Discussion paper by Engr. Mustafa Bello (FNSE), Executive Secretary/CEO, Nigerian Investment...
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Transcript of Discussion paper by Engr. Mustafa Bello (FNSE), Executive Secretary/CEO, Nigerian Investment...
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: [email protected]
Telephone Lines:+234 (0)8097701601
+234 (0)92904722
[email protected], [email protected]
Or Visit NIPC Website:
www.nipc.gov.ng