If the Central Bank of Nigeria (CBN) were to conduct a stress test on Nigerian banks today, most of them would likely fail because they are the life wire of business and a mirror of the state of the economy which is now belly up.
As a fall out of the slump in crude oil price; vandalization of oil assets leading to shut down of production and inability to export; the introduction of the Treasury Single Account (TSA) in one fell swoop instead of being done in stages; removal of fuel subsidy without providing palliatives like SURE-P to cushion the harsh effects on the masses; and the floating of the Naira exchange rate which has resulted in the devaluation of the currency from N199/$1 in June to about N400/$1 in the open market, the balance sheet of Nigerian banks have doubled in size without commensurate credit disbursement and Nigerians are reeling from pains of hunger and starvation. The aforementioned policies misadventures are the reason most of Nigeria’s financial institutions are now hobbled with no funds to disburse to loan seekers and therefore little or no income is being generated for sustainability of the banks and by extension the growth of the GDP of the economy which recent data indicate is contracting at about -0.2% quarterly.
With Nigerian economy experiencing negative growth of -2% year on year and her population growing at 2%, the prospect of getting out of the current recession without drastic measures is slim because for an economy to experience economic growth, GDP must be growing faster than the population but the current situation in Nigeria is that while population is growing at 2% GDP is receding at 2% which is a jeopardy.
In the light of the foregoing, the inflow of surplus Japanese yen to the Nigerian economy that is in dire need of foreign exchange (FX) life line in the form of foreign direct investments in infrastructure, would most certainly be a magic wand, elixir and antidote to the recession stricken Nigerian economy as banks struggle to remain within the limits of regulatory framework of the CBN.
The prevailing ‘financial crunch’ was obviously not anticipated by Naira devaluation proponents. This is because they had argued that the FX held by Nigerian and foreign businessmen and women waiting for the Naira to be devalued, so that they can earn quick yields, would immediately flood Nigeria, as soon as Naira devaluation exercise is carried out.
As it turned out, in a country fraught with policy inconsistencies due to lack of a grand strategy,such optimism without solid foundation, was bound to be nothing but a pie dream or mirage.
Obviously, the pundits did not reckon with the negative impact that the policy of scrubbing bank treasuries of funds via the the Treasury Single Account (TSA) would have on the monetary system, neither did they figure out that lack of clarity on govt’s policy on the Niger Delta on whether there would be a continuation or cessation of Amnesty for militants would lead to the rise of a new militant group, the Avengers with the mission and capacity to destroy oil/gas facilities to the extent of Nigeria losing as much as one million barrels of crude oil daily.
It may be recalled that president Muhammadu Buhari, perhaps relying on his gut feeling which is probably derived from past experience (having had the privilege of being at the helm of a salvage team for Nigerian economy Dec, 1983/August,1985) dismissed the call for Naira devaluation for about one year into his administration before capitulating on June 20, a couple of months ago.
Mr President’s justification for the delay in boarding the Naira devaluation train was that the arguments for it did not add up in his books especially since Nigeria did not have any other finished products to sell to the world (the most viable reason for currency devaluation) except crude oil whose price is fixed internationally and of which there is currently a global supply glut.
With Naira now trading at over N400/$1, president Buhari’s fears of the Naira spiraling out of control when floated is manifesting.
In an attempt to wriggle out of the monetary policy cul de sac, the CBN had increased the lending rate during the last MPC meeting by 2 percentage points from 12-14% amongst other measures aimed at attracting foreign equity portfolio managers, who by their very nature, would rush to trade in Nigeria’s bonds as soon as it is made attractive enough.
Little surprise then that Nigeria’s bonds and treasury bills are now trading at about 20% which is mouthwatering considering that a country like Japan which is currently in stagflation, offers her bonds at zero interest rate.
In fact, in some cases, Japan even pays to offload bonds to willing parties in order to induce growth in the economy but such practice is extended only to European firms and others in industrialized and stable economies.
That’s why banks in Europe can offer loan facilities for as low as 4% and African banks, particularly Nigerian ones, grant loans at outrageous rate of 26% or more.
At such an exploitative rate what type of business can a Nigerian entrepreneur possibly engage in and be able to pay banks 26% interest rate plus overhead cost (salaries etc) at 10% and utilities 4% respectively, which when added together puts the total cost of funds into a business venture at approximately 40% or more?
I may be wrong but l’m yet to see a genuine business that yields up to 40% profit except fraudulent and doggy government contracts.
In my view, the outrageous cost of funds is a recipe for loans going bad and the reason for high rate of business exit and mortality in Nigeria.
A while ago, the CBN and Nigeria Deposit Insurance Corporation (NDIC) had reported that the non performing loan portfolio of banks in Nigeria was heading towards the N2.4 trillion Naira mark,which is a significant 10% of the N24.3 trillion credit speculated to have been disbursed to both the public and private sectors.
The grim situation highlighted above is expectedly giving regulators grave concern as it poses a major threat to the stability of the financial services sector.
Without further digressing on the ‘Shylock’ interest rates being charged by banks which is a story for another day, allow me elaborate further on why Nigeria needs to court Japanese friendship at this point in time and also explain how Nigeria can tap into the surplus funds in the world’s third largest economy, leveraging the paradigm shift in Abenomics for the productive growth of Nigeria.
We can do that by analyzing both Japan and Nigeria from the prism of two farms located in two opposite ends of the world.
While the farmer in one end enjoys very clement weather resulting in fantastic agricultural yields which is reflected in the robust wealth of the people living in the area who don’t know what to do with the excess capacity and they don’t have enough land to continue farming, and therefore are seeking new farm lands to plant their crops, the farmer in the other end is in exact opposite condition, because although the land is virgin and fertile, he lacks the requisite wherewithal to harness the potentials resulting in famine for the farmer and his family for lacking the capacity to conquer hunger and starvation.
The successful farmer with a surplus is Japan,and the failed or failing farmer that has been unable to conquer hunger and starvation is Nigeria.
The critical task of bringing both the prosperous and indigent farmers together so that they can jointly harness their unique strengths and weakness even though they are in opposite locations of the world, is the raison dete for my Japan/Nigeria business partnership hypothesis and the point l’m trying to make in this article.
Incidentally, comparing Japan and Nigeria is a paradox of contradiction because unlike Nigeria located in a zone of rich natural resource ranging from crude oil to nickel,yet very poor, Japan is actually in an area without natural resources, yet she has prospered greatly.
What the above scenario indicates is that unlike in the olden days when the world relied on agriculture and believed in Thomas Malthus theory premised on the notion of diminishing land resource against growing population as a threat to mankind,in the 21st century, it has been proven that ideas, not natural resources, rule the world hence Microsoft-which operates on ideas- is the biggest corporate firm in the world today.
In the light of the foregoing, and taking advantage of Abenomics, finding how to link up the $10 billion Japanese economy to Nigeria’s $320-570 million gdp-post and pre re-denomination-for the mutual benefits of both countries is a task that the Nigerian establishment, under president Buhari’s watch must seek to accomplish.
What makes this initiative more urgent and critical now is that only recently, the Japanese govt went out of its usual conservative and inclusive approach by organizing its annual trade conference for Africa outside of Japan for the first time by staging it in Kenya last month.
The conference held to introduce Africans to the opportunities available in the Far East country through active engagement in aggressive investments in the so called ‘dark continent’, in my reckoning is a major paradigm shift in Japan’s international and business relations, particularly with respect to how she perceives Africa.
For too long, Japan which before the turn of the last decade was the world’s no two biggest economy by GDP ,had viewed Africa with jaundiced optics shaped by the Western world which has been treating the African continent as one ravaged by wars and diseases, needing only aid, not trade.
With the world now apparently recognizing Africa as the new economic frontier, of which Japan has been a laggard,until she recently got compelled to do so due to the stagflation in her economy which has failed to respond to all other economic strategies ,it is desirable, if not urgent that relevant Nigerian authorities make concerted efforts to seize the opportunity and make Nigeria the preferred bride for Japanese business suitors in Africa.
For now, owing to negative media comments and policy inconsistency resulting in uncertainties in Nigeria’s political and economic systems, Japan like the rest of the Western world has shown more interest in South Africa, Kenya and perhaps Ghana as evidenced by their investments in the aforementioned climes,without much attention being focused on Nigeria.
Nevertheless, the Chinese who have developed their own unique template that’s different from the Western approach,has been the most aggressive and inclusive in their African investment strategy with increasing engagement with Nigeria evidenced by recent ramping up of her investment in the rail transport sector.
So it behoves of Nigeria to strive to regain her preeminence as the country with the largest population and greatest market potentials on the continent by taking leadership position in attracting Japanese businesses through road shows by Nigerian investment promotion council, NIPC and Export-Import Bank (NEXIM) etc.
That can only be achieved after Aso Rock articulates and implements world class policies that would incentivize investors in the real sector as the CBN has done to attract portfolio equity managers by increasing bond yields which are now trading at mouth watering rate of 20%.
For instance, l can recall the critical role played by Japanese firms like Marubeni and Chiyoda in the establishment of Nigeria’s oil and gas refineries in the 1980s. As the nation seeks investments in private refineries, Japanese firms can play strategic roles if encouraged with the right incentives such as ability to export a certain quantity of refined products to other west African countries like Cameroon, Chad, Niger, Benin Republic and Togo etc that presently rely on smuggled petroleum products out of Nigeria.
Consider the recent privatization leading to the unbundling of the electricity power sector in Nigeria and the involvement of only third rate players from Eastern Europe and lowly Asian countries like the Philippines which Nigeria was ahead of in the good old days,in terms of infrastructure.
Without the involvement of technology grand masters like Japan and Germany etc, l’m not surprised that the power sector is now in quagmire owing to dearth of equipment to upgrade the system and the huge debt from local banks so far incurred which is also having a devastating effect on the fragile Nigerian financial system.
If not for the absurdity and ambiguity of Nigerian system, who is Manitoba in the world of electricity power grid Management that qualified the unknown quantity to be in-charge of electric power distribution for about a decade?
If the leading power firms from industrialized world earlier mentioned were involved in Nigeria’s power privatization,there won’t be lack of equipment to boost generation and distribution just as local banks would not be owed as the big multinational firms would have injected their own equipment and funds.
Can you imagine oil industry in Nigeria without the majors like Shell,Mobil,Chevon , Total Fina Elf but with only start ups like Seplat, Aiteo, Seven Energy, OANDO, Midwestern etc?
With cabinet ministers of the caliber of Babatunde Fashola,(tested and proven performing ex Gov of lagos state) heading the power ministry and Okechukwu Enelamah,( former chief executive of Alliance Capital Africa,ACA a leading funds management and business advisory service) in charge of trade and industry, creating conducive environment for the attraction and sustenance of Japanese businesses in Nigeria, should be a no brainer.
Are these established achievers also hobbled?
Remarkably, as earlier stated, China,whose economy was growing some times as high as 14% in the past decade which enabled her overtake Japan as the world’s 2nd biggest economy, and also Japan’s closest rival in Asia, has already made massive inroad into Africa with Nigeria also initially not receiving premium investments commensurate to her size, until recently when the country got involved in Nigeria’s infrastructure projects, especially rail ways.
Incidentally, China largely achieved the feat of overtaking Japan in less than two decades of joining the world trade organization, WTO because she kept extending her investments footprints in Africa, as she staked hundreds of billions of dollars in natural resource extraction in exchange for export of cheaply produced and practical goods plus infrastructure development.
To catch up, Japan is now striving to woo Africa with her $30 billion offer of investable funds as she recently declared in the Kenya conference.
I have no doubt that Nigeria is a perfect suitor for the economic marriage to Japan due to the size of her population which makes one, out of every five African, a Nigerian.
Already, a light rail project is being proposed for parts of lagos metropolis by a Japanese firm which is welcome but a lot still needs to be done to convince Japan via serious engagement with Japan lnternational Corporation Agency, JICA, the platform for Japan’s international investments, that her economic wedlock to Nigeria would be mutually beneficial and a marriage made in heaven.
Japanese investors should ask MTN, DSTV, Shoprite/Game and many other South African businesses whose initial sales projections for their products and services in Nigeria for one year, was bursted in matter of weeks, thus sending their strategists back to the drawing board.
Below are three justifications for the title of the article ” Matching Resources From Japan With Opportunities ln Nigeria “:
(a)Japan is a ten billion dollars, $10b economy,third largest in the world, after the USA and China with a sizable population of about 120 million and Nigeria with $320-570 million GDP economy – pre and post Naira devaluation,now second to South Africa, but has the largest population in Africa which is in excess of 170 million which is a huge market that is the equivalent of three three major African countries markets combined , yet under one jurisdiction
(b) Japan is highly industrialized and known for the mass production of vehicles, industrial equipment, and high technology devices and components and Nigerian economy is dependent on natural resources like crude oil as main source of revenue and has very poorly developed industrial base which offers Japan a greenfield scope for investment in development extending her excess capacity which she is unable to achieve back home
(c) Japan has the highest number of aging population in the world, about 20% are octogenarians/elderly and a vastly shrinking youth population which is adversely affecting productivity and consumerism and one of the root causes of the stagflation, on the other hand Nigeria boosts of a vibrant youth population of over 60% with huge potentials to trained and be highly productive,reasonably educated/skilled and a middle class with growing capacity for consumption and high purchasing power.
In the light of the foregoing matching factors and common grounds which are enabling circumstances for cooperation highlighted above, there is no doubt that there exists ample and mutually beneficial potentials for Japan and Nigeria to engage in economic wedlock that would create a win-win outcome for both countries.
Interestingly, on the heels on of the Japan/Africa economic summit in Kenya which she is ostensibly leveraging to play catch up with China and the Western world in the race for Africa which thankfully is unlike the Berlin conference during which the world parceled up Africa in 1884-5, China is right now hosting the G20 summit -gathering of the world’s 20 richest countries-in Hangzhou to consolidate her growing global influence.
It needs no further emphasis that Chinese interest and Japanese interests in Africa differ in the sense that while Chinese ultimate objective is natural resources to drive her burgeoning industry in pursuit of her status as the foremost production factory to the world,Japan’s quest may be to seek new investment destinations, aside from Western Europe, the USA and other financially stable countries to revive her economy which has been in stagflation-zero growth for decades.
Although Japan may not be able to compete with China in terms of trade with Africa due to the relatively cheaper cost of production in China and the very basic items she produces for sale which are in high demand in Africa, compared to Japan’s high tech products which may be relatively too expensive for Africans and more suited for advanced economies, however Japan can match China in ability to pump funds into development of African infrastructure market.
The above assertion is without prejudice to the fact that China is an $11 trillion GDP economy and the second largest in the world, but she is constrained by her huge population size at 1.3 billion which is estimated to be about ten folds the size of Japan’s 120 million.
While China’s development is essentially around big cities like, Beijing, Shanghai, Guangzhou, Yangzhou, Hangzhou etc with over half of her population in the hinterland still living at poverty levels similar to third world countries standards, Japan’s economy is fully matured, and development is evenly spread with standard of living and life expectancy of the average Japanese being in the top percentile of global rating.
By commission or omission, Japan might have been slow in looking into Africa for trade because unlike China which is badly in need of the abundant mineral resources on the continent, Japan is less dependent on natural resources as she actually grew by developing alternatives such as hybrid and synthetic materials.
But lately Japan seems to be breaking out of her old mold by first reviewing her constitution via tweaking with the clause that makes her pacifist and forbidden from involvement in arms race and wars, influenced by her sad experience of horror following the atomic bomb released by the coalition forces led by the USA in the cities of Nagasaki and Hiroshima in Japan with grave consequences during world war 2.
But with her economy stuck in stagflation after failing to positively respond to the numerous stimulus measures applied through the now famous policies of prime minister Shinzo Abe, known as Abenomics, Japan is engaging in a paradigm shift which is not only focusing on business cooperation with the equally industrialized world , but also reaching out to the so called third world. As such, Japan, this time may not only be targeting Africa as as market destination for her finished products like Toyota vehicles etc ,but also as a location for investing in production as well as in infrastructure, not only to revive her stagnated economy but also in order to counter the expanding influence of her nouveau rich neighbor and arch rival, China.
It is only pragmatic that our leaders prepare Nigeria to harness the opportunity.
According to William Fulbright, an American senator, “To criticize ones country is to do it service and pay it compliment.It is service because it may spur the country to do better than it is doing; it is a compliment because it evidences a belief that the country can do better than it is doing”.
The philosophy above underscores my criticism of some Govt policies and programs like the song and dance made about anti corruption war where Govt joined the rest of the world in branding Nigerians as ‘fantastically’ corrupt and the resultant net effect of de-marketing our dear country with dire consequences which have turned out to be inimical to progress and development as potential investors have been scared as opposed to being impressed by the rhetorics.
Now, part of the negative notions about Africa and indeed Nigeria used to be lack of transparency and non practice of democracy by the countries on the continent, but those yokes have now been removed as practically all 54 African countries are currently under democratic rule and have also become members of the WTO just as transparency in governance and anti corruption measures which are minimum prerequisites for joining the WTO, have also increasingly become the norm rather than exception.
As redeeming as the aforementioned developments may be, liberal democracy which is the Western world’s prerequisite for the attraction of international investment is yet to become the norm in most African countries.
A very ready reference point is Nigeria where there has been a plethora of political and economic reforms typified by an ongoing war against corruption under the watch of president Muhamadu Buhari, whose reputation is built on incorruptibility.
Wether the international community regard the anti corruption war in Nigeria as altruistic or view it as political witch hunt, would determine how soon investment destination seeking nations like Japan anchor their investment boats in Nigeria.
Given the scenario above, it would appear to me that a lot more needs to be done to change the course of the investment train to her direction.
For instance,the ease of doing business in the world rating, of which Nigeria is at the bottom rung-169 out of 189 countries is a huge impediment but industry minister, Enelamah has promised progress in that regard.
Hopefully, the drawbacks occasioned by erstwhile capital importation restricting laws and subsidy regimes recently eliminated by the floating of the Naira and removal of oil subsidy as well as the ongoing anti corruption war, would improve the country’s position to enable the nation compete better with South Africa, the only member of the G20 countries- richest nations in the world-from the continent.
Similarly,Kenya which was curiously chosen by Japan to host her first Africa focused economic summit to be held outside Japan, seems to also be getting higher ratings than Nigeria which must be changed too.
Worryingly, not being invited as an observer to Hangzhou, China for the G20 economic summit where South Africa had a seat and also not being selected to host the recent Japan/ Africa economic summit despite her huge population and much vaunted pre eminent position as the powerhouse of the continent, in my view is sending the signal to Nigeria that her reform efforts in nearly 18 months of the new Govt have not corrected the negative global perception of the country.
What this speaks to, in my considered opinion, is that our country needs to redouble her efforts at being more transparent in governance and dynamic in policy formulation to earn global buy-in for her policies and programs to engender global respect which would be rewarded with the choice of Nigeria for epochal events like the ones earlier listed.
The assertion above is underscored by the fact that president Buhari was immediately after being sworn into office roughly one and half years ago hosted by the European Union, EU in Paris and thereafter in quick succession by a host of countries in Europe as well as the USA.
The non invitation of Nigeria to recent globally significant politico-economic events are therefore tell tale signs that, despite the ‘holier than thou’ attitude of our current leaders,as reflected by the so called anti corruption war in the past 18 months, Nigeria is yet to be duly accepted into the club of leading comity of nations because it is the articulation and implementation of sound economic policies that make nations great, not blaming the previous regime and deploying all Govt resources and energy to prosecute war on corruption.
As a further testimony to or validation of the sense of neglect of Nigeria by the international community, it is not something to be proud of that President Barrack Obama, the first man of African origin to serve as the leaders of the USA will soon complete his 8 years tenure without stepping his presidential feet on the Nigerian soil, even though we pride ourselves as the most populous black nation in the world and acclaimed giant of Africa.
Consequently, if l were President Buhari, l would review my governance strategy in the past 18 months with a view to positioning Nigeria to better harness, amongst others the opportunities inherent in the prospect of Japan being a perfect investment suitor for Nigeria.
That would help reverse the nation’s economic slide which data from the National Bureau of Statistics, NBS are suggesting is getting worse day by day.
To achieve the aforementioned objective, the ongoing anti corruption war must be fought across the political spectrum (PDP and APC) and it must be prosecuted with less bile and vendetta which are some of the factors making it look like its a veiled attempt to crush opposition.
In essence mr president should keep to his promise in his inaugural speech in which he declared ” l belong to no one and and l belong to everyone ” which resonated very well with Nigerians and became one of the most quotable quotes.
Also, technology should be applied to fight corruption and the public utility companies still under the purview of government, which are breeding ground for corruption, should be unbundled for the private sector to take control.
By the same token anti good governance tendencies such as the nepotism in Govt should be gotten rid of; absence of respect for federal character principles in the appointments of people into public offices should reversed ; manifestation of intolerance of Govt to dissent and interference in internal affairs of another arm of Govt as reflected in the intractable executive and legislature feud over election or selection of principal officers in the National Assembly discouraged; disdain for the rule of law as evidenced by non recognition of numerous bails granted by competent law courts resulting in the continued incarceration of fiery Islamic preacher, El Zarzarky, denial of freedom to Nnamdi kalu, the pro Biafran illegal radio station operator, and continued detention of Ahmed Dasuki, erstwhile National Security Adviser (NSA) accused of misappropriating $2,1billion set aside for the prosecution of the war against terrorism by applying the funds as campaign slush funds for the outgone regime should be discontinued; just as other atrocities such as human rights abuses by the military and the police who allegedly mow down protesters like the attendees of an unapproved rally in Onitsha, Anambra State commemorating the birthday of acclaimed Biafran heroes should be jettisoned.
Any nation that is buffeted by the negative and anti democracy practices enumerated above, stand no chance of benefiting from, among other global opportunities,the Japanese creed of Abenomics which appears to me, as the needed elixir at this point in time for Nigeria’s ailing economy to be revived.
Most of all, a president that is determined to succeed, as l believe president Buhari is, does not need any extra ordinary laws -like the one currently generating a raging debate- to make the above listed changes happen.
So Mr President, you can get on with the task of changing Nigeria for the better, without further ado.
Magnus Onyibe, a development strategist and futurologist is a former Commissoner in delta state and an alumnus of the Fletcher school of Law and Diplomacy, Tufts university, Medford , Massachusetts, USA.