AFTER the announcement of Nigeria’s statistical triumph, I expected a chest-thumping, jubilant response in the country. Instead, news that Nigeria had become the biggest economy in Africa, with gross domestic product of an astonishing $510bn, was greeted with a sober, even dismissive, response by the media, professionals and ordinary people.
"It’s too soon to exhale," a banking professional last week. "We have too much to do. Our macroeconomic fundamentals are not in place. Things are just not where we need them to be. There is no reason for celebration."
Another said the statistics had, if anything, highlighted the lost opportunity. "Imagine how big we would be if our governments had invested oil profits in this economy since 1990," he said referring to the last time the economy was measured.
Having first visited Nigeria in the early 1990s and seen the differences in the country between then and now, I believe Nigeria does have a lot to celebrate, even if the road ahead is still a long and rocky one. In 1990, Nigeria was still dealing with the economic fallout of a series of military coups d’etat. Since its first post-independence election in 1964, Nigeria’s political condition has been more one of military than democratic rule, mostly by leaders with little interest in economic growth.
When the economy was last measured, Maj-Gen Ibrahim Babangida, who took power in 1985 from another coup leader, was in charge. He took over a state in crisis, a situation precipitated by distortions brought about by the country’s dependence on resources and worsened by the oil price crash of the 1980s.
He introduced a comprehensive economic "emergency" plan, setting in motion privatisation of state companies, financial sector reform, the revival of agriculture, and cut back imports. But he was also the architect, many Nigerians say, of patronage and corruption, despite being a proponent of fiscal prudence. Under his watch, foreign debt ballooned. And, by dragging out the promised return to democracy for eight years and annulling a presidential election held to facilitate this handover, he paved the way for another coup in 1993.
Sani Abacha, Nigeria’s last military ruler, presided over an economy hollowed out by grand corruption. He ran the oil business as his private fiefdom, dictating oil deals from his presidential villa. The central bank was in effect his piggy bank. State utilities in key areas such as telecoms and power were run into the ground through neglect and underinvestment.
Abacha died suddenly in late 1998, paving the way for the democratic era Nigeria has enjoyed since then.
There was talk of a rebasing exercise after the 1999 democratic elections but it is held that this was scuppered by the intention of the Obasanjo regime to secure debt relief from the multilateral lenders and the Paris Club, which would have not been possible if Nigeria had emerged, then, as a middle-income country. The decision paid off. And the economic trajectory, as is now common cause, has been strongly upward — even if the 7% growth rate now turns out to be lower as a result of the rebasing.
Nigeria has a long way to go. The gap between rich and poor is widening; it remains one of the poorest countries in the world and has a tiny tax base, despite a rapidly growing private sector. It is easy to look at the significant infrastructural development in cities such as Lagos and Abuja as being progress and forget the underdevelopment elsewhere in the country.
There are many reasons to criticise Nigeria’s progress and economic governance. But it is also easy to forget how far it has come since 1990.
The question now is whether the political leaders and technocrats use the country’s new status as the biggest economy in Africa as an excuse to continue to underperform or whether they will set it on a path towards its true potential, where Nigeria’s, rather than political interests, are primary.
• Games is CEO of consulting company Africa @ Work.
THE struggle in Zimbabwe’s ruling Zanu (PF) to inherit the mantle of power from President Robert Mugabe has spread from the political battleground to the state-owned media.
Publications such as The Herald and Sunday Mail once filled their pages with vitriol directed at the opposition Movement for Democratic Change (MDC. They attacked critics of the president, covering the government’s own shortcomings with thundering editorials about the threat of neocolonialism and other distractions.
The ruling party was out of bounds for journalists employed by the state.
Now it is open season.
There are different theories about why the ruling party is turning on itself. One is the succession battle between factions jockeying for their candidate to succeed Mugabe.
These factions are using the state media to discredit each other by selectively exposing corruption linked to their opponents.
Officials are trying to paint these disclosures as an attack on corruption in principle. But it is hard not to believe this is not being driven by political expedience, particularly as many of the scandals being aired are not new.
Bribes sought by ministers, the activities of the diamond mining companies that have been unaccountable to the nation for years, dodgy infrastructure projects and others are all in the spotlight.
Another theory is that the state is looking for scapegoats to blame for the poor condition of its finances.
It seems as if state-owned enterprises are the target in this regard.
Once protected by the ruling party despite the fact they were mismanaged, inefficient, and were a drain on an ailing fiscus during the darkest days of the economy, the state continued to support them.
They were a key source of patronage and control for Zanu (PF).
But now the gloves are off. Earlier this year, the state caused a furore by disclosing that managers of parastatals were earning obscene salaries.
In one case, the manager of the country’s biggest medical aid society was "found" to be earning $535,000 (R5.3m) a month, with benefits, while the organisation was in debt to service providers and in arrears with tax.
Those exposed include entities that have struggled to pay workers even while paying ridiculous salaries to managers. The saga has been dubbed "salarygate" by a furious public. The minister has now capped salaries of managers in state-owned enterprises and local authorities at R60,000.
But many believe the government is not acting to rein in graft because it is the right thing to do, but because it needs to find money to pay public servants’ salaries — an increasing concern. Public servants, estimated at 230,000 people, swallow up almost 75% of the state’s monthly revenues.
The government is already struggling to pay their salaries, and paid them several days late this month.
It is now under pressure to implement a significant pay hike promised by Mugabe during last year’s election campaign. The deadline for the new packages has been shifted from February to April. But it will take a miracle to meet this new deadline.
The lack of liquidity in Zimbabwe is not only the state’s problem.
I attended a number of results presentations last week at which a lack of liquidity was raised by companies as a significant issue affecting their performance and future planning.
The number of retrenchments is rising rapidly. Last year, more than 120 companies applied to the Retrenchment Board for permission to shed workers, and trade unions say nearly 10,000 were laid off. The trend has continued this year. Economists say Zimbabwe is operating at a third of its capacity. The government’s economic recovery programme has been widely panned as being unworkable, and investor confidence is low.
And while the government casts around for miracles, the public servants, a key plank of Zanu (PF)’s support base, are getting restive.
ARNOLD Ekpe, former CEO of West African banking group Ecobank, once said African-owned companies had an advantage in African markets, particularly the difficult and high-risk ones, because they came from risky markets and understood the challenges and knew how to meet them.
In an interview with me some years back, discussing the rise of African multinationals north of the Limpopo, he maintained these companies were also less daunted by the challenges than companies from outside Africa.
Certainly, the rapid expansion of Ecobank across Africa — in 35 countries to date — signals a large appetite for risk. By 2008, when I first interviewed Ekpe, the group was already in 24 countries and had launched a $2.5bn rights offer to fund further expansion. His dream was to create a truly pan-African bank that would dominate business in "middle Africa", the swathe of territory between the Sahara and South Africa.
But, along the way, analysts started asking whether the bank was driving expansion at the expense of internal governance. It started looking like a numbers game more than a strategic growth plan. It was only a matter of time before corporate governance issues came to the fore in this rush to conquer Africa. So it came as no surprise when dirty laundry was aired and corporate scalps taken along the way — as has happened recently, with the chairman and CEO leaving.
Potential weakness in the company was not only about the pace of expansion; it was also about tensions arising from old ways of doing business in West Africa rubbing up against modern corporate governance standards and practices, which are an integral part of the globalising business environment.
This tension was highlighted in the 2009 banking crisis in Nigeria, when a handful of banks were found to be acting in ways that had been considered normal among some elements but were anathema to the governance practices introduced by central bank reformers in the years before the crisis.
Concern about Ecobank is not just commercial. There is also a worry about what the collapse of an African corporate champion might have on the African psyche. Ecobank has become more than just a bank for Africans — it has become a source of pride, representing a dynamic new business model for people more familiar with foreign and South African-owned brands.
The new African multinationals, those with their roots north of the Limpopo, are raising the bar for business across the continent and, in the process, are giving Africans new respect for local institutions and conglomerates.
South African companies are seen differently. They are regarded more as outsiders, aligned in the consumer mind with foreign companies, given their size, scale and global integration.
The strong South African involvement in Ecobank has raised concern that, as a consequence of its present problems, this African corporate jewel may fall victim to South African "imperialism".
The Public Investment Corporation in South Africa is a portfolio investor in Ecobank and Nedbank has an option to convert the $285m loan it made to Ecobank in 2011 into an equity holding before the end of this year.
While neither appears to have plans to take over the bank, the concerns, highlighted in an article in the Financial Times last week, are evidence of a broader antagonism about South Africa’s corporate dominance in Africa.
In a discussion last week, a group of African business analysts debated whether South African multinationals could be regarded as African as they operated at a very different level from their continental peers.
But it was pointed out that multinationals in Africa outside South Africa are growing rapidly and are changing this perception. Ecobank represents that change.
However, the reality is that these admirable up-and-comers still operate in a volatile, rapidly changing and often institutionally weak environment. Their institutional foundations might not be as solid as they need to be, as seen in the fact that a few individuals at the top can quickly destabilise a carefully built edifice.
The Ecobank saga is a stark reminder of this.
• Games is CEO of business advisory Africa @ Work.
INVESTOR confidence in Nigeria, soon to be Africa’s biggest economy, has taken a hit with the suspension of the country’s outspoken central bank governor.
Investors are looking warily at a country where the president can, without resort to due process, get rid of the head of a supposedly independent agency. The naira dipped to a 15-year low in the wake of the scandal and there have been fears about the future of macroeconomic policy and the independence of the bank.
But the action did not come as a complete surprise given the controversial and combative behaviour of Lamido Sanusi over the almost five years of his tenure.
He has frequently skated on thin ice with his comments about governance and expenditure.
President Goodluck Jonathan suspended him last month after his repeated disclosures that billions of dollars of oil revenues were unaccounted for. With just a year until the next national election, and given the history of the ruling party dipping its fingers into the oil till to support campaigns, the president’s sensitivity about the allegations is not surprising to Nigerians.
Elections in Nigeria are a high-stakes game and Jonathan is fighting a tough battle for re-election as the ruling party’s candidate.
With 95% of revenue generated from oil, it is a key source of political patronage. And Jonathan has been criticised for his failure to rein in corruption — although his reason for ousting Sanusi was not about the allegations but about recklessness in his central bank role.
Sanusi told the media: "The reality is that anyone who challenges the oil sector is striking at the heart of the vested interests that control the Nigerian state and one should be ready for the consequences."
But it is not simply the governor versus the government.
Opinions about Sanusi are divided. Even those who support his criticism of state failure, corruption and overspending believe he is undermining the nation and disrespecting the office of the president, particularly given his international profile.
I once attended a high-level African Development Bank (AfDB) dinner at which Sanusi, the guest speaker, prefaced a scathing critique of his government with the comment that if he was quoted, he would deny everything. The official speech released the next day in no way resembled the address of the night before.
There is uneasiness that despite a sterling performance in keeping the Nigerian economy in relatively good shape, the flamboyant and outspoken governor has compromised the independence of his office by straying into the realm of politics and acting outside the traditional mandate of the bank.
But, at the AfDB dinner, he made the case for central bank activism, given the peculiar difficulties of African states.
Sanusi is unfettered by political ambition. Despite speculation over the years that he would be a presidential candidate, his contempt for the political class is patently clear.
An aristocrat from the ancient Muslim city of Kano in northern Nigeria, he hopes to become the Emir of Kano, a powerful traditional position once held by his grandfather.
It is this very distance from national political ambition that gives him the space to criticise openly. His personal independence has made him powerful — although, as recent events have shown, not untouchable.
Sanusi also embodies northern interests in a government ruled by a southerner, a significant issue in a country where geography is political. His comments about the president have been interpreted as reflecting perceived northern arrogance towards Jonathan’s south-eastern region.
There have been attempts to portray the former governor as using the bank to address the interests of Muslims. Recently, he was under fire for making a R6m relief donation from the central bank to his own state for victims of an attack by insurgency group Boko Haram. The bank had not helped victims from other states under attack from Boko Haram until then.
Sanusi’s successor comes, as he did, from a large bank in the private sector. It is widely expected that he will be more of the traditional banker that the role demands.
But he has big shoes to fill.
• Games is CEO of Africa @ Work, an African business advisory
HAS the bubble burst for Ghana, a long-time darling of emerging-market investors with its political stability, high growth rates and apparent prudent economic management?
It’s a question companies are starting to ask themselves as the country lurches into a situation reminiscent of the 1970s. The introduction of strict foreign exchange controls last week is a very controversial move. It has sparked concern among local and foreign investors, who anticipate a tougher operating environment.
The new controls immediately spawned a currency black market. Within days, the local currency, the cedi, was selling on the streets at three times the official rate. Banks reported people closing foreign currency accounts and Ghanaians started to send their forex abroad and to neighbouring states.
The cedi has been in steady decline for more than year, recently reaching its lowest level against the dollar in two decades. The crisis was precipitated by chronic trade and fiscal imbalances. High-cost imports to build infrastructure for the oil industry have not been offset by commodity exports in an era of lower prices for Ghana’s main revenue earners, particularly gold, which lost 25% of its value last year.
The economy gets 72% of export revenue from just three commodities — gold, cocoa and now oil. Even oil production, which started in 2010 and earned Ghana $1.4bn from 2011 to mid-2013, has been unable to rescue the economy from its decline.
Problems in the oilfields have led to a significant slowdown in oil production over the past two years. The government puts the loss of potential export revenue last year at $1.3bn.
High government spending has led to large fiscal imbalances that the state is trying to tackle by getting rid of fuel and other subsidies, hitting consumers’ pockets hard.
And the inflation bogey is back. After respective administrations reduced inflation from nearly 50% in the 1980s to single digits by 2011, it is now creeping back up, hitting 13.8% (year on year) last month.
Just as the country was counting the cost of these problems, rumours of US stimulus tapering and a general pull-back from emerging markets prompted the central bank to hoard dollars to bolster its foreign reserves.
The exchange controls introduced last week include a ban on dollar transactions for purchases and sales within Ghana, which have become more common as people try to hedge against the weakening cedi. This move is likely to hit South Africa’s mall developers and financiers, who have set tenant rentals in dollars, among other investors.
Forex account-holders may withdraw dollars only if they can prove they need the money for a foreign trip, and then it is capped at $10,000. Exporters have to convert their export proceeds into local currency after 30 days and pay increasingly unfavourable rates to buy it back for future transactions.
The move harks back to the days Ghanaians thought were behind them. Until the early 1980s, foreign exchange controls were the dominant economic policy in Ghana. The black market thrived and currency trading became the biggest game in town.
They were considerably eased over time but have now been tightened up again to try to tackle several problems simultaneously. But they have sparked investor concern and worry among locals about the effect on their businesses — and on the good news story their country has become.
There are fears that the new measures will put a brake on new inward investment, further weakening the currency and pushing people to stash hard currencies at home, thereby increasing shortages in the market.
Not only Ghana is experiencing difficulties in the wake of trends in global markets, but it is a good example of the kind of risk that remains in Africa. It is a cautionary note to a narrative echoing with overly optimistic statements about "Africa rising".
ON A bridge linking two islands that are home to some of Nigeria’s richest people, a giant billboard advertises Moët & Chandon, the champagne that has become a favourite tipple of the country’s wealthy elite.
Last week, a UK newspaper reported that Shoprite’s seven stores in Lagos sold more of the high-end drink in 2013 than the chain’s 600 South African stores did.
While this highlights Nigerians’ desire for luxury products, it also indicates their preference for foreign goods, something much less prevalent in another large market, Kenya.
I travelled to Lagos and Nairobi over the past fortnight to find out from retailers, manufacturers and analysts whether the provenance of consumer goods affects buyers’ preferences. The research was for an upcoming book about Africans investing in Africa, being produced jointly by the Brenthurst Foundation in South Africa and the Tony Elumelu Foundation in Nigeria.
The simple answer is that the picture is complex, nuanced and hard to pin down.
A Ghanaian executive who has lived in Nairobi for several years said many products enjoyed by Kenyans would not gain much traction in his home country. Kenyans, he said, focused on value for money in choosing goods, while his countrymen emphasised image.
More grooming products are sold in Ghana than Kenya, even though the former has half the population.
There is another issue at play, and that is the origin of consumer goods.
In West Africa, foreign goods are perceived to be more valuable and attractive. The consumer mind-set is not particularly well disposed to locally made goods as they are perceived to be inferior and of low quality.
In Nigeria and Ghana, wealthy consumers fly to western markets to find the brands they prefer — not just luxury goods. A prohibition on many imports imposed by the Nigerian government means consumers have had to adapt to certain locally produced goods such as fruit juices, and have come to enjoy them, but a lingering desire for foreign brands remains.
In Kenya, the picture is slightly different. If you want to sell to Kenyans, it is better to flag goods as "Kenyan made" to tap into a strong sense of patriotism about local goods that is highlighted by brands such as the payment system M-Pesa, devised by cellphone company Safaricom. This is held up as a symbol of Kenyan pride but has not travelled that well to other African markets. But M-Pesa, and many other brands perceived to be local are actually owned by foreigners. Safaricom is majority owned by the UK’s Vodafone.
Goods that have been manufactured for many years in East Africa by foreign multinationals such as Unilever, Nestlé and GlaxoSmithKline are now viewed as local. Similarly, favoured beer brands perceived as local, such as Tusker, are owned by British brewer Diageo. But beer seems to buck the trend of favouring imported goods in Nigeria, where the best-selling beers, Star and Guinness, are regarded as local brands although they are produced by foreign-owned companies Heineken and Diageo.
Some South African brands have been adopted as local in countries where they are popular. A favoured tea brand, for example, is seen as a Botswana product in Gaborone and a Zambian product in Lusaka.
It is hard to unravel all these brand issues — there are many dimensions, nuances and complexities that companies doing business in Africa must consider when entering new markets. But what it clearly shows is the need for a differentiated strategy for countries that takes into account local, national and regional dimensions.
By now, this should be common cause, but there are still South African companies with Africa strategies that are, as a colleague of mine often says, an inch deep and a mile wide. Companies that fail to dig deep into the consumer psyche in African markets before making a move, and even adjusting the model in market, are bound to fail.
I DINED with a Nigerian elder last week, who told the story of how Nelson Mandela had lived in his Lagos home for several weeks in 1962 during a seven-month journey around Africa to raise support for the African National Congress’s (ANC) armed struggle.
Mbazulike Amaechi, an official in Nigeria’s first post-independence government, said he was asked by the leader at the time, Nnamdi Azikiwe, to host Mandela during his visit to Nigeria in May 1962. When Mandela visited Nigeria again in 1990 to acknowledge Nigeria’s support in ending apartheid, he personally sought out Amaechi and Azikiwe to thank them.
There has been a lot of talk about Mandela’s legacy at home but little about it fostering better relations with other African countries and their nationals living in South Africa, in particular the other pivotal African state — Nigeria. Despite the fact that the West African giant played a leading role in the anti-apartheid struggle — and was declared an honorary member of the Frontline States of Southern African nations — ordinary Nigerians feel their efforts have not been appreciated and that their welcome in democratic South Africa was not assured.
Nigeria chaired the United Nations (UN) Special Committee against Apartheid for 25 years until 1994 and, along with a number of other African countries, it offered shelter and support to the ANC. In 1976, it established a fund to provide assistance to apartheid refugees, with ordinary citizens contributing a percentage of their salaries to the cause. It offered passports, money and study opportunities to many South Africans.
Nigeria also used its political clout to harass supporters of the apartheid regime internationally.
Former president Thabo Mbeki lived in Nigeria in the late 1970s, when he befriended Olusegun Obasanjo, who was to become his presidential counterpart 20 years later.
The two men helped to shape a new thinking about Africa.
Two Nigerians were co-chairs of the Commonwealth Eminent Persons Group on South Africa, which investigated options to end apartheid.
One was Obasanjo. The other was former Commonwealth secretary-general Emeka Anyaoku.
He befriended Oliver Tambo while a junior official at the Nigerian embassy to the UN and visited Mandela in prison in 1986 as part of the Eminent Persons Group. Between 1991 and 1993, he helped to break deadlocks in South Africa’s negotiations. They became close friends and Mandela, who wrote the foreword to Anyaoku’s book, also afforded him the honour of addressing a joint sitting of the National Assembly in 1998.
Anyaoku shared some memories with me in Johannesburg last week, when he came to pay his respects. He recalled he had hosted a dinner for Mandela in London in 1990. Asked who he would like invited, Mandela had said he would like to see representatives of as many multinational companies doing business with South Africa as possible. He wanted to assure them their money would be safe if they invested in South Africa.
Anyaoku and fellow Nigerian diplomat Ibrahim Gambari have been awarded South Africa’s highest decoration for foreigners — the Companion of OR Tambo — while Mandela received Nigeria’s second-highest honour, Grand Commander of the Order of Nigeria.
But Nigeria was also the place that gave Mandela a sharp dose of African realpolitik when he became president in 1994. His Nigerian counterpart was the military dictator Sani Abacha, who was the antithesis of everything Mandela had fought for, and a tough political opponent.
Mandela had several difficult encounters with Abacha, who was unmoved by the political reputation of the famous leader. In 1994, he failed to secure the release of a prominent Nigerian politician jailed by Abacha for treason, despite visits by himself, Mbeki and Archbishop Desmond Tutu at the request of the man’s family.
In 1995, the men crossed swords again. Mandela joined the appeals for clemency for nine Niger Delta activists sentenced to death for agitating for more equitable distribution of Nigeria’s oil wealth. Abacha promised Mandela the men would not be executed but, shortly afterwards, hanged them.
Mandela, who heard the news at the Commonwealth heads of state conference in New Zealand was angered by Abacha’s betrayal and called for Nigeria’s expulsion from the organisation.
Although Nigeria was suspended for three years, Mandela found no support for his principled actions within Africa. His unilateral stand without recourse to the then Organisation for African Unity proved to be a greater sin than Abacha’s inhumanity. Mandela unwittingly helped to inform a view in Africa that newly democratic South Africa saw itself as an exception on the continent.
But Mandela never lost his early fondness for Nigeria. He liked to share his memories of visits there and occasionally used to pop over the road to visit the then Nigerian consul-general, his Houghton neighbour, to talk about African affairs over tea.
Given the long and rich history, a lot more could be done by nationals of both countries to realise the potential of this important relationship. It would be a fitting tribute to Mandela.
• Games is CEO of Africa @ Work, an advisory and consulting company, and honorary CEO of the South Africa-Nigeria Chamber of Commerce.
THE traffic jams in Lagos are legendary. In the hours spent on the city’s roads, there is plenty of time to view the array of cars of every imaginable make and age that clutter the roads.
Nigeria is crammed with imported cars from every region of the world. The government has estimated the import bill to be more than R30bn a year. Unlike in South Africa, nationals are allowed to import used cars that are up to 15 years old, contributing to the congestion that is a hallmark of Nigerian cities, not just Lagos. But despite the huge market and obvious demand, there are few automotive manufacturing or assembly operations.
In the 1970s, the government tried to build a car industry. It formed partnerships with companies including Peugeot, Volkswagen, Fiat and Daimler-Benz. By the 1980s, most of the companies had stopped operating because of poor domestic patronage, low capacity utilisation, a high-cost environment and a failure to implement the automotive policy of the time. Only two survive, running at a fraction of capacity.
Nigerians then turned to imports, including used cars. Spare parts companies went out of business because of high costs and competition from smuggled imports.
Dunlop and Michelin had plants in Nigeria. They, too, are gone.
Now Nigeria wants to reignite its motor industry and get the sector to underpin a new industrial era. There is undoubtedly a market and the government claims it has identified the pitfalls of past attempts and will address them. The 10-year automotive policy launched a few weeks ago includes a phased ban on used cars and high tariffs to discourage imports.
Many of Nigeria’s rich and powerful have built good businesses on the failed car industry and Nigerians’ reliance on imports. They have, unsurprisingly, strongly objected to the new policy. Emerging indigenous car companies are already enjoying government patronage.
The failure to break the business cartels that import everything from generators (a $1bn industry) to foodstuffs has been a brake on economic reform and industrialisation. But Trade Minister Olusegun Aganga hopes to change all that through direct policy intervention, starting with the motor industry. He has drawn on the experiences of India and Brazil and also South Africa in devising the policy.
During the Nigerian state visit to South Africa in May, a memorandum of understanding was signed to secure South Africa’s input into the policy, including technical assistance and sharing information about South Africa’s own policies.
Aganga has also approached global car manufacturers, including South African-based Nissan and Toyota, to persuade them to set up in Nigeria, a country to which they export vehicles at present. Nissan, in its alliance with France’s Renault, has already pronounced its interest in starting vehicle assembly of semi-knocked-down kits with its exclusive Nigerian distributor and, in time, using its first-mover advantage to make the country an automotive African hub.
But the issue of government picking winners for economic development is controversial. In Nigeria, where industries targeted by previous governments for intervention have been costly failures, there is reason for caution. It will be a while before a critical mass of "made in Nigeria" cars is reached. Meanwhile, the price of imported cars will soar as the onerous tariff regime kicks in. There may also be negative unintended consequences in other areas of the economy.
There are many reasons industrialisation has not taken off in Nigeria. The biggest of these is the lack of political will to make deep structural changes to remove the inherited dysfunction embedded in the economy.
A more competitive operating environment, coupled with the size of Nigeria’s — and West Africa’s — underserved markets, should be enough incentive to get investment in industrial enterprises.
• Games is CE of Africa @ Work, a consulting and advisory company.
IS THE much-heralded East African Community (EAC) heading for troubled waters? Reports of Tanzania’s isolation from regional summits suggest something is afoot in this bloc that has been so praised for its success in breaking down trade and investment barriers.
The ascent of Uhuru Kenyatta as the president of the bloc’s most powerful member appears to have changed the dynamics of the region.
Under scrutiny because of his tussle with the International Criminal Court, Kenyatta seems determined to get things done in a hurry. Part of this is the fast-tracking of EAC commitments on a range of issues from infrastructure to trade barriers.
In the process, foot-dragging Tanzania and economically weak Burundi are getting left behind. Kenyatta, along with his Rwandan and Ugandan counterparts, has been holding regional summits without the presidents of the other bloc leaders. South Sudan, which has applied to join the EAC, is aligned to the Kenyatta triumvirate.
The original EAC, founded in 1976, failed after 10 years. It was a difficult time for the region, with Idi Amin in power in Uganda, Tanzania still in the grip of its socialist experiment and Kenya flexing its economic muscle in the strongly capitalist country. This time, the region is more cohesive with not just countries, but companies, thinking and acting regionally.
Kenya, Uganda and Rwanda, keen to fast-track integration, have spearheaded the formation of what they call the "coalition of the willing". Burundi and Tanzania have been left out of recent meetings at which a regional customs agreement was signed and at which talks about a new railway to link Kenya, Uganda and Rwanda took place. Tanzania and Burundi have also been excluded from agreement on a common tourist visa in East Africa.
Tanzania, in particular, is under fire for slowing down the pace of regional integration. It has often pleaded for longer integration timetables, and critics believe it is paying lip service to the EAC.
There also discontent with Tanzania’s cross-cutting membership of the Southern African Development Community (Sadc). This has long been seen as a loophole for South African goods to enter the EAC market at preferential tariffs. EAC leaders also took a dim view of Tanzania’s support for Sadc’s backing of the Congolese army’s recent military offensive against the rebels in eastern Democratic Republic of Congo.
Uganda and Rwanda were against military confrontation. They said it would escalate tension, with potential spillover into their territories.
Tanzania has since said it would not recognise any EAC agreements made by the other states from which it was excluded. But it has a lot to lose by a fallout with the region, given the historical interlocking of the economies.
It also has big infrastructure plans that need brisk regional trade to support their viability.
The EAC secretariat, based in Tanzania, has expressed concern about the rising hostility and is expected to address the problem at the next heads of state summit next week.
Tanzania may be eventually pushed to do something it has been under pressure to do for a long time — make a choice. If it is to be included in the ambitious plans of EAC countries, it needs to keep up and not be distracted by its obligations to Sadc. Or, it needs to throw in its lot with Sadc, which may mean losing out on the benefits of increasing co-operation in the EAC.
There is a bigger issue here. If the EAC, with its relatively small membership and regional interconnectedness, cannot bring all parties on board, what chance of success does the much larger tripartite free-trade plan — incorporating Sadc, the EAC and the Common Market for Eastern and Southern Africa — have?
The EAC is a microcosm of the politicians’ ambitious dream of economic union from Cape to Cairo.
It is a dream that is likely to be a long time coming.
• Games is CEO of Africa @ Work, an advisory and consulting company.
THE day Woolworths announced it was pulling out of Nigeria, I met a Nigerian colleague at a coffee shop in Sandton City, within sight of the chain’s shop there.
A former resident of South Africa, he knows the brand well and planned to shop there after our meeting to buy clothes for his children back in Lagos. He said he had never visited either of the two Woolworths outlets in his home town, despite the fact one was not far from his house.
A banking executive, he represents the middle class in the rest of Africa that South African retailers are relying on to boost their sales. But he said Woolworths’s marketing was poor in Lagos, despite being a new and unfamiliar brand to most Nigerians, and he had simply forgotten they were there. Because South Africa’s retailers are household names at home, there seems to be an expectation that Africans elsewhere will be familiar with the brands. This is not the case.
Wealthy Nigerians travel extensively, but their favoured shopping haunts are in the UK and US. As a result, they are more familiar with the down-market Woolworths brand in the UK that went out of business a few years ago than with the more up-market brand so beloved of South Africans.
I have also been told that the layout and ambience of Woolworths shops, well accepted at home, led Nigerians to believe the goods would be expensive. Cost is an issue with this much-trumpeted new emerging middle class, the bulk of which is at the more unstable end of the definition.
Although incomes are expected to grow over the next decade, many consumers are battling with high personal debt, rising electricity and transport prices and chronic unemployment.
Nigerian consumers are brand savvy. If they are going to pay higher prices for goods, they want global brands they recognise; brands that tap into their aspirations. Woolworths, and some of our other clothing retailers, simply do not fit into that category. That makes their marketing job more difficult — but not impossible.
A challenge for retailers is the lack of critical mass of malls. There are less than a dozen malls trading in Nigeria at present. This is not enough to change the mass of peoples’ entrenched shopping habits, particularly as these retail developments are far apart and inaccessible to many, particularly in the highly congested megacity of Lagos, where South African retailers are concentrated.
Shopping is done mostly in covered and uncovered outdoor markets, ad hoc stalls along the streets and small two-or three-storey shopping centres with a multiplicity of small shops, commonly known as plazas.
As the number of malls increases (there are about a dozen under development), more people will patronise them and their popularity will increase.
Nigeria is a tough operating environment and it is necessary to learn to work within its challenges in order to succeed. Despite significant reform over the past decade, it is still structurally inefficient and that is unlikely to change soon.
Companies investing there have to understand the minutiae not just of the risks and challenges but of the market, the culture and the consumers. Models have to be constantly fine-tuned and adapted.
There are myriad other challenges in Nigeria and the government has been slow to tackle key issues affecting investors.
But it is glib to blame a country for a company’s failure to make an investment work rather than the firm’s own strategies, unsuitable models, poor choice of partners and so on.
Woolworths’s withdrawal from Nigeria, and that of Nando’s, Telkom and others, should not be interpreted as a story only about Nigeria’s challenges but also about specific problems created by the choices the firms themselves made.
Shoprite has "paid its school fees" but it has also enjoyed some of its highest turnover in Africa in its Nigerian stores. Mr Price reported its second-best opening turnover in the company’s history when it launched in the Ikeja City Mall in Lagos (down the concourse from Woolworths). The MTN story in Nigeria is legendary.
Other South African retailers are coming into the market, such as Edcon, with food franchises right behind them. Despite the slow growth of formal retail in Nigeria, South African brands still have early-mover advantage as the international chains explore low-hanging fruit in other regions. The trick is to have the patience and deep pockets to make that work for them.
• Games is CEO of consulting company Africa @ Work.