Lagos

The Big Yam

Plotting a pleasanter future for Nigeria’s business capital
 

Reuters

Governor Fashola says it’s getting better

SPEND an evening at the tree-lined Seaside Bar on Ikoyi Island and it is possible to come away with a rosy view of Lagos. Revellers clink bottles and gaze across shimmering water. A motor-cruiser festooned with twinkling lights swishes by, music booming. Spotlights illuminate a row of plush new waterside flats on neighbouring Victoria Island; cranes, radio masts and fast-rising hotels dot the skyline.

Daily reality is less alluring. Lagos has long suffered from overcrowding, jammed and broken roads, erratic supplies of power, violent crime, floods, filth and smog. Lagosians are often dynamic, thrusting and entrepreneurial—but even some locals concede that their city is exhausting. Stretched awkwardly over islands and swamp, Nigeria’s former capital struggles to serve both as west Africa’s finance-cum-business hub and as one of the region’s biggest ports.

It has fast outpaced efforts to plan for growth. A recent census found 8m residents, making Lagos Africa’s most populous city after Cairo; the UN expects that figure to reach 20m by the end of the next decade. The governor of Lagos state, Babatunde Fashola, thinks it will get even bigger. Bedecked in a traditional outfit topped by a jaunty red cap, he says that Lagos must plan to be a “mega-city” of 40m souls by mid-century.

What chance has he of crafting a functioning city rather than a conurbation of slums? In office for two years, Mr Fashola can claim a little progress. “We have been able to make the wheels turn quicker,” he says, pointing to new roads, more traffic lights, street lamps and wardens. Now he has plans for public transport: a fleet of 40,000 fume-belching buses, he says, will be overhauled and two commuter rail lines built with the help of private contractors. Ground is due to be broken for the railway in August, as contractors bid for business. The first trains, he promises, will be trundling within three years.

Crime, including armed robbery, is down sharply, he says. Illegal housing has been cleared from the city centre, in some places replaced by parks and trees, so crooks find it harder to evade police. Mr Fashola also points to new cars, boots, CCTV cameras and increased allowances for the city’s 3,000 police. Robbers in boats who once whizzed along city creeks have been chased away.

Efforts are being made to stir up civic pride and reduce the smog caused by fires, by collecting rubbish and waste more reliably. Mr Fashola is also committed to fighting graft; he has published his e-mail address and telephone number for complaining Lagosians.

So far, locals are fond of their governor and his populist touch. He benefited when the economy boomed. But falling oil revenue will mean less public money in the next year or two, and the private sort will be harder to raise too. He plans a fund worth 50 billion naira ($340m) to pay for public-private partnerships to upgrade local power stations, run new train companies and so on. But as the world economy slumps, private partners may be hard to find—and his popularity trickier to sustain.

Nigeria's economy

A double strike

Africa’s second-largest economy has home-grown problems, too

STAND on the beachfront of Lagos, Nigeria’s commercial capital, and a puzzling scene emerges from the tropical haze: a stately line of container ships, each at anchor, queuing to enter the harbour. Despite the global slump, congestion is not letting up, says the director of the company that runs the privatised port. The number of inbound containers has doubled in the past three years; so far in 2009 there has been no decline. Such is the crush in Lagos that getting cargo from ship to port to lorry still takes an average of six weeks.

Such blockages are nothing to celebrate. But they indicate how 140m-odd Nigerians, despite being battered by a sharp fall in oil revenues and by an equally painful 20% devaluation of their currency, the naira, remain hungry for imports. Retailers tell a similar story. Coca-Cola plans to serve Nigerians over 2 billion bottles of sugary drinks this year, as it did last year. Procter & Gamble, which sells nappies, washing powder and so on, reports some slackening growth but still expects the young and fast-growing population to push up consumer demand in the next few years. Mobile-phone companies, notably MTN, which dominates the local market, are even more gung-ho. They continue to brag about healthy sales of handsets and new armies of subscribers, though the rising costs of imported equipment cut into profits; Nigeria now has some 64m lines, up from a handful a decade ago.

Anecdotally, at least, businessmen’s bullishness seems so far to be borne out. Good hotels in Lagos still charge astronomical rates, building sites are crowded and vendors throng the city streets as ever; bootleg DVDs of Barack Obama’s inauguration are particularly popular.

But like many poor countries, Nigeria has not escaped the global storm. It relies heavily on oil and gas exports, which provide more than 95% of all foreign-exchange earnings and most of the government’s revenue. Both have been thumped by the tumbling price of crude, now at about $40 a barrel, more than $100 less than at last year’s peak. With nothing else to export—all those containers leave empty—Nigeria is especially vulnerable to volatile oil prices.

Capital which washed merrily into the economy a year or two ago is flowing the other way. Most of it had served the hydrocarbon industry but some foreign investors, notably Americans, had started to see Nigeria as an emerging market; braver ones were tempted by its stockmarket. No longer. A property bubble has popped; the Nigerian Stock Exchange has tumbled by around 40% from its peak. Speculators and local banks are painfully out of pocket.

No wonder the federal government is starting to sound worried. On March 10th President Umaru Yar’Adua at last signed into law a much-delayed expansionary budget, with spending for 2009 at $21.2 billion, a lot more than in early drafts. The newish finance minister, Mansur Muhtar, recently admitted to a meeting of businessmen in Lagos that he saw a “very gloomy picture in the short and medium term”.

Nigeria, along with Africa as a whole, should be spared outright recession. Chukwuma Soludo, the central bank’s governor, says he still expects sub-Saharan Africa’s economies to grow by roughly 3% this year. Nigeria, he reckons, should muster more than that, though not the 6%-plus of recent years. That would barely match the rate of population growth, but if those figures are right Nigeria will be doing better than most and should avoid the acute pain of previous commodity-price busts, as in the 1980s, when the government could not pay civil servants and political instability ensued.

Nigeria is also in better shape to deal with a slowdown because of some decent macro-economic reforms. Inflation, food aside, is quite low. The government has paid off sizeable debts or been relieved of them. It also has ample foreign-exchange reserves and has ferreted away $20 billion in a fund called the Excess Crude Account, which will help cushion public finances from the downturn. On the other hand, raising cash is getting harder: Mr Muhtar has just postponed plans to sell $500m of bonds on the international market.

Yet even if the global crisis has not hit Nigeria as hard as elsewhere, it is exposing some unresolved problems at home. Take the banking system, which Mr Soludo says would have collapsed months ago but for an early round of government-driven consolidation. He calls the banks “shock absorbers” for the economy. But they look increasingly wobbly. Despite claims that they are well capitalised, with generous capital ratios of 22% said to be typical, they have all but stopped lending to each other or to local firms, especially smaller ones.

Critics say the banks are frozen because many are dangerously exposed to the stockmarket slump, after rashly securing a large portion of their loans with now almost worthless equities. Without government support, some banks would almost certainly fail. None trusts the others.

Oil and gas production, the economy’s mainstay, is also in bad shape. Long Africa’s biggest producer, Nigeria last year ceded the top spot to Angola. Production is dropping, in part, because militants in and off the Niger Delta kidnap workers and scare away oil firms. A new pipeline built to export gas to Ghana, Togo and Benin should have opened in January but lies empty. Talk of spending $12 billion to build another pipeline running 4,400km north across the Sahara to send gas via Algeria to Europe sounds fanciful. A sizeable share of local gas is simply flared off at source.

Meanwhile, Nigeria still cannot keep its own lights on. Manufacturers, who account for a feeble 3-4% of GDP but at least create some jobs, grumble that they must rely entirely on costly diesel generators. Power cuts are common. It has long been obvious what should be done: existing turbines lack supplies of gas, transmission cables should be rolled out, more power stations must be built. Successive governments have let power generation dwindle, yet none has let private contractors act instead. Shortly before leaving office the previous president, Olusegun Obasanjo, passed a law ordering the privatisation of some power stations. But Mr Yar’Adua quickly reversed this, saying he was worried about corruption.

A rare bright spot is agriculture. Nigeria’s lands are fertile; water, at least in the south, is plentiful. A fertiliser plant has been privatised and is supposed to start supplying farmers. Local food and tobacco prices remain high compared with world prices, which should give farmers good incentives. One day—who knows?—goods may once again flow out of Lagos harbour as well as into it.