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Open for Business: Matching Opportunities with Patient Capital DR. OKECHUKWU ENELAMAH H O N O U R A B L E M I N I S T E R – I N D U S T R Y, TRADE AND INVESTMENT FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT Outline ▪ Overview of the State of the Economy ▪ MITI’s Plan to partner with private capital for diversification and growth ▪ Why Nigeria continues to be an attractive market for patient capital ▪ Conclusion FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 2 Oil price crash exposed the structural deficiencies in Nigeria’s large and thriving economy POPULATION (M) NOMINAL GDP ($B) USD/NAIRA FX RATE Low level of FX allocation began in 2014 due to unavailability Parallel mkt. rate CBN rate OIL REVENUES (NGN T) NET FDI INFLOWS ($B) INFLATION Y-O-Y (%) Nigeria entered a perfect economic storm starting from 2014 – Diversification & Growth are key to recovery and ensuring a more stable future *at YTD (9/28/2016). FX rate yearly numbers represent FX conversion rate values on the last day of that year; Oil revenue data only available till FY ‘15 Note: The nominal GDP and FDI inflows are at current prices (include the effect of inflation); FX rates taken on the last day of the year Source: Trading Economics, globaleconomy.com, World Bank, CBN FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 3 … however, the fundamentals of the Nigerian economy remain strong Detail Implication ▪ ▪ 170m+ people ▪ ▪ Large domestic market ▪ Youthful population – median age 19 ▪ Potential for potential inventors with home-grown technology ▪ ▪ Diversification already underway ▪ Potential to significantly improve labor productivity with improved infrastructure ▪ Potential to increase contribution of the working age to the GDP of the country ▪ Source of government revenue to develop other sectors Size Productivity and demographic potential Abundant natural resources Strengthening democratic institutions Nigeria has largest population in Africa and 7th largest in the world Current low productivity across key economy sectors ▪ Nigeria has the 10th largest proven oil reserves (37mn barrels) and 9th largest natural gas reserves (~5Tr m3) ▪ Commercially viable minerals and arable land ▪ ▪ ▪ Continuing unstopped democracy Elections becoming more credible Successful transfer of power to opposition party FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT Large unskilled and semi-skilled labor force that can be drawn at low wages ▪ Stability of political institutions ▪ More ownership of the democratic process by citizens 4 Countries in difficulty have used different strategies to strengthen and diversify economy GERMANY (1950) • Post WW II industrial depression - Context - <50% of capacity pre-world war with price control and weak currency policies driving depression >2M people unemployed due to lack of jobs • Focused policy on establishing currency stability, freeing market forces and setting strong legal parameters for the economy Actions • Removed price control policies allowing market pressures to determine prices - Goods reappeared on open market as producers could charge real prices - Worker absenteeism vanished as consumption grew ITALY (50’-70’) • Boom in SME industries accelerated economic development • Globalisation put SMEs industry under pressure from cheaper foreign rivals products • Small businesses aggregated into groups (special clusters) close to raw materials source to drive down costs and be more competitive - Cotton/textile, marble, leather, steel clusters etc. formed around the country • Close proximity of SMEs forced focus on innovation as a competitive advantage amongst individual businesses • Introduced new, higher value currency (Deutsche mark) to replace old currency Results • Experienced strong exportsbased growth and extended surge in productivity • Stable currency encouraged businesses to invest in restoring industrial capacity CHILE (2004) • Copper - main economic export accounting for ~75% of total exports and >25% of GDP • Commodities market dip in 2011 driving copper revenues down • Created special economic zones (SEZs) for non copper sectors (especially agro sectors) - • Invested in investment promotion body (CNIC2) focused on investment and innovation in technology for non-copper sectors • Lifted restrictive policies limiting favourable business environment - • SMEs able to resist pressure on products through superior innovation, cost efficiency and quality Note: 1) SEZ: Special Economic Zone; 2) CNIC: Council on Innovation for Competitiveness Source: World Bank, Brookings Institute FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT Leveraged improved policies (open trade, increased use of FTAs and aggressive SEZ infrastructure development) Reduced business registration wait time to <1 day Granted expedited 1 year visas to foreign entrepreneurs • Total exports increased >18% in 2 years - Copper exports as a share of total declined to 47% • 732 new foreign businesses and 1,523 entrepreneurs setup in Yr. 1 Effectively used SEZ strategy 5 Key issues and how we plan to address them Key Issues Status quo 1 Action Goals 1 Poor macroeconomic performance 2 Oil export dependent economy • Crude oil & related products account for 90% of exports** • High unemployment • Low GDP growth • Most consumption & production inputs imported • Inflation Make the economy more inclusive across Nigeria 3 2 Diversify to insulate from external shocks KPIs • GDP / GDP per capita • Unemployment rate - Target 3M jobs added by 2019 • Regional inequality • Sustained wealth creation across the country • Trade deficit • Weight of oil vs. non oil industries (manufacturing, etc.) • Grow export revenues Low FDI inflows • ~1% of GDP** • Foreign companies exiting Nigeria en masse 3 Increase investor trust in Nigeria • Net FDI inflows • EoDB* - Climb 69 places (from 169 to 100/189 countries by 2018) • # of foreign companies entering/operating in Nigeria Note: * EoDB – Ease of Doing Business Source: **World Bank FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 6 MITI’s Plan has 5 execution principles Guiding Principles 1 Favourable economic framework • MITI to create an economic framework for inclusive & diversified growth of a modern economy • MITI framework will unleash private sector initiative by removing barriers to start and operate businesses • MITI framework will focus particularly on the growth of Nigerian exporters 2 3 4 5 MSME support Sector prioritization Partnerships and JVs • MITI to drive specific initiatives that benefit MSMEs • MITI to specifically assist smaller entrepreneurs with affordable credit and simplified bureaucratic requirements • Examples include the MSME microcredit scheme instituted in 2016 or Equity Funding • MITI to intervene in high potential sectors, e.g. manufacturing, value add agriculture, digital economy, mining etc. • Investments in these sectors will have a multiplier effect by creating jobs, improving the trade balance and putting growth enablers in place • MITI will pursue JVs and partnerships/ PPP where beneficial, e.g. in infrastructure and in value added manufacturing • Negotiate investment/free trade agreements with trade bodies • Partnerships with other foreign trade bodies are critical to executing MITI’s mission Immediate implementation • MITI will drive implementation using structured approach - Drive results using set goals, KPIs and timelines - Set up the right teams to design, implement and track policies - Help build a cohesive communications strategy to inspire commitment and build confidence MITI will provide immediate execution support in critical industries in 2016 and help transition to more structural reforms in 2017/2018 FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 7 The plan has a strong focus on Results Delivery Nigeria Diversification & Growth Plan Core Pillars Foundational Enablers 2 Implement the Nigerian Industrial Revolution Plan (NIRP) 3 Support Micro, Small & Medium Enterprises (MSMEs) Support digitalization of the Nigerian economy 4 Establish an Enabling Business Environment (EBE) 5 Establish 21st century trade/free trade agreements 6 Attract domestic and foreign investments 7 Institutionalize the Structural Reform Agenda (SRA) 8 Results Delivery 1 Results Delivery FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 8 Multiple interdependencies exist in the execution and will be actively managed Public ministries & bodies, e.g. ministry of Agriculture, Foreign Affairs EMT (Economic Management Team) • Interdisciplinary team set up by President Buhari to lead Nigeria’s economy - Chaired by Vice President Yemi Osibanjo - Preparing a separate “Recovery Package” that incorporates aspects of MITI plan • Coordination with other ministries is required for: Cooperation is required between various Training institutions and universities • Cooperation with training institutions is required in order to help institutionalize the changes in investment, trade, and industry bodies for success • Cross ministry efforts, e.g. creating an Enabling Business Environment (EBE) • Execution of high priority actions in critical sectors Public private partnerships MITI Working groups • Interaction with private organizations critical to driving investment in certain areas, e.g. research, infrastructure • MITI to setup a High Level “Diversification and Growth Working Group” that establishes a partnership between government, captains of the Nigerian private sector and Nigerian science and research institutes - The Working Group will create innovation, application and implementation for increased productivity, wealth creation and competitiveness - The Working Group will monitor and assess Plan implementation. FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 9 MITI will also continue to provide input into the progress of other areas critical to economic growth • Energy (Power) - Uninterrupted power supply is a necessity for the Nigerian economy to operate at its full potential - Current expensive gas supply multiplies the burden on the manufacturing sector - MITI is incorporating Nigeria’s power sector investment needs into its trade and investment agreements - MITI will follow up with specific inputs into the Energy Master Plan in coordination with the Ministry of Power, Works, and Housing • Foreign Exchange - MITI will assist in clarification of Nigeria’s Forex policy, to further attract foreign investments into Nigeria - MITI will work to ensure that tariffs are applied to imported goods at a rate that is in line with international obligations • Agriculture - The revival of agriculture, once Nigeria’s primary export, is critical to the diversification of the economy - MITI will channel inputs into the Agricultural Sector plan through the Federal Ministry of Agriculture • Manufacturing: - Transportation: MITI will be actively involved with negotiations with potential foreign entrants into this space (e.g. companies looking to source provide buses to Nigeria) - Infrastructure: MITI is currently assisting in the review of various plans and methods to develop Nigeria’s road and railway infrastructure FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 10 “Why Nigeria continues to be an attractive market for private capital” 3 MAIN ATTRIBUTES SUPPORT NIGERIA AS AN ATTRACTIVE INVESTMENT DESTINATION • Robust fundamentals with positive outlook on economic fundamentals for the medium and long-term Positive Fundament • Resilient private sector with skilled, low cost labour als and • Large market with potential to be the hub/entry for the larger West Africa market macro • Relatively Diversified economy across sectors and regions outlook • Fast growing financial services sector and free flow of investment capital • Tax Incentives: Amended Company tax laws, 5 year pioneer tax status in 71 industries and specific sector tax incentives in force Investment incentives • Export Incentives and duty drawbacks: Manufacturing sector duty refund on final exportation • Other special incentives: - “Special investment incentives” and negotiated incentive packages with NIPC and government - Double taxation, profit repatriation agreements - Guarantees against expropriation • Relatively stable political climate Favourable business • Improving economic policy congruence and consistency • Existing investment in supporting infrastructure (transport, power etc.) development climate Source: Nigeria Investment Promotion Commission FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 11 Conclusion ▪ The current environment is a case of - A crisis is too great an opportunity to waste ▪ The government is implementing a plan that would transform the Economy and we are focused on delivery ▪ Perspective matters – the short term headwinds should not becloud the fundamental attractiveness of the market ▪ The government seeks to partner with private capital to diversify and grow the economy FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 12 Thank you FEDERAL MINISTRY OF INDUSTRY, TRADE & INVESTMENT 13