19 minute read
July, August, September 2021
FREE-TRADE ZONES
Set them free
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Nigerian special economic zones and free zones are taking off, providing investors with the infrastructure and facilities they need to target local and international markets
By NICHOLAS NORBROOK in Lagos
Special economic zones (SEZs) and free-trade zones were the spearhead of Asian industrialisation – allowing countries with major deficits in power, logistics and bureaucracy to pull in investors. Many of those zones were designed by Singaporean planners, who learned from Japan, the famous ‘flying geese’ development model through which capital and know-how cascades from country to country.
Will geese land in Nigeria? It has 33 such zones. But only 15 are active, and the government has not fully backed them. For instance, during Sanusi’s term as central bank governor, it did not allow repatriation of profits.
Sabre rattling
“Challenges such as low investor confidence due to frequent arbitrary changes in government policies and some political and social developments, including insecurity in different parts of the country, have negatively affected investor confidence,” says lawyer Afolabi Caxton-Martins of Dentons ACAS-Law. In addition, “in certain cases, the states where some of the free-trade zones are located are simply not viable and were bound to struggle to succeed from inception,” he says
This has changed. The Nigeria Export Processing Zone Authority (NEPZA) is more stable under its current management – sabre rattling by the Onne zone notwithstanding. Several are now at advanced stages of construction and operation. Tolaram, a Singaporean agri-processor, is running the Lekki Free Zone east of Lagos.
“The master-planning of the zone is by Surbana Jurong, one of Singapore’s topmost town planners,” says Lekki Free Zone CEO Dinesh Rathi. “Our group [Tolaram] has been in the manufacturing business for 50 years now, operating around the world. In Nigeria, we run 19 factories.”
The project integrates a deepwater port and has several anchor clients, including the second factory Kellogg’s has built in Africa and a Dano Milk factory from Arla. The sectors that Tolaram expect to be attracted to the zone are: food and beverages, pharmaceutical, chemicals, non-metallics and logistics. “Given that the port is integrated into the zone, that will allow us to incubate the entire logistics vertical,” says Rathi.
Along with the warehouses that have been built to lease, to allow investors to “focus on their core business”, Rathi argues the integration of a port into the project makes it a “silver bullet” for those who want to use Nigeria as a hub for manufacturing in West Africa.
Lekki: port of the future
DR
Help with red tape
The Lekki backers hope to achieve similar levels of ease of customs clearance as Singapore, he says, “something that is helped by the SEZ status. The government agencies [involved in clearing freight] are all housed under the same roof, and we are putting automation processes in place.”
This helping hand with red tape is a key draw for investors, says David Frame, managing director of South Energyx, the developers of Eko Atlantic City, another free zone. The project management is in discussion with the central bank, mediated by NEPZA, over the possible offshore status of banks that set up in Eko Atlantic.
Government backing is critical for connecting infrastructure.
The Lagos State government is upgrading the road connecting to the city. Along the Lekki-Epe Expressway, north of the Lekki Free Zone, lies Alaro City, another free zone, set on 1,000ha carved out of the bush. It too has an anchor client up and running, Ariel Foods. Around 40 companies now have purchased land here, with a handful already building their factories.
For Babatunde Olaifa of Rendeavour, the company running the zone in partnership with the state government, the ability to bring goods out of Apapa port without going through the lengthy customs procedures is a major draw to investors. “Instead, they are inspected here at Alaro,” he says. It is attracting both local and international investors.
LEFEBVRE/CMA-CGM F.
LAURENT MARTENS
Vice President Ports and Terminals, CGM CMA
Why invest in the Lekki port?
Investing in Nigeria, the country with the greatest population on the continent, is a good choice. The existing port facilities lack modern equipment, with lots of inland congestion. We also need some transhipment capability – not that Lekki will be a transhipment hub, but it could act as one in case of need for West Africa. The draft is 16.5m, the phase one capacity is 1.2m twenty-foot equivalent units (TEUs). With our seven ship-to-shore cranes and with the draft allowing bigger boats, we will be able to do 100 moves per hour – which is not incredible by global standards, but light years ahead of what we have at Apapa and Tin Can Island. It will make Lekki a port of the 21st century. It will change the import-export story for Nigeria.
Who is the primary market?
Our goal is to be a gateway, mainly for the Lagos market, plus the wider Nigerian market. Year after year, CGM CMA is putting bigger ships into service for West Africa. We have plans to introduce more ships bigger than 10,000 TEU capacity – there are not so many ports in our network that are able to accept this kind of call.Our colleagues from the shipping side at head office are waiting for us to open the Lekki Terminal as soon as possible.
DR
Lagos population growth 1960-2030
IFC EDGE certified green buildings
Smart city, using modern and efficient Green infrastructure LED street lighting Permanently protecting Victoria Island and parts of Lekki from flooding
Actively addressing Grade-A real estate shortage in Lagos
Eko Atlantic is bustling today with businesses and residents. The city is providing vital space supported by modern and efficient infrastructure for people to live and work in the heart of Lagos, Nigeria, the world’s fastest-growing megacity. Addressing the overwhelming demand for Grade-A real estate and creating the new economic capital of West Africa, Eko Atlantic enables all residents and businesses to take advantage of: Modern and efficient centralized infrastructure Reduced energy and water consumption thanks to green building certification and LED street lighting World-class roads and infrastructure Two marinas and a 10.5 km ocean front promenade IFC EDGE (Excellence in Design for Greater Efficiencies) certified green buildings Safety and security
TOTAL MOVER AND SHAKER
1986 BSc (hons) Engineering, University of Aberdeen
1997 Joined Total
2019 Named CEO for TotalEnergies, Nigeria
INTERVIEW
Mike Sangster
TotalEnergies’ CEO for Nigeria speaks about the company’s response to the Covid-19 crisis, the electricity market and the future of gas projects
TOTAL ENERGIES
Interview by NICHOLAS NORBROOK in Lagos
When Covid-19 hit in March 2020, it came at a difficult time for the oil market. A price war between Russia and Saudi Arabia had pushed prices to the floor in February, when suddenly the pandemic drastically reduced consumption, sparking a worldwide rush to find storage for crude.
“We were concerned about where this pandemic was going,” says Mike Sangster, the CEO for TotalEnergies (formerly Total) in Nigeria. “We managed to get our hands on a few PCR machines [for Covid-19 testing], some of which we used, and two of which we donated to Rivers State. We also donated an oxygen plant to Lagos State.”
Despite the lockdown, thanks to TotalEnergies’s 1,300 staff and many contractors “we didn’t lose a barrel because of the pandemic”, says Sangster. Nigeria was short of revenue, “so we thought it was important to keep government revenue flowing”.
TotalEnergies’ deepwater Egina project began producing oil in 2018 and it is now providing 10% of Nigeria’s total oil production at 200,000 barrels per day. But, while the last three big oil investments in Nigeria came from TotalEnergies, the pipeline for projects going forward is more sparse.
A Wood Mackenzie report shows that, in the past five years, there has been $70bn committed to Africa for upstream projects – and only $3bn of that was going to Nigeria. “So there has been a real lack of investment,” says Sangster.
“Companies have been reluctant, partly because of the oil price crash and, since 2019, a lot more concern about what is going to be in the Petroleum Industry Bill.” TotalEnergies is developing one project at present, Ikike, a “relatively simple” shallow-water project that is a one platform tie-back to an existing facility.
From oil to gas
Part of a national reorientation, gas is also gaining momentum. Nigeria LNG’s Train 7, backed by TotalEnergies, was approved and signed at the end of 2019. Limited to engineering during the pandemic in 2020, the project’s construction work has now been ramped up. Sangster notes: “Nigeria is well under way to moving from being an oil country to a gas country.”
In 2020, the company produced 540,000 BOE per day from Nigeria, roughly two-thirds oil and one-third gas. TotalEnergies will continue to develop gas reserves to feed the LNG plant, the capacity of which Sangster predicts will go up 35% to 30m tonnes per annum.
While TotalEnergies wants to become a broad energy company and grow its electricity business, there is some way to go in Nigeria.
“The demand is huge for power – you can hear how many generators are running – but the power market is challenging the moment,” says Sangster. “The companies are facing severe financial issues, there is a lack of infrastructure to get the power from the power stations to the market, and regular payment by all end users is not guaranteed.”
Nigeria’s currency is weaker due to Covid and low oil prices
CURRENCY
Devaluation nation
The government has tried to protect the economy from oil-price and Covid-19 shocks by imposing foreignexchange controls and limiting drops in the naira’s value
ADETONA OMOKANYE/BLOOMBERG VIA GETTY IMAGES
By DAVID WHITEHOUSE
Nigeria’s naira devaluation in May won’t be the last and will not fix the country’s dollar shortage. In May, the central bank merged the official fixed rate of N379 ($0.92) per USD with the investors and exporters exchange rate devaluing the currency by 7.6% against the dollar. Central bank governor Godwin Emefiele says the new unified rate will still work as a managed float.
The naira has lost value over the past decade. The official rate dropped from N157 to the dollar in 2011 to N412 in May this year, losing more value than South Africa’s, Egypt’s, Indonesia’s and Malaysia’s, according to research from FSDH Merchant Bank, Lagos.Analysts say the new rate is unlikely to halt the naira’s long-term depreciation or end parallel-market dollar trading. “The foreign-currency shortages and overall policy uncertainty can only lead to more speculative activity in the parallel market, which unfortunately leads to more losers than winners,” says Barbara Barungi, an economist in Abuja.
“The harsh reality is that there are likely to be more adjustments needed,” says Ibrahim Shelleng at Credent Investment Managers, Abuja. “The continued pressure on scarce forex will more than likely lead to further adjustment.”Exporters, in theory, should benefit from a devaluation. Yet Shelling sees those benefits as being limited by a high cost of finance for Nigerian companies. The manufacturing sector, which relies heavily on machinery and raw material imports, will be hardest hit by the devaluation, Shelling says. “The construction and real estate industry will also take a big hit.”
N412
That would buy you $1 in May at the central bank’s official rate. N157 would get you a dollar back in 2011.
Again and again
“The central bank is likely to devalue the naira again later in the year as depreciation pressures continue to build and foreign reserves remain under pressure, says William Attwell, a sub-Saharan Africa analyst at Fitch Solutions. He does not expect to see any significant improvement in dollar availability soon.
He predicts that the naira will end the year at N438 to the dollar and says any move to a free float is “highly unlikely.” FSDH is more optimistic. The May devaluation was “a first and major step towards gaining back investor’s confidence in the economy, which in turn could improve forex inflows into the economy,” it says. Demand from imports and other payments will continue to put pressure on the rate.
Nigeria needs “consistent forex policies that seek to improve market liquidity and prevent every form of forex arbitrage and unnecessary forex subsidies.” The difference between official and parallel rates has given speculators incentives to hoard and create volatility, says Shelleng. This, he argues, discourages foreign investors from bringing in much-needed liquidity. A solution is to reduce speculative incentives. This would require “a very brave government”, says Shelleng. “The potential impact on the economy may be devastating in the short term. Still, that political courage will need to be found at some point. Maintaining a fixed rate is simply delaying the inevitable,” Shelleng says.
INTERVIEW
Bruno Le Maire
France’s economy minister talks about the country’s support for African economies as they deal with Covid-19 and debt burdens
Interview by ALAIN FAUJAS
Bruno Le Maire, France’s economy minister for the past four years, has said little about Africa and France’s ties with the continent until now. But behind the scenes he has vigorously applied President Emmanuel Macron’s policies in support of African economies hit hard by the effects of Covid-19.
How can France help Africa rebound from the Covid-19 crisis? BRUNO LE MAIRE: I have great faith in the vitality of African economies and entrepreneurs. Like all continents, Africa has been hit hard. The impact of this crisis on value chains, such as trade and tourism, has been significant. But let us remain positive: the IMF estimates that in 2021 its average growth rate will be around 3.5% - a good sign.We have a collective responsibility to give Africans the means to accelerate their development. Their investment needs are estimated at $350bn over three years. President Macron has been personally involved in convincing the G7, G20 and IMF member states to provide unprecedented financial support to the continent. What are the solutions on the table?
There are three: direct financing, the fight against excessive debt and support for SMEs. First, more direct financial aid can be provided through the IMF; France fought to increase the fund’s special drawing rights (SDRs). We are therefore pleased that the G20 members have agreed to a general allocation of SDRs, amounting to $650bn. With this historic amount, Africa will receive about $34bn in SDRs, including $24bn for Sub-Saharan Africa alone. We need to reallocate these SDRs to the poorest countries, to help them cope with the crisis and invest in health, education and the environment.
Second, to fight against excessive debt we have suspended the short-term debt of thirty African countries until the end of 2021, in order to lighten the burden and give them cash. This will allow these states to support their health systems and invest to boost their economies. We also need to transition to the implementation of the ‘Common Framework.’ This framework, which aims to structurally address the debt problems of countries with struggling economies, brings together the Paris Club creditors and – for the first time ever - emerging creditors (China, India, Saudi Arabia). We have already received requests from Ethiopia, Chad and Zambia.
Third, support for African SMEs is essential, and shows the greatest promise. With the Agence Française de Développement, we launched a project in 2019 for 16,000 SMEs, for which we have made available $3bn. Despite the Covid-19 pandemic, in 2020 we made the decision to increase this fund by a further €1bn.
VINCENT FOURNIER FOR JA
THE BUSINESS POLITICIAN
1969 Born in Neuilly-sur-Seine
2006 Chief of Staff to the Prime Minister
2017 Minister of the Economy and Finances
INTERVIEW
Tayo Oviosu
The CEO of Nigeria’s Paga talks to The Africa Report about bringing financial services to the masses in Africa and beyond
CASH DIGITALISER 1977 Born in Lagos
2005-2008 Worked for Cisco Systems, US
2008 VP of Travant Capital Partners, Nigeria
2009 Founded Paga
GA PA
Interview by 'TOFE AYENI in Lagos
Paga founder Tayo Oviosu’s aim is an ambitious one: to “build the Paypal for Africa”. He tells The Africa Report, over a Zoom chat from Lagos, that this would ultimately “digitise cash and really end the use of cash across our economy, as well as increase access to financial services.”
Paga - which was created in 2009 and started operations in 2012 – is already one of Nigeria’s leading mobile-payments companies. It is backed by investors such as Jim O’Neill, a former chairman of Goldman Sachs Asset Management, and Tim Draper, a venture capitalist.
Oviosu says he was ahead of the curve in Africa, noting that when he started the company in 2009, it was with a team of eight and “for everybody in that room, a cashless society was a scary thought.”
In Nigeria, where Paga started, and still has its main base of operations, Oviosu admits that “cash is very much still a thing”, due in part to the fact that “banking services are still very challenging, even for those who are banked.” Oviosu says the company is “growing at a really fast pace as we continue to deepen our business within Nigeria. […] Paga has over 17 million unique users, and in the last four years has processed $8bn worth of transactions.”
Market woman
He stresses that reaching the potential market requires different strategies. Many Nigerians may not be tech savvy, have a smartphone or trust banks, so “for the mass market, you can go to agents if you don’t want or know how to use the technology. You still deal in cash, but the agent can do the digital.
“One of my main focuses when starting the company was, how do I get the market woman in Ajegunle to use this,” he says. “Our ambition is that one billion people should use this platform to access and use money. We want to particularly focus on the emerging middle class – helping them to pay, and helping them to get paid.”
Paga is also going to launch a new platform specifically for small to medium-sized enterprises (SMEs) that struggle to sell efficiently, lacking systems for tracking inventory and primarily trading in cash.
Paga, in partnership with Visa, wants to help SMEs to manage their internal operations such as paying salaries and vendors. He is considering expanding to Ethiopia and Mexico, although “in Mexico, we’re pausing to think whether or not to move forward”, he says.
“We want to solve the problems in big places – Africa and Latin America. We will go to neighbouring countries in Africa, but our next country is Ethiopia. We’re waiting for regulatory approvals currently, and are now working to prioritise the other African countries we aim for. But the way we go to various countries will differ.”
INTERVIEW
Kingsley Moghalu
The former deputy governor of the central bank of Nigeria is running for the presidency on a radical platform without the backing of the main parties
Interview by DONU KOGBARA and
PATRICK SMITH
‘Build, innovate and grow’ was the manifesto of Kingsley Moghalu and his Young Progressives Party in the 2019 election, where he gained all of 20,000 votes. He is endorsed by Nobel laureate Wole Soyinka, former CBN governor Sanusi Lamido Sanusi and the Ooni of Ife, Adeyeye Ogunwusi, and is trying again in 2023.
What makes the security crisis in Nigeria different this time? KINGSLEY MOGHALU: We’re at a decisive moment in Nigeria’s history. Many countries experience low-level insurgencies, and Nigeria has had Boko Haram for the past 12 years. What is different now is the combination of the terrorism crisis metastasising across the whole country and combining itself with economic collapse. You have a third element : the legitimacy of the Nigerian state is increasingly questioned. Many Nigerians consider the idea of being Nigerian or the idea of Nigeria as meaningless to their lives. There’s a lack of vision from the current government, absence of leadership, a lot of corruption in the armed forces and mixed loyalties […] that all prevent an effective conclusion of the war against Boko Haram. The political leadership is driven by a worldview that is just very narrow, very ethnic, clannish.
Are the economic woes just about management or are they systemic? There’s absolutely shambolic economic management because leadership is not competent enough to understand how to create prosperity. Then there’s the fundamental issue – the constitutional structure of the country that creates incentives for economic and political dysfunction. They concentrate power at the central government level so much, that combined with the reliance on oil, it’s simply become a rentier economy.
Would your plans for constitutional change be divisive because only the southern states want it? The conversation is shifting. In the beginning, the northern political elite was wary about constitutional restructuring. Increasingly, they have embraced it. Everyone in Nigeria now wants the constitutional basis of Nigeria re-engineered. We should create a new constitution, with a constituent assembly, a new federal system based along regional lines. It will create an incentive for prosperity. There is no region in Nigeria which cannot become self-sustaining economically. It is the present system that continues to create the incentive for poverty.
ALL RIGHTS RESERVED
AIMING FOR THE TOP
1963 Born in Lagos
1992-2008 Worked for the UN and the WHO
2009-2014 Deputy governor of the CBN
2019 Presidential candidate of the YPP You are running for the presidency without backing from any of the big parties – isn’t this doomed to failure?
Things seem impossible until they happen, as Nelson
Mandela said.
