The New Nigeria: Sustainable Banking, Responsible Investment and Social Innovation

(Justmeans/3BL Media) -- Two years ago, I wrote about the signing of the Nigerian Lending Principles—a landmark agreement made by eight of the nation's leading banks to commit to sustainable financing at the first Nigerian Sustainable Finance Week in Lagos, hosted by the United Nations Environment Program Finance Initiative (UNEP FI) in September 2011.

Over the next 12 months, the banks agreed to develop their capacity to meet their newfound environmental and social responsibilities.

Nine months later, the Central Bank of Nigeria (CBN) released the Nigerian Sustainable Banking Principles, an agreement signed by 34 banks, including the original eight, that covered nine areas of focus: environmental and social risk management, environmental and social footprint, human rights, women's economic empowerment, financial inclusion, environmental and social governance, capacity building, collaborative partnerships and reporting.

The signatories agreed to be "a driving force for good in the communities and natural environment...by finding ways to avoid or mitigate negative impacts to drive long-term sustainable growth whilst focusing on development priorities, safeguarding the environment and our people, and delivering measuring benefits to society and the real economy."{1}

But while the principles represent a significant advancement in a country that has been hobbled by decades of mismanagement and the so-called "resource curse"—created by the coexistence of vast oil wealth and chronic poverty that affects nearly half of the population—the recent news coming out of Nigeria paints a picture of two nations. And like many other regions around the globe, it's a tale of north and south.

NORTHERN CONFLICT, SOUTHERN GROWTH

In the northeast countryside, deadly armed conflict has been steadily escalating between the nation's military and the radical Islamist rebel group Boko Haram. The insurgency has claimed some 10,000 lives since 2001, with over a third of the deaths occurring since 2009, when the group turned into a Jihadist organization.

But many economic indicators suggest that Africa's most populous nation (and second largest economy after South Africa) is not systemically affected by the ongoing crisis, remaining firmly on track to be one of the world's 20 largest economies by 2020, the primary goal of President Goodluck Jonathan's Nigeria Vision 20:2020 initiative.

Christian Mejrup, a portfolio manager of emerging markets at the Denmark-based investment management group Global Evolution, which holds Nigerian treasury bills, said that the escalation of Boko Haram's terror attacks is "disturbing from a security perspective (but) from an economic perspective they are negligible, since they are still isolated to the northern part of Nigeria."{2}

Two-thirds of the Nigeria's growth (steady at 6 percent, while American growth, by comparison, remains sluggish at 2.5 percent) is produced by the 17 southern states, which covers 20 percent of the country.{3} Lagos, the nation's financial center, is located on the southeastern coast; it is the second fastest-growing city in Africa and the seventh worldwide.{4}

"At some $5 billion dollars, Nigeria is the second largest destination for U.S. private investments in Africa," said United States Under Secretary of State for Political Affairs Wendy Sherman at the U.S.-Nigeria Binational Commission Regional Security Cooperation Working Group meeting, held in the capital city of Abuja in August.

And while she acknowledged that the Boko Haram insurgency is the greatest challenge to national stability, she said that the United States "will continue to invest in Nigeria's institutions, people, and businesses to both countries' mutual benefit."

Equity analyst and investment manager Hilary Kramer, author of the 2007 book Ahead of the Curve, about the rise of alternative energy and cleantech industries, argues that "the rewards here may now substantially outweigh the risks," noting that "investors here can also count on more transparency and better corporate governance than ever…and while oil remains the center of the economy, education, employment, agriculture and even home ownership are rapidly emerging as linchpins of the new Nigeria."{5}

SOCIAL INNOVATION SPREADS ACROSS THE NEW NIGERIA

Part of that new Nigeria is a growing focus on social innovation, which makes sense in a culture where modifying, altering, redesigning, remodeling and reconstructing are a way of life. In 2011, the Social Innovation Camp that started in London in 2008 made its African debut in Lagos, bringing together social innovators who use mobile and web technology.

At last year's Maker Faire Africa, several locally oriented social innovations were unveiled, such as a bicycle remodeled as a tricycle with a trailer called a Wecycler that helps residents of Lagos recycle their trash, and a urine-powered generator created by a team of girls between the ages of 14 and 15.

Foreign businesses are tapping into that local spirit of social innovation to help solve some of the nation's most critical issues. Novo Nordisk (NYSE:NVO), for example, has set its sights on tackling type 2 diabetes, which has been on the rise as people move out of the countryside and into the cities, where negative lifestyle changes bring about more typically urban maladies. (Nigeria's first KFC opened in 2009. By the end of last year, the fast-food behemoth was operating 17 restaurants, all but one of them in Lagos.) The Danish healthcare giant plans to establish "One-Stop-Shops" where people with diabetes can get healthcare guidance, blood glucose tests and quick and easy access to insulin.

"There simply aren't enough doctors to treat the rapidly growing patient group with type-2 diabetes, and very often even the larger hospitals don’t have enough insulin supplies," said Jesper Høiland, Novo Nordisk's senior vice president of international operations.{6}

Whether it's a team of local school kids or a global healthcare corporation, it is clear that innovation, ingenuity and resiliency remain key to solving problems in a nation with a growing population (set to overtake the U.S. by the year 2050), one that often lacks access to the traditional pathways to stability and success.

PRIVATIZATION LURES FOREIGN AND DOMESTIC INVESTMENT

In the early 1980s, Nigeria suffered an economic collapse that led the World Bank, in 1989, to declare it poor enough to be eligible for concessional aid, grouping it with such perennially impoverished states as Bangladesh, Chad, Ethiopia and Mali.{7}

Today, it's a starkly different story. Nigeria is one of the world's fastest growing economies, with official development assistance (ODA) down and foreign direct investment (FDI) on the rise. In 2011 (the last year for which data has been made available by the World Bank), aid dropped by more than $285 million to $1.78 billion from the previous year, while FDI increased by almost $2.8 billion to $6 billion over the same period.{8}{9}

Earlier this month, the Financial Times published a special report: "Investing in Nigeria." And while it acknowledges security concerns, criminal activity and internal divisions in the ruling People's Democratic Party (PDP), there is much to lure domestic and foreign investors. From 2000 to 2012, GDP per capita doubled from $1,400 to $2,800.

Over the same period, GDP at purchasing power parity (PPP) almost grew three-fold from $170 billion to $451 billion. The African Development Bank (AfDB) has committed to investing up to $3 billion over the next five years in energy infrastructure in Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania—priority countries in President Barack Obama's "Power Africa" initiative. AfDB president Donald Kaberuka said in July that the financial injection "will leverage at least four times more investments in the energy sector."{10}{11}

"The billions of dollars available for investment in the energy sector will translate into actual bulbs in people's homes and electricity necessary to grow small businesses if state utilities run efficiently and effectively," Kaberuka said, adding that government policy and regulatory reforms would "facilitate and enhance cross-border energy markets."{12}

In Nigeria, part of that policy shift has been to avoid the issue of inefficient state-run utilities by privatizing the energy infrastructure. Last month, President Jonathan transferred control of 15 state-run electricity generation and distribution companies to the private sector, asserting that "things can only get better from this point onwards."{13}

HOW MUCH INVESTMENT WILL BE SUSTAINABLE?

In July, the International Monetary Fund (IMF) issued a technical note on Nigeria's monetary management, recommending that the CBN "make concerted efforts to strengthen financial infrastructure that promote banks lending to the private sector{14}, but it remains to be seen if the tenets of sustainable finance will be enforced. Environmentalists are concerned on this point, considering that Nigeria is Africa's largest oil exporter and the world's 10th largest oil producer.

But oil export revenue accounts for only 15 percent of GDP; agriculture is the largest contributor at 40 percent.{15} Speaking at the inaugural meeting of the Nigeria Agribusiness Group (NAG) in June, Nigerian Minister of Agriculture and Rural Development Adewunmi Adeshina urged agricultural sector stakeholders to advocate policies that promote sustainable investment, noting that in the previous 18 months, $8 billion of private sector investment from local and multinational companies has been committed to Nigeria's agriculture industry.{16}

It is becoming increasing clear to politicians, bankers, investors and business leaders in the region that sustainable investing is smart investing. In a 2011 brief, the International Finance Corporation (IFC) reported on a "growing awareness" that sustainable investment in Sub-Saharan Africa "can play an essential part in tackling the social and economic challenges in the region—and that the resulting economic growth will benefit investors over the long term."

At the end of 2010, ESG-profiled funds including self-reported integration of ESG factors into fund investment policy in South Africa, Kenya, and Nigeria was estimated at $125 billion in assets under management (AuM). The IFC pointed out that "the relative size of the overall Sub-Saharan African sustainable investment market ranks ahead of markets such as the United States and Brazil."{17}

SUSTAINABLE SOLUTIONS NEED TEETH TO STICK

One of every six people on the African continent lives in Nigeria. And one of the goals of the nation's Vision 20:2020 plan is to make sure that each of those citizens has a minimum annual income of $4,000, driving a minimum GDP of $900 billion.{18} It's a bold goal. But the question still remains: How much of that growth will be fueled by mechanisms that adhere to the Nigerian Sustainable Banking Principles?

Anne Stubert, a senior consultant at Corporate Citizenship, said that the challenge is compliance: "In the years to come, it will be critical to demonstrate that the Principles 'have teeth.'" She also noted the influence that the Principles could have beyond banking, saying that the "successful implementation of the Principles will have a significant impact not only on the sustainability of the Nigerian banking sector, but also on the industry sectors of oil and gas, power and agriculture, guided by the Principles’ sector policies."{19}

"Within Africa, we have the solution to our problems," said Kaberuka at the BBC-moderated Presidential Roundtable Discussion at the 19th Nigerian Economic Summit (NES), held last month in Abuja. "Nigeria alone has 20 percent of the population in Africa. By the year 2050, Africa will represent 20 per cent of the population of the world. The markets are here. By 2050, there will be two billion persons on the continent, more than China, more than India. And we would want them to be consumers of our products."{20}

Will those products be sustainable? Will they be built through sustainable finance? Stubert asserted that the Nigerian Sustainable Banking Principles could "pave the way for sustainability and responsible business practice" on a larger scale. As lawmakers and bankers seek to strengthen the nation's sustainable investment climate, they might fuel their determination with a Nigerian proverb: "Our examples are like seeds on a windy day, they spread far and wide." Here's hoping for wind in the forecast of the new Nigeria.

NOTES

{1} Central Bank of Nigeria. Nigerian Sustainable Banking Principles. July 2012. http://www.cenbank.org/out/2012/ccd/circular-nsbp.pdf. Accessed October 23, 2013.

{2} Chris Kay and Maram Mazen. Strife-torn Nigeria Is an Investment Magnet. Bloomberg News. April 26, 2012. http://www.businessweek.com/articles/2012-04-26/strife-torn-nigeria-is-an-investment-magnet. Accessed October 23, 2013.

{3} Ibid.

{4} City Mayors. The world's fastest growing cities and urban areas from 2006 to 2020. http://www.citymayors.com/statistics/urban_growth1.html. Accessed October 28, 2013.

{5} Wendy Sherman. Remarks for Under Secretary Sherman at the United States-Nigeria Binational Commission Regional Security Cooperation Working Group Opening Session. United States Diplomatic Mission to Nigeria. August 15, 2013. http://nigeria.usembassy.gov/bnc-speeches_08152013.html. Accessed October 23, 2013.

{6} Hilary Kramer. Nigeria Beckons Investors Fleeing The BRIC. Forbes.com. August 21, 2013. http://www.forbes.com/sites/hilarykramer/2013/08/21/nigeria-beckons-investors-fleeing-the-bric. Accessed October 26, 2013.

{7} United States Library of Congress. Nigeria: The Economy. http://countrystudies.us/nigeria/52.htm. Accessed October 24, 2013.

{8} World Bank. Net official development assistance and official aid received (current US$). http://data.worldbank.org/indicator/DT.ODA.ALLD.CD. Accessed October 26, 2013.

{9} World Bank. Foreign direct investment, net inflows (BoP, current US$). http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD. Accessed October 26, 2013.

{10} Salihu Moh. Lukman. Vanguard News. Education and human development (II). June 15, 2013. http://www.vanguardngr.com/2013/06/education-and-human-development-ii. Accessed October 23, 2013.

{11} African Development Bank Group. AfDB to Deepen Reforms that are Key to 'Power Africa' Success." July 3, 2013. http://www.afdb.org/en/news-and-events/article/afdb-to-deepen-reforms-that-are-key-to-power-africa-success-12084. Accessed October 26, 2013.

{12} Ibid.

{13} Xan Rice. Eyes on future as African giant stumbles on. Financial Times. October 11, 2013. http://www.ft.com/intl/cms/s/0/6b108bdc-2440-11e3-a8f7-00144feab7de.html. Accessed October 23, 2013.

{14} International Monetary Fund. Financial Sector Assessment Program Update: Nigeria. Strengthening Monetary and Liquidity Management Technical Note. July 2013. http://www.imf.org/external/pubs/ft/scr/2013/cr13315.pdf. p. 21. Accessed October 26, 2013.

{15} Joe Brock and Tim Cocks. Nigeria economy picks up on non-oil sector growth. Reuters.com. http://www.reuters.com/article/2012/03/13/ozabs-nigeria-gdp-idAFJOE82C02Z20120313. Accessed October 26, 2013.

{16} Capital Finance International. Nigeria’s Minister of Agriculture: Sustainability and Growth in Investments from Private Sector, but Banks Overcharge. June 12, 2013. http://cfi.co/africa/2013/06/nigerias-minister-of-agriculture-sustainability-and-growth-in-investments-from-private-sector-but-banks-overcharge. Accessed October 26, 2013.

{17} International Finance Corporation. Sustainable Investment in Sub-Saharan Africa Issue Brief. 2011. http://www.ifc.org/wps/wcm/connect/88c8808049a74459b44cf6a8c6a8312a/IFC_Brief_Africa_WEB.pdf?MOD=AJPERES. Accessed October 26, 2013.

{18} Nigeria National Planning Commission. Mid-Term Report of Transformation Agenda. http://www.npc.gov.ng/vault/2011-2013/MID-TERM%20REPORT%20OF%20THE%20TRANSFORMATION%20AGENDA%20.pdf. Accessed October 24, 2013.

{19} Anne Stubert. The Nigerian Sustainable Banking Principles - Paving the way for Responsible Business in Nigeria. 3BL Media. May 14, 2013. http://3blmedia.com/News/CSR/Nigerian-Sustainable-Banking-Principles-Paving-way-Responsible-Business-Nigeria. Accessed October 26, 2013.

{20} African Development Bank Group. 'Africa Must Capture Its Own Market,' AfDB President tells 19th Nigerian Economic Summit. September 5, 2013. http://www.afdb.org/en/news-and-events/article/africa-must-capture-its-own-market-afdb-president-tells-19th-nigerian-economic-summit-12241. Accessed October 26, 2013.

image: A. Fleuret/USAID

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