Welcome to finance and investment column. The column will report on topical issues in the finance and banking industry as it affects business and the wider economy in sub-Saharan Africa and beyond. In this edition and over the coming months, I will discuss various ways in which Nigeria can grow its real economy.
In the subsequent editions, I will introduce various concepts on how Small and Medium Enterprise can raise capital to finance their businesses. Also, how an emerging entrepreneur can turn good ideas into a viable profitable business. My hope is that young, aspiring businessmen and women, as well as high net worth individuals will find this column quite useful.
Nigeria’s economy is largely depend on oil revenue, so is her currency worth (NAIRA) that is correlated to the value of oil. Should there be a significant loss in the demand for oil, Nigeria’s economy will become stagnant. Despite the fact that there is currently peace in the Niger Delta area of the country, Nigeria still faces production risk due to instability and unrest within the political landscape in the country. The banking industry also relies largely on the transaction in the oil sector namely; foreign exchange transactions and lending to the oil & gas conglomerates.
The recent key financial indicators paint a gloomy picture and should concern those doing business in the country both local and foreign entrepreneurs. Inflation is at double digits and stood at 12.7%; interest rate 19%; external reserves at a mere $36.7bn; per capita income at $1,600; exchange rate N155/US$1 and poverty rate stood at 71%. The Agriculture sector remains the biggest contributor to GDP (35%), Wholesale & Retail Trade (28%), Crude Petroleum & Natural Gas (17%), other sectors (20%); contribution in each industry within other Sectors is less than 7%. (Source: National Bureau of Statistics’ website 2012).
With 71% of the population in poverty, it is evidential that more needs to be done to create jobs and wealth in the country. Over the last 60 years of independence, Nigeria has been relying on the State andFederal government to create jobs. There is always going to be an argument that the government is not doing enough to create jobs. There is credibility to this point of view; however, I strongly believe the role of the government is to create an environment conducive for structured and viable business to thrive. That is the least the government can do, creating jobs is best provided by the private sector business. In the United States of America and the United Kingdom, the private sector employs more people than in the public sector (see graph below). Private sector creates wealth, while the public sector consumes it.
In Nigeria, this mindset must change. The business sector of the economy needs to engage the government and have a frank dialogue about creating business friendly policies and regulations that will attract foreign investment into the country. In 12th century Britain, Guildhall was the City of London powerhouse. It was an era in which the Lord Mayor of London rivalled the monarch for influence and prestige, the Mayor and the ruling merchant class held court, fine-tuned the laws and trading regulations and helped create London’s wealth.
In addition, government must have a mechanism or policy that will encourage the younger generation to be more productive and aspire to become entrepreneurs rather than service men and women. The size of the government needs to be reduced to a reasonable level as ineffective government operation is crowding the productive private sector. The supply side policy needs to be introduced (i.e. Capacity building) perhaps Naira need to be floated and import substation policy needs to be addressed.
Next time I will cover various options in which the business community other than the oil & gas sector can contribute towards job creation. More importantly, to outline how Nigerian High Net Worth Individuals can come together in contributing toward a thriving economy.