Seeing Value Where Others See Challenges
question comes against the background of the noted challenges in the Nigerian environment which are compounded by the absence of a stable policy environment.
The history of international investments in Nigeria before the return of democracy was not particularly savoury, what with the indigenisation decree of the 1970’s under the Military governments of Murtala Mohammed and General Olusegun Obasanjo, which saw a lot of foreign business interests in Nigeria ceding their stakes to Nigerian shareholders in a push for the localization of multi-national businesses in Nigeria. This move saw the exit of Shell Petroleum and British Petroleum from the down-stream sector of Nigeria’s lucrative Oil and Gas market.
As if the set-backs of the 1970’s were not enough, the structural imbalance of the 1980’salso saw the plummeting of industrial capacity in Nigeria. This situation arose largely from the rationing of foreign exchange under a corrupt and highly politicized import licence order. Given this scenario, there werefrantic calls for structural reforms. These reforms were soon ripe and ready, following the huge debts which Nigeria incurred from the London and Paris club of Creditors.
Initial reforms were thus undertaken in the late 80’s to early 90’s, tailored towards budgetary tightening and fiscal discipline with a view toraising industrial capacity in order to reduce dependence on imported finished goods. Prodded further by the Breton Woods Institutions, to undertake more reforms, given its huge sovereign debt, the Nigerian Military government under General Ibrahim Babangida, announced more fiscal reforms; starting with the Second-tier Foreign Exchange Market, which saw the devaluation of the naira, and the Structural Adjustment Programme which engendered a high-level of fiscal tightening in a bid to refocus the economy.
As all these reforms were going on, the Nigerian economy was still largely perceived as unattractive to Foreign Investors in Europe and America who only saw opportunities in the commodities and extractive industries and were uninterested in deepening their involvement in the Nigerian manufacturing and retail sectors having been scarred by the indigenization decree promulgated by the Murtala/Obasanjo Military regime. The conventional wisdom at the time was therefore to stay aloof to the reforms and the liberalisation of critical sectors of the Nigerian economy that followed thereafter.
Therefore, while the Nigerian government devalued its currency and made it attractive for smart foreign investors to take advantage of its economic liberalisation policy, investors watched from afar, wary of the policy-somersault.It was this confused and highly volatile environment that South Africa was soon to profit from, following the return of democracy in 1999 and a renewed push for foreign direct investment by the new democratically elected government.
Boosting Intra-Africa Trade: The Nigeria/ South Africa Example
Aside from the existence of South African companies in Nigeria, Nigerian businesses are also gradually making in-roads into South Africa, thereby helping to boost the intra-Africa trade that was very low before the advent of the New Partnership for Africa Development (NEPAD). Nigerian energy firm, Oando, for example, is listed on the Johannesburg Stock Exchange, whileDangote Group has also invested over $378 million in South Africa’s cement industry. In addition to these two companies, there are also a couple of other Nigerian businesses in South Africa such as Arik Air, First Bank and Union Bank which have representative offices in South Africa.
Between 2007 and 2008,trade volumes between both countries stood at approximately $2.1 billion. By 2012 this figure had increased to $3.6 billion. It must be noted that 83% of this trade figures came from South Africa’s purchase of crude oil from Nigeria. Between 2002 and 2012, South African imports from Nigeria increased by about 750%, with crude oil sales accounting for a greater chunk of this figure. This scenario points to the fact that, outside of trade in crude oil and commodities, trade volumes between both countries are still relatively low.
The Down-side of South Africa’s Involvement in Nigerian Economy
The South Africans may have cashed in on the opportunities availed by the liberal regime bought on by the new democratic order in Nigeria and are making a kill where the west did not initially see any prospects, but there are a couple of things South Africa is also not getting right.
One of these is the tendency of South African firms to only trade among themselves rather than patronize local options in Nigeria. It is usually alleged that MTN Nigeria, in giving out its banking and collection mandate, will prioritise Stanbic IBTC Bank, a bank with South African interest, above local Nigerian Banks. The same is said ofthe other South African businesses. This situation has tended to increase the mistrust between Nigerian local businesses and their South African counterparts. Given this situation, the prevailing feeling within the Nigerian business community is that the South Africans are not returning the friendly gesture of Nigerian businesses and consumers towards South African interests and are therefore not displaying ‘brotherly’ love towards Nigerian businesses.
Aside from this, there is also the issue of the monopolistic tendency of South African firms which creates industrial tensions, especially in the Telecoms and pay- TV segments of the Nigerian economy where South African behemoths like MTN and MultiChoice are dominant. Accusations are rife about the deployment of arm-twisting tactics in the bid by these players to retain their dominant positions. Beyond this, there are also the allegations of over-pricing of services in Nigeria, in comparison to the prices these firms charge in South Africa.
Furthermore, there is also the issue of the non-reciprocation of Nigeria’s open door policy in South Africa.The poser often raised by cynical Nigerian business analysts is, ‘which major Nigerian company has made any inroads worth mentioning in South Africa even though South Africans are making a huge kill in Nigeria?’Skeptics also cite the exit of THISDAY Newspaper from South Africa under a very curious circumstance, as proof of hostility of South Africa to Nigerian businesses.
Complaints about the non-reciprocity of the open door policy to Nigerian businesses in South Africa often create inter-government friction, to the extent that bi-lateral relations between the two countries was nearly damaged in 2012 when 125 Nigerian businesstravelers to South Africa were denied entry into South Africafor not having valid Yellow Fever certificates. The Nigeria government, in retaliation, also expelled 56 South Africans. This situation led to huge tensions which were later resolved with the easing of travel restrictions
Beyond the Opportunities and Challenges, What Does the Future Hold for Nigeria- South Africa Business Relationship?
Having x-rayed the opportunities and challenges of South African companies doing business in Nigeria, it is evident that great prospects lie ahead for this ingenuous partnership which is opening up vistas of opportunities for boosting intra-Africa trade. However, a couple of things need to be addressed on both sides: • Easing of Visa processing and travel restrictions While it may be tough to have a visa free regime or a visa-on-arrival situation, there is the need to ease visa processing in order help facilitate the interchange of business between both countries.
• The setting up of a clearing house for the resolution of business and investment disputes
Given the necessity for speedy resolution of business disputes between both countries, there is the need for the setting up of a conflict resolution mechanism outside of the traditional legal and arbitration systems provided by both countries. This will help ease investment processes and speed up transaction time while creating better value for investors seeking opportunities in both countries.
• The need for reciprocity in the spirit of African brotherhood.
There is the need for reciprocity in term of access to opportunities between both countries. This will go a long way in strengthening relationships and lessening tension. • Political and fiscal risk This is particularly important because if businesses are not sure of the political and fiscal risks that they are likely to confront, it might stifle investment and lead to value attrition. The withdrawal of the 2.3Giga Hertz (GHz) licence initially awarded to Multilinks (the Nigerian subsidiary of Telkom), which happened under very curious circumstances, was one of the reasons for the exit of the company from Nigeria.
• Resolving the issue of high costs of doing business
This particularly relates more to the Nigeria environment than the South African environment. Nigeria needs to bridge her infrastructure deficit in order to be able to attract more quality investments from South Africa. A situation where a company like the MTN was saddled with building its own backbone before being able to operate in Nigeria is not standard practice and will therefore notbe the case in more investment friendly environments. There is the need for Nigeria to look more critically at building the necessary support infrastructure which willmake doing business in Nigeria a lot cheaper and help drive foreign direct investment.
Facilitating Intra-Africa Trade by Setting the Right Example - The Nigeria/South Africa Option
The popular view that Africa stands to benefit more from trade among Africans than trading with Europe, America and Asia rings true when one considers the progress made so far in Nigeria’s partnership with South Africa and the benefits that have accrued there-from. However, more effort is required to take this to the next level.
Currently, Africa’s intra-regional trade stands at about 10 – 12 percent of Africa’s entire trade. This is very small when compared with intra-regional trade within North America which is over 40 percent and intra-regional trade in Western Europe which is about 60 percent. African Countries trade more with America, China and Europe than they do among themselves. This is largely attributable to the existence of artificial barriers to trade as well as poor transport and communication infrastructure across Africa. Furthermore, the lack of a political will to affirm commitments on the lifting of cross-border restrictions on the movement of goods and services across Africa beyond mere promises represents a major hindrance to achieving the desired end-state.
Given the need for the economic integration of Africa, African leaders adopted the decision to establish a Pan- Africa Continental Free Trade Area (CFTA) by the indicative date of 2017 taken during the 18thOrdinary Session of Heads of State and Government of the African Union that was held in Addis Ababa, Ethiopia, in January 2012. But, beyond boosting intra-Africa trade by strengthening trade within regional blocs in Africa, there is the need for the big economies and fast growing economies in Africa to set the right example by removing barriers to trade among themselves. Nigeria, South Africa, Egypt and other fast growing economies in Africa such as Kenya and Angola warehouse about 45 percent of Africa’s total economic output, and given the need to raise intra-Africa trade, Nigeria and South Africa, two of Africa’s economic power-house need to take the lead.
Dealing with the Xenophobia Issue - The Need for Constructive Rather Than Combative Engagement
A lot of Nigerians are pushing for the boycott of South African businesses as an option in the fight against Xenophobia, but beyond this combative posture, there is the need to push for a more inclusive environment where South Africa learns to open its door, just as we have opened ours. Truth is, we cannot fight evil with evil, we will get nowhere with that, as the real people who will benefit from such an arrangement are the Europeans, Americans and Asians (especially the Chinese). Already, intra-Africa trade is less than 10 per cent of total trade emanating out of Africa, and beyond East Africa, real economic integration is lacking on the Continent. Truth is, no one can love us more than ourselves, so the best route to deal with this crisis and put an end to the recalcitrance of a few violent locals in South Africa is through constructive engagement rather than a combative posture which might fritter the little gains made so far.