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Speech

Speech by Shriti Vadera, PUSS Department for International Development, to launch the joint Government of Nigeria/DFID/ World Bank Group Investment Climate Programme (ICP)

30 August 2007

Your Excellencies, the Governors here present:

Honourable Minister of Finance
Honourable Minister of the Federal Capital Territory
Honourable Minister of the National Planning Commission

And I have learnt that if I say, “All protocols observed” I can end here.

As this is my first official visit as a Minister for DFID, it is a great pleasure to be in Nigeria today.

Thank you – Honourable Minister - for hosting this event.

I was told this morning of a Nigerian proverb that says, “We gather together to be wise” and I am honoured to share the platform with the wise elders of Nigeria.

In 2005, the Government of Nigeria, the World Bank and DFID agreed a joint Country Partnership Strategy. This was the first of its kind, and being pioneered in Nigeria as so many things are, we hope to replicate it elsewhere. The strategy reflected the Government’s own three priorities: non-oil growth; human development; and governance. And today we celebrate the launch of the Investment Climate Programme as a key manifestation of this Partnership.

Why is this partnership so important to us?

Our two nations share a long history. And Africa’s destiny is tied with that of Nigeria’s. A fifth of Africans live in Nigeria and it is the second largest economy in the sub-Continent.

We all know that we are in danger of missing the UN Millennium Development Goals across sub-Saharan Africa. Around 40% of the population still lives in extreme poverty. Yet, if we could increase growth in Africa to at least 7% per annum, we could halve the number of people living on less than $1 per day. China has lifted an incredible 400 million people out of poverty as a result of sustaining an average 9 percent annual growth rate for close to 30 years.

For some, aid is seen as purely social expenditure, with no concern about aid dependency. For DFID, aid is also an investment in the future - In growth, the creation of wealth and jobs, and in every individual’s dignity of economic independence.

Nigeria is endowed with enormous natural wealth and the entrepreneurial spirit of its people. It has the possibility of emulating this success of fast-growing Asian economies. Yet half of the population lives on less than $1 a day. One in five children still die before the age of five and almost half of all households have no access to clean water.

We all share a responsibility for improving the lives of those living in poverty in Nigeria. As politicians, civil servants and most importantly, I believe, business leaders, we can play a critical role in improving this situation. The Honourable Minister has outlined the successes of Nigeria’s economic reform programme to date. And I congratulate Nigeria on these successes. It has prudently managed its economy at a time of strong oil prices. It has invested in its future, using $12 billion of oil revenues to reduce external debt, now only 3% of GDP; to scale up spending on infrastructure and services; and to build up foreign exchange reserves that must be the envy of many. And for the first time since oil was discovered in Nigeria, the non-oil sector has driven growth.

This is a moment of opportunity in terms of attracting critical investment, including internationally. As a result of Nigeria’s macro performance, in 2006, Fitch and Standard and Poor gave their first ever credit rating to Nigeria of a BB minus, reaffirmed recently by Fitch, granting Nigeria creditworthiness equivalent to that of Turkey and Vietnam.

But 60% of the economy remains informal. And informal economies are characterised by low productivity, high levels of under-employment, and a low skill base.

We know many businesses do not join the formal economy due to high costs of regulatory compliance, red tape and corruption. And so of the 6 million new entrants who join the labour market annually, only 10% get secure employment in the formal sector. Of the youth that enter the informal sector 80% earn an income of between $1 and $2 a day. Those in the informal manufacturing sector earn $250-300 a year compared to $3,000 in the formal manufacturing sector. Creating the conditions to incentivise informal businesses to migrate and new businesses to emerge is central for Nigeria’s need to enhance competition, improve productivity, generate wealth creation, employment opportunities and therefore reduce poverty.

So Nigeria is still missing out.

The value of global FDI for 2006 was US$1.2 trillion, yet despite the recent phenomenal increases that the Hon. Minister illustrated Nigeria received about $6bn – only 0.5% of the total.

President Yar’Adua has identified reducing the costs of doing business in Nigeria as one of his top priorities. It is indeed also a top priority for DIFD’s involvement in Nigeria. Improving the investment climate could, in the case of Nigeria, mean the difference between intermittent growth driven by oil prices and the continuous levels of growth necessary to meet the MDGs.

The Problem: The Data Gap

My own background is in private sector. I know what investors look for in developing countries as well as closer to home. For any market to function effectively it needs to have high quality, reliable information to underpin informed business decisions.

And as a fellow policy maker, I know the State and Federal Governments need this same information for evidence-based policy decisions.

According to the 2006 Doing Business Report, Nigeria has improved its overall ranking. Between 2005 and 2006, the time taken to enforce contracts was cut by more than 300 days; the time taken to register a property by 200 days.

This is impressive progress in the space of just a year. But these figures only really represent Lagos which is used as the proxy for Nigeria. We know from experience elsewhere, national level surveys fail to reveal the different strengths and weaknesses across a country with the sort of granularity that businesses need to make investment decisions and that policy makers need to inform their choices. Indeed in Mexico a national level survey took Mexico City as its proxy. But whereas in Mexico City it takes nearly two months to start a business, it turns out that in every other state in Mexico it takes less time.

I am learning about the complexities of 36 states in one country – withy varying business environments. The richness of this diversity, and a little of the competition we saw this morning, is a strength. It can be used to attract investors. But, the data available for informed decisions in Nigeria has significant gaps.

I hope this new, 5-year Programme will be a part of the solution. The investment climate surveys; the public private dialogue facility; and the pilot reform initiative provide the essential building blocks of information. Information is as valuable as the manner in which it is used. As you say in Nigeria, “If a chicken does not dig, it does not feed”. We will work with state governments and the private sector to ensure the next essential stage – which is delivery.

We congratulate the ten states, and the Federal Capital Territory, that have signed up to the first round of surveys. We would like to see more states sign up to future surveys.

The ICP is a platform for a modern agenda of growth being developed by the government. DFID and the World Bank will work with the government to develop a programme for turning this agenda into concrete action and tangible deliverables. Every small step counts. I learnt this morning that the hotel where I’m staying had to get a licence under the factory act to bake the bread for my toast. 46 tourism-specific licences make it difficult to attract investors into tourism, which is one of the best industries for generating employment.

Our aspiration is to reduce the cost of doing business across selected states by 50% on average by 2012.

Conclusion

I am delighted to be here not just because this is a programme DFID has supported, but because it reflects my own conviction about the importance of private sector investment, employment generation and wealth creation as the key routes to poverty eradication. And I can assure you that the UK will continue to fight for complete market access for Nigeria and others to developed country markets. Most importantly, launching this Programme today demonstrates the Government of Nigeria’s commitment to creating the conditions for a vibrant private sector and sustained, private sector-led growth to achieve the MDGs.