Discussion paper by Engr. Mustafa Bello (FNSE), Executive Secretary/CEO, Nigerian Investment Promotion Commission (NIPC)

At The Perchstone & Graeys’ 6th Annual Law

Series24th May 2012

INTRODUCTION

UNDERSTANDING EMERGING MARKETS

THE POSITION OF NIGERIA

POLICY FRAMEWORK TO ATTRACT

INVESTMENT FOR ECONOMIES IN TRANSITION

POLICY OPTIONS FOR NIGERIA

CONCLUSION

There’s ongoing debate as to whether or not emerging market economies have really emerged.

It’s apparent, however, that many of the countries so classified are at different stages of economic development due to their different levels of competitiveness.

This provides the basis for lessons to be learnt amongst themselves while these economies are still struggling to emerge into developed economies.

“African economies must continue to develop economic environments that are based on productivity enhancements to better enable them to ensure solid future economic performance. This means keeping a clear focus on strengthening the institutional, physical, and human capital prerequisites for a strong and competitive private-sector-led development.” - WEF African Competitiveness Report – 2011

“The countries (Asian Tigers), in addition to economic liberalization, have used other policy instruments to expand Foreign Direct Investment (FDI) and attain higher economic growth. These include developing a strong production base; opening up of new investment areas; as well as designing and implementing sound macro-economic policies. They have also created a conducive climate and stable political and economic environment to attract foreign investments. These policy measures have enhanced the expansion of FDI in the countries, and led to their rapid growth and development.” -Stanley Fischer (2003)

The conceptualization of emerging market entails a multi-dimensional and multifaceted process that encompasses political, economic, social and cultural dimensions that have been variously explained in different terms and contexts.

The term was coined in 1981 by Antoine W. Van Agtmael of

the International Finance Corporation of the World Bank

Economies with low to middle per capita income that require significant foreign resources to carry on with their normal activities.

Constitute approximately 80% of the global population, and represent about 20% of the world's economies.

Countries that fall into this category, varying from very big to very small, are usually considered emerging because of their developments and reforms

There are as many groups as there are analysts in the attempt to categorize EME (See Slides 8-12)

Characterized as transitional - in the process of moving from a closed economy to an open market economy while building accountability within the system.

One key characteristic is an increase in both local and foreign investment (portfolio and direct).

Characterized as highly risky economies to invest in, but with promises of great returns if investment is successful

Strong and leading emerging market economies such as China, Brazil, India are changing the negative perception of EME as having strong (but unrealized) prospects and being somewhat peripheral to the main functioning of the global economy.

This changing perception stemmed from the countries embarking on implementing strong economic, political and social reform programmes.

A strong Policy Framework for Investment, capable of mobilizing private investment that supports steady economic growth and sustainable development, and thus contributing to the prosperity of countries and their citizens and the fight against poverty, is necessary for a successful transition from an emerging to a developed economy.

Country Next 11/ BRICS

CIVETS

FTSE MSCI THE ECONOMIST

S&P DOW JONES

BBVA

COLUMBIAN UNIVERSITY EMGP

Afghanistan

Argentina

Bahrain

Bangladesh

Brazil

Bulgaria

Chile

China

Colombia

Czech Rep.

Egypt

Country Next 11/BRICS

CIVETS

FTSE MSCI THE ECONOMIST

S&P DOW JONES

BBVA COLUMBIAN UNIVERSITY EMGP

Estonia

Hong Kong

Hungary

India

Indonesia

Iran

Israel

Jordan

Kuwait

Latvia

Lithuania

Country Next 11/BRICS

CIVETS

FTSE MSCI THE ECONOMIST

S&P DOW JONES

BBVA COLUMBIAN UNIVERSITY EMGP

Malaysia

Mauritius

Mexico

Morocco

Nigeria

Oman

Pakistan

Peru

Philippines

Poland

Qatar

Country Next 11/BRICS

CIVETS

FTSE MSCI THE ECONOMIST

S&P DOW JONES

BBVA COLOMBIAN UNIVERSITY EMGP

Romania

Russia

Saudi Arabia

Singapore

Slovakia

Slovenia

South Africa

Sri Lanka

South Korea

Sudan

Taiwan

Country Next 11/BRICS

CIVETS

FTSE MSCI THE ECONOMIST

S&P DOW JONES

BBVA

COLUMBIAN UNIVERSITY EMGP

Thailand

Turkey

Tunisia

UAE

Ukraine

Venezuela

Vietnam

Abbreviations: FTSE – Financial Times and Stock Exchange; MSCI – Morgan Stanley Capital International; S & P – Standard & Poor’s; BBVA – Banco Bilboa Vizcaya Argentaria EMGP – Emerging Market Global Players

Current Policy Challenges • The Investment Policy - Environment is

characterized by: Unpredictability Weak Institutional Framework Inconsistencies Overlapping responsibilities by MDAs Bureaucratic Bottleneck High Operational and Entry Costs Multiplicity of taxes by tiers of government Poor economies of integration among industries Insufficient mechanism for public-private dialogue Weak Industrial /Manufacturing Base

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Global Ranking Agent

Ranking

Ease of Doing Business

Nigeria was ranked 16,15 & 15 in Africa and 134, 133, & 133 in the world out of 183 countries assessed in 2010, 2011, & 2012 respectively.

Global Competitiveness Index (GCI)

Year Ranking

2011 – 2012 127 out of 142

2010 – 2011 127 out of 139

2009 – 2010 99 out of 133

2008 – 2009 94 out of 134

Enabling Trade Index (ETI)

Nigeria ranked 120 out of 125 countries in 2010; ranking considered such factors as domestic and foreign market access, efficiency of customs administration, etc.

Tax Benefits Comparison

Global Average Corporate tax shows that Nigeria still has one of the highest corporate tax rate in the world – (Global Average – 25.51%; Nigeria – 30%)

Global Average Indirect tax rate has moved very little in the past 6years, remaining within the 15.2 to 15.85 percent range. The Asia Pacific operates the lowest VAT System (3- 5%)

Studies have shown that many jurisdictions are likely to continue using fiscal incentives to attract businesses and stimulate companies to invest.

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8th largest population in the world – over 167 million people ◦ 4th largest population under the age of 20

10th world largest reserves of oil and gas ◦ 36.2 billion barrels of oil ◦ 184 trillion Cubic Feet of natural gas

4th largest equity market in the Morgan Stanley Capital International (MSCI) Frontier Market index◦ Largest outside of the Gulf Cooperation Council (GCC)

5th fastest growing economy in 2010 covered by City Investment Research & Analysis (CIRA) economists – China, Taiwan, Singapore & Qatar

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1st among the N-11 leading ‘global growth generators’ (3G) over the next 40 years◦ Prospects of growing its global GDP share to 2.5%

in 2050, overtaking Italy, France, and UK

Home to emerging world’s largest cement companies

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“I’m talking about transportation logistics, for example. What may take one day of transit in a mature market, here may take five days — and still there will be uncertainty. Then, too, are the processes involved in doing business. You’re always hamstrung by a bureaucracy in which somebody may come unexpectedly to check things — or somebody else may come to make sure that your business meets 1,001 rules and regulations that really slow you down (even though, being a good corporation, you want to follow all the rules)”. – Ravi Kant, MD, Tata

Reveals a tip of the iceberg with regard to the constraining factors identified with emerging market economies.

The OECD provides the following Policy Framework for attracting investment:

Investment policy - An investment policy that is transparent, non-discriminatory and which offers protection for property are investment policy principles that underpin efforts to create a sound investment environment for all.

Investment promotion and facilitation - Investment promotion and facilitation measures, including incentives, which aims at correcting for market failures and are developed in a way that can leverage the strong points of a country’s investment environment should be developed.

Trade policy - Policies relating to trade in goods and services should support more and better quality investment by expanding opportunities to reap scale economies and by facilitating integration into global supply chains, boosting productivity and rates of return on investment

Competition policy - Competition policy favours innovation and contributes to conditions conducive to new investment. Sound competition policy also helps to transmit the wider benefits of investment to society.

Tax policy - the level of the tax burden, the design of tax policy, and its administration directly influence business costs and returns on investment. - Sound tax policy enables governments to achieve public policy objectives while also supporting a favourable investment environment.

Sound Corporate governance - The degree to which corporations observe basic principles of sound corporate governance is a determinant of investment decisions, influencing the confidence of investors, the cost of capital, the overall functioning of financial markets and ultimately the development of more sustainable sources of financing.

Policies for promoting responsible business conduct - providing an enabling environment which clearly defines respective roles of government and business; - promoting dialogue on norms for business conduct; - supporting private initiatives for responsible business conduct; - participating in international co-operation in support of responsible business conduct

Human resource development - Human resource development is a prerequisite needed to identify and to seize investment opportunities;

- Evolve policies that develop and maintain a skilled, adaptable and healthy population, and ensure the full and productive deployment of human resources.

Infrastructure and financial sector development - Sound infrastructure development policies ensure scarce

resources are channelled to the most promising projects and address bottlenecks limiting private investment.

- Effective financial sector policies facilitate enterprises and entrepreneurs to realise their investment ideas within a stable

environment. Public governance

- Regulatory quality and public sector integrity are two dimensions of public governance that critically matter for the confidence and decisions of all investors and for reaping the development benefits of investment. - No single model for good public governance, but there are commonly accepted standards of public governance to assist governments in assuming their roles effectively.

Total commitment to the implementation of its transformation agenda as enunciated in the Vision 20:2020

Key Key indicative indicative ParameteParametersrs

Adequate infrastructure services that support the full mobilization of all economic sectors. -Deal with constraining issues in Generation of adequate electricity -Increase rural infrastructure by 40%

Maintaining competitive macro economic indices Single digit inflation rateAverage GDP growth rate of 7% >10% >12% ; 2009, 2011, 2015Stable exchange rate against major currencies(currently $1 = N155± ) -Increase the GDP of agriculture sector by 15% to remove parity with GDP and assure food security.

Implementation of the new policy thrust on investment:

Policy Thrust on

Investment

Implement Investment Policy that would:

ensure a stable and conducive investment climate

simplify procedures and bring down transaction costs

ensure a predictable policy environment by eliminating distortions

eliminate discretionary concessions and privileges

Create a level playing field in all sectors of the economy for investors

Implement Investment Policy that would: provide competitive incentives to attract and retain

private investment

facilitate the development of Nigeria as a global hub for manufacturing, trading and services

identify and nurture special focus areas which would generate additional employment opportunities

enhance the national business environment competitiveness

The Nigerian economy is highly liberalized, highly deregulated; a free market economy, the largest market in Africa, and committed to market reforms to transform it to an advanced economy

Government has taken bold steps to do the right thing; fix power, develop infrastructure, tackle security, fight financial and economic crimes, improve justice system and reform electoral process to be electorate-friendly. Efforts should continue in that direction

The economic reforms have succeeded in reshaping the investment climate with tremendous inflow of FDI especially in telecoms, banking, manufacturing and agricultural sectors

Given the commitment of Government to various reform programmes there’s hope for the country to join the league of developed economies as the reforms succeed.

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For more information, contact:

The Executive Secretary/CEO,Nigerian Investment Promotion Commission

Plot 1181 Aguiyi Ironsi Street Maitama, Abuja.

Email: mustafa_bello@nipc.gov.ng

Telephone Lines:+234 (0)8097701601

+234 (0)92904722

osicinfodesk@nipc.gov.ng, infodesk@nipc.gov.ng

Or Visit NIPC Website:

www.nipc.gov.ng