Transcripts For BBCNEWS Talking Business 20170204

Near hull, after choking during a School Dinner break. The head teacher said everybody was deeply saddened by the tragic event. The Ministry Ofjustice says it is urgently investigating claims that Security Workers were paid by offenders to deliberately fit electronic ankle tags to loosely so they could be removed. After days of huge Street Protests this is the live scene the Romanian Government has withdrawn a draft decree which would have reduced some penalties for corruption. Now on bbc news, 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 people are desperate forjobs. On this weeks Talking Business, we ask nigeria is one of africas 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 ta ke to falling . And what is it going to take to make Nigeria Thrive . Here to a Nswer Take To Make Nigeria Thrive . Here to answer some of these questions, the Chief Executive Officer of the nigerian sovereign investment agency, effectively the countrys 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 forjoining 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 isa eight years of oil price rally. It is a cyclical product. The last 30 yea rs, is a cyclical product. The last 30 years , we is a cyclical product. The last 30 yea rs, we have 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 toa 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 governments overall revenue but theres 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 . 0rdeal 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 cant 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 its not going anywhere any time soon. How has nigerian business responded to this . It is notjust 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 . 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 fixed price, to be able to re patriate your profits 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. 0k, 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 cant 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. Growing businesses which are the backbone of the economylj growing businesses which are the backbone of the economy. I knew you dont represent the Government Body led upa dont 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 . have seen significant efforts to make changes recently, also from the agency that im 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 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. 0thers so much inefficiency on Commodity Pricing. Others are able to price is much cheaper than small people can. We dont 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. Theres 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, there are so many things going on which i think will eventually come to the surface. Let me symbol fight, simple question, here is africas Largest Oil Exporter and its probably africas largest importer of petrol. We should be refining it, not importing it. That is an inefficiency. I agree and that strikes and because im a Chemical Engineer by training and i worked on some of those refineries many years ago. Its 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 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 we re 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 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. 0n 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 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 ive 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. 0bviously 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 ican 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 theres 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 organisation. The third way is the reinvestment, bringing foreigners into investments. The point im making is that, and thats 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 id 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, lets get a thought from colm 0 regan on this weeks talking point. How difficult is it to rebalance the nations 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, im 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 irelands central bank. They are moving to the soon to be opened building behind me. I like to see the move of irelands central bank down to their brand new headquarters as sort of a metaphor for the way irelands 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. Its economy is not as simple as that. Its a bit more than a few grains and some Energy Efficient glazing. Asa and some Energy Efficient glazing. As a small, open economy, you are a lwa ys 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, youre 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 ireland, what about a big oil like nigeria . Governments always get used to easy revenue and with the recent 0pec 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. Theres a lwa ys the diversification process. Theres always the temptation to borrow big because youll 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 0 regan. What is it that nigeria should do to find solutions, not just for the economy nigeria should do to find solutions, notjust for the economy but 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, betterfinancial 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 havent 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 its less than 15 of gets all the attention but its less than15 of gdp, gets all the attention but its 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 1a 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 dont want to place their future in someone elses hands. So they work for themselves, as soon as 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. Theres a lot of talk in investing in hard infrastructure. With a soft infrastructure, the education system, its 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 cant 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. Leads 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. Its the electricity supply, just the roads. Its 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 poon 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 the cost of production will be 20 higher than its peersjust 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 im hoping that in the next couple of yea rs, 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 620 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 dont manufacture enough to be self sustaining. Manufacture enough to be selfsustaining. 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, ill 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 couldnt do it and this is a 25 year old who had been short changed by the education system. If you dont 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 dont know how to divide 696 by 12. So, you know, everyone , divide 696 by 12. So, you know, everyone, all of us, notjust 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. Id 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 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 this evening. Earlier in the south west of england, we even had some thunderstorms, some downpours, but those have mostly cleared away from the South West Am heading to other parts of the uk, not the storms, just a few showers left over. We have a few showers in the forecast for sunday as well. They wont be as heavy as what we have got at the moment. This is the cluster of cloud bringing heavy showers towards the south west. Pretty cold as well. I would not be surprised if there is a tiny bit of snow falling across the upland areas of wales and into the cotswolds, for example. But foremost, main message is towards the end of the night, cloudy, little bits and pieces of rain, mistand cloudy, little bits and pieces of rain, mist and fog in one or two spots, not desperately cold butjust A Touch Of Frost across some northern areas, where the skies clear. Quite a slow start to the day tomorrow, slow meaning a lot of cloud around, a bit of mist as well. The clouds break up but were not talking about a gloriously sunny day everywhere any means. Scotland, much better than today. Today it has been raining. Tomorrow, sunshine from inverness into aberdeenshire, across into the borders as well, not a bad day in the lowlands. Western areas, from northern ireland, through the isle of man not the Isle Of Wight showers getting into cornwall and devon but inland, it is going to stay relatively cloudy with a few brea ks stay relatively cloudy with a few breaks and maybe one or two light showers. The Skies Clear On Sunday Evening which means that sunday night, tomorrow will be cold with a frost on the way. All in advance of some rain. This is a Weather System out in the atlantic. A beautiful one, cold front, warm front, occluded front, the low pressure, it reminds you of geography. This is the Weather Front moving into cornwall and devon, into the western fringes of wales, belfast will get rain as well but this is a very slow mover. It is cloying, a glacial pace. That means that london all the way up to edinburgh will stay dry with some sunshine through most of the day. Eventually, the Weather Front will move through. By the time we get to tuesday, it straddles the eastern coast so if you live in norwich, scarborough, newcastle, maybe five, these areas will be cloudy with rain at times. The wind is off the north sea so it will feel chilly, newcastle with a nip in the air, damp and drizzly. Southern and Western Areas better, one or two showers around but overall, much better. You can see a real mix on the way. Later in the week, it gets colder. This is bbc world news today, broadcasting in the uk and around the world. Im alpa patel here are the headlines the Us State Department reinstates visas for thousands of foreigners, mr trump has angrily condemned the court ruling, saying the decision will be overturned. After days of mass protests, romanias government withdraws a draft decree which would have reduced some penalties