With a debt already close to 70% of its GDP, the IMF projects that Kenya plans to borrow $12.4bn from foreign sources by June 2022. This, at ... a time when the country is at a high risk of debt distress and subject to zero limits on non-concessional borrowing. But the distress is also having a cause and effect on its population.
One of the pioneers of the Lagos-based Africa Finance Corporation, Andrew Alli is notching up even more frequent flyer miles in his new job as chief executive of SouthBridge, the financial services group founded in 2017 by Donald Kaberuka, former president of the African Development Bank, and Lionel Zinsou, former prime minister of Benin.
An investment and development finance expert, Alli says SouthBridge is working with companies and governments “to build African champions”.
The ‘bridge’ part of SouthBridge reflects its ambition to link Africa with international networks and markets, especially in the global South.
Speaking at a string of conferences in Nigeria, Alli is keeping a keen eye on economic developments in his home country:
- “I did a study of the Nigerian economy a year ago, and I found that if you’re a dollar-based investor, holding naira for a five-year period over the last 15 or so years, there’s an almost 90% chance that you will suffer a devaluation.”
That means companies have to build extra resilience to accommodate the exchange-rate risk and rapid changes to the regulatory environment.
- Alli tells The Africa Report: “Those businesses that have figured out how to operate in Nigeria do very well. […] It is a very large and growing market.”
A strong supporter of the African Continental Free Trade Area, Alli argues that the sceptics in Nigeria are exaggerating the threats of dumped goods.
- “The idea that some Chinese company is going to start something in Benin to dump products on the Nigerian market at below the manufacturing costs just doesn’t make a lot of sense to me.”
Instead, Nigerian manufacturers should concentrate on remaining internationally competitive, argues Alli. “I would say that some manufacturers enjoy the lack of competition, the fat margins they can earn without working to be competitive.”
The idea that Nigeria would be a passive victim in commercial competition across Africa is implausible to Alli. “You go around Africa and you see Nigerians being very competitive. […] If anything, it’s the other countries that should be more afraid of what is going to come out of Nigeria.”
Although he concedes that Aliko Dangote’s oil refinery due to start late next year will create massive downstream opportunities, Alli doubts that it will have the “game-changer” effect on Nigeria’s economy that many are forecasting.
He urges economic planners to look closely at the numbers:
- “You [need] 650,000 barrels, which is a third of today’s production, and a lot of that production is tied up with long-term contracts to oil marketers.”
With national oil production hovering around 2m barrels per day, allocating just under a third of that to a local refinery would radically change the structure of the country’s oil industry.
And the savings in foreign exchange from importing oil products would be more limited than many expect, argues Alli.
- “The savings in forex comes down to the refining margin, of about 5% maybe 10%, and the transportation costs of sending the crude abroad and bringing it back,” he says. “But I don’t think it’s going to be enough to allow you to have a pump price of N145 ($0.40) a litre without a subsidy.”
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