Transcript
Speaker: This is Ballots and Beyond, a deeper dive into Nigeria's elections with Timi Sholeya and Toby Lawson.
Speaker: Good day.
Speaker: Today on Balance and Beyond, we have Mr. Andrea Lee, who was the long-serving chief executive of the Africa Finance Corporation and who is the senior advisor of Southbridge, which is one of Africa's premier infrastructure development companies.
Speaker: He has agreed to talk to us a little bit today about one, the issues that he thinks are pressing, and then two, to start off a little bit about the power value chain, because one of the things particularly that we see in Nigeria, considering the energy crunch around the world, is that
Speaker: It is one of the most pressing issues for Nigerians, whether domestically or whether in your business power is a real issue.
Speaker: I kind of want to start off by asking my co-host Toby Lawson to join me in the question.
Speaker: Is there any intervention that a new president could realistically make in power in Nigeria that would improve the situation substantially?
Speaker: I think it's difficult to talk about one single intervention that anyone can do that will sort of make for a dramatic improvement in the power situation in the country.
Speaker: Unfortunately, like a lot of things in life, you know, rectifying the power situation is something that will require time, will require capital, will require perhaps most of all the willingness to make some, you know, painful decisions and to deviate from, you know, what has happened in the past.
Speaker: But I should say that it's hugely important that we get power right.
Speaker: I know you've spoken about other types of infrastructure on this series before, but really for a country to develop and grow and become richer, which is what we all want, you really need to have access to abundant energy.
Speaker: And the best and easiest source of such energy is electric power.
Speaker: Just to give you an example, the current annual average consumption of power of a Nigerian, according to our welding data, is about 115 kilowatt hours, which is about 1% of an American person.
Speaker: To put that in context, a sort of decently energy efficient fridge consumes about 100 kilowatt hours a year.
Speaker: So the average Nigerian consumes, you know, a little bit more power than the average, you know, good quality fridge in the West.
Speaker: And as you can imagine, most families in the West have at least one fridge and maybe more amongst all the other appliances.
Speaker: So I think this goes to show just the depth of the energy deficit that we have.
Speaker: There are debates about whether Nigeria should be developing services, whether it should be developing manufacturing.
Speaker: But frankly, none of these things can happen without access to abundant and at least reasonably priced electricity.
Speaker: I think the other point to make, and maybe getting towards the question of what is the silver bullet, but it's not really related to the power sector directly, is the fact that power tends to be a very highly capital-intensive industry.
Speaker: You need a lot of capital to be able to develop power.
Speaker: You know, the numbers change, but typically speaking, one used to look at a sort of number of about $1,000 per megawatt of installed capacity.
Speaker: And that's just on generation.
Speaker: By the time you add transmission and distribution, you know, those numbers are likely to get higher.
Speaker: So you need vast amounts of capital.
Speaker: And obviously, and I'm sure you've spoken about this, the current macroeconomic situation in the country with an overvalued currency, interest rates below the rate of inflation, high inflation, all these things definitely put off investors, both foreign and domestic, and drive down the amount of investment that one can see.
Speaker: As a foreign investor coming in, why would you come in, bring your dollars at whatever the rate is, 450, when you know that, quote-unquote, the real rate should be whatever it is, 700, 750, and therefore you've almost lost 50% of your investment the minute it comes into the country at an artificially high exchange rate.
Speaker: Then there's also the question about whether you're able to get your money out.
Speaker: If we're talking about power, it's in functionally a heavily regulated industry, right?
Speaker: So there's no prospect of super returns to kind of like ameliorate that particular problem.
Speaker: So I'm wondering whether to talk, not only because it's in the news, but like the Azure
Speaker: experience a little bit you know when i look at it i can't imagine how it could be possibly encouraging to an outside investor or even any real really serious power plant developer because they've had such trouble getting their money out in order to redeem loans that they've made to development finance institutions and you know multilateral funders
Speaker: So I want to talk a little bit about the bleak situation, which is that what you've outlined is a perfect example of why there's not going to really be much foreign direct investment into the Nigerian power sector in the near future, absent many other things in the general economy changing.
Speaker: So with the prospect that there's not going to be much foreign investment, if you were in the kitchen cabinet of the new president, what could they do?
Speaker: So there are a couple of points here.
Speaker: I mean, I think the first point is that the macroeconomic situation not only discourages foreign investment, but also discourages domestic investment.
Speaker: It's a bit less easy to see that.
Speaker: But, you know, if you look at the statistics about domestic savings and investments and compare it to countries that are equally poor as Nigeria, you see that we're not actually making a good showing.
Speaker: And again, it's all these various macroeconomic imbalances that we have.
Speaker: I mean, if you have a spare million naira, you know, your best investment over the last 10 years has frankly been converting it into dollars.
Speaker: Certainly, that's true.
Speaker: So why would you be investing it in some domestic power?
Speaker: play, you know, when you could put it in dollars.
Speaker: Now, people do, for various reasons, invest locally because, you know, they have to because they're regulated, which is why it's a bit more difficult to see, but it still exists.
Speaker: That's the regulation, though, right?
Speaker: I thought that because I remember dealing with my pension fund and essentially every month you get a notification of the balance of your theoretical money.
Speaker: And I was like, well, I want this money.
Speaker: Obviously, I wanted to take it out and change it into dollars.
Speaker: And they were like, no.
Speaker: And then to ameliorate you or justify, they talk about how your money is being put to work by the government in order to build Nigeria.
Speaker: So it seems in domestic savings, and you think about funny things they're doing about the central bank, about compulsory deposits of the central bank, and then lending them out to people and to infrastructure perimetrics in kind of an industrial policy way.
Speaker: So don't they have this stranglehold, at least under this current government, over domestic savings?
Speaker: Yeah.
Speaker: So, you know, your pension money is diminishing.
Speaker: And I don't think it would be wise for you as a Nigerian to be relying entirely on your PFA pension to give you a comfortable retirement, given the returns that have been earned.
Speaker: And there are other examples where, you know, people are forced to essentially save domestically at, you know, less than the inflation rate.
Speaker: But, you know, these are things that are forced on people, whereas what you want is you want a system
Speaker: That actually encourages people to invest.
Speaker: Again, you know, when you look at the numbers, Nigeria is sort of around 20 percent as a sort of savings.
Speaker: And from a macroeconomic perspective, savings is equal to investment, because if you save money, it has to be invested somewhere.
Speaker: You know, savings as a percentage of GDP is give or take around 20%.
Speaker: Whereas if you look at almost any country that's experiencing a recently high growth rate, you need to be in the kind of 30s.
Speaker: And of course, you know, the baba of high growth, China, is
Speaker: has been almost in the 50s, you know, since early 1980s.
Speaker: But we're not even trying to emulate China.
Speaker: Just, you know, a nice steady 7% per annum, you know, real GDP growth.
Speaker: Fantastic at this point in time.
Speaker: But anyway, my point is that, you know, despite all these kind of compulsory things, we're way below where we ought to be.
Speaker: Whereas if you align the incentives to increase savings and investment, then we'd start to get to where we need to be.
Speaker: And by the way, I'm a very strong advocate of trying to promote domestic savings, domestic investments over FDI.
Speaker: FDI is very important.
Speaker: But if you think about it,
Speaker: It's local investment that understands the risks of a market better, that at least in theory can manage those risks, which should therefore set the pricing.
Speaker: So if you allow FDI to do that,
Speaker: Then you get projects which are frankly overpriced for the risk or which sort of over-egg certain risks, which may not be the most appropriate ones.
Speaker: And then you also get the other point, which is that when the returns start to come to those investments, they go to foreigners, not to local people.
Speaker: And that causes its own problems down the line.
Speaker: Anyway, I think that the one silver bullet that a president can do, and, you know, I'm sure you've heard this many times on your series, is devalue the currency, but also not just devalue the currency, but set up a mechanism where that currency continues to adjust based on the sort of economic situation so that you don't have to, in effect, manually devalue the currency every time.
Speaker: I would go further to say that, and this is not a popular opinion with Nigerians, but I would go further to say that rather than trying to have an overvalued currency, which allows us to have essentially cheap imports and cheap trips to the US or the UK, that we should aim, like places like Taiwan, to actually have an undervalued currency, which a lot of economic researchers have said is necessary for industrialization.
Speaker: But, you know, maybe that's taking it a step too far.
Speaker: So I think that that's why.
Speaker: But as you said, the bababous growth, China, throughout the 90s and 2000s, before its accessions to the World Trade Organization and after, the charge was also that China always artificially manipulated its currency to be low.
Speaker: And it did lead to a great deal of manufacturing and industrialization growth.
Speaker: Oh, yeah.
Speaker: I mean, sort of well-known economists like Danny Roddick, for example, are strong advocates of this.
Speaker: And it's not just China, actually.
Speaker: I mean, you know, there's something even on Twitter today about how Taiwan has developed.
Speaker: made sure its currency is always undervalued, which is probably how it's been able to sort of become a world leader in chip manufacturing, which obviously is very topical.
Speaker: So I think if you look at a lot of these Asian countries, they tend to manipulate their currencies down rather than up, which is what we do.
Speaker: That to me would be what we should be aiming for, but that may be a bridge too far for the average Nigerian for whom, you know, even the
Speaker: revaluing the currency to its real exchange rate is seen as a bad thing.
Speaker: So, you know, maybe I'm saying you should start by at least getting to what the real exchange rate is before pushing it below that.
Speaker: But yes, in an ideal world, we should go below what the real exchange rate tells us it should be if we want to encourage industrialization and growth.
Speaker: On the industrialization question, I just think that it will make sense if we have an undervalued currency, if we export.
Speaker: But when we talk about industrialization, th is is Nigeria, we mostly always talk about import substitution.
Speaker: We don't want to import X anymore.
Speaker: We want to make it locally rather than thinking of a more global market.
Speaker: So how do you think we can sort of change the economy
Speaker: Or is it at least a little bit more export focused?
Speaker: Well, you know, I don't know.
Speaker: I've been, you know, just in my own sort of little universe.
Speaker: I've been advocating that at the end of the day, what we should be doing is we should be doing what we are competitive.
Speaker: advantage to do rather than trying to do things that we don't have any advantage in.
Speaker: So, for example, we should perhaps focus not on growing wheat, which is essentially, as far as I understand it, a temperate weather crop.
Speaker: So we would never be able to produce enough wheat for consumption at any kind of competitive price.
Speaker: and maybe focus on other things that we can produce competitively.
Speaker: I think we're potentially competitive in palm oil.
Speaker: I think we're potentially competitive in cassava and its offshoots.
Speaker: Rice, I think, is a bit more questionable, but maybe we can be competitive there.
Speaker: And I think that with those, you know, just on the import substitution thing, I'm not exactly sure what the benefit of producing something locally is, if then it costs twice as much for the local people to buy in Naira terms versus the imported thing.
Speaker: But as you know, I mean, if we had a more liberal foreign exchange policy, a lot of these things would correct themselves rather than having to be, you know, sort of implemented by government fiat.
Speaker: How we structure the electricity market, and you said something about electricity being reasonably priced.
Speaker: So is there a sort of divergence in the interest of the investors who are investing with the hope of returns?
Speaker: and the consumer who always want cheap electricity, at least the way we've always talked about it in Nigeria.
Speaker: And how then can the market structure satisfy both sides?
Speaker: Yeah, so that's an interesting question.
Speaker: And I think that with power and with many other things, we need to think in terms of systems.
Speaker: So you've got a power system or a power value chain, and that system really ought to be able to work and stand on its own without the intervention of government.
Speaker: And I think that when you have a system which relies essentially on government subsidies somewhere within the chain, then that system, certainly within the African context, would not work and will become unreliable.
Speaker: Because you can't rely on the governments to continue to pump money into that system.
Speaker: Because, you know, things happen, fiscal situation isn't that great.
Speaker: So, you know, what was not a lot of money suddenly becomes a lot of money.
Speaker: And I think the Azura power station you mentioned,
Speaker: And then my second point, which is that you said, like, oh, it relies upon government and government subsidy.
Speaker: Isn't it more the case that the government has regulated the industry and structured it in such a way that it can't operate without the government?
Speaker: Yes, absolutely.
Speaker: And they can't operate without the government.
Speaker: But that's by their own sign.
Speaker: Oh yes, of course.
Speaker: I mean, so one of my thoughts about what needs to happen in power, which again is a, you know, maybe an unpopular opinion, is that rather than having more regulation, we actually need less regulation.
Speaker: And we need to allow people to do things that are profitable.
Speaker: And eventually, maybe once we've got a system or power that's working, then we can start to regulate it.
Speaker: And I look at actually when power started over 100 years ago in the U.S. And, you know, Boston had its own power company that was selling power.
Speaker: California had its own power company that was selling power.
Speaker: And, you know, they weren't regulated.
Speaker: They were just producing power and selling it to customers.
Speaker: Boston actually had two, or the Massachusetts general area had 221 power companies.
Speaker: Exactly.
Speaker: In 1911.
Speaker: Yeah, exactly.
Speaker: And they each started up selling power to people in a way that the ultimate regulation of all this stuff is that, you know, if you're overcharging, people won't buy.
Speaker: Because again, at the end of the day, electricity has a use to people and that use has a value to them.
Speaker: And that value differs.
Speaker: If I make company, I may be willing to pay more than if I'm an individual.
Speaker: or not.
Speaker: And, you know, the ultimate regulation is, you know, if I want to sell power to somebody at 300 Naira and they're not willing to pay 300 Naira, then I'm not going to sell it.
Speaker: Either I reduce my price or I go out of business.
Speaker: And basically, I think it's correct to say that even today, the U.S. actually doesn't have one national grid.
Speaker: It has a number of regional grids which are interconnected with each other.
Speaker: And this is because, at least partly, the organic way in which it came up.
Speaker: Now, this is actually, in a way, happening a little bit in Nigeria today in the sense that, you know, a lot of the solar companies and some of the other renewable companies, which are able to surf below the sort of thresholds at which you get regulated, are able to do what, you know, we always talk in Nigeria about willing buyer, willing seller.
Speaker: But in reality, it's willing buyer, willing seller, quote unquote, with a lot of regulation on top.
Speaker: But very often at the sort of small scale solar level, and when I say small scale, I mean, this is even up to providing one, five megawatts to light manufacturing type of companies.
Speaker: You know, it's running on a relatively lightly regulated business.
Speaker: And that's partly probably why that's one of the areas where you're actually seeing growth in power.
Speaker: Now, there's certain limitations to what you can do with rooftop solar, especially in, you know, dense urban areas, which means that that's not the only solution.
Speaker: So, I mean, I think that when you have a highly regulated system like we do in the official power market today, and when that system is not designed to be self-sustaining, i.e.
Speaker: the prices being charged take full effect of all the losses and costs and everything,
Speaker: then there's a gap in that system and that system has to be filled.
Speaker: And that is ultimately filled by government subsidies.
Speaker: Today, it's sort of like, you know, the government intervening and bailing out embeds and people like that, you know, which happens every two or three years to prevent the whole system from collapsing.
Speaker: So it's not even subsidized on an organized basis.
Speaker: It's ad hoc.
Speaker: And then going to my theme of systems versus projects in a way, you know, we love projects in Nigeria.
Speaker: So, you know, every government comes and invests vast amounts in power.
Speaker: You know, the Obasanjo government invested well over 10 billion.
Speaker: You know, no one seems to know the exact number, but 11 billion, 13 billion dollars in the NIPP project is the number that people talk about.
Speaker: hotel room, right, representing GE, and then another guy from the Caribbean.
Speaker: And I don't think you can see what was the day.
Speaker: The assets are there, but what is it doing for the country?
Speaker: The assets are there.
Speaker: Apparently, the latest thing that's going to, the latest miracle cure is this Siemens project.
Speaker: And I'm sure that will build assets.
Speaker: But unless you're looking at solving a system problem, it's not really going to change the fundamentals of what we're seeing.
Speaker: So my own view, anyway, as I've said, is really that I think the government needs to actually liberalise this sector a whole lot more.
Speaker: You can't sort of operate as if you're in a kind of nirvana when you haven't even started your journey.
Speaker: But we want to try and pretend that, you know, we can regulate prices, what have you.
Speaker: I mean, you regulate the price that a disco can charge, but then the people then don't have electricity, so they're now buying kerosene.
Speaker: You know, 10x what you're regulating the price.
Speaker: So the ultimate price they're paying for power, they're using a face me, I face you at four or five times the regulated price.
Speaker: So the ultimate price people are paying for power anyway is far higher than the so-called regulated prices.
Speaker: So why not deregulate these things, liberalize it, allow more organic projects to come up?
Speaker: And then once we've got a certain level of power, then you start to put some kind of structure on it, just in the same way that you
Speaker: I preempted my next question in that answer.
Speaker: So looking at the outgoing, hopefully outgoing government specifically, one of the achievements that spokespersons, surrogates and the like usually point to is that we built a lot of infrastructure.
Speaker: So like if you point towards the growth records and some of the other macroeconomic distortions and the binding constraints in the economy,
Speaker: The infrastructure argument is always, you know, easily, the ports, the railways, the second Niger bridge, you know, and all these things.
Speaker: So this infrastructure as a sort of standpost for economic performance, what is wrong?
Speaker: I know you've criticized that thinking on many occasions.
Speaker: So just like give us the brief, what is wrong with that argument?
Speaker: Well, you know, as you said, I ran the AFC for many years.
Speaker: And before that, I worked with the IFC.
Speaker: And also there I was involved in infrastructure.
Speaker: So if there's anybody who should be pro-infrastructure, it should be me.
Speaker: And, you know, when I was at AFC, we invested around $5 billion across Africa in many different infrastructure projects.
Speaker: So, you know, I should be the cheerleader for infrastructure.
Speaker: And I am.
Speaker: And as you heard, I said, electricity is the most important thing for our development, for example.
Speaker: But I think that Efosa Ojomo in his book, The Prosperity Paradox, makes an excellent point about infrastructure, which is that infrastructure itself does not generate any income.
Speaker: So if you think of a road, if that road is just sitting there, it's not generating anything.
Speaker: What that road serves to do is to facilitate other people to generate.
Speaker: So, you know, if you have a road and that road cuts the time that people take, you know, driving their yams from A to B and therefore say halves the cost of transporting those yams, it makes it cheaper in the market or it gives the producer more profit depending on the balance.
Speaker: And that encourages more economic activity.
Speaker: So just building roads and bridges and power stations, if they're not going to be used or if they're not going to be used in a way that generates more income than those infrastructure costing, especially in a country like Nigeria, which is capital constrained, then effectively you're wasting your money.
Speaker: And the other way to put it is that, you know, I believe that infrastructure should be demand driven rather than supply driven.
Speaker: So just supplying infrastructure here, there and everywhere isn't really going to make any progress.
Speaker: I think actually the second Niger bridge is quite a worthwhile project because from what I understand, I have to confess, I haven't been there yet.
Speaker: With the existing bridge, there are massive queues and it can take you five, six, seven hours to cross the existing Niger bridge.
Speaker: Now, if you think about all the time, all the fuel, all the cost that is involved in those people being delayed and that time,
Speaker: People are burning fuel, people are not able to do other things while they're sitting in that queue, which is an opportunity cost, etc.
Speaker: If you now put another bridge and that time is reduced from 7 hours to 30 minutes, then think about the fuel that is saved.
Speaker: The person that now takes 30 minutes has an extra 6.5 hours to do other things, some of which will be productive.
Speaker: So that is, at least theoretically, should be a worthwhile project.
Speaker: On the other hand, you know, if you now decided to go and build another bridge across the Niger at Lokojak, where there are no queues, at least as far as I'm aware, no one's complaining about the existing bridge at Lokojak.
Speaker: that is not going to generate any benefits whatsoever.
Speaker: I mean, you know, people may have a fancier, nicer bridge that they can look at and take photos of, but it's not going to save any time.
Speaker: It's not going to save any money.
Speaker: It's not going to allow people to be able to do other things because they're not wasting time crossing the bridge.
Speaker: So that's, in my view, the difference between, you know, having an infrastructure that is productive versus having one that isn't.
Speaker: And again, you need to sort of expand this to the country as a whole and really think about why are we building a train line into Niger Republic, for example?
Speaker: Yes, there's some business that can come there, but versus the billion dollar cost of that train line, is that really worthwhile?
Speaker: I doubt it.
Speaker: Maybe there's analysis that shows that it is.
Speaker: So for me, I think that that's how you really need to be thinking about infrastructure, especially in a place where capital is restricted and capital costs a lot of money.
Speaker: Again, as Charlie Robertson points out in his book, he talks about electricity, but I think it applies to many types of infrastructure.
Speaker: A lot of what goes into infrastructure is capital, and therefore, ultimately, the interest rate or the cost of capital determines how much your electricity or your other infrastructure costs.
Speaker: So we, unfortunately, live in a high capital cost environment.
Speaker: And therefore, I think we need to be very judicious about where we're spending this capital and make sure that it's as productive as possible.
Speaker: The situation in Nigeria is that all infrastructure is good, right?
Speaker: We talked a little bit with Fola about this, which is this question of debt capital, which is we have this bias towards if you build something, then it is necessarily virtuous, particularly if you build it, but it never works.
Speaker: But like, let's use Ajakuta as an example, but we can all see that it's there, right?
Speaker: At least like, oh, you didn't just steal all the money.
Speaker: For a new incumbent into the office, you've laid it out a little bit, but would you have kind of like a cantrip or like a short metric as to how they would decide to do infrastructure projects?
Speaker: Because I know there must have been thousands that have in your professional experience gone across your desk from various African countries, hundreds from Nigeria.
Speaker: As I said, I'm talking about this thing where your vast experience probably gives you a smell test.
Speaker: What are the things that they should immediately, when proposed to them by their new friends and cronies who have helped them get elected, that they should immediately say, no, no, no, that doesn't make any sense.
Speaker: Like, this is a bridge to nowhere.
Speaker: Yeah.
Speaker: So there are two lenses I would look through this.
Speaker: So the first lens is, is this something that the private sector can do in its entirety?
Speaker: So, for example, I personally don't see why power should be done by government at all, except perhaps in the sort of deepest rural areas where it's purely being done for kind of social benefit and there's little economic return that can be had.
Speaker: But in major sort of highly populated urban areas, there's really no reason why the government should be involved in power at all.
Speaker: I mean, you know, power, I think we've seen it globally, is something that can be provided entirely by the private sector.
Speaker: And I say this because, you know, government's resources, both financially and intellectually and managerially, are limited.
Speaker: And I think, you know, one, just to digress a little bit, I think one of the things I see in a lot of people involved in government is that they seem to behave with the underlying assumption that there are no limitations on resources.
Speaker: I don't know where this comes from.
Speaker: And therefore, you know, the fact that resources may be scarce is not something that
Speaker: seems to feature in decision making.
Speaker: So anyway, the first thing is, can this be done by the private sector?
Speaker: If it can be done by the private sector, it should be done by the private sector.
Speaker: The second thing is, is this something that could be done by the private sector, but needs a little bit of a push to get it over the line, i.e.
Speaker: can we leverage our resources?
Speaker: You know, in this sense, Hazura, which I have many problems with,
Speaker: But at least the theory behind Azura, which is that, you know, the private sector is going to come in and build it, but they need a little bit of push from us.
Speaker: And we're going to give that push.
Speaker: Is this the famed viability gap assurance?
Speaker: It's not viability gap assurance per se.
Speaker: You know, viability gap is a word I think, you know, has been used so much that it has lost its value.
Speaker: What I mean is the following.
Speaker: You know, if I want to put it into numeric terms, you know, if a project maybe returns 10 percent, but the private sector needs a 12 percent return to do that project, then maybe the government can provide that 2 percent instead of providing 100 percent of the project cost.
Speaker: it provides maybe 10% of that project cost, but that gets it over the line because it increases the rate of return to the private investor from 10% to 12%, which would make them do it.
Speaker: So rather than spending $100 million to buy a power station, why not guarantee a certain amount of revenue?
Speaker: And maybe that will get it over the hump.
Speaker: And if that guarantees,
Speaker: million worth of infrastructure, then maybe that's a good deal.
Speaker: The problem with Azura, just to sort of complete the picture, is that when you're in a situation that you know as a government, you're going to be paying 100% of the return because essentially all the revenue that Azura is making for the investors is essentially being paid for by the government.
Speaker: by the electricity system.
Speaker: And that's when it starts to become unstable.
Speaker: I mean, you know, when a government or anybody gives a guarantee, the expectation is that that guarantee will not be called or will only be called in very exceptional circumstances.
Speaker: But when you're going into a project knowing that you're relying on that government guarantee for 100% of the revenue, you've already got an unstable project from day one.
Speaker: And that's the problem with Azura.
Speaker: So Azura, although I said in theory it could fit in with this thing, in practice it didn't because the government is basically paying 100%, actually more than 100% when you include all the financing costs and everything.
Speaker: So it's really not a project that the government should have done, to be honest.
Speaker: That's a long and difficult and different conversation.
Speaker: And then the third thing is, are there projects that just simply cannot be viable on a sort of private sector basis?
Speaker: So rural roads is one.
Speaker: I'm a very strong advocate of rural roads.
Speaker: There's a lot of research that shows that if you develop roads and if people can get from their villages to the nearest town within six hours or whatever the number is, it improves economic opportunity, it improves educational opportunities, basically has a high return.
Speaker: Sadly, rural roads are not sexy.
Speaker: But, you know, in terms of bang for your government buck, they're quite high.
Speaker: And those are the things that you should be focusing your money on.
Speaker: So that's one lens.
Speaker: The second lens is really around bottlenecks.
Speaker: And sort of about 25, 30 years ago, when I was in business school, we were made to read a book called The Goal.
Speaker: And The Goal was really a book about actually operational management.
Speaker: But the message, which I still remember so many years ago,
Speaker: is that you really need to identify where your bottlenecks are and put most of your resources into removing those bottlenecks before you go to other things.
Speaker: So again, the example I gave of the Niger bridge in Onicha versus building a bridge in Lokoja
Speaker: You have a bottleneck in Onitsha, you know, it's taking people seven, eight hours to get across whatever it is, 300 meters of water.
Speaker: You know, putting another bridge there is going to relieve that bottleneck and open things up.
Speaker: So you're going to get much more leverage for your investment there than you will get, you know, building another bridge in Okoja where, you know, people are just freely driving over the exit.
Speaker: So I think if you use those two lenses to filter all the projects, and I mean, you know, many years ago, I was involved on some government committee around sort of prioritizing infrastructure projects.
Speaker: And I tell you, you know, there are a million of them floating around.
Speaker: And this sort of filter, double filter, I think would really help in narrowing down those that the government should be thinking about and also putting its resources in.
Speaker: Yeah, I know we've talked a lot about infrastructure, but you're more than just Mr. Infrastructure.
Speaker: You're a polymath.
Speaker: So what, in your opinion, do you think the next president of Nigeria, whoever that is, what are the things that would be on your list of priorities for that person to seriously look at and take urgent action?
Speaker: So I look at it like this, right?
Speaker: So if you are a new president, the first thing you need to do are the toughest things.
Speaker: Because especially those tough things that are likely to be painful initially, but then to bring in rewards later on.
Speaker: And unfortunately, a lot of things in terms of, you know, improving the economy, you know, the pain comes first and the reward comes later on.
Speaker: It's a bit like, I don't know, trying to lose weight, you know, you have to not eat.
Speaker: and exercise first and you have all that pain and then later on you lose weight, your blood pressure goes down, you feel healthier, etc.
Speaker: But you have to go through the pain first before you get the benefits.
Speaker: So it is.
Speaker: So I would look at, you know, what are the most painful things that, you know, need to be done.
Speaker: Now, a lot of these, there's nothing going to be super new and super different.
Speaker: A lot of these are like devaluing the exchange rate.
Speaker: I mean, you know, there's a question mark about the president and the CBN and independence and whether the president can do this.
Speaker: But that's a number one priority.
Speaker: And not just devaluing it, but in my view, floating it.
Speaker: A lot of people are nervous about the idea of floating the exchange rate.
Speaker: But, you know, just devaluing the exchange rate without having a mechanism that will allow it to adjust in future.
Speaker: I think, you know, is one of the reasons why we have a lot of pain when we devalue, but then we don't get all the benefits and five years later we're having more pain because, you know, things have gotten out of skew and we have to devalue again.
Speaker: So that's one.
Speaker: Removing the fuel subsidies is the second one.
Speaker: The third one is increasing taxation.
Speaker: Again, this is going to be highly unpopular.
Speaker: But, you know, Nigeria's tax to GDP is one of the lowest in the world.
Speaker: I think it increased from 6% to about 7%.
Speaker: Now, Nigeria's tax to GDP ratio is 6%.
Speaker: It's one of the lowest in the world.
Speaker: As I said, this is very unpopular.
Speaker: But, you know, according to a number of studies, you actually need 10 to 12% to be able to operate a functioning government.
Speaker: And, you know, we're well below that.
Speaker: So a lot of the things that we are asking for the government, and actually, if you look at government spending, and I know a lot of government spending is wasteful.
Speaker: So I'm not talking about whether the actual dollars that have been spent are being spent well or not.
Speaker: As you would have heard from a lot of my points I've made, I think a lot of them are not being spent.
Speaker: But the actual absolute amount of money that we're spending isn't really that high.
Speaker: Again, because the money that we're getting is low.
Speaker: So we do need to increase taxes.
Speaker: Now, there are two or three problems with this.
Speaker: One is, you know, obviously that a lot of people believe, I think with justification, that taxes are spent, you know, government money is spent wastefully.
Speaker: The second point is also, and this is one of the points I'm going to address, is
Speaker: is that currently the tax burden is on a very narrow proportion of the population.
Speaker: And therefore, you know, those people who are within that tax burden are paying a lot of taxes.
Speaker: And then the third point is that a lot of people are paying quote-unquote unofficial taxes that never get to the government, you know, therefore aren't part of the statistics, but people are paying them.
Speaker: So the thing they need to think about is one, how to spread those taxes more widely.
Speaker: I mean, there's a huge informal economy in Nigeria, and we have to think about how to tax the informal economy as much as the formal economy.
Speaker: It can't be the sort of top 1000 companies and 100,000 people who are earning salaries that are paying all the taxes.
Speaker: It has to be spread more widely.
Speaker: Obviously, and maybe this is a hard ask, but the government also needs to put in steps things that demonstrate to the citizenry that their money isn't being fritted away or stolen.
Speaker: And then the final point, and actually this comes to the next thing that the government needs to focus on, is that they need to impose themselves as a government
Speaker: and stop these or at least reduce considerably these informal taxes so that people are not sort of parting with their money to thugs and agbiros and people like that, which is obviously not helping to push the country forward.
Speaker: So that's a very difficult thing, but that's something that does need to be addressed if Nigeria is to progress.
Speaker: And I know it's a very unpopular thing to say, but I believe it's the truth.
Speaker: And then the third point is around security.
Speaker: Again, security has deteriorated over the last eight years.
Speaker: The Boko Haram issue has improved from where it was, I think, when this government took over.
Speaker: But unfortunately, low levels in security.
Speaker: Well, when I say low level, I mean, you know, it's not a shooting war, but, you know, people being able to travel even within cities, not to mention across the country.
Speaker: A number of the companies I've been involved in have had people kidnapped or gone missing over the last year.
Speaker: There's a company I know which actually is trying to start a steel plant, which, by the way, would produce more steel than Ajakuta was supposed to produce, but is having problems.
Speaker: More than zero.
Speaker: No, more than it was supposed to produce, not more than it has produced, which obviously more than zero is not hard to beat.
Speaker: And, you know, this thing is going to cost a fraction of the price of Ajakuta, literally.
Speaker: But they've had difficulty starting up because they can't get the foreign people to come from abroad to actually help to commission the plant properly because of where it's located.
Speaker: I don't want to say too much about where it's located for security reasons.
Speaker: So getting a grip on security, and this is from the low-level agueros in the motor park, quote-unquote, taxing people through to the sort of bigger security issues.
Speaker: The third one, or the fourth one, I've lost count, which is more of a longer-term thing, covers a number of these issues I mentioned, is really to think about how to increase state capacity.
Speaker: I've been sort of watching the country over the last couple of decades, and the state capacity, the ability of the state to do things, the ability of us to make the right decisions has actually been getting progressively weaker.
Speaker: I mean, it's just...
Speaker: It's hard to come up with a statistic to demonstrate this, but, you know, I think things that we used to take for granted, I mean, you know, being able to hop in a car and drive from here to Abucha.
Speaker: In 2002, that when I first came back to Nigeria, that was something that one could do relatively easily.
Speaker: You know, it was more about whether you wanted to sit in your car for 10 hours driving there versus taking a flight rather than, you know,
Speaker: considerations about whether you'd be kidnapped or what have you.
Speaker: That's just one example.
Speaker: But I think, you know, state capacity has been allowed to weaken considerably.
Speaker: I would make is around education.
Speaker: Ultimately, we can only get wealthier and progress as a country if each individual citizen becomes more productive as a person.
Speaker: And the only way I believe to make citizens more productive is
Speaker: by educating them.
Speaker: So that's how individual people have leverage to use other resources and to be as productive as possible.
Speaker: For example, if you're talking about somebody growing maize up in Nassarau State or something, if that person is illiterate, how do you teach them to use fertilizer better?
Speaker: How do they understand the underlying concepts so that they know how to use it?
Speaker: How do you teach them about irrigation?
Speaker: How do you teach them about hygiene so they're not falling ill all the time or they're not succumbing to malaria?
Speaker: Again, I think Charlie Robertson in his book, The Time Travelling Economist, makes this point in a more macro way and comes with statistics.
Speaker: So I think, you know, the problem with education is that it's
Speaker: It's an investment, but you do it today and you get the reward 10, 20 years in the future.
Speaker: So it's very hard for a government to really want to do that if they're just looking at some shiny thing to show to people so they get elected or reelected in four years' time.
Speaker: But to me, I think those are the other areas that they need to look at and how they need to think about things.
Speaker: I'm so glad you touched upon education.
Speaker: Because I remember that's kind of what I was thinking when we were talking about the second Niger bridge, which is like, yes, you're sharing five hours of a journey for someone.
Speaker: But in Nigeria, we have the largest population, not by proportion, just by absolute number of out of school children in the world.
Speaker: So, you know, always the question.
Speaker: And I want to thank you so much for your time today.
Speaker: And Toby and Ideas on Trapped, who have powered this entire series, I want to thank you for your fantastic effort.
Speaker: This is our final episode, so I wanted to give a valedictory thanks to everyone who has agreed to come on and talk to us about policy issues.
Speaker: But should the government really be guaranteeing or building infrastructure at all, considering the fact that the crucial part of the country, let's say the youth, the children, the people, are not even in schools?
Speaker: What would you say as to, apart from, let's say, national defense and internal security, why should the government not just focus on educating its citizens?
Speaker: Because, you know, dollar revenues have collapsed.
Speaker: If we're going to have a future, we need the populace with the right skills.
Speaker: That's a very good and difficult question to answer.
Speaker: In this case, when you're talking about education, one is talking about government's
Speaker: plural because you're talking about state governments and the federal government and primary and secondary education which are in my view much more important than tertiary education although a lot of people listening to this podcast may disagree with that
Speaker: But no one who has been on this podcast is pleased with that.
Speaker: Yeah.
Speaker: Those, unfortunately, in a way, fall under state governments.
Speaker: And state governments, their capacity is even lower.
Speaker: Capacity and probably willingness is even lower than the federal government.
Speaker: If there's one thing that is the most important thing for the long-term success of Nigeria, it's that.
Speaker: But on the other hand, just to build on why the government should focus on other things as well, it's also been shown, for example, that children in school, if they're sort of malnourished, don't learn, don't go to school, etc.,
Speaker: So, you know, that then means that you have to start thinking about how do you feed these guys?
Speaker: Again, one of the reasons why our life expectancy is so low at 53 years or so, which is 10 years younger than Ghana, which is on a lower income level than we are, is because so many of our kids die in their early years.
Speaker: A lot of them are dying from malaria, for example.
Speaker: So, you know, that means that health care
Speaker: food to people, you have to have transportation.
Speaker: In order to deliver healthcare, you need also transportation, probably telecommunications to communicate with people, etc., etc.
Speaker: You need electricity to power a lot of these things.
Speaker: Again, if you're in a school,
Speaker: It's nice for the kids to have, you know, electric lights so they can read their books when it starts to get a bit dark, etc.
Speaker: So, you know, even if you use education as the tip of the spear and the sort of shining lights that you're, you know, running all your policies towards, you know, I come from a family that very strongly believes in education, as I think you know.
Speaker: But even if you use that as your guiding light, you will find that in order to deliver that, you will need to do other things.
Speaker: And, you know, again, how you prioritize and how you think.
Speaker: do need to prioritize a lot of these social things like education, like health care, like actually even just public enlightenment, which we don't seem to do very much anymore in order to build a society that works and functions.
Speaker: Thank you very much.
Speaker: It's been a pleasure to have you.
Speaker: And I think this is the best way to close out this series.
Speaker: Thank you so much.
Speaker: Thank you so much.
Speaker: You've been so enlightening.
Speaker: Thank you very much for that and thank you both for this series.
