to it. In its agreement with Obasanjo’s government, Bi-Courtney was given exclusive right to develop airports in Lagos. No other party was allowed to build one. GAT was also to be handed over to the company and all flights from GAT were expected to move to MMIA2. It was a simple and straight forward agreement; the sort that would never have resulted in a dispute in Singapore or South Africa. But, it did in Nigeria. OBJ’s successors objections to some clauses in the agreement and instead of adopting due process to ask for a review proceeded to violate them in many ways.
Some airlines were allowed to continue operating out of GAT; then the FG pocketed the revenue from the illegal operations – authority stealing – and finally, the Minister of Aviation in a fit of official madness proceeded to renovate the GAT despite a court order restraining government. The development of GAT by the FG with public funds acquired by raising a loan represents in many ways the ultimate in how governments of Nigeria discourage FDI. Nowhere else in the entire world would one find an example of a country using public funds to undertake a project which the private sector is already too willing to do. Furthermore, going ahead despite court orders stopping it, branded Nigeria as a lawless country which foreign investors avoid like the plague. Finally, treating a citizen so shabbily was a strong warning to foreigners to “abandon hope all those who enter here”. Jonathan’s government did more to discourage FDI than all others before it. Buhari must reverse the trend or else we face economic disaster.
WAY FORWARD REQUIRES TWO STEPS
Buhari inherited a terrible mess. But, Buhari is in charge now. He alone now can reverse the trend and rebuild confidence in Nigeria if we are to receive the quantum of FDI required for rapid growth. The first step is easy to write but difficult for political leaders to accept and do. The President of Nigeria must call an urgent meeting of leaders of companies with large foreign investment in Nigeria and apologise on behalf of the people for failing to have been the best hosts to them. He should also promise them a fairer deal while in office. Secondly, he should mandate all the Ministers and Heads of Agencies to compile all judgment debts owed to various companies in that category together with suggestions for initiating settlements. Contrary to the fears in government quarters, these fellows are smart business people. They know the FG is facing difficulties now. They will not ask for their pounds of flesh. They will be satisfied with breaking the ice and moving gradually to re-negotiated settlements.
Fortunately, Buhari has a great reputation for keeping his words. That would help tremendously. Dangote and Babalakin might be forgiven because they are eminently patriotic. But, the vast majority of the investors we need are not Nigerians; so they owe us no loyalty. They need proof that their investments will be safe; that governments will obey the rule of law; that sanctity of agreements will be restored.
Then, more FDI will flow into the “last great bonanza on earth”. Then, we might expect to grow once more at seven per cent; not 0.01.
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