The prices of crude oil, the economy’s mainstay, have crashed in the global market, fueling calls for diversification. Mr. Tim Newbold, Managing Director, Africapractice, a strategic communications and advisory firm, urges the country to try mining. Defending naira with foreign reserves, he says, is an artificial measure that will not stand the test of time. The existing income inequality, he tells LUCAS AJANAKU in this interview, is because the wealth created is held by a small group.
There have been calls on the Federal Government to diversify the nation’s revenue base. Which sector(s) of the economy do you think could displace crude oil as cash cow?
It depends on what you mean by cash cow. Crude oil is only a cash cow for foreign exchange (forex), but the economy is relatively well diversified in terms of the contribution that other sectors make to the Gross Domestic Product (GDP). The challenge with crude oil is that it delivers such a high percentage of forex, and that Nigeria is so reliant on forex to fund its dollar denominated imports. That any fluctuation in price has structural implications, particularly on the currency, which then has a downstream effect on other industries as well.
Crude oil itself could become a much more effective contributor to the GDP, and I think we’re beginning to see that happening, with momentum growing behind attempts by the largest business people in the country to build out a mid-stream industry of scale.
All you have to do is deepen the local market for Nigeria’s upstream products to retain additional value and reduce exposure to external shocks.
Equally, Nigeria needs to diversify its exports, and one of the key areas that have been under-exploited for too long is mining. Perhaps now, under a new government, it will be prioritised. At the same time, more could be done in traditional areas of strength, which are well known. Nigeria exports a significant amount of leather for example, but largely in its raw form, when the real value on international markets is for the finished goods.
Nigeria emerged Africa’s biggest economy not too long ago. The growth in the economy has neither translated to improved standard of living for the citizens nor created jobs. Where are the disconnections?
It’s simply a function of income inequality. Much of the wealth that has been created is held within a small percentage of the population, while the federal and state governments have not delivered when it comes to wealth re-distribution and enabling policies that drive employment creation and so, a level of systemic growth. If Nigeria has a high population growth rate, and a high level of inflation, if GDP growth is narrow and below the rate of inflation, it is inevitable that large segments of society will not get richer.
In general terms, what advice would you give President Muhammadu Buhari to move the economy forward?
It is clear that there is work to do if Nigeria’s long held economic potential is to be realised. We think he will start by simply trying to make the system work more efficiently. Existing structural impediments within the oil and gas sector and other key sectors can be addressed quickly, and without necessarily requiring legislation. Reducing the leakages should have a relatively significant effect on the government’s finances, and so create greater stability. Beyond that though, it is clear that an enabling environment needs to be improved, and that includes looking at everything from basic infrastructure, from roads to power supply that have always created a ‘drag’ on Nigeria’s economic growth. The reality is that anything less than five per cent at a bare minimum is needed for any form of real growth to take place. This year will probably witness significantly below that, so how the government structures the 2016 budget, and intervenes in priority sectors, and its macro-economic management capabilities will be particularly important. At the moment, it seems like the economy is in a holding pattern to ‘protect’ what is already in place. We now need to understand what the economic future looks like under the new administration.
The value of naira is going down. Attempts by CBN to defend it with foreign reserves have not yielded fruits. Some people are even calling for further devaluation of the naira. Do you subscribe to this?
The reality is that currencies should trade at their true value, which is a function of the strength of their underlying economy to compete internationally. The ultimate solution must be to restructure the economy, and while the short term intervention is in place now it may hold the naira at a desired rate, it will not solve the underlying problem.
There is significant offshore capital lined up and interested in Nigeria today, but investors are unsure what the naira’s future is. A $1 investment today gives you circa N199, but if invested following a devaluation, might worth N230 or even more, so investors are looking for the discount that inevitably comes with a potential near term devaluation, and are equally nervous of making the wrong decision, and seeing value deteriorate immediately post investment by 15 per cent or more. They need some level of clarity, that’s the key point. There is too much uncertainty in the market at the moment and the general belief is that the current naira defence can only be short term.
Ultimately, Nigeria needs to structurally evolve in a way that reduces its exposure to external shocks and that means internal markets, capacity and production, all of which are driven by infrastructural development and improved efficiency.
The IT sector, especially business process outsourcing (BPO), is said to hold so much promises for job creation and economic prosperity. What steps would you recommend for policy makers to be able to tap into this?
Business process outsourcing is a function of cheap, skilled labour and good infrastructure. You have to be able to compete on cost, and capability. Nigeria clearly could play a role here, but input costs remain high when compared with other markets (power and connectivity in particular), so Nigeria is becoming a logical place for this to happen because of inflating costs in other markets, not improving conditions in Nigeria itself necessarily.
The IT sector as a whole is one of the most exciting sectors. There is, at the moment, and I think the combination of ICT and telecoms have been growing at over 20 per cent per annum for some time. That’s real growth. But regulators are going to have to think about the future, and quickly. This sector is fast moving, and driving change and evolution in other sectors that the regulatory environment needs to be a few steps ahead, and today it’s probably too far behind. We’re already seeing this around the convergence between e-commerce, telecoms, internet service providers (ISPs). Banking and payments will happen equally quickly elsewhere. Nigeria has a relatively unique opportunity to get ahead of the game here, and it is something that should be the first thing on the desk of the next ComTech Minister, presuming that position remains.
Concerning the choice of a minister to lead the ComTech Ministry, what do you think should be taken into consideration?
Technical capability and understanding are certainly critical. This is such a fast moving and broad space that practical experience is essential, but equally important is the ability to translate technical knowledge into regulatory and legislative structures. Those are the two skill sets that I think would secure the respect of the industry, and create a strong base for structural improvements.
Aside infrastructure, what peculiar challenge(s) do you face in the sector of the economy you operate?
The prioritisation of soft risk into business models is one. Many emerging businesses in Nigeria face many challenges, and often prioritise the hard, immediate risks, over the softer, longer term risks that we focus on. There’s also very much a relationship based belief that individual relationships can ensure stability, whereas we take a much more structured approach. Evolving thinking towards the clear commercial value in structuring stakeholder relationships and engagements more strategically is our core business challenge, but it’s one we are winning.
What is your assessment of the telecoms sector?
Telecoms, like much of Nigeria’s challenge, is about infrastructure. We’re approaching voice saturation from a commercial perspective, so the telcos’ margins are probably deteriorating. That’s why there’s a major focus on mobile data, where margins remain high, but the more data you push through existing infrastructure, the higher the potential for poor quality voice systems. At the moment, it’s a balancing act, and all the telco’s are going to need considerably greater infrastructure over the coming years to continue the current pace of growth in data.
Telecoms companies are also diversifying from their core business, which is another sign of revenue saturation in voice. If you look at telecoms companies’ attempts to get involved in mobile money, insurance, and e-commerce where MTN is heavily involved with Jumia. It is an attempt to shore up dwindling revenue.
Don’t you think the telcos ought to have overcome the teething problems they met on the ground more than 12 years after liberalisation?
Of course, the telecoms sector needs to maintain the pace of infrastructure growth with the pace of consumer adoption, and I think many people underestimated the pace of adoption that would take place in Nigeria. Now, as new technology evolves extremely quickly, smartphones become more and more prevalent and demand for bandwidth increases exponen-tially, infrastructure investment is essential once again. The industry needs to begin to prioritise long term infrastructure development to be positioned to deliver in five years over and above short term profitability. Someone, who takes that longer term view, which is probably easier for a privately held company more than a publicly listed one, will win the race, in our view.
Who are africapractice and what do they do?
We are a strategy and risk advisory firm. We provide full cycle advisory support for international companies looking to invest on the continent, expand their operations, or mitigate existing risk. We also provide the same support for emerging African businesses keen to expand and grow domestically, re-position themselves, invest in new markets or engage internationally. Our services range from political risk and business intelligence, to strategy and positioning, market entry support and ultimately support with communications and stakeholder engagement, which makes us relatively unique. Most risk advisory firms won’t support implementation, while most engagement focused firms won’t have the strategy, or risk and intelligence capabilities.
What does risk and reputation consulting mean?
Traditional risk advisors focus on the harder elements of risk, from security to financial and operational. We take a different approach. We believe you have to consider the softer issues that can have a fundamental impact on the success of your project, or company. What people think about you, and the objectives you have can be the difference between securing a licence, closing a transaction or achieving a product sale. We assess reputational risk, using our proprietary tools to identify areas of risk as well as opportunity, and build positioning and engagement strategies to mitigate the more significant risks, and achieve core project, or corporate objectives.
How does it differ from management consultancy, risk consultancy or PR?
It incorporates elements of risk consultancy and corporate communications, but draws most of its origins from management, and strategy consultancy. We apply similar processes to the big management consultancies, and our consulting models are similar, but we apply them specifically around our core focus area of risk and reputation. We also believe in knowing our clients, and their issues. That’s why intelligence is a core capability. By integrating the ability to gather and analyse intelligence, we ensure the in house capability to advise at the highest level.
How long have you been in the advisory business in Nigeria?
Africapractice has been operating in Nigeria since early 2006. So, we’re fast approaching our 10th anniversary. We started working largely with the big multinationals with investments here, but over the years have established a far more indigenous client base as entrepreneurs and businesses from multiple sectors have established themselves.
During the election, we saw regular commentary from your consultants on the process. Why was that?
We believe that understanding the political economy of a market is one of the key soft issues to consider when looking at risk and reputation. Relationships, power balances and political allegiances play a major role in policy direction, regulation and the general macro-economic environment. So, we always pay particular attention when elections are approaching. Not just in Nigeria, but in other African countries as well. We had a similar structure in place for the South African elections and will do so for elections in Guinea and Ghana next year.
How do you approach client mandates? What makes Africa-practice different?
Every client mandate starts in the same place. What’s the challenge and so what are the objectives? Generally, we want to know about an organisation’s strategy, not just for communications, but as a whole. We need to understand where you are going in order to help you get there.
How have the economic condition, post-election and falling oil prices affected you?
Election cycles are interesting times for us. While the economy has slowed down, and key sectors are under pressure, we also see significant demand for our analysis services to understand the emerging opportunities that are a by-product of political transition. Equally, many of our clients have taken the opportunity to reflect and stategise, which is a natural entry point for our services. We expect the next year to be interesting as well. Once there is some clarity on the stability of the currency and foreign direct investment (FDI) investors can price opportunities accordingly. We think there will be a significant amount of market entry activity, as well as M&A and a potential return to market listings in 2016. All of these things create opportunity for us.
Who are your competitors?
There aren’t many firms that do everything we do. So our competition is more vertical than horizontal. In the risk and intelligence space, we do things that the core risk consultancies like Control Risks, Kroll, Aegis and others do. In the strategy space there are cross overs with Mckinsey, Bain and the big four (KPMG, Accenture, Deloitte and E&Y), while in the engagement, or communications space, the big global agencies like Hill and Knowlton, Portland, Weber Shandwick, Brunswick and Bell Pottinger are competing alongside established local communication agencies.
In terms of services, what are your core offerings?
We start with risk and opportunity identification, political risk analysis and market and business intelligence. This makes up the intelligence and analysis pillar of our business. We then move into the strategy pillar, which encompasses strategy development, positioning strategy and risk mitigation planning, before we move into the engagement pillar, which is where we activate. We have the capacity to deliver social media, media relations, internal communications, public affairs and government relations, investor relations and financial communications.
Underpinning these core services are proprietary tools that we’ve developed in house over the last five years, from our monitor + intelligence service, to our in-gauge interactive database and analysis tool and our bespoke consulting model.
