Roundtable Discussion with the Governor-Elect of Kano State

Economy, Investment Climate and Enterprise Development

Dr. Abdu Mukhtar, CEO, Abuja Investments Company Limited

May 24th, 2011

Table of Contents

• Introduction/Context• Investment Climate• The South Korean Story/Challenges of

MSMEs in Nigeria• Case Study: The Textile Industry• Key Recommendations• Key Success Factors• Resources/References

Introduction/Context

• “Yaro ko da me ka zo an fi ka”• Most populous State in the

Country/one of the fastest growing cities in West Africa

• Center of Commerce/Industry• Cradle of the Hausa culture• Access to a regional market of

over 300 million• Huge army of unemployed,

uneducated and poverty-stricken youths

• Increase in the size and depth of poverty over the past few years

• GDP Per Capita of $718 (compared to $1,436; $2,010 and $933 for average States in SW, SS and SE respectively).

Investment Climate-Nigeria• Nigeria is ranked 99/133 overall in the 2009-

2010 Global Competitiveness Report• Nigeria is the 2nd most important African

destination for foreign capital after South Africa

• Interestingly, much of the FDI in recent years has been in the non-oil sector

• In 2009, an estimated US$20 billion in foreign investment came into the country

• FGN is targeting some US$600 billion of FDI for Vision 202020 over the next decade

• China overtook USA as Africa’s largest trading partner

Most Problematic Factors for Doing Business in Nigeria• Access to financing• Inadequate supply of Infrastructure• Corruption• Policy instability• Inefficient government bureaucracy• Crime and theft• Inflation

Kano, Kano Aggregate ranking 8

Starting a business (rank) 26 Registering property (rank) 4

Procedures (number) 9 Procedures (number) 11

Time (days) 38 Time (days) 31

Cost (% of income per capita) 77.8 Cost (% of the property value) 10.8

Minimum capital (% of income per capita) 0

Dealing with construction permits (rank) 3 Enforcing contracts (rank) 23

Procedures (number) 14 Procedures (number) 40

Time (days) 56 Time (days) 720

Cost (% of income per capita) 94.6 Cost (% of claim) 29.7

Investment Climate-KanoDoing Business in Nigeria 2010 Subnational Series by World Bank/IFC

The South Korean Story

Growth from the ruins of war against north Korea in 1950The 15th largest economy in GDP in the worldExport-oriented and strong on IT, automobile, shipbuilding industryHosted G20 summit (2010). OECD member

Classification USA Australia Mexico Korea

GDP (in billion USD) 14,887(Rank 1)

1,217(Rank 13)

1,017(Rank 14)

1,012(Rank 15)

GDP per Capita (USD) 48,090 56,570 9,043 20,450

Economic Growth Rate (%) 2.7% 3.3% 5.0% 6.1%

Export (in billion USD) 1,270 211 303 466

Foreign Exchange Reserve (in billion USD)

- 38 109 269

[As of the end of Yr 2010]

8

Current Status & Role of SMEs In the Korean EconomyFrom: Korea Federation of Small & Medium Business; Index of SMEs Status

SMEs of Korea: Policies and Potential

  SMEs Micro-Enterprises* LEs Total

Number of Enterprises 3,044,169 2,675,370 2,789 3,046,958

Number of Employees 11,467,713 5,194,991 1,602,711 13,070,424

Added Value **(in Manufacturing)

189.5 195.4 384.9

99.9%

0.1%

SMEsLEs

Number of Enterprises

87.7%

12.3%

SMEsLEs

Number of Employees

*Enterprises with Less than 10 Employees in Mining, Manufacturing, Constructing & Transportation/ Less than 5 in other Industries** In Thousand Million Won

49.2%50.8%

SMEsLEs

Added Value in Manufacturing

Major Challenges Facing MSMEs in Nigeria• Definition: Total cost of N31 to N150 million

(including working capital excluding cost of land), that employ between 11 and 100 workers. National Council on Commerce & Industry. MSMEs employ about 60 per cent of the labour force mainly in the Service Sector

• Infrastructure Deficit : Mainly Power Supply, Transportation, etc.

• Capacity Limitation & Capability to:– Identify Business Opportunities To Efficiently

Convert into Competitive Advantage Areas in Which They Have Comparative Advantages

– Set up and efficiently manage small businesses• Funding : Equity & Debt• Limited Access to Markets/ Ability to

Penetrate Domestic & Foreign Markets

Cotton and Textile Sector: Context and Trends

• Modern transformation in the 1960s through the 1970s with establishment of more technology-driven mills in Lagos, Kano, Kaduna, Zaria, Jos, PH, Aba, Onitsha and Asaba, mainly through FDI

• At its peak in the 1980s, the industry employed between 600,000 and 700,000 people and had close to 175 mills, thus making it the second largest employer of labour. It generated turnover in excess of N8 billion (US$8.95 billion at 1981 exchange rate) and contributed more than 25% of the nation’s manufacturing value-added. It exported 30% of its output to the ECOWAS market.

• By the end of 2008, only 24 mills managed to maintain skeletal operations. These remaining mills currently employ less than 25,000 people. The industry contribution to value addition dropped to less than 5%, and export to ECOWAS dropped to 5%. Today, the sector has a turnover of less than N45billion ($300 million).

• 17.2 million people hitherto dependent on the cotton and textile sector for their livelihoods were dragged down into absolute poverty.

• The industry is on the verge of extinction. What went wrong???

What Went Wrong?• The collapse of critical infrastructure in the Country-

Power, Roads, Water, etc) resulting in high cost of production.

• Lack of government support and incentives in the wake of the industry’s collapse induced by government support in the PRC and elsewhere.

• Gross under-capitalization in the face of costly new technologies.

• Unconstrained competition from smuggled fabrics, especially counterfeited smuggled items from the PRC to displace Nigeria’s exports to the West African market

• Lack of long-fiber and use of contaminated cotton, which combined to generate very low yarn count.

• Lack of other necessary local inputs largely derived from petrochemicals due to the collapse of the refineries in the country.

• The virtual non-existence of garmenting in Nigeria despite being the most profitable in the entire value-chain

The Case for Reviving the Textile and Garment Industry

• Growing local demand for textiles to meet the country’s clothing needs of 140 million people

• Potential to serve textile demand of the ECOWAS sub-region (70% of the installed regional textiles capacity)

• Export potential has been broadened by introduction of AGOA and other export initiatives

• Opportunity to reduce the textiles/trade deficit by up to $2 billion

• Job opportunities (historic high of 600,000 jobs and 1.3 million cotton farmers to support their 17.2 million dependants).

Measures to Revive the Textile Industry

• Value Chain Approach: Cotton production; Ginning; Yarn/Fiber Manufacture; Fabric Manufacture; Garmenting and Distribution

• The proposed BOI N100 Billion Cotton and Garment Development Scheme

• Address Infrastructure Constraints-Power requirement for Kano is 275MW. Estimated cost using the Frame 5 GTG (25MW ISO) from GE Energy is 19.8 billion naira

• Strengthen the Nigeria Customs Service• Reactivation of the old locomotives and

restoration of railway lines• ECOWAS to lead a global campaign for the

stoppage of unfair textile trade practices in W. Africa by the PRC

Key Recommendations-I

• Job creation is essential for Kano’s future: Massive Investment is needed.

• Government enables/regulates, while the Private Sector executes

• Establish clear legal framework that ensures smooth flow of investment and ensures adequate return

• Clearly define the incentives, concessions and entitlements for key industrial investments

• Push for the establishment of the proposed 275MW power plant

• Revamp & Revitalize AK International Airport

• Enhance security of lives and property

Key Recommendations-II

• Stay connected to the Center-tap into national initiatives & funding programs (CBN, BOI, UDB, FMBN, etc)

• Establish a One-Stop Investment Office (NIPC)

• Get indigenes to invest!!• Obtain Credit Rating• Revive moribund SMEs/Industries• Develop commercial clusters/Industrial

Parks in strategic areas to promote growth of new enterprises

Key Recommendations-III• Establish Public-Private-Partnerships in

key areas such as: – Commercial real estate (markets), Mass

Housing,– Agro-Allied industry (processing, packaging,

distribution)– Waste recycling/waste-to-energy – City services (transportation-road, rail,

infrastructure)– Power generation (Hydro? Gas?)

• Revive Kannywood and the Tourism/Hospitality Industry

• Reactivate the CRC program/microcredit scheme, using Microfinance Banks as platforms to ensure sustainability

Commercial Cluster Development-the Abuja ExampleAbuja Automotive Village• Dedicated 212 Ha site for

automotive business operations• Procurement, maintenance,

auxiliary sevices• Located 20 minutes from

Abuja City Center• Concept includes Inland Dry

Port

Abuja Automotive Village• Dedicated 212 Ha site for

automotive business operations• Procurement, maintenance,

auxiliary sevices• Located 20 minutes from

Abuja City Center• Concept includes Inland Dry

Port

Abuja Film Village• 5000 Ha “new town”• Leveraging on strength of

Nollywood, world’s 3rd largest film industry

• Ultra-modern film and entertainment district for the entire West Africa sub-region.

• Planned as a key driver of tourism

Abuja Film Village• 5000 Ha “new town”• Leveraging on strength of

Nollywood, world’s 3rd largest film industry

• Ultra-modern film and entertainment district for the entire West Africa sub-region.

• Planned as a key driver of tourism

Abuja Technology Village• World class technology cluster• Granted special economic free zone status• Concept aimed at developing ICT, bio-tech, energy technologies

(especially renewable and green energy) as well as extractive industry technology with business and academic support

Abuja Technology Village• World class technology cluster• Granted special economic free zone status• Concept aimed at developing ICT, bio-tech, energy technologies

(especially renewable and green energy) as well as extractive industry technology with business and academic support

Key Success Factors

• Clear Vision, Objectives & Targets• Focus/Prioritization• Identify and execute a few Quick Wins• Institutional Capacity-Economic Team?• Strategic alliances/partnerships• Courage/Political Will

Resources/Reports• Partnership with key Agencies of Government-

CBN, BOI, NIPC, ICRC, SMEDAN, MDG office, etc.

• Partnership with key International Development Agencies: World Bank, UNDP, DFID, USAID, EU, etc.

• Reports: – Oxford Business Group Nigeria 2010 Report– Bank of Industry Proposal for the establishment of a N100B Nigeria

Cotton and Garment Development Scheme, May 2009– Nigeria Investment Policy Review –UNCTAD, United Nations– Blue Book on Best Practice in Investment Promotion and Facilitation

in Nigeria-UNCTAD– Doing Business in Nigeria 2010: COMPARING Regulations in 36

States, Abuja FCT and 183 Economies

Thank you

Contact us:Abuja Investments Company Limited (AICL)

Investment HouseNo. 4 Nkwere Street

Off Muhammadu Buhari WayGarki IIAbuja

www.abujainvestments.com +234 (09) 671 9429