Home Economy Diversify economy base, KPMG boss tells Nigeria

Diversify economy base, KPMG boss tells Nigeria

by Business News Report

By Omoh Gabriel

Recently the Global Chairman KPMG Mr Andrew Michael was on a working visit to Nigeria. He had an interactive session with some Nigerian journalist at the KPMG head office in Victoria Island. He was supported by Mr Seyi Bickersteth senior partner KPMG Nigeria and Joseph Tegbe. Mr Andrew spoke on several issues and the prospect for Nigeria in the global economy.

Let me take you on KPMG’s impression of Nigeria. Most times when global CEOs go into a market they don’t just give a pat on the back of those managing these economies domestically. What is the biggest ambition that has brought you to this market as a global CEO?

Well, it is probably a broader perspective on Africa. We see Africa as its time has come it is going to be the engine of growth of the global economy for the next twenty to thirty years. We actually regard the Nigeria practice as the best practice in Africa so if we can replicate what happens here and leverage the skills that we have across broader Africa then that is a smart business strategy for us to employ. We have been here telling international investors about project Africa and that we can actually tap skills and talent and business models here into other markets. So what we are doing is more broadly across Africa.

People see Africa as the engine of growth and agriculture is one of the major area of focus because they say Africa is going to provide food for the world so are you looking at investing in agriculture?
Certainly, I think 43 per cent of people here are employ in the agricultural sector and there is going to be a tremendous capacity to be more efficient and productive over time. It is one area we are looking at. We are also looking at consumer markets, financial services, energy (downstream), we will also see how we can assist in converting petrochemicals into fertilizer for agriculture. Then you start to look at manufacturing because if you have a fit and competitive energy base then you have the ability to start to utilise the substantial population that you have here. Agriculture is just a small part of what we are looking at. We are looking much more broadly at the services and the financial markets in particular.

You just mentioned the financial system, if you look at the stock market that is just coming up now, does it pose any challenge to the international world or will the current growth continue?

I think part of the growth of any economy is that you have to have access to capital. You are going to be constraint locally if your market is not liquid or if there is no efficient governance and capacity. The pleasing thing today is that in the international markets, there is a great appetite for companies with good exposure in the high growth economies. The ability to be able to list in London and Singapore for example show that a stock is attractive. Nigerian companies must convince investors in other exchanges that they have the governance and capacity to attract investments.

Seyi cuts in Let me just say something else too I think part of the problem that we had during the last crash was that we had too many foreign investors in the local market and during the global financial crisis a lot of them pulled out to be able to recover their investments in their country. AS Michael explained we have seen a much stronger economy now, so people are feeling much more confident, there isn’t a need to cover back losses. We have seen them coming back as their economies recover and they are investing again. Also align to that is that we have now a capital market which is transparent, accountable, which retail and institutional investors can believe in. I think the reform that we have made in our capital market in the last two to three years is beginning to have effect on the market. I think the answer to your question is that if those things can remain we will see a much more better market much more than it did the other time. But remember that in the capital market we have boom and bust periods. But I am sure we will not see the bubble bust like we have the other time because quoted companies now have strong fundamentals.

In addition to what he has said, the reform you have seen in your stock market has ensured increased corporate governance practices by local companies. Again that will also shield these companies from the kind of shocks that we experience the other time.

Joseph Tegbe cuts in. I think part of the challenges we have had globally is the lack of US investment into China. This is because we had this Chinese back door listing issue where you have many Chinese companies come to the US market and these companies had very low governance structure and the monies they raised were lost by fraud, a situation that led to US investors refusing to invest in China. So investors are looking for economies with the lowest risk of poor governance and transparency and integrity.

I am directing this question to Mr Andrew what is your opinion on the power sector reform in Nigeria, particularly the recent sale of the DICOS and GENCOS?

Seyi My own opinion is this, philosophically and fundamentally, I am for a compression of the public sector. So anything that compresses the public sector and expands the private sector is what I like to see in Nigeria. I think that at the end of the day our salvation is going to lay in that direction. You can say what you want to say about the private sector, but we know especially with a country like Nigeria that the private sector is much more efficient and effective than the public sector. So whatever we can do to privative government assets is okay by me. I for sure welcome the sale of the power assets. What we have to ensure is that we sell these assets at the right valuation, and that the process for doing it is very transparent.

For what I understand the process is being handled by someone I have a lot of respect for-Mr. Atedo Peterside. The process has been very transparent, you are not going to satisfy everybody in this particular deal my own opinion is that we move forward. We need to move forward because if we don’t we are going to have a real problem. It has been shown quite clearly that the public sector cannot deliver the amount of megawatt that we need to form and effective industrial base in this country. We need the resources and the expertise of the private sector. So on overall bases I will like to say it’s something that I welcome, the process has been fair, valuation from what I understand has been fair. Let’s move on and deliver the power objective that we say we want to deliver.

Still on the power sector reform, there is this impression that the Federal Government set up a body which did a very fantastic job. It disbanded and put it up again even with the new power minister and the private sector is uncomfortable.

I will tell you this without going into why this taskforce is been disbanded. We all know how government work, but I have been in functions and interacted with very senior people in government. The conclusion is that deregulation and privatisation is the way forward. Government has no business in business that is the reality. If we look at it we have priority sectors such as education and health sectors which are major sectors for this country.

The kind of Gross Domestic Product (GDP) contribution from those sectors is very minimal so the trust of the reforms is that we change the way we use to do business. The key thing is that proper due diligence has been done, and liabilities are properly accounted for because all these agitations are coming from unions and pensioners. When this is done and the liabilities are settled properly, there will be no problem. The reality is that we are generating just 4, 000 megawatt, there is a company that is just been set up in Dubai, where they are getting Coal for aluminium smelting from Australia, that company alone requires 6,000 megawatts for operation. Here we are talking about 4,000 megawatt for the entire country.

It is time to move forward. Let’s face it, there will be vested interest from government, public and private sectors that will not want us to go ahead with the reforms in the power sector. These vested interests are very strong. We have seen them in pension and the petroleum subsidy saga. I think the most important thing for us as a nation is to focus on the goal we want to achieve for the common good. What is good for all of us is to have enough power so that we can generate the middle class that we want to generate and develop the SMEs that should be the focus.
Let’s say to government deliver on your promise, deliver the deliverables in the energy sector and let us move ahead. Government cannot deliver, they have been there for so many years let’s try something else.

Mr. Andrew, given what you must have red about Nigeria and this is your first time of coming. Can you juxtapose what you have seen with what they have told you?
What I see is a very vibrant economy and a very good class and sophisticated business people. A see a very large population who are very nationalistic and very focused on the direction of the country, I see unity, and I see huge potential having studied the amount of oil reserves, the agricultural sector and the stability in the banking system and the entrepreneurial ability of some of your large companies.

What I have seen so far is very positive. I think you have a brand image that is still negative, there is still this global perception about security and corruption issues, which are largely been addressed. The reality is peoples thinking out there is very different from what is happening here. What strike me also is the need for investment in infrastructure and some other things that need to be put in place. There is a need to invest in rail, sea ports and airports to attract more international investors. From day one I sure the need for internationally standard infrastructures, But having come from India, Indonesia and Mexico, I can tell you that you are at the same level, they are also fighting for investments in these critical sectors.

Mr. Andrew looking at Nigeria which earns 90 per cent of its revenue from oil and the US which was a major buyer of Nigeria’s oil is developing its own energy, very soon it will the energy self sufficient and Europe is facing sovereign debt crisis, if you were to advise Nigeria what will you tell our government to do?

Let me cover the energy sector first. I think the very disruptive force in the energy sector now is the discovery of share gas in the United States, which is basically providing the US with a huge competitive advantage over the rest of the world because it now can produce gas for $4 while in the rest of the world it is $15. Oil cost 15 times more than the shale gas and if you get the US to reduce its import reliance and became an exporter, that change the focus on oil in the world economy. But this will take a long time to happen. There is going to be environmental issues, safety and the US needed to satisfy its local market before it start to look at the global economy. But over the long term when shale gas is efficiently exploited around the world, you can see a long term adjustment in the oil price downwards. So my advice is to make sure you diversify the economy and to make sure you do not actually put your risk on any particular commodity and use the competitive cost advantage of other economies to drive other sectors of your economy. You this by making sure that other sectors in your economy are competitive using the advantage you have to access to low cost and efficient amount of oil reserves.

Seyi cuts in My own advice is this you have a window of opportunity, it is not growing bigger it is narrowing you better make use of that opportunity to diversify the base of your economy. I have always had the opinion that if you take oil out of the equation we will be a much better country. What happen now is that some guys dig a hole in the ground and tell the Federal Government, you take 60 per cent and we will take 40 per cent and then everybody goes to Abuja and queue up and say where is my own allocation and then they go on and spend. It is not going to work that way. That is not the real world, the real world is to say develop your own economy, concentrate on your competitive advantage and develop your entire value chain. WE have people with sufficient energy and entrepreneurial skills to develop this country without the hang on of oil that we have now. Oil still will play an important part but use it to develop your infrastructure, educate your people and diversify your economy.

Government has virtually moved away from the airline business and the companies we have in that sector, locally and internationally have huge debt overhang. From your understanding of that sector, how can we salvage the situation there?

I can tell you that you are not going to solve the problems in aviation with government been a top player, with government buying 30 aircraft and say we are going to have Nigerian airways and so on. We have all gone through this before, when I was growing up I knew that we once had Nigerian Airways. We all knew what happened that that effort. What has to happen is that you have to empower and trust the private sector so that people can put their money there and make sure that it works. Richard Branson came and made an investment into Virgin Nigeria, the only thing he asked for was let me use MM1 as a regional hub and the Federal Government of Nigeria agreed to this, then we had a change in regime and vested interest decided to frustrate the agreement. They guy walked away and we handed the industry to people who do not have experience in that sector. What do you expect? The whole thing collapsed and we are in a situation where we are in now. Government going back there will not make it work, if they set up a company now in the next 10 years it is going to fail. What government has to do is to put incentive in place for people to go into the aviation industry, which is not an easy investment to do. They say if you are a billionaire and you want to be a millionaire, go into the aviation industry!

In all your interventions you keep saying vested interest, how do we deal with this interests as a consultant advising the government?

It is not only my responsibility it is the responsibility of all of us. If you look at the track record of KPMG for instance, you know what we did with pension, the issues that we raised as regards to pension and fuel subsidy. We have done our part not only as a firm but as individual wherever we find ourselves. As journalists you have a responsibility to educate people responsible. I respect a lot of you because of what you write in your columns. We need to clean up the judiciary and I am happy with what has happened in recent time in that area. What I am saying is that the fighting of the vested interest is the responsibility of all of us and you as journalists are also included. It is a battle that we can win if all of us say enough is enough. Just like Michael said, if you go to Indonesia and Malaysia they are facing the same problems. The key issue is how do we ask for accountability?

Let’s go back to the aviation sector. Even the private sector companies in the sector are not effective what is then the solution? Look we’ve got to have a regulator that is effective. Not the one that is on holiday all day. You must have a regulator that will say I am standing above the frail and I am going to insist on standards. But you and I know what has been happening in that industry. Back to what Andrew said the business model of operators in the aviation sector is flowed! I use to tell people to tell me they want to go into that sector that it will not work, to go international go for a low cost carrier model and stick to regional and domestic market because your are incapable of competing with international careers. For them it is an ego thing, they want to compete with the likes of Emirates, Itihad, Kattah Airways or even British Airlines. For your information even the big airlines in Europe are suffering.

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