Balogun: Why Nigeria’s Investment Environment Must Be Conducive

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The Chief Executive Officer of Chapel Hill Denham and Chief Investment Officer of the Nigeria Infrastructure Debt Fund Mr. Bolaji Balogun, in this interview on ‘The Morning Show’ on Arise Television spoke extensively on the need for increased investments in infrastructure in the country. Nume Ekeghe presents the excerpts:

Can you speak on infrastructure in Nigeria and the investment climate amidst various headwinds like the coronavirus pandemic, oil prices and other sundry issues in the world at large?

I hope that 2021 is the year the leadership of our economy recognise the importance and urgency in this market place and when also our political leaders recognise that they have to be more considerate in terms of the 200 million people who leave in this country and that is where would really like to start. Between last year and this year, we probably added another five million to six million people to Nigeria’s population and when you think of what we have added in terms of real factor investment into the economy, it is completely insignificant. And when you think about Nigeria and you understand Nigeria’s challenges, there are really fundamentally three simple ways in which you are going to lift 100 million out of poverty. The first is really investment led, which is to look at the base of infrastructure in the economy, recognise that there are weaknesses in power, weaknesses in transportation networks and we have this incredible blessing of natural gas to which we have no gas infrastructure or energy infrastructure to convert it into energy and then money. Over and above that, we have this unbelievable blessing of young and talented people and we do not have the broadband and infrastructure that young talented people feed on. So, first and foremost, we have got to do something about our infrastructure and we have got to do it like yesterday. The second issue is to recognise that people who have no financial literacy and people who do not save or invest absolutely have no chance of lifting themselves out of poverty.

Financial education or financial literacy is not a complicated thing and all of our financial operators in the market plus the government must recognise that when you look at Nigeria’s low investment and savings per capita, we have to do something about it. And that even those who don’t have can save. It is really about knowledge, discipline and science. You do not have to be wealthy to save that is one of the biggest myths we have to make people aware of that you can start small with little sums you have. And you need to understand the benefits of saving early, benefits of compounding and what it can do to your wealth no matter how small. And I think it is incumbent on the people that regulate our financial services sector that every single firm that operates in Nigeria’s financial service sector be it a bank, investment bank, insurance or pension fund manager we all have obligations to contribute to financial education. If people are financially literate to a large extent, they have a chance. The third element that we are going to have to fix is to do something very urgently about Nigeria’s educational system. People who have education have hope and if there is nothing the #ENDSARS crisis thought us it is really the fact that for the very first time in Nigeria’s recent history, people are lashing out because of the hopelessness which has never happened in this country. This is a country where if you have some ability it doesn’t matter who you are or how you were born, you would have a chance. So, this is probably the first time in our economic and social history that as a nation if you are talented and prepared to work hard, it is not enough. And that is not just acceptable. So, how are we going to ensure firstly that our education system into which there is very little investment outside of paying salaries essentially prepares our children for this 21st century and how are going to ensure that every young Nigerian growing up has the ability today to understand what would help them in a primarily digital environment. You and I think of education in a traditional paradigm of when we grew up and we had to gather together under a tree or in a classroom to be taught by somebody. But have you ever thought of a mobile device as a delivery channel for education? There are young people in Nigeria today and all over the world who have never been to formal schools and are able to do things like coding because they learnt it on YouTube or able to cook and speak languages that are not their mother tongue by learning on YouTube. So, this is an opportunity every Nigerian child must have and this is why infrastructure and broadband infrastructure is so critical.

As we try to make sense of the economic outlook for 2021, I would like you to comment on the 2021 budget which the president signed into law. Do you think the budget is a realistic one especially with relations to development in infrastructure?

The first thing we must come to is the reality which steers us in the face for a number of years.

If you look at the numbers, this is probably our biggest budget and this budget basically translates to about six to seven per cent of the nation’s Gross Domestic Product (GDP). That means that the government as a factor of the economy is small and is becoming less and less relevant.

Then, if that is the case and 94 per cent of the economy is the private sector and enterprise, what the government must do is to recognise that you have to regulate, but in regulating, you would need to get out of the way and allow private capital and private enterprise really to drive things. That is because first and foremost, not only are you insignificant because if you put N100 through the economy or government, only N23 or N24 of that N100 is going to finance development and growth; N75 or N76 of that N100 is either paying government salaries for less than half a million employees or is servicing debt. So, the reality is that government’s wallet is inadequate.

Once you recognise that government’s wallet is inadequate, what you must do is to behave like a market and an economy that wants to attract capital. And that capital starts of as domestic capital. You need to treat your domestic businesses well and large owners of businesses should not feel that they live in an environment where the government is against them and does not want them to prosper. That is because by the way, there are 10 million people in employment in Nigeria and government employs less than one million of them. So, who is creating the jobs? It is the private sector. So, who is doing the investments? It is the private sector and you sit there think that the government is investing in infrastructure. But if you take off all the power plants that seats in private businesses, from Shell to Dangote cement to Lafarge or MTN, Airtel, the first thing you are going to find is that they are generating far more power than is coming out of the Discos and Gencos that are part owned by the government. So, already today, with the exception of roads, airports, rails, and when you think about power and gas networks that function, broadband or transportation, the private sector is already a big factor. So, why don’t you then recognise that if I have to channel where if I spend N100 an let’s even say 20 per cent leaks and 80 per cent is going into investments and development, whereas if you put it through this government channel, 76 percent of it leaks, what do right thinking people do? I think the answer is quite clear.

You have identified the challenges and solutions but what is driving the disconnect?

You and I can get an ingredient to cook the same pot of stew and we might both stay in the kitchen for 30 minutes and we cook the stew but because I put pepper before the onion and oil, my stew would taste different from yours. What I would say simply is that for the first time in Nigeria’s recent economic history and probably for the first time since the last 70s and early 80s everybody understands what the big issues are, but what we need to do is to go from an understanding of the big issue to understanding what the prioritisation of those issues are. The prioritisation of it is that you have to start off with a massive, rapid sustained investment in your nation’s infrastructure. And that the massive sustained investment in your nation’s infrastructure is typically financed in local currency because if you don’t do that, all you end up doing is impoverishing your nation. That is because you are creating all this infrastructure, you are financing it in dollars, the users are paying in naira and every year your currency is devaluing against the dollar. So, you are getting poorer and poorer and your users cannot afford to use all these beautiful infrastructures you have built. You start off with that foundation of infrastructure because infrastructure then brings investments because investors don’t build infrastructure and to a large extent, some investors will focus on infrastructure investing, but investors want to invest on top a base of infrastructure. If you bring power, it would spur manufacturing investment. You would be amazed at how power changes your agriculture from low value which is what we have today to high value because you would now have the ability to process and to preserve all of the agricultural produce you are producing. Good transportation network would bring about the ability to take the agriculture produce from farm lands to tables in the city, airports, seaports, export and thereafter turn into valuable dollars. And this blessing of agriculture that you have which is a factor of your economy that is a lot larger than oil will begin to translate to real money. And it is the same way in areas you don’t think of as investable like education. Education today is about two infrastructure elements – power and broadband. Can you imagine today how a child can get educated in this world without access to internet, it is not just feasible. And any child you are denying access to the internet in 2021 is honestly criminal like not feeding them. You need to solve power and you need to solve broadband. Even in security where our nation has been so incompetent, there are three elements to security. Two are infrastructure-driven and only one is weaponry. There is intelligence and intelligence are all about listening devices and cameras. With listening devices and cameras, you would need to have electricity and broadband because if you can see things moving before they happen and also listen to understand what people are planning, to a large extent you can react. All we are doing is that we are throwing weaponry and men at security. And the most important part of the security infrastructure which actually starts with intelligence is completely defunct and it is not difficult to solve these problems. Today in the Ministry of Solid Minerals that we have this incredible blessing of minerals but they are seating under the grounds and most of them are typically in the middle of the country and they would need to get to a port where someone can pay dollars for them. So, this would need a rail network or some transportation network to ship it.

Also, it is not as the mineral comes out from the ground that you would sell it, you need to add value to it and it and that would need electricity. So, every development starts on the base of infrastructure. If you look at the 36 to 38 countries that have industrialised since the end of World War 2, they all went through a rapid, sustained, accelerated, above normal investment in infrastructure for like a decade, they changed the basis and the foundation of the infrastructure platform of the economy and when you do that, it then attracts investments both private and local.

So, you have to start off with infrastructure as the foundation and when you start with that foundation, you give the economy a chance.

Over the years big business and industries which were large employers have disappeared and a lot can be attributed to government policies. Can you speak on policies being a detrimental effect on businesses?

Policies are fundamental and foundational. If you and I look at the north 10 years ago, there were big businesses, NASCO, Peugeot Automobile Nigeria (PAN) in Kaduna, which either do not exists or there is substantial shadow. At one point in time, a business like United Nigerian Textiles Ltd.

(UNTL) used to employ over 130,000 people in this country and I am not sure there are many big businesses in Nigeria today that employ 100,000 people. Now all of these businesses were killed either by infrastructure issues that is they were providing their own infrastructure which meant their cost of production and was going up all the time or government policy left the barriers open. So, it was possible for cheaper imports produced at a bigger volume imported from china to come and destroy their businesses. We have to think about what we do from a policy framework. The first perspective is to recognise that if you don’t have, you have to be welcoming. And pardon me, I hope nobody takes offence if I use an expression like if you are a beggar, you cannot be anything but humble. What I mean by that simply is that we need investments from local businesses.

When I think of who the leaders of the economy are, I don’t look to people in government, I look to the leaders of the private sector as the real heroes of our marketplace. The first thing we must do is to recognise that the investment environment must be conducive for those people to continue to put their money in here every single year and that money does not go to investments in other nations or invested in consumerism. The second element is to recognise that as a nation, there is nothing wrong with people who have either built a business or invented something or created jobs being successful. As a nation, we must not make them feel uncomfortable. When your domestic entrepreneurs are comfortable here, this would also attract international investment.

Across the world today, there is somewhere around $130 trillion in investments globally and approximately 23 per cent to 25 per cent of that is attracting negative yield or zero yield. In other words, the same scenario we saw at the end of the year where our interest rate got as low as 0.35 per cent is the reality of many nations across the world and Japan is a good example. And all of these people are hunting for a home for that capital. Secondly, many of them also recognise that they need to help Africa not because it is charity but actually because it is the continent of the future. It is where the majority of the world’s youngest people live and these are all aging populations. The second thing is where so much of the world’s mineral and agricultural wealth or natural resources reside and so many of these countries require that mineral wealth either for manufacturing and other needs or they require your agriculture resources for food security.

Over and above the fact that they are looking for yield, there are also logical reasons that are important for them to invest in you. The third reason is that they want to invest in you so that you all seat in your nations and you don’t migrate to them.