Elebute: Confidence is Required to Restore the Economy
The National Senior Partner, KPMG in Nigeria and Chairman, KPMG West Africa, Mr. Kunle Elebute, in this interview expressed optimism that if among other things, the federal government is able to resolve the issue of militancy in the Niger Delta, there wou
What were the key takeaways from the recently concluded WEF in Davos, which you attended and how did the deliberations at the forum affect the issues in Nigeria?
The theme for Davos this year was about “Responsive and Responsible Leadership.” And the conversations were around leadership in business, leadership in government and leadership in general. The event took place at a time when there was transition from one president to another in the United States. Also, we had a recent transition in the United Kingdom. A big splash of the media during the event was when for the first time, a Chinese premier came to WEF and many business people felt that perhaps it was China’s time because among the big countries in the world, China has shown responsible leadership. The United States election went in an upheaval manner, the United Kingdom Prime Minister emerged on the back of Brexit. She was not elected by the people. Of course, France is going for election and there was so much turmoil in Africa. At that time, we had issue in Gambia. However, we had Ghana that had a successful election on the other hand. So, with the global turbulence in the economy, the question people were asking was if our generation had a leadership problem or challenge? Why is it that we are not able to have the kind of leaders that would take us to the next level of economic prosperity in the global economy? So, I think the topic was apt for the global economy on one hand and also for the political leadership. Secondly, the issue is that the current leadership we have around the globe has posed a lot of uncertainties as to where exactly the global economy is going. If you look at the US, Donald Trump has so many different ideas that he wants to throw out. He wants to completely re-order future agreements. With the UK leaving the EU with Brexit, we don’t know if other countries would follow. And if other countries follow, would the EU disintegrate? Whereas, the founding fathers of EU thought that economic integration was the direction for economic prosperity. Which is why in Africa, we have ECOWAS, in East Africa, they have their own forum for economic integration, and South Africa has its own. So, the world had grown on the back of economic integration. But with the UK leaving the EU, does that mean we are going to see a different type of economic prosperity or growth that does not rely on economic integration? Again, if you listen to Trump’s inauguration speech, he talked about America first, before others. So, many countries are saying to themselves: ‘Let’s consider our own issues first, before the consider others.’ Whereas, we all grew up where the global economy was all about inter-dependency, helping each other, creating economic integrations, we had the North America Treaty Organisation (NATO), and creating security forces. Look at what happened in Gambia for example, Nigeria and Senegal had to send their soldiers down there and overnight, an ECOWAS force was put together. That was how the world evolved over time. But these leaders are saying they want to put their countries first before others. That creates a lot of uncertainties. People don’t know what the new world would look like in the next 10, 15 and 20 years. Therefore, Davos was about responsible and responsive leadership. Leadership that would be responsible to the people, and also to ensure that there are the right set of policies to like climate change and other things that would ensure that the global economy continues to prosper. Of course, there are issues in the Middle East on account of the movement of refugees across borders, because they don’t have homes as a result of the security challenges in their own countries. You have refugees moving across the Sahara desert in Europe because of unemployment and poverty in African countries. Again, responsible leadership is about taking responsibility for your people, their livelihood, ensure that we reduce poverty and hunger, ensure that we get the right education for our people and in creating jobs.
Don’t you think the idea of ‘America first’ or ‘Nigeria first,’ would pose a challenge for integration across the globe?
It does. But I think we have to take it from a different dimension as a country. Nigeria is a developing economy and there are so many things we haven’t done to ensure that our people have a standard of living that engenders employment. So, people go to school today, graduate and there is no certainty that you will get a job. Even if you have a job, there is no certainty about your livelihood. You have no power; no water; security of lives and property not guaranteed; that is not how I believe a country should develop. A country should develop around the fact that when somebody is growing and he finishes school, you know that you went to school to add to the knowledge base of your country. Therefore, you should be able to find a job very easy. When I finished from the university 34 years ago in UK, I came back to Nigeria and getting a job wasn’t a problem. Some of us had between four and five jobs waiting for us.
There is the belief that one of the major problems we have in Nigeria is the lack of responsive and responsible leaders, what do you think can be done to address this issue?
When you have leadership that is not responsible, coupled with the fact that government controls too many things that make it even much more difficult for the environment to develop and evolve. So, my own philosophy is that government should stop doing what government cannot do. Government cannot run airports, they should just concession the airports to those who can run the airports, government cannot run refineries, can’t run petrochemical plants, pipelines or even pipelines. They should just hand them over to the private sector. Whether they privatise them or concession them, if a business is ran efficiently and profitably, it would make profit. Before the business can pay dividends to its shareholders, it must pay tax. So, the very first outcome of a profitable company is tax. That tax goes to government. It is only after you have paid tax, with what is left over after tax, is what you can declare dividends from. In many cases, the tax that government would get, would be much more than the dividend that government can get from that business. So, government’s return on any business enterprise is tax. So, government should give it to those that can run it properly and profitably and government gets tax revenue in return. If you look at the banking industry, go back 20 -30 years when government owned so many different banks, all the government banks that I know have collapsed. Whether it is New Nigeria Bank, ACB, National Bank, or whatever, they all collapsed. The banks that are standing today are privately run and listed on the stock exchange. One bank alone in Nigeria operating as a private company, has paid more tax and dividends than all the government banks that existed in the past. If it is in the cement sector, all the government cement companies went comatose before they were privatised and sold. But today, look at the sector. Just go round the economy, any where the government has been in control of, they have not prospered the entity. A very good example recently is Eleme Petrochemicals. It was sold and in the first year the owners declared dividend, they declared dividend more than what government spent to invest in that company. Today, based on the profitability of that company and the cash flow, they have built a 1.2 million tonnes fertiliser plant next door to Eleme Petrochemicals, financed and run by the private sector. Where is National Fertiliser Company of Nigeria (NAFCON)? It has become Notore, a fertiliser company. So, in my own view, if the private does what it can do best, the government does what it can do best; then the government can focus on being responsible to provide education, not all education should be provided by government; healthcare, not all healthcare services should also be provided by government. Then, people have choices. For example, there are 14,000 schools in Lagos state, of which only about 2,000 are owned by the government. So, even when government runs the school or hospital, the consumer has a choice to either go to a private school or a government school. If the government school is cheap and the quality is better, I would go there.
So, how do you think the private sector can intervene in the infrastructure deficit being faced by Nigeria?
I can break down infrastructure into various
You can see that we have not been able to deliver electricity for all kind of reasons. But let’s leave electricity and go to transport infrastructure. Under transport infrastructure we have rail, roads, airports and ports. These type of infrastructure typically, over the years globally, government used to do them before. But in the last 30 and 40 years, in many countries across the globe, it has been proven and tested that private sector money and capital runs railways, ports and roads. So, if government wants to attract the private sector, it needs to show some long-term commitments. We did the ports under former president Obasanjo and we stopped. Okay, if today you wake up and do airports and couple of railways, then the private sector knows that the government is serious and wants to attract private investments because infrastructure is a long-term investment. Before someone can wake up and say he wants to commit his investments in 20-year infrastructure for railway or airport project, that government has to be seen as serious and committed. Both parties have to be committed towards that infrastructure. So, the first step is for government to show it can deliver on its promise, allow private sector to come in and let see it work for few years. When government sees that it is convenient, they would open up and do a lot more. But you can’t do all. In some countries, they (private sector) build prisons and all the government does is to look after the inmates. That is because if you look after the prisoner and he comes back to the society, he should come back a better person. But Nigerian prisoners, when they go into prisons, do they come out as better persons? So, the government is doing too much. That is why I believe it is difficult for us to have responsible government because they are not being responsive. They are just trying to be everything but not achieving much result.
Some people would definitely disagree with your position on privatisation and the role of the private sector in business, judging from what they are experiencing presently from the power sector privatisation, the ports as well as the aviation sector. Some are even saying the government should revisit these privatisation exercise?
I think the results in these situations were mixed. If you look at the banking sector for example, you remember very well that government owned the big banks. Would you say privatisation worked in banking? The answer is yes, because Nigerian consumers have got a lot more out of banks now than ever before. In those days, we used to go to the banks to queue. We used to spend a whole day to get our money out of the banks. But that has changed. You can sit in your office today and transact business. So, in banking, it is clear. But infrastructure is much more complex to privatise because it is a much longer term relationship between government and the private sector party. Secondly, you need to attract the right capital and expertise to make it happen. So, in the port, it’s been a mixed bag. This is because it is not just about the ports alone, but also the back end infrastructure of the port. Once you bring in containers into the port or you bring goods, you have to transfer the goods or containers to their final destinations. So, what tends to happen in most countries is that you have a railway line in the port that can transfer the goods out. You have highways that can move the trucks out. But today, if you go to the Tincan port and see the amount of trucks waiting on the queue and it takes a week or two before they can load. Is that the problem of the private port operator? No! That is the responsibility of the government. And if the government cannot do it, they can hand it over to the private sector. So, if you are doing infrastructure, you have to do the whole chain. You do the ports, the railway and the entire chain, so that goods would always arrive at their destinations efficiently, or for exports as the case may be. In power, unfortunately, we haven’t gotten it right.
What do you think is the future of the financial services sector, particularly the banks, in terms of block chains?
I am not an information technology expert. But block chain is a medium of exchange, where two parties in a transaction, don’t have to exchange money. In any case, before money, we were using cowries in Nigeria and before then, we had trade by barter. So, block chain is probably a more advanced medium of exchange, which is done through technology. We are not there yet because the regulations around block chains are not yet clearly defined. So, I think we are very far away from block chains. There are some block chain transactions happening around the globe, but we are still very far from it. You know, when something starts very small, as human beings, we should not rule it out. Something may trigger block chains to become dominant. After all, the dollar was not a global currency. It was gold that was the medium of exchange, until OPEC decided to start using dollar as a currency for buying and selling crude oil and suddenly, dollar became the medium of exchange around the globe. What would be the next global currency? Is it the block chains? Is it the Chinese currency? Nobody knows. So, these are all the things that are unpredictable. But in the main time, we need to fix our country. We need to get prepared for when these things would happen, so that we would be in a vantage position to take advantage of these when the need arises.
Are there signs that the economy would come out of recession this year?
Well, there are forecasts. The World Bank and the International Monetary Fund (IMF) have predicted that Nigeria should recover this year. I think part of the reasons is that the oil price went down to as allow as $30 per barrel about a year ago. But it is beginning to pick up. Secondly, beyond the oil price, the Boko Haram issue seems to have been taken care of. The issues we have now have to do with the Internally Displaced Persons. There is also the view that Nigeria has been able to resolve some of its internal challenges. But we all know the Niger Delta issue with the militant is still pending. We need to sort that out to ensure that we have constant production of oil. The Vice President told us in Davos that he would be going to the Niger Delta again to engage. So, if we get the engagement right and solve the problem in the Niger Delta and production of oil gets back to where it ought to be, that means we would have more dollars in circulation, higher government revenue, increased liquidity and most importantly, improved confidence in the economy. So, we need confidence in the economy to improve. As confidence improves, not just for foreign investors, but also for domestic investors, there is the likelihood of economic activities increasing and that leads to improved economic performance in the economy.
So with your new role at KPMG, what should stakeholders be expecting from you?
One of the key things I am focused on heavily is trying to ensure that we have a much better relationship with our clients. What is important in our business is for us to have very strong relationship with our clients. When the economy was booming and these clients were engaging us and paying us for services rendered, now that these same clients are finding it tough, this is when we need to have a much closer conversation with them. This is when we really need to help them out of this situation. If we are successful in helping them, when the boom returns, who do you think they would rely on? KMPG. So, we have to spend more time speaking to our clients, understanding their issues and helping them survive. So, one of the key things I am doing is spending more time in the market place and I am encouraging my partners to do same and it cascades all the way down to the lower level. Secondly, there are a number of strategic growth initiatives that our firm global has. There are three areas we are focused on heavily in Africa and Nigeria as well- cyber security, data analytics and infrastructure. So, these are things we need to bring to the table to develop our economy and we believe we have the knowledge and skills to do that. If we don’t have them locally in this office, because we are part of a global firm, we can bring such skill from any part of the world, into this market.