Ethiopian Business Review

The Rise of A Megacity

Lagos, the financial and commercial capital of Nigeria is a city in the middle of great changes. Although it covers less than one percent of Nigeria’s territorial land mass, it accounts for over 60Pct of industrial and commercial activities in the nation. Even based on the city’s 2015 gross domestic product of USD136 billion taken, it has become the 5th largest economy in Africa. While visiting Lagos, EBR’s Ashenafi Endale explores the city’s prospects for further economic growth. 

Spread over vast plain coastal land near the Atlantic Ocean; Lagos has fast evolved to become not only the sole commercial hub of Nigeria, but also the largest financial centre in Africa on top of housing one of the largest and busiest ports on the continent. After handing over the role of the political seat of Nigeria to Abuja in 1991, Lagos, the most populous city on the continent, with an estimated population of 21 million, plays a major economic role in Nigeria, generating close to a third of the country’s gross domestic product (GDP).

The city is expanding horizontally to accommodate the fast growing population, which is increasing at four percent per year, and is estimated to reach 27 million by 2030, according to the World Bank. This will make Lagos the world’s third largest metropolis after Tokyo and Delhi. Parallel with the growing population, the economy is also expanding, surpassing the GDP of some populous African countries like Ethiopia. Unlike the larger Nigerian economy, which is heavily reliant on the oil and gas industry, Lagos has managed to diversify its economic activities into manufacturing, transport and construction by modernizing the business environment and attracting investors. 

Transsion Holdings, a Chinese mobile phone manufacturer based in Hong Kong, is one of companies that recently joined the manufacturing industry in Lagos, which accounts for 65Pct of the GDP of Africa’s biggest economy. The company, which opened its first mobile assembly plant in Ethiopia under the brand ‘TECNO Mobile’ 12 years ago, currently has an installed capacity to assemble a million tablets and smart phones each month. The company also holds a 95Pct share out of the USD44.2 million in export earnings from electronic products that Ethiopia generated in the last fiscal year. 

After running a successful business in Addis Ababa, Transsion Holdings launched their latest smart phones, the CAMON X, and CAMON X Pro in Lagos in April 2018, as well as planning to open a plant in the city. This plant will hire 3,000 individuals while its counterpart in Addis  Ababa employs 1,500 people.

“Nigeria is a key interest market for us because of its growing consumer base,”said Stephen Ha, general manager of TECNO Mobile Nigeria during the launching ceremony held on April 5, 2018 at the Eko Hotel convention centre in Lagos. “This is because the country has greater interest in technological advancement and job creation.” 

Echoing the sentiment, the Nigerian Minister of Communications, Abdur-Raheem Adebayo Shittu stated, “We badly need such investments to create jobs, boost manufacturing and technology transfer. We will provide every incentive for TECNO, so it can open a plant within the next two years.” 

The CAMON X and CAMON X Pro will be available in Ethiopia in May 2018, according to Mohamed Hassani, marketing manager of the TECNO Mobile Ethiopia. “Although our capacity enables us to assemble the CAMON series in Ethiopia, because of foreign currency shortages, we are forced to manufacture them abroad and import them to Ethiopia.”

Taking such drawbacks into considerations, Shittu urged representatives of TECNO to open an assembly plant in his country during the launching ceremony. “We have a market much bigger than Ethiopia, whose population is two times lower than Nigeria’s. Unless you prefer to stay in Ethiopia, opening a factory in our country has a big market opportunity,” he said. 

Another investment venture taking place in Lagos is an oil refinery project, which is under construction, at a cost of USD12 billion by Aliko Dangote, a Nigerian business magnate. The project, which will refine 650,000 barrels of oil a day, is expected to be finalized in 2020. On top of dominating the Nigerian market in cement, sugar, soft drink and beer production as well as involving in real estate, banking, transport and textiles, the Lagos-based businessman and Africa’s richest person has expanded operations into 17 African countries including Ethiopia. 

Dangote Group opened a cement factory in Ethiopia three years ago,constructed at a cost of USD480 million. The plant, which is located in Mugher, 85 kilometres from Addis Ababa, has a capacity to produce 2.5 million tonnes of cement per annum. 

When Dangote visited Ethiopia in the beginning of 2018, he expressed plans to double his investment in the country while speaking with then-Prime Minister Hailemariam Desalegn. “We are not one-time investors,” he told Hailemariam. “We will ensure mutual benefit by facing together the challenges in Ethiopia.”

When the refinery in Lagos enters production, Dangote, whose company dominates Nigeria’s and much of Africa’s cement industry, is expected to solve many of the challenges that have dogged Nigeria since it discovered oil deposits more than half a century ago. Although Dangote comes from the northern part of Nigeria, he is also known by his activities in Lagos, a city that accounts for over 90Pct of Nigeria’s foreign trade flow, and 30Pct to the country’s GDP.. 

The relative success of Lagos that can be compared with many of the booming and vibrant cities in Asia, has helped the city to became home to a burgeoning African banking industry on top of  growing music, fashion and film industries that echo around the continent. 

Although Lagos is going through massive transformation on various fronts, it faces challenges similar to the rest of Nigeria, including inadequate infrastructure and energy as well as high corruption and crime rates. Although manufacturing in Lagos forms a significant part of Nigeria’s economic landscape, the limited power supply is dragging its activities back. Over 85 million people in Nigeria have no power, out of a population of 180 million. This is despite the fact that electricity generation capacity in the country reached to 7,500MW.

Although the Lagos State Government undertook an energy reform strategy and commissioned five independent power plants between 2010 and 2015, poor energy supply still remains a major infrastructural challenge that has an immense effect on production output.

Another critical problem businesses encounter is regulatory challenges such as bureaucratic hurdles at various government institutions while starting businesses and accessing loans. For instance, the average interest rate for loans for Nigerian businesses is around 23Pct, which is very high compared with African standard. 

Corruption is the other main obstacle observed in Nigeria, in general and Lagos in particular. In fact, such practice is visible even at Murtala Mohammad International Airport,  which is the gateway to Lagos. EBR observed officers at the Airport asking travellers openly to give them money to bring through even small items they brought with them from their countries. 

“Cultural values are being drained from society and that is why corruption has become normal,” Larry Kloupouroglou, who owns a primary school in Lagos, told EBR. “A large number of the population lives inpoverty, which gets worse as you go outside Lagos.  There is nobody to care about them, including the government. Yet, many people are becoming [millionaires].” 

Adding to corruption, income inequality, youth unemployment and security threats have become obstacles to growth. 

Anxious about the sustainability of the economic success, the Lagos State Government launched the Lagos State Development Plan for 2012-2025 in 2014. The plan aspires to renovate Lagos into a mock-up megacity that is productive, functional and safe. 

Without a doubt, Lagos has a long way to go. But the city is among a handful of African cities that has a golden chance to become the model of a megacity over the next decade., even though it has not realised its aspirations yet.


6th Year . May 16  - June 15 2018 . No.61


 

 

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