II – Crude Politics

The old system works too well for some people who are entrenched, and until we understand that – understand how well entrenched they are, understand how they need to be dislodged, how their thinking can be affected – then you're not going to succeed

Sanusi Lamido Sanusi,

Emir of Kano

Ex-central bank Governor

Abuja has got a bit rougher around the edges since my last visit. It needed to.

World leaders converging on Nigeria's newly built capital for the Commonwealth meeting in 2003 saw neatly manicured hedges and irrigated lawns with floral displays and fountains, and not a soul around. In the once-empty three-lane highways, hawkers now trawl between cars and yellow danfo minibuses offering sachets of water from bowls of ice on their heads while street stalls grill kebabs in fiery peanut-tomato suya.

What hasn't changed here is the sense that every aspect of life revolves around the government. We're sitting in a go-slow for two hours between the airport and the city center because security has closed a main artery for a government meeting. We pass the Abuja National Stadium where fanatically revered Arsenal was billed to play the Nigerian Eagles but canceled citing unspecified “complexities” after the sports minister said he wouldn't rush re-grassing the pitch for the match.^1,2 The work was finally completed over a year later at a cost of $600,000, and to complaints of water logging in the sparse Savanna rain.³

Sweltering in the heat, the driver next to us forgets to put his brake on and rolls back into the car behind. The two men lean out shouting at each other but neither bothers getting out. Both cars are so bashed up it would be hard to tell if this latest knock added any more damage.

Guards with AK-47s stand chatting as we edge toward the government district. The city has been a repeat target for Boko Haram, the Islamist terror group translating to “Western education is a sin.” In a single day in 2014 the group killed 75 people commuting into Abuja by exploding a car bomb next to a bus station and abducted 276 school girls, forcing them into marriage with militiamen. Targeting the capital marks a ratcheting up of the terror campaign that's claimed at least 13,000 lives in attacks predominantly in the northeast since 2009.

Nigeria's center of power runs in an arch from the golden dome of the Abuja National Mosque up Constitution Avenue to the green-domed presidential State House with the dark monolith of Aso Rock for its backdrop and the National Assembly beside it. Next are the ministries and then the domineering cross-shaped glass tower of the Central Bank down Independence Avenue. Just how much independence the central bank has was tested to the limit in early 2014 before President Goodluck Jonathan fired its Governor.

Sanusi Lamido Sanusi was born into northern Nigerian royalty as the grandson of the Emir of Kano and son of the highest ranking official in the Ministry of Foreign Affairs.⁴ He studied Sharia law in Sudan and lectured in economics there before switching career to banking, becoming the chief risk officer for United Bank of Africa and First Bank of Nigeria. In 2009, he was made the CEO of First Bank and six months later appointed central bank Governor by President Umaru Yar'Adua, a fellow northern Muslim aristocrat.

It was the height of the global financial crisis hitting emerging markets. Nigeria's stock market had plunged 70% and banks were on the brink of collapse from loans sliding into arrears. While the same picture was being repeated in countless countries, the difference in Nigeria was the scale of systemic corruption. Sanusi accused bankers of raiding depositors' funds to lend themselves money to buy properties, private jets and their banks' own shares to inflate the stock price.

According to Sanusi, they got away with it because their controller was asleep. The body bringing together financial supervisors, the Financial Services Regulation Coordinating Committee, hadn't met for two years, he said.

With the global credit crisis sending bank shares into freefall, people's savings for their retirement, school fees and medical bills were being wiped out, he reflected in a 2010 university lecture. “How many honest businessmen have been rendered bankrupt? How many people have committed suicide? How many have died because they were unable to pay medical bills as their money was trapped in these institutions?”

Sanusi concluded he was up against a conspiracy of bankers and politicians. “Here is the reality,” he told the students at Kano's Bayero University, named after his great grandfather. “The owners and managers of banks, the rich borrowers and their clients in the political establishment are one and the same class of people protecting their interest, and trampling underneath their feet the interest of the poor with impunity. So this time we turned the tables and said enough is enough.”

Within four months of being appointed he fired the heads of eight banks. Five CEOs were jailed. Wealthy debtors to the banks were warned to pay up or face prosecution. Then he injected 620 billion naira ($3.8 billion) to prevent the institutions collapsing.^5–7

“What we have done,” he told the students six months later, “is to fire the opening salvo in what could potentially be a revolutionary battle against the nexus of money and influence that has held this country to ransom for decades.”⁸

Genteel almost to the point of meekness, Sanusi doesn't strike as a revolutionary. Bespectacled with graying hair in a mandarin collar pinstriped suit, he jokes affably about how his father took all the diplomatic blood, leaving him a more controversial character. It's not a convincing argument. One of Sanusi's less heralded initiatives in 2009 was to organize retreats for the central bank's policymakers and those chief executives who survived his cull to build a consensus on the objectives of monetary policy and the banking industry.

The entire central bank board flew off to Malaysia to study the policy response to Asia's financial crisis that had most impressed Sanusi – recapitalizing banks, purchasing their non-performing loans and restructuring the debt. “I used that to fix the crisis in Nigeria,” he tells us. The next year the board studied mobile banking in Brazil and then inflation targeting in South Africa.

When it came to the monthly policy meetings, the retreats paid off, with broader alignment on whether to raise, cut or freeze interest rates.

After the bank rescues, the biggest problem was that executives were now too worried about running up further losses to lend to anyone except the safest of borrowers. While agriculture represented over 40% of the economy, farmers had little prospect of getting a bank loan because they couldn't prove they had the stable earnings to repay the debt. Most had to take whatever price was offered for their produce at the time of harvest because of a lack of storage facilities and processors.

As a starting point, Sanusi commissioned a study on the tomato industry in 2011. He found that most tomatoes were left to rot in the fields even though four-fifths of the 80 million rural population lived in poverty and the country was importing $360 million of tomato paste for suya and other dishes, much of it from China.⁹ Sanusi teamed up with Africa's richest man, Aliko Dangote, a fellow native of Kano, to build a tomato paste factory that would buy at a fixed price from 8000 farmers in the northern Kadawa Valley region. With their contracts proving stable income, farmers were able to borrow to buy their seeds.

“Now we're getting to a point where 4 to 5% of the loan book of banks is in agriculture,” says Sanusi. The output from Dangote's factory will allow Nigeria to cut tomato paste imports by a third. It's a model that could be used to create finished products in other sectors of the economy. “It's the same process moving from cassava to starch and from hides of skin to leather goods.”

In northern Nigeria – once known for its pyramids of groundnuts and exports of rice, cotton and cowpeas – it's one answer to the poverty that's made this fertile ground for Boko Haram's recruiters.

“Boko Haram isn't really a Muslim–Christian thing because they've killed many more Muslims than Christians,” says Sanusi. “When you have a system in which 90% lives in poverty, 70% in absolute poverty, you're likely to have one problem or another. A few years ago it was in the Niger Delta; now we're seeing it in the religious tensions in the north.”

In Nigeria's main crude-producing Delta region, kidnappings of foreign workers and theft from pipelines cut oil output by 29% in the three years to 2009. The violence eased that year as thousands of fighters accepted a government amnesty offer and disarmed. But the following year, as President Yar'Adua's death led to succession by Goodluck Jonathan, a Christian from the Delta, Boko Haram started its terror campaign. In 2013, theft from the Delta's pipelines was flaring up again, reducing output to a four-year low.¹⁰

It was the nation's disappearing oil revenue that Sanusi took up in his final act as central bank governor. Like Norway and Abu Dhabi, Nigeria has kept a rainy day fund for the past decade to set aside revenue during good years of oil exports. But while Norway's fund has quintupled in eight years to $850 billion¹¹ and Abu Dhabi has stashed away $800,000 for every man, woman and child,¹² Nigeria's assets have shrunk. The kitty of $20 billion in 2008 dwindled to $3.45 billion in March 2014 – or $20 per person.¹³

The Excess Crude Account, established under President Olusegun Obasanjo, was seen early on by Sanusi as a key tool for economic stability. In his speech to the students in 2010 he envisaged the fund providing a boost when the economy needed it, while in a good year it would soak up oil revenue before it created inflationary pressure in the economy.

While theft from oil pipelines in the Delta contributed to a drop in production to 2.2 million barrels a day from the projected 2.5 million in 2013, Sanusi calculated that higher oil prices should have resulted in a top-up for the Excess Crude Account. Oil prices had ranged between $87 a barrel and $111, while the government had based its budget on a lower price of $79, Sanusi reasoned. But instead of receiving new money, the ECA had been drawn down, hitting a low of $2.11 billion.

“Arithmetic doesn't explain it and also it's not explained by a huge increase in government spending because there wasn't,” he says in our meeting. “Obviously there is a leakage.”

A private letter was sent to President Jonathan in late 2013 suggesting that the Nigerian National Petroleum Corp. be made to account for nearly $50 billion that should have come to the government. “This was not meant to be a public issue,” says Sanusi. “An invitation to investigate somehow became read as the conclusion of an investigation, and that wasn't it. This was an initial report that, for me, raised sufficient concern to have an investigation so we can know exactly where that money is.”

Finance Minister Ngozi Okonjo-Iweala told reporters in December that a review showed unaccounted oil receipts stood at $10.8 billion. Sanusi told a Senate finance committee two months later that $20 billion was outstanding.

“There are a number of numbers that I'm looking at,” Sanusi told us. “The principle remains: no one has the right to retain money that should come to the federation account. Constitutionally it should come, and then, if expenses are legitimate, they should be presented transparently and properly approved. To even admit that you haven't brought back $10 billion or $12 billion and say this is what I did with it is, frankly speaking, not even the beginning of an argument.”

The wider issue for Sanusi was that if the government is drawing down the Excess Crude Account when oil prices are around $100 a barrel and production is more or less stable, then what would happen in the event of a serious drop in oil revenue? The central bank has a legitimate interest, argued Sanusi, because it needs to show the country has enough reserves to withstand pressure on the currency or financial system.

In February 2014 – four months before his term was due to end – Sanusi was suspended from office by Jonathan for “financial recklessness and misconduct.” Security officials seized his passport at the airport.¹⁴

International investors who had lauded Sanusi for his rescue of the banking industry and steady monetary policy were horrified. Shares tumbled as the naira hit an all-time low and the country's main international bonds sank by a record amount.

Jim O'Neill, the ex-Goldman Sachs analyst who coined the BRICs acronym for the go-go economies of Brazil, Russia, India and China and identified the MINT nations of Mexico, Indonesia, Nigeria and Turkey as the next in line, had reserved for Sanusi what for him as a Manchester United fan was the highest recognition of merit: “The Alex Ferguson of central bankers”. “If I were a leader in this country, I'd pay attention to the fact that the markets didn't like how that was done,” O'Neill said on Bloomberg TV. “Clearly a lot of oil revenue has gone missing and the issue needs to be placed on the table and brought into more public focus. He's certainly done that.”

The Lagos federal high court two months later ordered the State Security Service to return Sanusi's passport and issued a perpetual injunction preventing any government law enforcement agency from arresting or harassing him without following the “due process of law.”

Then, in mid-June, the 83-year-old Emir of Kano, Nigeria's most powerful Islamic figure after the Sultan of Sokoto, died, after reigning for more than half a century. Sanusi, at 52, was appointed heir, becoming Muhammad Sanusi II after his grandfather. In place of his pinstriped suits, Sanusi now wears an embroidered white cloak with an elaborate turban wound around his head and tied at the top like rabbits' ears. The royal dress code includes a mouth veil, conveying a tradition that the Emir speaks only through his aides. Convention is to rise above the political fray, to speak in the language of diplomacy.

Sanusi has already made a break with his predecessor by leading the Friday sermon at the main mosque in Kano.

“This whole process for me,” Sanusi said in our meeting before his appointment, “is one in which we need to force greater transparency over oil revenues.”

“The old system works too well for some people who are entrenched, and until we understand that – understand how well entrenched they are, understand how they need to be dislodged, how their thinking can be affected – then you're not going to succeed.”

* * *

Someone who knows that old system inside and out is Ken Saro-Wiwa Jr, the son of the activist executed in 1995 as the Ogoni people campaigned against pollution in the Niger Delta.¹⁵

Ken continued his father's struggle, leading a landmark court case in 2009 against Royal Dutch Shell for complicity in the abuse, torture and death of Saro-Wiwa and eight others. Shell settled with a $15.5 million payment to compensate the families of the victims and establish a trust for the Ogoni people.¹⁶

More recently, Ken has been the senior special assistant to President Jonathan. Meeting us for breakfast at the Hilton in Abuja, he reflects on what his father would make of politics today.

“Nigeria has changed so much, he would barely recognize the country. He'd be surprised that there's a president from the Niger Delta.” Then he pauses to consider his legacy – “I am more dangerous dead!” his father had said defiantly – “But then, maybe not so surprised.”

Saro-Wiwa's “judicial murder,” as Britain's then Prime Minister John Major put it, led to Nigeria's suspension from the Commonwealth and tougher sanctions against the regime of Sani Abacha. After the dictator's death in 1998, his successor, Abdusalam Abubakar, began transitioning the country toward an elected civilian government in 1999.

For the next 15 years, only one party governed – the People's Democratic Party. The main reason for that is – just like in Kenya – the rules are stacked against newcomers. A president needs to win not only the most support in total but also at least a quarter of votes in two-thirds of the country's 36 states.

“If you don't have the ability to reach all those polling stations, you're not even getting started,” says Ken.

Before the 2015 election, when Jonathan was challenged by former military dictator Muhammadu Buhari of the All Progressives Congress - an alliance of the three main opposition parties - the biggest political battle was within the PDP itself.

The leadership is decided by the party's 2000-strong electoral college. Nigeria's media reports the salaries and extra allowances make their senators among the world's highest paid lawmakers.¹⁷

A series of defections in 2013 caused the PDP to lose its majority in the House of Representatives. Yet, by early 2014 it had won its majority back. There were no by-elections. Instead, five members of the opposing All Progressives Congress party crossed over to the PDP.¹⁸

“The consensus of Nigeria has always been negotiated,” says Ken. “Here, you don't get by through gentle persuasion.”

Yet the power base is starting to shift, he says. While Abuja is dominated by politics, Lagos is increasingly the domain of entrepreneurs who aren't waiting on the government.

“There has been a democratization of information. You're starting to get people making money that the politicians have no control over.”

III – Sugar King

Like the suya kebab stalls using Chinese puree while tomatoes rot in the fields, drivers in Africa's biggest oil-producing nation load up with imported fuel.

Most of the two million-plus barrels of crude extracted every day from the Niger Delta and offshore in the Gulf of Guinea take a voyage for processing as petrol or plastics before re-entering Nigeria. While the country has four refineries – three in the Niger Delta and one in the north in Kaduna – the theft of funds, fires and neglect have cut output to a fifth of capacity.¹

Having invested $25 million in home-grown tomato paste, the oil industry is the next port of call for Africa's richest man. It fits Aliko Dangote's pattern since the 90s of replicating imports with local production.

“We were known as the sugar kings,” recalls Devakumar Edwin, who moved from India to Nigeria in 1992 after being approached by Aliko to run his textile mills. He's now Dangote's chief executive officer for the cement business. “We were importing all the sugar requirement for Nigeria before expanding into rice and other businesses.”

Then, in 1998, Dangote decided to stop importing and start producing. One industry led to another as the company sought to own its production line. “Most of the products need bags so we had to produce them,” says Edwin, describing a strategy labeled backward integration. “Otherwise we could be held to ransom by a supplier.”

Dangote's headquarters in the middle of Lagos Island is a hectic fusion of its businesses dotted around the continent and beyond. Suited executives talk with engineers as workers run around with cardboard boxes of noodles. The empire spans telecoms to salt plants to flour and steel.

The biggest business is cement, taking a billion dollars of investment in 2014 alone and paying out more in profit. The oil venture will dwarf even that business.

The refinery and petrochemical plant will cost around $9 billion. The group took a $3.3 billion loan and plans to borrow a further $2.2 billion.

Based near Lagos, it should be up and running in 2017, refining 400,000 barrels of crude a day to begin and rising to 500,000, says Edwin. That's around the level of Exxon Mobil's Baton Rouge in the USA or Saudi Aramco's Ras Tanura among the top dozen refineries. Eventually, production will ramp up to a million barrels a day, ranking it the second biggest worldwide, says Edwin.² There's been no scaling back of the project amid the slump in oil prices.

Dangote's super-refinery could change lives. The problem of low production at existing refineries is compounded by a frequent shortage of foreign fuel. Many of the importers ran out of credit after defaulting on loans in 2012.^3,4 More recently, they're alleged to have pocketed billions of dollars in energy subsidies without ever supplying the discounted fuel.⁵ For Nigerians it all adds up to wasted hours spent queuing at gas stations and inevitable fights in the struggle to fill up. The shortages hit commuters to freight operators to families cooking on kerosene stoves to businesses needing diesel for their electricity generators, the essential backup in the face of constant power outages.

To economists, Nigeria's reliance on oil magnifies the impact of gyrations in global crude prices on the naira and the nation's finances.

Beyond fuel, Dangote's refinery will produce urea for fertilizers and petrochemicals for plastics.

Even before the refinery has been built, Dangote is working out the backward integration from refining to supplying the oil. With the violence and thefts reducing their crude output, the likes of Shell and Chevron are switching to offshore fields they can more easily control, and Dangote is moving in.

Given the history from Ken Saro-Wiwa to the present day, it's conceivable a Nigerian company would have a better chance of resolving the issues plaguing the Niger Delta.

“Because we are on the ground, we know the terrain much better, we know the risks and we believe that the risks can be managed,” says Edwin. Where Dangote extracts limestone, for example, the company has agreements in place with each of the communities.

While oil is the ultimate expansion for Dangote within Nigeria, it's also pushing to replicate its African operations across other continents. Dangote's limestone miner is branching out to Indonesia and Nepal and reviewing three South American countries, says Edwin. Part of the rationale is to increase the company's overall value by diversifying its risk from a single country. Dangote expects to generate 60% of its business from outside of Nigeria before a planned listing on the London Stock Exchange.

All of this activity increased Dangote's wealth to over $20 billion, ranking him among the world's 35 wealthiest people, before the plunge in Nigerian assets triggered by sliding oil prices and pre-election violence cut his ranking to No. 53 by early 2015. He remained Africa's wealthiest person.

“Whoever would have thought,” reflects Lamido Sanusi, “that Nigeria and not South Africa would have the continent's richest man. We've seen with Dangote proof of what can be done with structural reform.”

Dangote is inspiring plenty of wannabes. A husband-and-wife company making roof nails found the metal for the caps cost $160 a ton in Nigeria but only 30 cents in China. Using the same model of backward integration, Alhaji Kamoru Yusuf and his wife Bolanle built Nigeria's first cold roll steel mill.

Like tomato paste and petrol, steel is a natural industry in Nigeria where an estimated five billion tons of iron ore lies untapped. Governments have tried and failed to build an industry since General Yakubu Gowon's regime created the National Steel Development Authority soon after the Biafran War in 1971.⁶

Finance Minister Ngozi Okonjo-Iweala has been studying the Yusufs as an example of what's right and wrong in the economy.

“They've been married 25 years, they've invested in the manufacturing of nails, and now they have the cold roll steel mill, and they go borrow $200 million,” says Okonjo-Iweala, raising her index finger, “at 18% – and do this for three years.”

That's not right, she says.

“You can't expect people to borrow short term, for three years, to invest in a 15-year endeavor. There's a missing institution – a missing link – so we're creating this institution.”

A future Mr and Mrs Yusuf will be able to tap a new lender being created with the help of the World Bank and advice from development banks in Germany and Brazil. Like the German KFW and Brazilian BNDS, Nigeria's development bank will take advantage of state backing to obtain cheaper financing. It will borrow from foreign investors, particularly targeting those like Axel Röhm at PGGM who have a mission to make a positive “social impact.” That way, says Okonjo-Iweala, it will have to be fully transparent, ensuring it doesn't become another corrupted institution. The bank will channel money to existing state and commercial lenders to provide credit to businesses.

The same kind of idea is being applied to the housing market in an attempt to kick-start home ownership. Africa's largest nation needs 17 million additional homes by official estimates, and this so-called housing deficit is growing by two million every year.

The home shortage – whether manifested in people living on the streets or in unsanitary and overcrowded slums like Makoko – feeds into the wider social problems of crime and corruption.

“Everybody wants a home, no matter which country, what color their skin, it's a primary human need to have a roof over the heads of your family at some point,” says Okonjo-Iweala. “If you don't have any means of accessing it then you start looking for ways and means to gather that money.”

The government plans to spur cheap lending by creating the Nigeria Mortgage Refinance Co. to run in a similar way to America's Fannie Mae. It will obtain a $250 million line of credit as a starting point from the World Bank at zero interest for 40 years. This guaranteed funding will enable the company to sell long-maturity bonds at low rates and pass the money along for home loans. Right now, from Nigeria's population of 170 million, there are probably only about 50,000 mortgage accounts, says Okonjo-Iweala.

One component of the housing program is a “lease to own” initiative where a tenant becomes the owner of the property after 20 years. The legal entitlement would be portable for people moving house.

“If we can create this institution so a young couple just starting out knows that within 20 years they can buy their home, it helps curb any temptations to do the wrong thing,” says Okonjo-Iweala. “I see it as a form of social inclusion. It's also a form of tackling corruption.”

According to United Nations estimates, by 2050 Nigeria's population will overtake America to rank third after India and China.⁷ “For the demographics to work, people must have a certain amount of purchasing power, we cannot just have large numbers of people who can't really buy anything.”

While oil is the biggest money earner for Nigeria, it's other sectors that have kept the economy growing by 7% a year and created jobs and wages – led by telecoms, manufacturing and construction.

Okonjo-Iweala sees future growth coming from non-oil minerals yet to be exploited – zinc, copper, bitumen, tantalite and gemstones – and from its best-loved industry: Nollywood.

Going by the number of movies made – as opposed to box office earnings – Nigeria's film industry ranks second only to Bollywood, with Hollywood a distant third. Monetizing that output is the next step, says Okonjo-Iweala.

“It's amazing to me,” she says, “when I'm in the Caribbean, people say are you Nigerian? We've been watching your movies. The potential to service the black diaspora and beyond is amazing, we've only just begun to plumb that.”

“Nigeria has the potential to be another California.”⁸