Citibank’s Cluster Head for Sub-saharan
Africa, Mr. Akin Dawodu, in this interview spoke about measures
policymakers in Nigeria and other countries in continent can adopt to
achieve sustainable economic growth in their respective countries. Nume
Ekeghe presents the excerpts:
What has been the impact of COVID-19 on Sub- saharan Africa (SSA)?
SSA economies like the rest of the world
has been in shock and it was one of those things no one saw coming. Six
months ago, when we talked about 2020 forecast, it was very unlikely
for anyone to have predicted there would be a pandemic that would shut
down the global economy and completely change the calculus or
expectations on the macroeconomic side. To that extend, it has been a
real surprise especially when one thinks of global crisis like
depression and recession occasioned by asset bubbles or fiscal excesses
or balance of trade problems that have been seen before.
This pandemic has really been a
challenge. When we look at SSA historically, it has been viewed as
comparatively underdeveloped economically relative to many global
economies. In terms of fiscal flexibility, SSA has its limitations
especially when comparing the region to more developed economies that
are able to finance palliatives or expand money supply and employing
quantitative easing as a tool. The impact has been in two folds. For
commodity exporters there has been impact especially when looking at oil
prices. Also in general, the lockdown in countries have affected
aggregate demand and market activity which has led to a slowdown in
Gross Domestic Product (GDP). So, even if you are not a commodity
exporter and you are a net importer in which case the drop in commodity
price is good for you and there a few countries in this category in SSA,
the slowdown in your economy occasioned by the global health crisis and
more specific the lockdowns in their country means you get less tax
receipts, less profit to tax, less activities, more unemployment which
also brings your Gross Domestic Product (GDP) into negative territory or
slowing down quite significantly. SSA’s access to the international
market has also been constrained because most of the sovereigns in SSA
are non-investment grade and non-investment grade countries have
struggled more in terms of liquidity and the impact has been
significant. There have been some positive trends in response to the
crisis that has helped and there are signs that SSA is coming to terms
with the situation and getting some relief in various forms to weather
the storm. However in my opinion, it is going to be a storm that would
be with us for a while.
For Citi, in Africa, how are you supporting your clients through this crisis?
At Citi, we continue to engage our
clients because we exist for our clients. The important part of making
it through the storm is making sure our clients make it through this
period. Our clients range from public sector to corporate entities,
financial institutions, multinationals and we have been constant and
consistent in our engagement. For instance, with our sovereign clients,
we have trusted advisory partners and we are working on solutions to
support them particularly through this period. In some cases we work
with multinationals and export agencies to find structures that would
allow them access to liquidity that they need whether in foreign
currencies or otherwise. We have continued to act as a bridge to the
rest of the international capital market in Africa and we continue to
play our role in keeping trade transactions flowing by providing the
necessary finance and credit line to our clients to the extent we can.
We also offer advisory services around risk mitigation. Citi is a global
institution present in 98 countries globally and we have a particularly
strong presence in Asia and that has allowed us to get an insight to
what was going on regarding the crisis and we were able to respond as an
organisation in terms of best practices whilst adopting relevant
precautions. In a variety of ways, we have tried to put at the disposal
of our client’s solutions that would help them navigate the crisis. We
have also switched to digitisation which is a key aspect of our strategy
and it has allowed us to showcase some of our capabilities and
encourage our clients to move to online channels. The migration process
has been ongoing and the crisis simply accelerated the process for many
of our clients. So, overall it has been good to see the progress and the
traction in that space. We have also focused on making sure we are
adequately capitalised and our balance sheet remains strong and liquid.
We have always been very strong on credit risk management side and we
have continued to do this.
There are projections that oil
might inch upwards to $60 per barrel, and with that in mind, what
recommendations would you give to policymakers in commodity exporting
countries in Africa?
I think the challenges for SSA and
Nigeria are not entirely different from those of many countries in SSA. I
think oil at $60 is good of course, but I think in the longer term, we
have to figure out as a region and as a country, how to protect our
country better from the impact the global commodity market. If on the
revenue side we remain heavily dependent on oil, because it is difficult
to control the price, you find yourself possibly changing your budget
each time the market moves one way or the other. I think that in general
there should be a reduction on oil especially from a fiscal and
external balance prospective. So, investment is the real solution for
growth.
SSA countries need investment in
infrastructure – both physical and social and the Covid-19 crisis has
seriously emphasised this point.
Social infrastructure such as education,
health care, are more important than physical infrastructure. Roads or
trains tracks are physical infrastructure you build, but the social
infrastructure is the software on which that physical infrastructure
would run, because it is people that are going to maintain your
infrastructure for you and you need those people to be skillful,
educated and healthy. So, Nigeria as a country and SSA as a region,
require this investment.
Unfortunately for many regions, the
revenue government generates, are not sufficient to make those
investments as well as running the government itself. This varies from
country to country – some have a higher cost of running their
governments, higher salary or government maintenance bill, while others
have less. So, you have to figure out how you’re going to get outsiders
to help you and by outsiders, I don’t mean foreigners alone.
International investment is important,
as well as domestic investors. You have to create an environment where
private sector can thrive both at the country level and as a region. It
is a critical success factor, otherwise SSA is likely to continue to lag
behind the rest of the world. Therefore, the focus has to be on making
the countries attractive for investors. For the commodity- dependent
countries, it’s even double important – they have to do more in that
regard. Due to historical commodity dependence they have been slower to
opening themselves up. On the other hand, some other countries that are
not commodity-dependent and probably not exporters have recognised it as
part of life a while ago, and have had to survive by their ability to
do it. The real opportunity in countries like Nigeria is dependent on
how successfully you can open yourself up to both internal and external
investors.
If you look at savings rates across
Africa as a whole especially in Nigeria, there is relatively low savings
rate, so the money is not going to come from local sources alone. You
need to attract international liquidity and I think that has to be the
future. Whether oil is $60, $40 or $10, I think the economy would not
truly grow and reduce poverty if we do not find a way to attract
investment needed to support the government in its effort to develop the
economy. It goes various ways, there are some investment opportunities
that are more investor-friendly and that are more commercial. Those are
literally the first to go. For instance, mobile phones are a classic
example, that one is easier to monetise, it is easier to make it
commercial, so investors snapped that up and you have seen that. There
are some that are potentially commercial, but require in some cases,
some government support either via guarantees or partnership. Something
that will help to reduce the risk and allow investors to participate by
striking the right balance can be difficult to do but it is possible.
Governments can focus a bit more on other investments that are less
commercially attractive but are very important and need to be done and
are typically, the burden of governments.
You can make education and healthcare
commercially viable, but at the same time, the government still needs to
bear a good chunk of the burden because of the strategic nature of
these sectors and because the commercialisation of it may make it
complicated for it to be universally available too. So, some sort of
balance has to be struck there, but then the government still needs to
outsource some of its resources towards those sectors.
I think, in summary, investment is the key and direct, long-term investment in creating an environment where business works.
I think, in summary, investment is the key and direct, long-term investment in creating an environment where business works.
You talked about attracting
investment, but clearly one sector that seems unattractive or
commercially viable ispower. What can be done to make investment in
power sector attractive?
It’s a function really of creating the
right environment. The power sector in Nigeria is not congenitally
unattractive, neither is it commercially unattractive. Privatisation was
done in 2012/2013 and some of the correct steps were taken originally,
which was to unbundle the power utility and break it into three parts –
Generation, Transmission and Distribution.
The tariff structure was put in place,
and expectations of the future changes but when the time came to honor
those tariff changes, from a political and regulatory perspective there
was a reluctance to invest further. So, nobody is willing to invest. The
people who had already invested would not invest more and potential
investors would not invest at all. It can be made attractive, but there
has to be the will on the regulatory and government side to allow it to
be so. I also believe that the sector has to pay for itself and if it
can’t we would have to continue to struggle.
Financial inclusion remains an
issue in some countries in Africa. What do you think can be done to
include more persons in the financial system in Nigeria?
There are two aspects to it, you can
talk about channel and technology especially as things get more digital
which I think is a good tool. A lot of the countries who have mobile
money have improved statistics because everybody has a phone and if your
phone is also your bank, then that’s easier. So, technology and
channels are good ways to increase financial inclusion.
But the more relevant point really is
financial inclusion via channels is one thing but economic inclusion is
another. So, I can have access to my bank via my phone but, I have no
money, I have no access to credit. That is always certainly more
challenging and I think it is the more profound change that needs to
happen.
Do not judge that because people have
access to financial channels nominally but that they do so in actuality
and that involves again the general growth and economic advancement. It
involves investments in infrastructure, it involves things like credit
scoring or credit rating, finding a way to do it on an individual detail
scale, so that people can have some kind of credit score, credit
history and can be appraised in terms of their ability to service debt
and as a consequence in terms of their actions to credit. Also, being
able to democratise that to make it universal will help to get people
access to economic inclusion, in addition to nominal financial inclusion
as well because that’s what really counts – that is what really lifts
people from poverty.
No comments :
Post a Comment