The Head of Investment, Africa Head of CIB Portugal, Citibank, Mr. Miguel Azevedo, in this interview with Nume Ekeghe in London recently, expressed optimism that the entrepreneurial spirit in Nigeria would lift the nation out of the recession faster than expected. Excerpts:
What is your assessment of the Nigerian economy?
The Nigerian economy is obviously suffering from its commodity dependency and low oil prices. And they cannot do anything about low volumes of oil extracted, which they should be able to do something about. One area of focus is to get oil production up to two million barrels per day that is absolutely critical in the very short term. Over the medium term, I think we need guidance from the government in terms of agriculture policies, industrial policy and diversification of the economy. I am extremely optimistic in terms of the ability of Nigerian individuals, Nigerian small corporates, and Nigerian medium size corporates to making their businesses work. Nowhere in the continent would you see the entrepreneurial spirit that you see in Nigeria. Over the medium term, you need to unleash the currency to be available and I know that in the short term, it is going to be extremely painful, but there is no alternative in my view. And over the medium to long term, everything boils down to infrastructure.
Still on the currency, how do you think we can address the current challenge in the foreign exchange market?
The market is not working freely and I think people will only bring FX into Nigeria if they believe that things will work properly and are sustainable. So you need to allow markets to work. It would be very painful in the short-term, I think and to be honest, I don’t see any alternative. The truth is that you have to allow the market work and if you do that, then you create a positive spiral and things would start happening.
As the Head of Investments in Africa for Citibank, what are the major concerns investors have about Nigeria, aside from the currency issue?
Currency is the main concern and it is the pinnacle of everything because all the inbalances in the economy translate to currency weakness. Investors will come in if they see the structural issues being addressed. No one is expecting the infrastructure or the power problems to be addressed all at once. People need to see very specific examples of things happening- refinery working, railways working and power plants dispatching electricity. You need that to happen so people regain confidence. So if you have 10 very symbolic and visible projects materialise for people to say “okay the problems are being addressed – let’s go in and take advantage of the growth”. Otherwise people would say it is not really happening I better wait. And there is nothing more lethal than “I better wait” because if you keep waiting, it won’t happen.
Nigeria is in a recession, specifically what reforms would you advice the federal government to put in place so that the economy can come out of this situation?
Power and transportation – these are the two priorities. Power, I mean the whole thing; transformation of gas to power. You have good examples of things happening but you need to replicate that and you need more of those. For example the power plant Azura, you would need five Azura. You have the refineries; you may need more of that. You need railway projects and then you need to have clear agriculture policies in terms of incentivising people. If you allow people have access to land, fertilisers things will happen. There is no quick fix, if you use to live with oil at $100 per barrel and now it is at $50 per barrel, it will take time. But guess what, maybe it is a blessing in disguise. This will force Nigeria to diversify. Effectively, economies only diversify through external pressures.
What is your assessment on the banking sector in Nigeria?
There are different levels of banks in Nigeria. There are some banks that are very well capitalised and very solid. Others have some difficulties and basically what you need is to ensure that banks have the right levels of capital and the right ability to adjust to some of the challenges on the credit side. Of course you know that there was a massive involvement of local and international banks in financing acquisition oil blocks. That needs to be flexible; you need to give more time for those loans to be restructured. But that happens everywhere so I don’t see much of a problem there. In order to see efficiency in the banking system, increase consolidation. I think that makes sense for banks to be more efficient, more productive and more profitable. We have seen that everywhere around the world so I would expect that to happen in Nigeria.
Presently, we are a population of over 180 million and large percentage is still unbanked. What would you advise we do to address this?
I think new technologies will help a lot and would make available financial services easier and close to the final user. This is a very big element and this will be done by new organisations and existing organisation. I know that the banks are investing massively in becoming digital and the development of agriculture and light manufacturing that will attract people into the formal economy. That will in itself make people feel the need to be banked, so it is a combination for providing more services in an easier way but also bringing people into the formal economy where they need the banking services.
It will take time because the size of the unbanked population is massive but I can give you one statistics off my head which is not in Nigeria but in Kenya. There was one relatively small bank launched a service were they can give small loans ranging from $1 to $50 for a short period of time. They launched that process and in one year, they have 3 million new clients. Right now, they do more than 100,000 transactions per day. That is $33 million transactions per year. So the demand is there, the need is there, if you make you make it available, it would happen.
Are you saying that if we can create access to small loans it would increase the inclusion of the unbanked?
I think so. These are very small loans people use to buy agricultural products and then they sell or to buy fertilisers to produce. This is really individuals getting money to put to work and is what creates jobs. Because I think one big challenge for Nigeria is to create jobs for more people.
With the election of Donald Trump as United States president, what do you expect from the U.S-Africa trade relationship, particularly with Nigeria?
Let’s wait and see, let’s not anticipate more trouble. Sometimes, if you look back in history, some of the US administrations that were more friendly and supportive are not necessarily those that speak more about Africa. So speaking is one thing and actually doing is another. I don’t think the US would become totally protective, I don’t think so. And to be honest, and what we have seen in terms of the rhetoric’s of Donald Trump during the campaign doesn’t really apply to Africa. I don’t think he sees any problem in terms of the relationship between the US and Africa. I think Africa is a very large market for American companies and that is good for America. So obviously in the short term and through the financial market rates going up ad that is negative for Africa, but that is not designed to hit Africa but it is a negative development. I wouldn’t be too worried, I think Africa has a lot more it needs to do for itself rather than thinking about the US president.
You had mentioned earlier about financing infrastructure from within, can you shed more light on that?
Nigeria is actually a very interesting country, and the level of savings in the pension funds is quit massive, about $30 billion. So a portion of that can be made available to invest in infrastructure and to give very reasonable returns in the long term. And if you do that, it would attract capital and you need to attract capital to build infrastructure. But to attract capital from outside, you have to have capital from inside the country and if you put the two together, you would generate good return. Also you need to structure them properly. It is not like investing in a power plant or distribution company and then no one collects the electricity. The whole system needs to be consistent and needs to be working. But if you get private entrepreneurs to really go for it and there is profit in it, it will happen. And if you allow a lot of people to get to the middle like state owned companies were people don’t necessarily maximise the interest of the company. Anywhere in world that is the reason we have privatisation because private companies are more efficient than state owned companies. So create a framework, get some local capital and external capital will come and then things will happen.
Investors will come in if they see the structural issues being addressed. No one is expecting the infrastructure or the power problems to be addressed all at once. People need to see very specific examples of things happening- refinery working, railways working and power plants dispatching electricity.