Responsible Reforms

  
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I spoke to the chief economist of PwC in Nigeria Andrew Nevin. We had a conversation on taxes, central banking, and economic reforms in general. Andrew also explained his preferred measure of economic progress as opposed to GDP, and whether we should be more like China or India. I thank Andrew for agreeing to share his views with us.

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TRANSCRIPT

Tobi: Hi everyone. I am on today with Andrew Nevin, the Chief Economist of PricewaterhouseCoopers in Nigeria. It’s great to have you, Andrew.

Andrew: Great to be here, Tobi. Thank you so much.

Tobi: I will like to start about taxes. Oil prices have collapsed, and along with government revenue, so naturally, the government is looking towards taxes as a way to buffer the government’s revenue source. What I just want to ask is, how realistic is that plan, especially in the current economic climate? 

Andrew: Well, I think that we all understand by now that Nigeria collects a small amount in tax compared to other countries. I think the number is about 6 percent of GDP, very small. So for the last few years, there's been this narrative from the government: we need to bring people into the tax net, people need to pay more taxes, more tax compliance, that I think we've all seen. And now of course with the collapse of oil revenue there's essentially no tax revenue coming from oil for the next few months, at least, and maybe longer. So, of course, the government is in a very difficult fiscal position. So naturally, they're going to say "we now need to increase our efforts to bring people into the tax net to increase the tax revenue". There are two problems with that. The first problem and we've highlighted this over the last four-five years is: it's very difficult to increase taxes when people feel like they're not getting services. So if we think about the social compact in Nigeria, certainly over a decade that I've lived in Lagos, the social compact is simple: the government doesn't really tax you very much but it also doesn't provide services. So people provide their own security, their own electricity, their own healthcare, their own education, their own infrastructure, and that has been the social compact. It’s not ideal, but that's the way it’s worked. Now the government comes along and says, well, we want to bring you into the tax net, we want to increase taxes, the rates, the number of taxes, and people say: hold on a minute, this social compact doesn't work unless I'm getting some services. So that's one challenge. The second challenge that we’ve talked about over the years and is really now quite a huge pressure is, [it’s] very hard to raise more taxes while the economy is not growing. Over the years from the 2015 recession we still had very low growth, 1-2 percent, a little over 2 percent in 2019. So [economic] growth has been below population [growth], which means that incomes have been going down, which means it's hard to take more money out of people. So both of those things remain challenges, we now have this confluence of events where effectively half of the revenue or more than half of the revenue going into the federation accounts collapsed and yet it’s very difficult to take taxes from other places. 

Tobi: It’s interesting you talked about growth because I was looking at data from the IMF a few days ago and per capita income in Nigeria has basically stagnated in the last four to five years. So basically people are not growing their income and it's very difficult to raise taxes. But there is another argument that I would like you to explore with me, which is that, is it also about capability for government? I mean, there is no national database and that is not cheap. How significant a barrier is that to expanding the tax base?

You asked on a general level, on a general level, if we don’t get investment up, we won’t be able to bring people out of poverty. - AN

Andrew: Well, I think that there has been a lot of progress on that, certainly in Lagos where I live. The electronic record of the LIRS [Lagos Inland Revenue Service], the ability to bring people into the tax net, the [indistinct words] that they have, those things have got[ten] stronger and stronger over the last few years and they've made progress on that. But I think that what you raised, Tobi, is a really...is a general point. I think there is a lot of capabilities, certainly the Federal Government, the Lagos government which I know best, and other States. But I think sometimes the problem is the capability is spread too thin. We have so many MDAs at the Federal level, so you have a pool of very talented civil servants and people [who] come from the private sector...to cite a couple - Dr Jumoke, Yewande Sadiku at the NIPC, Engineer Chidi over at the concession group...I mean you have some very high-quality people, high-quality staff, but we'll get so many MDAs, sort of create complexity and then there are pockets where the Federal Government or the State Government don't necessarily have enough capability. I think also at the state level, it's a real challenge. Many states as we know have very small IGR [Internal Generated Revenue], they haven't yet sort of got their records or their system in place to raise internal generated revenue from the businesses that do exist in the states, but the states are trying on that... but I think you highlight a really...yes, a very critical issue.

Tobi: Still on income growth, what do you think has to change for per capita income to start growing in Nigeria? There are a few hypotheses that we are going to explore as we talk along but just your general view, what would it take, what has to change?

Andrew: Well, I think the perspective we’ve had over four or five years is pretty simple. People talk about this program, and agriculture, it’s small business, and concessionary financing, all of these little pieces...but when you ask in general what the issue is? We need to grow. We’ve said for years that the country needs to have GDP growth of 6 to 8 percent a year to reduce poverty and alleviate unemployment. Why? Because we have population growth that is probably almost 3 percent a year, so if we're growing at 6 to 8 percent, per capita income will be 3 to 5 percent growth per year. So that starts to be meaningful over a few years. But more than just GDP growth it needs to be inclusive. I think the period from 2010 to 2014, there were lots of GDP growth but it was not shared evenly or not shared appropriately throughout the country. So we need to grow 6 to 8 percent. Now, how does that happen? At the very basic, almost mathematical or physics level, to grow requires investment. So how much investment? When we look around at the economics of this in some other countries, the investment needs to be close to 30 percent of GDP which in Naira terms, say, in 2018-2019 come in with, maybe, a 150 trillion Naira...so 30 percent is 45 trillion Naira of what economists call gross capital formation. We are only getting a little more than half of that, maybe 25 trillion roughly. We cannot grow 6 to 8 percent when there is not enough investment. So then that leads to a very simple question, why is there not enough investment?

I lived for ten years in China. I went to China the first time in 1983 which was the beginning of their economic transformation and they have lifted 500-600 million people out of poverty, they’ve grown 8 to 11 percent, 8 to 12 percent, 6 to 10 percent for forty years almost now, and how do they do it? Well, you have to invest. So we have to invest in Nigeria. Then the question is, given that Nigeria is probably the number one economic story on the planet right now for potential, why are people not investing in Nigeria? Why are Nigerians not investing enough? Why is the diaspora, who have resources and know the country not investing enough? And then if those two groups invest, then foreign investors, direct investors will also invest but they are not investing. So that's the question we’ve posed to the Federal Government. You asked on a general level, on a general level, if we don’t get investment up, we won’t be able to bring people out of poverty. But why are people not investing? If we want to explain it very simply, what we say is: right now, it’s too complex and too costly in Nigeria to do business. Despite the incredible efforts of Dr Jumoke [Oduwole], a national heroine over at PEBEC, it’s still too hard. Too many agencies, too many costs, too much complexity, so people choose not to invest. I was talking yesterday to the CEO of a major Nigerian company, very successful company, and he was talking about one of the global giants that I won’t name here but who is evaluating between South Africa and Nigeria for coming into the country and they made the decision... they’ll eventually come to Nigeria, but they made the decision, for the moment, to go to South Africa. He said it was very simple, they just found it too complex dealing with too many agencies, too many taxes, not just the level of taxes but the complexity of taxes.

So until the Federal Government and the State Governments are serious about wanting to make it an attractive...and I said this, sorry, let me also add, Tobi... I say this not as just the Chief Economist. My main role at PwC is I oversee our financial services practice, so I am out-serving clients, I run a business - PwC. I also have two technology companies that I have helped found in Nigeria, so, you know, I'm doing this I'm not just speaking about it and I can tell you - it is not easy in Nigeria. So we have this incredible opportunity, we have incredible entrepreneurs both Nigerians in Nigeria and in the diaspora and yet it’s not been tapped quite yet.

It may be distressed, but I prefer democracy and Nigeria's democracy is a work in progress but it's a democracy. - AN

Tobi: That's interesting. You mentioned China, so let's explore that. Everybody would love to copy the East Asian model, right? But in Nigeria, it seems, at least to me, that we are still doing import substitution industrialisation rather than exports and oriented manufacturing that lifted Asia out of poverty. Now, I'm asking at a conceptual level, what has to change in policy circle for us to see the distinction between those two models?

Andrew: Well, I think to begin with, I said I’ve lived ten years in China and I think there are some positive things we can take from it but the truth is, China is not a democracy. It's an autocratic, one-party state and I'm not sure it's a great model. Maybe, in the end, that would win out economically. It may be distressed, but I prefer democracy and Nigeria's democracy is a work in progress but it's a democracy. I think that we've advocated over the last one or two years that the right...and of course people come all the time, I go to conferences and people say Rwanda, Singapore as models for Nigeria, we said very clearly, we think: look, if you're going to take one country as the model for Nigeria, that we have the most lessons to learn from, it's actually India. And why? India is a large, diverse country. It has religious differences, it has cultural differences, it has geographic differences, it has very different topography and no one can argue that Nigeria is more complex than India. They are both complex. India, like Nigeria, is a messy democracy, a work in progress. But despite that, they have made a lot of economic progress in the last twenty years, really unlocking things starting in the beginning of the ‘90s. Then when you go to the economic model, what unlocked it for India was not exporting goods (physical goods), it was exporting services... particularly around IT. 

Many countries have a diaspora but the thing about the Nigerian diaspora is, they are at the top end of the income ladder. - AN

So one of the things that we are starting to say is, like, should we be focused so much on exporting physical goods because if you think about where we're at, a couple of things are going on. One, of course, is, to export a physical good, it just requires a real improvement in the infrastructure that we have - port infrastructure, road infrastructure to bring down the cost to be competitive. Secondly, where are we going to export to? If you think about what's happening in the world, the population in Europe is shrinking population, the population in North America is basically flat, are we going to be able to export into a shrinking market into Europe? There are already people that export physical goods into Europe, can we displace them? I'm not sure that we can that easily. Can we export to India? Well, they already have their own manufacturing. Can we export to China? Well, they’re sending their manufacturing here. So I'm starting to think that we should kind of leapfrog and actually go back to the lessons from India and export Nigerian brains without exporting the people. If we go back for a minute to the way the economy works here, the biggest source of FX is actually diaspora. So Nigeria, unlike many countries...I mean, many countries have a diaspora but the thing about the Nigerian diaspora is, they are at the top end of the income ladder. They are the best-educated group in the United States, they earn above the average American which is an amazing accomplishment for a new immigrant group. We are exporting Nigerian brains and then a lot of the money falls back. Now, we then ask the question, can Nigeria export people but without people leaving Nigeria? So that they are working in Nigeria but they are earning foreign exchange, they’re being paid at the global level or a little bit below because that's what people bid from the demand side, and it’s starting to happen.

I want to highlight on this show one incredible woman, incredible Nigerian heroine, and [her] company. This is a company called Outsource Global which is based in Kaduna and Abuja and it outsources to global companies for different kinds of support - call centres, but also…the other support is not necessarily voice to voice but task, legal task in some cases. It has over a 1000 seats on there and it’s founded by this amazing woman Amal Hassan, and it's growing in the Covid-19 because people need more remote work. So think about what's happening here, we now are exporting Nigerian brains, very high value-added, they are not physically leaving Nigeria and this is starting to happen. If you look at some of the global companies like Microsoft, for example, they are putting more and more of their development into Nigeria. So what is that? Again, that's an export of Nigerian people, of Nigerian brains. So I'm starting to think that rather than advocating for trying to follow the East Asian model (that model is gone historically), we should follow more the Indian model, companies like Webpro, Infosys that has turned into giants now. They employed millions of people in India. Tek Experts is another one in Nigeria that is exporting Nigerian brains. To me, that's a higher value-added path at the moment.

Tobi: My follow-up to that would be: that requires a relatively high level of human capital and the distribution is unequal and the ability to take advantage of that opportunity will be unequal as well. Maybe it will be different for Lagos, Kaduna, as opposed to Kebbi or...so now my question is do we really have to adopt a distributed, varied development strategy at the sub-national level?

Andrew: Let me just go back to the point you made about exporting people being high end... absolutely. Remember, you want to export very high value-added things, that doesn't mean it's the whole economic strategy, so in terms of domestic sectors, we said for four years now the number one sector is real estate. Why? Because, first of, there's a housing deficit. I don't want to give the number because the number that's being repeated, very large number is not very accurate, we don't have that many homeless people in Nigeria but a lot of people live in substandard housing and there is a housing deficit. We need more housing not for the high end but for the middle-income people, lower middle-income people, and that drives employment domestically. So we are not exporting housing but we're doing housing, that is the biggest sector for us. The reason to our employment is every time you build, you need local building materials, you need carpenters, electricians, plumbers, labourers, caterers come on site. And once the place is sold, the family that moves in, they want to furnish it, [and] over time that drives other industries so that's one domestic industry. Agro-processing, we are very keen on as well, we've written a lot on it. But, again, it may not be for export. Some of it could be for export - cashews, maybe eventually palm oil will export but, of course, we have such big domestic uses of... just the domestic use of that is huge. So I don't want to say that exporting brains is the whole economic strategy [be]cause you're right, but it's so high value-added that if we had, I don't know...if we had a hundred thousand educated Nigerians exporting their brains but sitting in Nigeria will have a massive impact on the economy because they're earning good salaries. Now, they're spending the salary, they're buying homes and that's important to labourers, you get the normal, sort of, knock-on effect. So we need [the] export strategy and we also need, kind of, the domestic strategy.

Now your question about sub-national, yes, we've said for a long time that one of the major issues in Nigeria is the imbalance of economic development. We have Lagos 30-40 percent of the formal economy in Nigeria and yet many people who are in Lagos that come to work but they don't want to be in Lagos. All of us who live in Lagos are aware of the challenges with the traffic, with the infrastructure. And if you talk to some of the senior political people in Lagos, they will say the biggest problem we have in Lagos is every time we address something, we get more people coming in. So we need development across the country, we need it in Cross River, we need it in Sokoto, we need it in Niger, we need it in the North-East as well. But I think that what's happened over the last two years is it’s not just us saying it, I think everyone recognises it. Domestically people are doing this and you start to see the emergence of some really incredible governors who have taken responsibility for their states. To name a few that I am familiar with...

His Excellency Governor el-Rufai in Kaduna working very hard to move the state forward. Governor Makinde in Oyo State. Governor Obaseki, I mean, obviously there are some critical challenges in Edo State but he is very focused on the right things. So I think that's a great movement forward and the Federal Government recognises this too. So, again, we talk about PEBEC and Dr Jumoke, we talk about the National Investment Promotion Council with Yewande. Those groups are now working at the subnational level, I think that's a major step forward for the country and we're going to start to see the fruits of it. I think most governors recognise they themselves have to be out and getting this investment I talked about earlier and are making real efforts. So I think we should be encouraged by that but it's got to accelerate, we have to take the pressure off Lagos, we have to give young people, in particular, a reason to want to stay in their state, or not necessarily move to Lagos [but] to move to some other commercial center where they can find opportunities.

Tobi: Deindustrialisation: how plausible is it an hypothesis for slow growth in Nigeria? I mean, services is growing really fast and in terms of value-added it has a higher share of the economy, and agriculture has also a large share but industry has shrunk over the last few decades. So how plausible is deindustrialization as an hypothesis for slow growth?

Andrew: Well, I think that we all understand the challenges that industry...talk to MAN (the Manufacturers Association of Nigeria), for example, all the members there understand just how difficult it is to operate and of course you have power issues, you have infrastructure issues et cetera. But before commenting on that, one thing that is important to remember is sometimes the statistics are difficult to interpret. So if you look at the division in the country between services, agriculture, manufacturing get certain numbers... but if we have a tomato paste processing plant, does that get classified as agriculture or manufacturing? So I'm not so worried about, kind of, the statistics [be]cause it is very arbitrary which is what's happening on the ground. But in terms of the manufacturing side of things or the agro-processing which I think is a big component of it that should grow, (and) of course, it already happens...we have companies that do agro-processing. We have Flour Mills, UAC, Dangote...they do a lot of these. But of course it's been difficult. As I said before people have to build their own infrastructure, their own power situation et cetera. So MAN said, we’ve said, others have said...it's so obvious that [the] precondition to moving forward for more value-added manufacturing in any sector is obviously power. We've struggled with it with the privatization that happened 2013, but it seems sensible “oh, privatization, hopefully that will lead to a better power situation” but the truth is it's got[ten] worse and I think now the whole country, everyone recognises that. But I'm quite hopeful on the power situation. Again, first of, there has been [an] admission by everyone, every government, every private citizen that we’re in a power emergency. Two, you’ve got one of the leading figures/leaders in this country stepping up to lead the new super committee that is looking at power and I expect they’re going to come out with some...sorry, let me also say that I'm very very happy that Governor el-Rufai has recovered from the Covid-19 virus, it makes you realise how everyone at every level of society is vulnerable. Thank God that he recovered.

But Governor el-Rufai I expect that committee comes out with its recommendations to do some radical things on that, recognising, obviously, we need a cost-reflective tariff, we need a way the bottom of the pyramid can get access to some power. We also need some, probably, decentralization because there are so many technologies for power, and so many decisions to be made it's difficult to make them all at the center. But I do think that would unlock a lot of these issues over the next few years, so I'm very hopeful on the power situation. 

Tobi: On the power issue, if you have to come up with, say, three things that would really need to happen for that sector to see the needed to change, what would be on your list?

Andrew: I'll give you one thing. So we did put out a paper that suggested actually that we should focus the power that we have, uninterruptible power, to manufacturing [and] charge them more for it if they're willing to pay for that, but that's one idea. But the big idea that we put out for three or four years is simply decentralisation. If you look around the world...so I'm Canadian, I think most people who follow me know that. We often on Twitter have discussions about immigration to Canada from Nigeria, but in Canada, power is a provincial issue. So you have Nova Scotia which is a province of about a million people and I think it has (I'm just guessing) probably between 200 and 400 thousand customers between residential, commercial, and industrial and it's a provincial matter. As far as I know, I don't even think there is a national regulator of electricity in Canada. The provinces sort out their own electricity, there's lots of different models - some privatisation, some state/public-sector lead pieces of it and it works fine and then, of course, the provinces sell power between themselves, they sell power to the United States. The power from Niagara Falls which is a large (I am sure people have seen pictures of it, also not far from where I grew up) which [has a] massive hydroelectric dam there, sells its power to New York State and the Federal Government doesn't get involved. So if you wanted to put one big idea out there, it's decentralization. Today, the decentralisation is even more critical because there are so many technologies to produce power on a smaller scale than we had before. 

If you go back to when I grew up in the sixties, you had this image of big power plants, big thermal plant, big hydroelectric plants, big nuclear plants...now power can be produced in situ where you are at a smaller scale. If you take gas power for example, the scale economics aren’t that strong so if you have gas, you could produce power locally for local needs. So, in answer to your question 3 big ideas, let me put one big idea which is let’s decentralized the power decisions. And I think if you told States "get on with your power situation", they would find local solutions to their own situation to make sure that they had power, that their manufacturers had power, that the bottom of the pyramid had access to some power, maybe subsidized rates, but those decisions can only be sorted out locally.

Tobi: Interesting. Decentralisation seems like the solution to a lot of problems in Nigeria.

Andrew: Well, people say to me, why do you stay in Nigeria? You’ve lived all over the world, you can be anywhere. I say this is the future. I mean, as we know, the population projections having us come third largest most populous nation, hopefully in my lifetime we’ll see that. It's the biggest economic opportunity, people are incredibly entrepreneurial in tough conditions. So how do you unleash that energy? It's just easier to let people get on with it at the local level. I'm not the only one or PwC is not the only one saying it, except there is now widespread recognition that things have to happen at the sub-national level. I mean, of course, one powerful idea you want to see in any country is, a state has a great governor, I mean Governor Makinde focused on health care, focused on education, focused on continuing the projects of his predecessor rather than abandoning [and] wasting those resources. If the Governor in the next State is not doing it, people are going to say "Oyo is moving forward" and they are going to hopefully elect someone. But that goes back to what we discussed earlier, it's an imperfect democracy but all we need to do is push forward.

Tobi: I would want to talk about the Central Bank, how Central Banking is being done in Nigeria. Now, take the power situation, the Central Bank Governor has been on a tour the last couple of years that, oh, this sector, textile, whatever, so they say power is the problem and this is what we are doing to finance power provision. My question is should that really be the remit of the Central Bank?

Andrew: I think I will just go back in history a little, a short-term history. What brought me to Nigeria was the financial crisis in, well, the developed world in 2008. I moved to Nigeria in 2009 and my first client in Nigeria was the Central Bank of Nigeria when Governor Sanusi who, of course, became the Emir of Kano (and now is no longer the Emir of Kano) was running it. And he in 2013...I was at the bankers’ committee strategic retreat in Calabar in Cross River and that was his last bankers’ committee retreat. So CNBC came to the meeting and they asked him this... and we all watched while he was interviewed...it was sort of live interview with us in the room, bank CEOs, and people like me, advisory people, sitting in the back and the sides and they asked him exactly that question seven years ago (cause he started intervention programs and, in fact, some of the work that we did with him earlier was what encouraged his interest in agriculture because we pointed out that agriculture was 35 or 38 percent of the economy but had none of the lendings, so that got him thinking about that). So he said, look I get you, you can look around at different Central Banks around the world and they don't do things [like] what we're doing here. And he said but the reason I’m doing it is if we don't do it, who else is going to do it? [The] Central Bank has always been the Federal Government’s MDA that has the most capability, very talented people, high-quality organisation, so they've sort of stepped into the breach. That said, given your question, I guess we've sort of said...look, we're asking too much of the Central Bank in Nigeria.  

Sometimes I go on television, and the monetary policy committee will be meeting and the next day or the next week they will be asked: should they cut rates, raise rates 13 percent, 12 and a half, 13 and a half? And I say, look, I don't even think that question is that important because the issues that we have in Nigeria the Central Bank can't solve that way. We have, I won't even call it fiscal issues, we have structural issues that can only be solved by the executive and the legislature at the federal level, at the state level working together, for example, on the real estate... to unlock the real estate sector. So we ask too much of the Central Bank, I wish it wouldn't get so much attention. If you look at developed economies, if I take Canada, for example, I don't think most people can name the Central Bank Governor. He does his part on that, adjust interest rates to some monetary policy intervention. Basically the economy works because it's structurally sound and I can give you an analogy. The Central Bank Governor of any Central Bank in the world is a racecar driver and if you give him a car from the 1920s, it's only going to go as fast as the car from the 1920s goes. If you give him a car from the 1950s, it's only to go as fast as a car from the 1950s. And if you give him a car from 2020, Ferrari (F1 Ferrari), it's going to go that fast. So the issue [is] that people should not be putting so much pressure on the Central Bank in Nigeria to fix our economic and social challenges. It's going to be fixed elsewhere.

Tobi: Forgive me, Andrew, this leads me to a sort of question about institutions generally. Yeah, Sanusi started this and maybe, just maybe, he had the sense to know where the limits are, the extent of the capability of the Central Bank to actually solve what you have also said are structural problems that should be fixed at [a] political and fiscal level in Nigeria. Now, we've had some situation in the last couple of years where the Central Bank itself has been the source of domestic economic distortions, in terms of prices and exchange rate. I was reading a paper a few days ago by the former World Bank Chief Economist where he clearly said that there is some evidence, as much as we know what evidence are in economics, that there is some evidence that Central Banks in developing countries would generate a lot less distortions if they adopt some kind of rule-based intervention in the market as opposed to discretions. What I want to ask you is this: is it time for some kind of rule-based regime at the Central Bank? Some kind of legislative oversight over what the Central Bank is allowed to do so we don't have a situation where central banking will only function according to the disposition of the personnel in charge.

If we wanted to have a more rules-based approach to monetary policy, absolutely, that would benefit the country, but it also requires the other pieces of the national leadership to do their parts so this will be part of a comprehensive whole. - AN

Andrew: I think I would agree with that but the way I phrase this is, we need to take pressure off the Central Bank. I mean, the legislative and the executive arms need to say, okay, we get it, there's a limit to what the Central Bank can do. Obviously Central Banks need to be involved with questions around the currency, interest rates, stability of the financial sector, let's simplify the role here and you can do that and we will create rules that send positive signals to people involved in the economy and investors to do that. That would be great, but then the legislative and the executive arms then need to take on the task of doing what needs to be done to fix the economy structurally. In a way, what's happening is the Central Bank is intervening in tomatoes, intervening in SMEs, intervening in cultural things, in the power sector because the other arms of government have not stepped up to their responsibilities. So, absolutely. But it will have to be part of the whole package. It wasn't like the Central Bank was entering into terrain that was being already done, they enter in because there was a vacuum. If we wanted to have a more rules-based approach to monetary policy, absolutely, that would benefit the country, but it also requires the other pieces of the national leadership to do their parts so this will be part of a comprehensive whole.

Tobi: Okay. Another question I want to ask you on that is, I spoke to Nonso on this show a couple of weeks ago. You know Nonso Obikili and one point he raised is that over the last ten years or so, there's been not too many economists at the Central Bank. Bankers have, sort of, exerted a lot more influence on the Central Bank. What I want to ask you is should we separate banking regulation from monetary policy? Would that be a useful way to go, like they did in the UK, for example?

Andrew: It's a good question. Canada where I [am from]... everyone knows I'm Canadian...those functions are separated. The Central Bank of Canada is effectively just doing monetary policy. Regulation of the banks themselves, and we have five big banks, some other banks and, of course, the larger financial sector is regulated by any other group, works perfectly fine for us. So I think it's certainly an option. One of the things people may not realise, just for historical reasons, if I remember right two-thirds of the banks are supervised by the Central Bank and one-third supervised by the NIDC. Just for historical reasons they use the same standards, as an example. So we already have supervision done by [a] non-CBN group there, so I think both models can work but I think it's probably, you're right, easier in a leadership sense if the Central Bank can just focus on the core issues of monetary policy, exchange rate policy, interest rates and some other group does the supervision. But I think that issue in the context of our overall problem is probably a secondary issue for the moment.

Tobi: Let's go out of that orbit a bit. The creative industry, Nollywood, music and all, how much of a growth potential does it have? Netflix is now in Nigeria and there's a lot of excitement.

Andrew: It's massive. We've done some work in the creative industries, how to get funds to them. Even though there are lots of barriers, you'll still see the incredible success of the music industry and now the Nollywood industry around the world, and of course it's massive domestically. But to make it grow more we need to have a little more structure in the industry, particularly people that are creative, that create these incredible products need to be able to get the fruits of their labour. I mean issues around piracy and distribution. But I think enough people have recognised this now, as I said we've done some work...there are people, groups with money outside of Nigeria who now recognise and want to invest in this industry. And again, as we're saying earlier, Outsource Global, Tek Experts, Microsoft...they are exporting Nigerian brains and earning FX for the country increasingly. Nollywood and the music industry as well are earning FX for the country, big exports. And of course, it's not just Nollywood, it's also fashion, for example, it is a big part of African fashion, people around the world are listening. Last night after dinner we listened to Nigerian music, it's just... that's what we do now. It's fantastic, and I think it is also a fun industry. One of the things that Nigeria does better than any other place that I have ever really lived is events. I mean it's just incredible when you sort of see some of it...and of course, it's tied together and night clubs, parties, all of that is tied together with the entertainment industry is a great part of Nigeria.

So I think it should get a lot of attention. Now, one of the things that is critical to it, of course is, again, financing. What's happened over the last few years is the banks have become a little more specialised in what they support. Five years ago you never heard of this but now there are some banks, I won't name them here, that are focused on the entertainment industry. The way it works in banking or financial industry is, you really need sector expertise. So if you look at, say, for example, Sterling Bank they have a public strategy, health, education, agriculture, renewables and transport. They really go deep in those sectors. FCMB has come out very clearly says it's going to be agriculture-focused and then some other banks as I said now focused on Nollywood and the music industry. To the extent they've got [the] expertise, they have better ways of channelling money into it. So I think we'll see it develop rapidly and that should be encouraged. Again, it's a service industry but it has great potential to generate value for Nigeria.

Tobi: Let's talk about the tech sector. You are an investor and also an entrepreneur in that sector, what is the current state? I'm asking this because, of course, this is going to be a bit controversial... I have a few friends who think that the way things are currently is still a bit overrated...

Andrew: The tech sector. The tech is overrated?

Tobi: Yeah.

Andrew: I think the thing about the tech sector you have to remember is... I meet so many young entrepreneurs, I always make time, someone reaches out on LinkedIn, I'll read the business plan...and, you know, the energy level of the entrepreneurs is just fantastic and just the sheer courage to try something. But the truth is into these, sort of, startup tech things, most of them are going to fail. Sometimes the young entrepreneur is absolutely convinced of his or her success which is fantastic, you need that energy. But the point is you might have fifty fail, but if you have three that succeed in a big way that makes a difference to Nigeria, that is what we want. I don't want us to focus on the failures, what I want us to focus on is how do you create something that works in the Nigerian condition? If we take two areas or three areas, so we take edtech, healthtech, and cleantech/energy. So, health and education - we have said it's basically impossible for Nigeria to duplicate the models that were built 150 years ago in these areas in developed countries. So if you think of medicine, you have physical doctor, physical nurse, you have one doctor for every 500 people on that. We can't mathematically ever get that many doctors in the right location, so there has to be some technological/healthtech kind of breakthrough to deliver. And I know lots of people working on it, we should encourage that and there will emerge out of that some successful ones that find the right models to put things together.

In a way, Nigeria has spent its money and in many cases not getting anything for it. - AN

Similarly in education, particularly with Covid-19, people have started to realise they can learn remotely, they can interact with people remotely. Now, how do we solve it for education for Nigeria? But, again, the local conditions are so critical. I've seen some people trying to bring solutions from developed markets, but we don't have the power, we don't have the bandwidth and then your solution fails. What I want to encourage our young entrepreneurs is to try to find things that work under the Nigerian conditions and can piece together these challenges and solve it. Cleantech, as I mentioned, [is] exactly the same thing. Even if we build out the grid, we'd still have, I think estimated for Africa, if the grid was built out economically we would still have 400-500 million people who are not connected to the grid in Africa in 10 years. So the only way to deliver power to them is in situ, like, where they live the only way to do that is obviously through solar. Because if you have to deliver them some kind of fuel, one that pollutes but too, it's just the same problem as the grid, it doesn't really solve the issue. Again, what are the solar solutions that are coming through? Lagos is actually the centre of solar technology around the world, small-scale solar right now. We have so many companies trying so many different things. Some will fail and many will fail, some will work. What I will say about the tech industry is, yeah, there's a lot of hype, one of the areas that I'm not so convinced about is AI (artificial intelligence) you're always hearing about it, what does it really mean? But out of that hype, there's going to be people that build organisations and companies that solve real problems for Nigerians.

Tobi: How significant is the talent gap in that sector? Jumia has their engineering staff in Portugal, I know a popular fintech that has their [it’s] engineering staff in Turkey, and is that a function of our low investment in education?

Andrew: Well, I think as we know, when Nigerians are given the opportunity, they are incredible learners. We said before, the diaspora has gone and done great things in many countries when they get the education. But in answer to the question, Tobi, yeah, the country is underinvested. People are not getting enough education, resources are diverted to the wrong things, so we started to say the only thing that public money should be spent on are education, health and to some extent some infrastructure, particularly roads. Toll roads are quite inefficient so it makes more sense for the public to finance the roads, but not the port, not the airport, not Ajaokuta Steel, not refineries. In a way, Nigeria has spent its money and in many cases not getting anything for it...it has wasted its money the wrong way. The way we put it is, the only thing that [the] government should be investing in is the Nigerian people. Invest in Nigerian people, [the] economy is going to improve. [If] what you just described doesn't happen, we get programmers in IT people who are domestic, we get some of that exported through these kinds of companies I talked about, some of it go to the diaspora and we get a flow back. But, yeah, we need to invest in people, it's that simple. So if there is one message that we as PwC would like to give the country is if public sector resources are invested in people, the country will thrive.

Tobi: Let's close out with coronavirus, the pandemic. The conversation in Africa and, of course, Nigeria has been about how affordable are the economic cost of this, weighed against the public health measures that are being taken - the lockdown, and everything...what some are calling a Keynesian supply shock that has caused even a larger plunge in demand and margins are down for a lot of companies. What I want to ask you is this, if you are in the room with the presidential committee or task force that is responding to this, what are the things that we need to do to have the right balance between the economic cost and the public health measures right now?

Andrew: Well, Tobi, I'm not sure I'm wise enough to know the answer to that. I think we all grasp just how difficult the situation is and I really...as you said, the health unknowns, the economic challenges. Six or seven weeks ago, we said the two things that countries need to focus on are: one, getting resources to the bottom of the pyramid and, two, keeping the food supply chain intact. Why is that? Because we understood a lot, you know, in the beginning of this...what would happen is if you have a lockdown, all the people who are in the informal economy or even the formal economy that are effectively earning daily income, daily wages, they are going to lose her job. We've had tens of millions of people in Nigeria lose their source of livelihood in a very short space of time. Everyone needs to eat, so getting them resources is the most important thing and, of course, it doesn't work if the food supply chain isn't intact. The issue with the food supply chain is you actually need some movement [because] where food is grown is not the same place as where it's processed which is not the same place where it's consumed.

I think the government has done a good job of focusing on those two fundamental issues, it's imperfect, we don't really have a great system for getting resources to the bottom of the pyramid on that, but I think that between the government, civil society, private sector...people have recognised this issue and they've really been doing the best they can. And, of course, individuals - every individual that's doing well in Nigeria is connected to people who rely on their daily wages and to the extent that they can, many I know are supporting people who have lost their livelihoods. So in the short-term, that's what the country needs to focus on and I think that the Federal Government has done a good job. That said, it's just so complex...it complex from a science, health perspective, we don't know everything about Covid-19, the transmission, asymptomatic people, how many people have it... it's challenging from a testing viewpoint in a place like Nigeria. Testing is being ramped up but still, we haven't tested in a lot of the population.

So I don't know the trade-off, I think the Federal Government agency/taskforce is doing the best job they can but we're also seeing cracks with the coordination with the state level Governors, they are under pressure. We all see what's happening in Kano, what the Governor is saying about relaxation during Ramadan (Kano lockdown), yet, there are 100 new cases, over 90 in Kano. How many real cases are... I'm not second-guessing the government, I think they've done all they can in a very difficult situation and I think we're in for, at least, a few months of real challenges in Nigeria. And I want everyone listening to stay safe, keep as many people safe as you can, it is not easy.

Tobi: Finally, Andrew, it's kind of a tradition on the show...what's the one idea that you would like to see everyone either in Nigeria or globally adopt?

Andrew: We, and I, personally, have started to advocate in Nigeria that we don't measure GDP, that we measure the progress of Nigeria by the progress on the Sustainable Development Goals. The relationship between GDP and human welfare is not that strong and as I said in the 2010 to the 2014 period GDP grew a lot, but the benefits were disproportionately distributed. SDGs are very clear - no hunger, no poverty, good education, clean water access to healthcare... those are things that actually really matter to the welfare of Nigerians. So the one big idea we have is rather than every day we stand up and talk about GDP growth 2.1 percent, 1.6 [percent], 5 percent, whatever the number is, I would like to have a scorecard across the country in every state [of] how is the state doing on their SDGs and have a way of gathering. So people like me can stand up and say" Kwara State is doing fantastic on these dimensions that really matter to people, Cross River is doing great, this other state is doing not so well, Lagos is making progress". I want the language, let's call it the "lens" to shift from a GDP lens to  Sustainable Development Goal lens in Nigeria. That's my one big idea for the day.

Tobi: That's interesting. Thank you very much, Andrew, it's been fantastic talking to you.

Andrew: Thank you, Tobi.