Bomb blasts won’t turn investors off Nigeria – Goldman Sachs
Terrorism is something of a wild card in international investing. When the US was hit by terrorists in 2001, the economy took a major jolt as planes were grounded and the city of New York spent millions dealing with the aftermath of the collapse of the World Trade Centre. But the US economy bounced back because the truth is that terrorist attacks, while frightening and appalling, do not typically affect enough people or property to really do damage to an economy.
When looking at the big picture in Nigeria – the huge population, the oil production, the strong growth – the fact that Nigeria has some Muslim extremist terrorist groups in its northeastern parts is not a point of huge concern. So far, Nigerian extremists have shown a limited capacity to do damage – today's bombings, while tragic, did not actually inflict a huge amount of damage – and represent a very small segment of Nigeria's huge population. In other words, while the activities of terrorists in Nigeria are horrific and unacceptable, they do not undermine the many positives about the Nigerian economy. – FD
ALEC HOGG: Nigeria's GDP rebasing has made the country the biggest economy in Africa. According to Finance Minister Pravin Gordhan, this is positive news for the continent as a whole. Well, the developments this morning in Abuja gave us a little bit of a jolt but let's try to see things in perspective. Colin Coleman, Chief Executive of Goldman Sachs, is with us in the studio. Colin, how big an impact would a terrorist attack like this, have on the sentiment of Goldman Sachs or big global investors?
COLIN COLEMAN: Well, as tragic as they certainly are, it doesn't take away from the big picture about Nigeria, which is that this is an economy growing seven percent, two million barrels of oil per day production, one-hundred-and-seventy million people, a $500bn GDP, and together with South Africa, the two largest economies on the African continent, doing much better. In terms of the probability of them continuing to do well, the probability as measure in the Goldman Sachs criteria, has improved. This obviously raises the question of stability, violence, and the extent to which the army has the security situation under control. The jolt doesn't relate to the fact that the attack was the first attack, but rather that it was the first attack in the capital for some time, certainly, ten kilometres away from the city centre. However, it does not take away from the big picture, which is that Nigeria continues to be a place of great interest to the investor community.
ALEC HOGG: So you look through it.
COLIN COLEMAN: Well, I think you take note of it, but it's not going to stop the overall momentum in Nigeria.
ALEC HOGG: Why is that?
COLIN COLEMAN: It will focus more attention around the ability of the government to deal with security issues.
ALEC HOGG: Is that because the people doing the investing are not, themselves necessarily going to live there? If you asked me to put my own money into a country where there were bomb blasts, I think I'd be a little bit cautious if I had to live there myself. If someone else was living there, perhaps it might make a bit more sense. Is that one of the reasons behind it? It just seems…
COLIN COLEMAN: It's no different from other violent attacks that took place in European capitals, in other developed market capitals, or in emerging market capitals. This is a very problematic incident, but it doesn't mean that investors are just going to ignore the fundamental economic story in these markets.
ALEC HOGG: Just unpack it – European capitals such as…
COLIN COLEMAN: Well, London had its bombing and Madrid had its bombing in prior times. This doesn't mean that London was off the investing map or that Madrid was off the investing map. It's not going to mean that I won't go to the World Economic Forum in Abuja, come the 7th of May. I will be there. Other people will be there. Obviously, there'll be a growing amount of concern and if the situation worsens, we'll have to reconsider. However, at the moment – being a once-off event in Abuja- people are going to have to take that into measured account.
GUGULETHU MFUPHI: You mentioned something quite poignant at the beginning of your answer; that this will definitely draw focus on the government's approach as to how they handle the situation. Given the fact that we've heard of the ongoing bomb attacks regarding Boko Haram – that threat to the Nigerian government – when you look at Goodluck Jonathan's cabinet, have they done enough perhaps, to stop these types of militant attacks?
COLIN COLEMAN: Well, from the evidence, the situation is worsening slightly, otherwise this event wouldn't have happened and I think that is why Alec referred to it as a jolt. It clearly is of great concern that this would happen. I don't have a particularly clear fact-based account of what the government and the cabinet are doing at this point in time, but when I was in Lagos three weeks ago, it was very peaceful, very productive, and the economy was bustling. We had just done, as Goldman Sachs, the Nigeria bond issue for Zenith Bank, half-a million Dollar bond issue. Certainly, there are significant amounts of business happening in and around Nigeria, which are of great interest to the international investor community.
ALEC HOGG: I suppose the contrast with something like Kenya, is that in Kenya, there is such a reliance on tourism and tourists might not be keen to go to Kenya after the problem, and we know that. We know that the tourist market collapsed in Kenya after the terrorist attack, whereas in Nigeria, you're looking at it much more from an investment perspective and those bondholders who bought into that bond you floated – they think they're going to be paid.
COLIN COLEMAN: As I say, go back to the fundamentals of Nigeria. It's a very interesting economic story. The fact is that no matter what the problems are on the ground, the base of improvements from the macro political, from the macroeconomic, from the microeconomic, and from the regulatory reforms, are improving. There are some concerns. One concern has been the manner in which the Central Bank Governor – Sanusi – was replaced. However, there is a new widely respected Central Bank Governor in place now, who used to be a CEO in one of the banks. That situation is unfolding. There are concerns around the value of the Naira in relation to the Dollar…whether it's going to weaken over time. If you speak to many of the South African companies such as MTN Nigeria, Tiger Brands, Shoprite, and various other companies that are active in Nigeria, they will tell you there's a very strong underlying fundamental story. It's a consumer story. It's a services story. It's a financial services story and obviously, there's an overwriting oil story happening.
ALEC HOGG: Okay, let's look at the worst-case scenario. Let's say that this escalates and that there are more of these types of incidents. Would your thesis then still hold?
COLIN COLEMAN: Well, if there are obviously multiple interruptions to the economy from multiple forms, including not only this type of event but also others, and it escalates, that's going to retard the economy's growth, for sure. It's going to bring many question marks over the government's ability to handle the stability over time. As far as I'm aware, this is not a widespread popular revolt against the Nigerian government. This is a section of society and, by all accounts, a small section of society.
ALEC HOGG: So what are you looking for, from your perspective? Remember, this went into a very crowded area – a bus terminus, in effect – so it's upping the ante, if you take it from the terrorists' perspective. What would you be looking for over the next few weeks to make sure that you're comfortable to continue investing?
COLIN COLEMAN: I think that what one wants to see is the government take action to dampen the security threat in the main capitals, for sure. Beyond that, what one wants to see upheld is a constitutional state that respect the rule of law, in which there is overall peace and stability and that there is attendance to the human and economic development of the country. Obviously, one of the pillars of any democratic society is upholding the rule of law and stability. People, who break the law and commit violent acts, should be dealt with, and dealt with decisively.
GUGULETHU MFUPHI: Going back to the WEF conference in January in Davos, Nigeria definitely made sure that it was high on the agenda and everybody knew about the (the green and white scarfs were everywhere). Will this not perhaps make attempts fruitless?
COLIN COLEMAN: No, I don't think so. I don't think we should overreact to the situation. It's not a cause for panic. As I say, come the 7th of May, I plan to be in Abuja. I planned it yesterday. I continue to plan to be there. Obviously, we're all going to watch. If there are unfolding events, which give cause for concern, we'll have to react to those. However, on the face of it, it's important that Nigeria keeps going strong. The rebasing of the economy to $500bn – half a trillion Dollar economy – is an important statement. Remember at the same time, that South Africa's GDP per capita is now double at $6000.00 per capita, whereas in Nigeria, it's $3000.00 per capita. It's still double and therefore, a much wealthier country than Nigeria on a population basis and that's reflected in the sophistication of the economy, if you see the two economies side-by-side. It's therefore important for Africa's development that Nigeria continues to do well, that South Africa continues to do well, and that our political democracy matures and their political democracy matures.