Mr. Michael Andrew, Global Chairman, KPMG International, a renowned audit, financial and tax advisory firm, has concluded his maiden visit to the country. Before he left Nigeria, Andrew, who has spent about 30 years at KPMG, with a tour of duty in Asia Pacific and Australia, spoke on power privatisation; what foreign investors are looking for; the preferred investment destinations – Mexico, Indonesia, Nigeria, Turkey – and the Association of South East Asian Nations (ASEAN). Nigeria, he says, must diversify its economy and improve security as well as infrastructure, adding that there is a negative global perception about Nigeria.
Group Business Editor AYODELE AMINU was there.
What is your perception about the global economy?
I will like to start from the global environment of banking and relate that to Nigeria. I think this is the first time in a number of years that we are not facing any crisis moment. The mood in the international business community at the moment is that we are probably going to get back into a growth pattern in the latter half of this year and that has largely driven the soft-landing in China and the regeneration of Chinese growth. The very fact that we are seeing a re-industrialisation of the United States, where the existence of shale gas is moving tremendous investment in manufacturing back into the US; we also seeing stability in Europe; there is no immediate risk of a currency implosion and the social and political risk that we sure in the Middle East are probably more manageable now than they have ever been. So, businesses are actually looking to where they can find growth and how they can diversify their business model to take advantage of the new opportunities that the emerging world presents.
Interestingly, because of the lack of confidence in the global market at the moment, there is a huge amount of cash, which will be moved into several asset classes. Initially, they are going to be moved into the stock market, afterwards they will move into the property market, and then they will move into real business investments in economies such as Nigeria. So, everyone is watching where this cash goes and the real question is what are the factors that will drive this growth? People are looking for a growing middle class, predictable regulatory environment and stable and transparent corporate governance economies. In the last few weeks, I have been to Mexico, Indonesia, Nigeria and Turkey and their similarities are remarkable. The countries are attracting a lot of interest. In the last few years we have talked about BRICS (Brazil, Russia, India and China) as the area of focus. But if you talk to international investors, their view will be that the BRICS with the exception of China has been quite disappointing. They have found it difficult to invest in these countries (Brazil, Russia and India), their regulatory environment is unpredictable and investors have not been able to get return on their investments. People now talk about the MINT (Mexico, Indonesia, Nigeria and Turkey). They are the four countries that the international investors really focus on for growth and investment. The offers are intense and we are getting a huge amount of enquiries about these countries. People want to know how to do business in these countries, how to access the markets and how to take advantage of the long-term growth that is coming. The markets are putting pressure on the CEOs to try and find new markets where they can find growth, particularly in consumer markets, financial services, food and energy in these emerging economies. So, investors are actually studying the market entry plans for these countries. These are the macro trends that we are actually seeing in economies around the world. For companies such as KPMG, we are focused on making sure that we participate in these high growth markets. We have to make sure we have the right expertise and services that are actually required by international and local investors who are starting to look beyond their country borders. One thing that interests me about Nigeria is the amount of pan-African investments that I have seen in the country that are based outside Nigeria. We have seen also a lot of Indian investments where our business models have worked very well.
Most times when global CEOs go into a market, they don’t just give a pat on the back to 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 the engine of growth of the global economy for the 30 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. That is a smart business strategy for us to employ. We have been here (in Africa) telling international investors about project Africa and that we can actually tap skills, talents 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 areas 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 (Africa) are employed 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 and energy (downstream). We will also see how we can assist in converting petrochemicals into fertiliser for agriculture. We are also looking 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, does it pose any challenge to the international community or will the current growth continue?
Part of the growth of any economy entails that you have to have access to capital. You are going to be constrained 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.
What is your opinion on the power sector reform in Nigeria, particularly the recent sale of the distribution companies (DICOS) and generation companies (GENCOS)?
Philosophically and fundamentally, I am in support of a compressed 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 such as Nigeria that the private sector is much more efficient and effective than the public sector. So, whatever we can do to privatise the government’s assets is okay by me. I 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. From 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 an 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. What is your take on this?
I will tell you this without going into why this task force is being disbanded. We all know how the government works, but I have been in functions and interacted with very senior people in the government. The conclusion is that deregulation and privatisation are the way forward. The government has no business in business, that is the reality. 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 thrust 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 megawatts; there is a company that has just been set up in Dubai, where they are getting coal for aluminum smelting from Australia. That company alone requires 6,000 megawatts for operation. Here we are talking about 4,000 megawatts for the entire country. It is time to move forward. Let’s face it, there will be vested interest from the 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 the pension and 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 Small and Medium Enterprises (SMEs), that should be the focus. Let’s say to the government – deliver on your promise – deliver the deliverables in the energy sector and let us move ahead. The government cannot deliver, they have been there for so many years, let’s try something else.
Given what you must have read about Nigeria and what you have seen, can you juxtapose these and tell us your candid opinion about the country?
What I see is a very vibrant economy, very good class and sophisticated business people. I see a very large population that is very nationalistic and 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 Nigeria’s 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 strikes 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. But having come from India, Indonesia and Mexico, I can tell you that you are at the same level, these countries are also fighting for investments in these critical sectors.
Looking at Nigeria, which earns 90 per cent of its revenue from oil and the US that was a major buyer of Nigeria’s oil developing its own energy, very soon the US will become energy self sufficient. Europe is also facing sovereign debt crisis, if you were to advice 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 shale 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 costs 15 times more than the shale gas and if you get the US to reduce its import reliance and become an exporter, that changes the focus on oil in the world economy. But this will take a long time to happen. There is going to be environmental and safety issues and the US needs to satisfy its local market before it starts to look at the global economy. But over the long-term when shale gas is efficiently exploited around the world, you would see a long-term adjustment in the oil price downwards. So, my advice is for Nigeria to diversify her economy and to make she does not put her risk on any particular commodity and use the competitive cost advantage of other economies to drive other sectors of the economy. You do 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.
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 the government being a top player, with the government buying 30 aircraft and saying: “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. 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. If the government goes back there that will not make it work, if they set up a company in the next 10 years, it is going to fail. What the government has to do is to put incentives 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.
The world aviation industry will be dominated by the Middle East airlines. We know the advantage that they have, regional hub, access to finance and new fleet of aircraft. It is better to leverage on their experience to help your local industry and setting up new companies, which may end up a bad business model.
In all your interventions you keep saying vested interest. How do we deal with these 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 individualS wherever we find ourselves. As journalists you have a responsibility to educate people responsibly. 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?
Even the private sector companies in the aviation sector are not effective. What is the solution?
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.
