Comment: You wrote “For South Africa’s rand, the Naira has lost a factor of 6 over the same period (1 Rand was about N15 in 2015; today, it can buy N90).“ What other things do I not know about Nigeria and South Africa in the capital market.
My Response: You know everything but let me simply add from the small file here. First, one bank in South Africa can buy all the banks in Nigeria, on current market valuations, and still have a change. Secondly, one company in South Africa across all its subsidiaries needs just 50% of its value to buy every company in the Nigerian stock exchange.
Then, the big one: the total value of the Nigerian stock exchange is about $80 billion using a favourable exchange rate; South Africa’s Johannesburg Stock Exchange is worth about $1.2 TRILLION.
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I guess you know these things, and those innuendos from our leaders on how Nigerian banks are making tons of profit and ripping customers off. The fact is this: Nigerian banks underperform when you benchmark their assets because they do not have the field (growing economy and market) to do business. These are small entities lost in a sea of untapped and unlocked opportunities.
That our upward moving hike on interest rate makes them “collect” should not cloud our thinking that our capital market and banking sectors remain largely muted when you consider that we are at least 3.5X the population of South Africa. The high interest rates in our banking halls are due to the prime rate which the Central Bank of Nigeria (CBN) is responsible for. Banks do not set those rates. If CBN picks from Japan and sets the prime rate at 0.25%, we can get interest at about 6% in Nigeria (extra covers insurance, operations, profits, etc).
(Note: that low rate will be disastrous due to inflation I must note)
Of course, this is not to defend the banks for those mindless fees; I am simply saying that Nigeria needs leaders who can think of how to EXPAND opportunities over mere taxing the small piece we have.
Question: Prof, outside the extractive sector, which sector in Nigeria is comparable to SA in Value?
Startups – Nigeria before May 2023 was outperforming South Africa across many indicators. While they have bigger banks, we built bigger fintechs, creating continental Africa’s largest species in that new sector. But unlike South Africa, 99% of the leading startups in Nigeria are not Nigerians, but Delaware (USA) companies, technically meaning that even though Nigeria created them, the value goes to America. So, in 5-7 years when we are expected to renew our stock market, Nigeria will have none as these firms will likely not list in Nigeria. As I have noted in Harvard, every 10 years, something new happens in Nigeria – 1990s gave the new generation banks; 2000s brought voice telephony; 2010s gave us the mobile internet; we’re moving into application utility era. But unlike those past eras, the new ones may not deliver value at home.
Why Retroactive Taxing of Nigerian Banks Is A Bad Policy
My position is this: Nigeria made a mistake when it taxed our relatively poor banks. The government should have mandated them to lend 70% of the FX-anchored vapour gains, under the central bank supervised apparatus, at half of their typical interest rates. This will boost the economy and help the government’s playbook to grow the economy. But plucking the money out of the banking sector to be spent by bureaucrats negatively impacts the economy.
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Nigeria cannot expand much, because it’s not interested in expansion, our smallness is deliberate. Like citizens, like leaders, they are all cut from the same cloth. If our banks declare decent profits, we say they are ripping us off. If MTN declares decent profit, the same rip off complaint. That of Dangote Cement is automatic, so no mention. If the big companies report losses, we argue that they were making huge profits before, and therefore should endure losses. This is who we are and have always been.
What will you build or expand here that the people will not have problems with? Create new industry, you will be called monopolist, even when no one is playing there. It is only in Nigeria you are a monopolist for doing what no one dares to do. How do you dream of expansion under such environment? Rather than medium enterprises growing bigger and becoming corporations, they either shrink or die off, but it doesn’t bother us.
What exactly will create the sort of wealth Nigerians always dream about? From which sectors or industries exactly? Aside from currency manipulation, Nigeria may not attain a trillion dollar economy by 2040, because we don’t really create sectors and industries that could propel such. We only draw circles.
Thank you Prof., for drawing attention to the fact that many, or even most startups by Nigerians that will drive future growth are non Nigerian. But does anyone listen? Sometimes I wander how Nigerian leaders and regulators keep dancing to strange tunes playing underground. There have been calls to increase tax rate and it seems Nigerian leaders are disposed towards that, yet Nigerian tax rate is already too high compared to US, China, Hong Kong and most European nations. Piling on this are infrastructural deficit, lack of ease of doing business, lack of purchasing power due to deepening poverty level. Still they are talk about attracting investors while kicking existing struggling industries on the ass. What?