We begin the report with a candid interview with Nigeria’s Finance Minister, Ngozi Okonjo-Iweala, who gave up her job as a managing director at the World Bank to take up her critical position in the Nigerian government. She discusses the fuel subsidy confrontation, the government’s reform agenda, the Boko Haram terrorism issue and its solution, strategies for creating jobs and a massive reform of the agricultural sector, among other crucial matters facing the African giant
African Business: Can we start by examining the issue of fuel subsidies and why they generated so much heat when the government announced their removal?
Ngozi Okonjo-Iweala: Subsidies are a huge burden on the fiscal. Five years ago there was some agreement that subsidies would be phased out, and the downstream petroleum sector would be deregulated. That would allow entry and exit by the private sector – to build refineries and drive the sector more. That has not happened because it has been challenging for every government to phase out these subsidies.
The cost of fuel subsidies to the nation has varied from year to year. But last year was the most difficult. Subsidies had been estimated at $8bn previously, but by the time we totalled all the payments, the figure came close to $13bn. It is a burden; it took a huge chunk, maybe 30% of the budget, more than 4% of GDP. It is a very heavy weight in terms of impact.
What was certain, according to the analysis done by the government – and as was also independently verified – was that the benefit was not going to the poorer sectors as had been intended. There was some benefit, for sure, but the better-off benefited disproportionately.
This is that those who drive the vehicles, who use gasoline intensively, are the ones who benefit. It is true that some small businesses that use oil generators are impacted – but if you look at the population segments that were benefiting most, they were the better-offs.
If you really want to help the poor, what is the most efficient way of deploying resources? We thought that deploying them into safety nets that directly target poor people is a better option. We have to obviously deal with this problem of inclusion.
Second, we could divert the funds saved also to infrastructure, where we need very heavy investment on a yearly basis. This would be much more beneficial to the population as a whole. When the subsidy phase-out was announced, there were riots and a sharp reaction – which has always been the case, by the way! There has been absolutely no time when any government has tried to phase out a subsidy, that there hasn’t been this reaction.
When I was last in government, under Olusegun Obasanjo, the same thing happened. It was only done as a partial phase-out at that time. This time, the President decided that he would go part of the way, and the price of gasoline was moved from N65 ($0.41) a litre to N97. Initially when we thought the full phase-out was going to happen, the price was set at N141. It was only later that we settled on N97.
That is a huge achievement given the fact that for five years nobody had dared to move the price. And there is a commitment to total deregulation and a total phase-out of the subsidy. So there are two aspects to this: phase-out of the subsidy and deregulation of the downstream petroleum sector.
You are not going to get private sector entry and exit to build refineries and so on unless you phase out the subsidy. That is because it would not be profitable.
Q: What time frame do you [envisage] for a total phase-out?
A: I cannot say. Let me just leave this as a commitment. Like in every country, including the UK, there is very little trust by the people in the government. It is down to 29% and in the US it is the same thing. There is a trust issue going on worldwide, and Nigeria is no stranger to that!
Before you embark on total phase-out and deregulation, your task is to demonstrate to the population that any money that comes out of that will be used in ways that are beneficial – and that they can see with their own eyes that it is being used.
Q: How much money will you save through the partial phase-out?
A: We have just started. January 2012 was the first month of the savings. For the whole of Nigeria, a total of N39bn ($247m) will be saved; the federal government portion of that will be about N17bn ($108m) naira. The savings are shared by the states, the local governments and the federal government. We have published the savings so that every Nigerian can follow what is happening.
Q: Can you describe the reform agenda?
A: The fundamental focus of this administration is reforming the economy to create jobs. That means diversifying Nigeria’s economy, away from just oil to focus on different sectors. In almost every sector we have implemented reforms.
In power, we are privatising the entire sector. We have broken it into separate generation, distribution and transmission companies. One transmission company is still owned by government, but it is private-sector managed. There are 11 power generating companies and many others for distribution. All of them are ready to be sold. Bids have already gone out.
We need investment of about $10bn a year in our power sector in order to take care of our needs. We believe that privatising this will be the best way to go about it.
We have received 331 expressions of interest in the scheme, from companies like Actis, AES, Honeywell, Hydropower, China Group, China Southern Power, Marubeni of Japan, Tata of India and GE.
The President has also launched a job creation programme addressing the problem of youth unemployment. We have an unemployment rate of 23% in the country, and it is mostly among youth. The aim is to create 370,000 jobs a year for the next three years.
Part of that will involve skills internships for the youth, who can then be employed by private sector companies. The government will look at different incentives to enhance this, with tax breaks for companies that engage in it and so on.
There is also a public works programme targeting youth and women, particularly in the rural areas where the poorer population finds itself. We need to use any savings. So we are going to use the savings from partial deregulation, and partial subsidy phase-out. The money we get from that we will invest in these types of ‘safety net’ programmes – job creation, and operating health services for maternal and childcare.
This is an area where Nigeria’s human development indices are not very good. There is no reason why any woman should die from childbirth, because we have solutions. We feel we need to scale up our services. This will be more beneficial to them than an oil subsidy.
The third area is in mass transit. We will be investing in mass transportation for poorer people in the big cities. And we will also invest in vocational training.
The other area is big infrastructure – we are targeting investments in four or five key road arteries that carry the largest numbers of people. I am telling you all this because we believe we need to assure people that we mean business and that we will use any monies wisely. Then when we go for total phase-out, people will be less likely to get upset about it.
Q: Are you concerned that the reputation of Nigeria has taken a knock with the apparent breakdown in security in parts of the country?
A: I am concerned, but luckily the evidence I have shows that the knock we have taken is not as severe as it is made out to be.
But we are more concerned about the safety and lives of citizens than whether the country has taken a hit or not regarding its reputation. Of course we are concerned about that as well.
The question about Boko Haram, as with other terrorists, is: what is the best strategy to deal with it. The government has a three-pronged strategy. First, is using counter-intelligence and human intelligence. We are getting help from a few countries, like the UK, the US and France.
The second aspect is political. Initially it was thought that you don’t talk to terrorists. That has changed, and the President has offered that he wants to know what they want. Just as was the case with MEND, (the Movement for the Emancipation of the Niger Delta) where, through dialogue, they put their demands on the table and that was attended to, now we are inviting Boko Haram to do the same.
The third prong is inclusion and economic development – because you can’t solve the whole problem just through security aspects. Many of these people come from parts of the country that are the most impoverished, in the northeast. So there is this job creation programme that we have just launched.
Previous to that we launched another programme, called YouWIN! – Youth Enterprise With Innovation in Nigeria. It targeted entrepreneurial youth, to help them with their businesses, to expand and create jobs.
Now we have this new one, the unskilled public works programme. We are also targeting sectors like agriculture, mining and manufacturing. We should increase investment in these areas so as to create jobs. That is the third prong of the strategy.
And I think with those three aspects of our overall strategy working together, we hope to handle the problem.
Q: It doesn’t quite deal with the issue of reputation though…
A: Yes, coming to the reputation. There were terrorist bombings in Britain. The country’s reputation took a hit and for a while tourists stopped coming. So it happens in any country. After 9/11, for a while people would not come to the US.
Of course the same situation would obtain in Nigeria, temporarily. You know I was in Davos with hundreds of CEOs. We held a session that I chaired. We had 15 to 20 CEOs attending the Nigeria round-table. And three quarters of them were already investing in Nigeria. You had companies like Guinness, Diageo, some power companies, and so on.
About five of them were new, mainly from East Asia, who were interested in investing in Nigeria, including an Indonesian company that invests in petrochemicals in Nigeria. They attended and none of them said anything about closing up shop or even just losing confidence. They all said this was a temporary blip.
Instead they wanted to know if “you have a way to deal with this problem?”. So that was the key question: what is your strategy? Interestingly, five new investors came in.
So if there is a reputational issue, it is temporary. In fact, it is amazing what is happening with international companies. Jeffrey Immelt, the CEO of GE worldwide, has just visited for the first time. GE has committed to making investments in three areas – power, health and railways.
GE makes a lot of health equipment. They are gearing up to sign an MOU on 1st March to build or invest initially in two hospitals and four diagnostic centres over the country. They might do it with other private investors that they bring in, including from the Nigerian diaspora. They are also going to set up a rail assembly plant in Nigeria, to help us revive our railways, to build locomotives. We have just concluded discussions on that.
The CEO of Del Monte visited, again for the first time. They are interested in investing. That was a prospective mission; he hasn’t committed, unlike GE, which has committed.
We have also just signed a £40m investment from an American investor in a rice farm in Taraba State. Interestingly, he was willing to train 50 young Nigerian farmers in rice production; they will be outgrowers. They will also invest in the rice milling operations.
I could go on and on. There is tremendous interest in petrochemicals, fertiliser, agriculture and a lot of inquiries in power. And, of course, oil and gas remain a constant point of interest.
Q: Has there been progress in the liberalisation of the energy sector?
A: Absolutely – in the next two or three months I predict that you see fast progress. The Minister of Petroleum Resources has formed several committees to push the Bill along. They are working at a very fast pace.
Q: What about the piracy threats?
A: There is piracy off the West African coast, and all the African presidents belonging to ECOWAS are very concerned. In fact Nigeria is a force for good, because the other countries are small – so they are actually calling on Nigeria to help control the waters. There is a lot of concern also over drug smuggling along the coast. You know, when people are chased from one part of the world they try to move to another!
There has been some element of bunkering of oil illegally being taken off offshore. So, yes, we want to make sure we curtail this. And we have also brought in the private sector, which can help even with the maritime surveillance of our coasts.
Q: What is the state of the agriculture sector?
A: We feel this sector could really create millions of jobs. We are undertaking some drastic reforms.
Agriculture makes up 40% of Nigeria’s GDP, so it is a very important sector. Both the states and the federal government are looking at agriculture as a very strong area for reform.
We used to view agriculture in the traditional way. Now we have a terrific Minister of Agriculture, who has totally transformed the way we think about the sector.
We did very little processing, created very few jobs, and lost market share for our exports. We spend $10bn annually importing all the products we eat: rice, sugar and fish. The Minister of Agriculture believes that we are perfectly capable of growing all of these crops! That is except for wheat. For wheat, we want to substitute cassava flour, of which we are the largest producer in the world.
So the idea is to take each one of these, value chain by value chain – from research to the farm to processing and then marketing for internal consumption. We are the second-largest rice importer in the world! We aim to change that and over the next three years, we should become self-sufficient.
The same applies to sorghum and oil palm. We used to be one of the world’s largest exporters. Now we import from Malaysia. So that is the model: we want to stop the approximately $10bn we spend on food imports each year. We intend to change that around so that we produce our own food. And we also want to regain the market share we once had.
In 1961, if we had maintained market share in crops like cotton, oil palm, cocoa, coffee, we would have been earning $10bn a year today! So we want to regain market share in exports, but most importantly, since we have the ability, to be self-sufficient in food production.
In doing that we will create millions of jobs for youth. Not traditional jobs in subsistence agriculture, but in modern agriculture and processing. We can turn cassava into starch, flour, animal feed, so many things.
That is just one sector. Housing and construction is another area we need to fix, because that is a big job creator. That is in our sights.
We have 34 solid minerals all over the country – gold, tantalite, you name it, we have it! And they are present in commercial quantities but they are not being exploited. There is a lot of small-scale mining going on, but that needs to be invested in.
We are here (in London) for what is called a non-IPO roadshow, for a $500m bond which was floated January 2011. We are here to update investors, to tell them what is really happening inside the country and to answer questions they may have.
Q: How would you sum up your economic situation?
A: Nigeria’s debt position is extremely good. Our debt to GDP ratio is now about 20% – and about 16% of that is domestic debt. The remainder is external debt.
We have very low external debt, and on very concessional terms. Apart from the Eurobond, it is mostly multilateral debt.
We will raise a few more resources from the Chinese because they are interested in investing in the country. It will be a mix of equity and loans.
But we are in extremely good shape. Our benchmark target is 20% on GDP; we don’t want to exceed that ratio. And we are well below that. You can see that inflation is at very moderate levels, about 10.2%.