C&B Notes

Lagos Leaping Ahead

Lagos, which is progressing at a faster rate than the rest of Nigeria, is an interesting microcosm of both the potential and frustrations ascribed to the country.

Just to the east of Lagos, in the rapidly expanding new city of Lekki, a huge industrial project is taking shape.  The Dangote oil refinery, with a capacity of 650,000 barrels a day, will cost at least $12bn to complete and be the biggest refinery of its type in the world.  As well as producing enough petrol and kerosene to meet the entire demand of Nigeria’s 180m people, there will be some left over for export, according to Aliko Dangote, chairman and chief executive of the company behind the project.  A separate fertilizer plant will start producing 3m tons a year of urea in the next few months, enough to meet the current needs of Nigeria’s farmers, while a petrochemicals factory will make a combined 1.3m t/y of polyethylene and polypropylene…

Mr. Dangote says his refinery will save Nigeria billions of dollars in foreign exchange and remove the pickings that have benefited generations of entrepreneurs diverted from production to speculation — something that is likely to make him enemies.  “Nigeria has been trying to make refineries work for a very, very long time,” he says.  “I’m a great believer in Nigeria because the opportunities here are enormous.  But we need to have consistency in government policies.”  That it has taken a Lagos-based businessman — and not an Abuja-based politician — to tackle so fundamental an issue says much about what is wrong with Africa’s biggest economy.  Yet it could also hint at what is going right. Mr. Dangote is a symbol of what private enterprise can achieve if it is provided with the right incentives.  Though a northerner by birth, he also represents a real Nigerian success story: Lagos.

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Tayo Oviosu is chief executive of Paga, an electronic banking service and one of dozens of start-ups that have taken root in the city.  Many are concentrated in the Yaba district of Lagos, where the state government installed a fast broadband network to help start-ups.  He traces Lagos’s dynamism back to the turn of the century when the federal government, under President Olusegun Obasanjo, was refusing to pay Lagos its full allocation of oil revenue.  “That forced Lagos to look within,” says Mr. Oviosu.  “It had to focus on raising its own revenue and doing its own thing.”  The relative success of Lagos, a city as dynamic as many of the booming cities of Asia, has mostly been lost in the less uplifting story of Nigeria.  The potential economic powerhouse of the continent, the country has all the ingredients for success.  A huge population gives it the scale other African economies lack. It is a coastal trading hub and the world’s sixth-biggest oil exporter.

Yet time and again, it has fallen short.  Even in the boom years, when oil revenues were pouring in, the state failed to provide the basic building blocks of development.  Largely on the back of high oil prices, the economy grew rapidly for the first 15 years of this century, which coincided with the re-establishment of civilian rule from 1999.  But successive administrations, either through incompetence or corruption, have missed the opportunity.  Few ordinary Nigerians felt the impact of fast growth.  State education has been starved of funds.  The health system is a shambles and the elite, including most recently President Muhammadu Buhari, seek top-level treatment abroad.  Physical infrastructure is just as poor.  Generation capacity of about 7,000MW brings sporadic power to a fraction of the population, leaving at least half of Nigerians without electricity supply.  Businesses need their own generator to secure a reliable supply.  The oil industry has sucked oxygen from the economy and pushed the naira to uncompetitive levels.  At 3.5 per cent of GDP, the tax base is pitifully low and most of the country’s 36 states, with the exception of Lagos, depend almost entirely on federal oil revenue.  The security situation is not much better.  Though Mr. Buhari has prioritized the defeat of Boko Haram, the militant Islamists who had taken territory in the north-east, they are far from defeated.  Mr. Buhari has also had to contend with attacks on oil installations in the oil-rich Delta region, a secessionist movement in the south-east and violent clashes across the country between herdsman and settled farmers.  As if this were not bad enough, Nigeria is recovering from its deepest recession in 25 years, a result of a fall in oil prices from 2014.  Anemic growth returned last year, but output is still below 2014 levels, according to Yemi Kale, head of the National Bureau of Statistics.

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Against this backdrop, the relative success of Lagos, which pulled out of recession earlier than the rest of Nigeria, looks all the more remarkable.  Akinwunmi Ambode, governor since 2015, has doubled down on infrastructure projects and made bold promises to transform the city.  This year, he signed into law a pledge to bring uninterrupted power to the whole state, something inconceivable almost anywhere else in the country.  The idea is to use the state’s balance sheet to provide guarantees to private electricity generators so that they can build mini-power plants around the city.  “They are literally going to yank themselves off the National Grid,” says Bunmi Akinyemiju, chief executive of Venture Garden Group, a Lagos-based venture capital company.  The city, he says, already runs self-contained grids powered by gas, solar and even waste material.  “I really believe that, in the next five years, Lagos will have 24/7 power,” he says.  The past three governors, he says, have “focused on creating the enabling environment for Lagos to be the mega city it can be.”

Yet Lagos still has terrible congestion and huge disparities of wealth.  Apapa Port and Lagos International Airport can be maddeningly inefficient, putting off potential business.  According to a 2016 World Bank report, two out of three people in the city live in slums.  Lagos mirrors Mumbai, the commercial capital of India: it is an economic engine and a magnet for both the ambitious and the desperate.  Nigeria’s millionaires and billionaires share a city with people living in indescribable squalor.  Its unemployment rate may actually be higher than the national average, says Olayinka David-West, a senior fellow at Lagos Business School, because its relative success and the perception of opportunity draw in floods of Nigerian migrants every day.  Many are disappointed.

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