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
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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,

Investment Climate-Nigeria

Nigeria is ranked 99/133 overall in the 20092010 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 Africas 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

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

Kano, Kano Starting a business (rank) Procedures (number) Time (days) Cost (% of income per capita) Minimum capital (% of income per capita) Dealing with construction permits (rank) Procedures (number) Time (days) Cost (% of income per capita) 26 9 38

Aggregate ranking Registering property (rank) Procedures (number) Time (days) 4 11 31

77.8 Cost (% of the property value) 0

10.8

Enforcing contracts (rank) Procedures (number) Time (days)

23

14 56

40 720 29.7

94.6 Cost (% of claim)

The South Korean Story

Growth from the ruins of war against north Korea in 1950 The 15th largest economy in GDP in [As of the end of Yr the world 2010] Classification USA Australia Mexico Korea Export-oriented and strong on IT, GDP (in billion USD) 14,887 1,217 1,017 1,012 (Rank 1) (Rank 13) automobile, shipbuilding (Rank 14) (Rank 15) industry Hosted G20 summit (2010). OECD GDP per Capita (USD) 48,090 56,570 9,043 20,450 Economic Growth Rate 2.7% 3.3% 5.0% 6.1% member

(%)

Export (in billion USD) Foreign Exchange Reserve (in billion USD)

1,270 -

211 38

303 109

466 269

SMEs Number of Enterprises Number of Employees Added Value **(in Manufacturing) 3,044,169 11,467,713

Micro-Enterprises* 2,675,370 5,194,991

LEs 2,789 1,602,711

Total 3,046,958 13,070,424 384.9

189.5

195.4

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

Number of Enterprises

Number of Employees

Added Value in Manufacturing

Current Status & Role of SMEs In the Korean Economy

88 From: Korea FederationSMEs of Korea: Policies and Potential of Small & Medium Business; Index of

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

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 nations 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

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 industrys 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 Nigerias 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 countrys 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

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.

Key Recommendations-I

Job creation is essential for Kanos 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

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

Commercial Cluster Developmentthe Abuja Example

Abuja Automotive Village Dedicated 212 Ha site for automotive business operations

Abuja Film Village

5000 Ha new town

Procurement, maintenance, auxiliary sevices

Leveraging on strength of Nollywood, worlds 3rd largest film industry

Located 20 minutes from Abuja City Center

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

Concept includes Inland Dry Port

Abuja Technology Village

Planned as a key driver of tourism

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 House No. 4 Nkwere Street Off Muhammadu Buhari Way Garki II Abuja www.abujainvestments.com +234 (09) 671 9429