TIME Regulation

Carl Icahn Denies Insider Trading

The investor says he has "never given out inside information”

Is Carl Icahn, one of the world’s best known and most successful investors, guilty of insider trading? When I reached him at his vacation home in the Hamptons on Saturday to discuss the topic following reports that the SEC, FBI, and Manhattan prosecutors are investigating whether he may have leaked illegal stock information to golfer Phil Mickelson and Vegas gambler William T. Walters, his answer was an unequivocal “No.”

“I am very proud of my 50 year unblemished record,” Icahn said, “and I have never given out inside information.” Icahn said he’s never met Mickelson or even spoken to him. But he does know Walters—indeed, the two are friendly, and socialize a couple of times a year (Icahn makes trips to Vegas and has business interests there).

That relationship seems to be the crux of the case that prosecutors would like to build around Icahn, which begins three years ago back in 2011, when the billionaire activist investor got interested in the consumer goods company Clorox. By February of that year, Icahn had built up a 9.1 percent stake in the company, and in July of the same year, he announced an unsolicited takeover bid. According to news reports about the investigation, just a few days before that bid, both Walters and Mickelson made big money trading Clorox. The question is, did Icahn tip Walters, who then tipped Mickelson, whom he ran into occasionally on the golf circuit (Walters owns a course)?

Icahn and Walters certainly chatted about stocks—Icahn talks about stocks with everyone. But I think it’s probably unlikely that Icahn, who’s one of the savviest investors around, would have knowingly given Walters insider information that would have compromised his multi-decade career and put him in the line of fire of regulators eager to bring down a big Wall Street fish. I think what’s much more likely is that Walters was a close listener, and observer, of Icahn. Walters, like many people close to Icahn (and even more who don’t know him personally at all), followed what he was doing in the markets. When they met, in Vegas or elsewhere, they’d sometimes talk about stocks. But that in itself isn’t illegal—in fact, under insider trading laws, it’s not even illegal to tell someone that you are planning to trade a stock, unless it breaches a duty of confidentiality to your own investors (which doesn’t appear to have been the case here, but that’s a legal matter that still has to be teased out).

In the end, Icahn never completed the tender offer for Clorox. But anyone who follows his career knows that he often buys up a lot of a stock before ultimately trying to gain a board seat or even buy the company. It’s not exactly a stealth strategy. And all of those moves typically drive up the price of the stock in question. That’s exactly why people follow his moves and try to buy what he does. It’s possible that Walters was a good observer of that behavior, and it’s also possible that Icahn may have talked up his interest in Clorox to him in the run up to his buyout offer. But I’m disinclined to think that this is a guy who’d risk an iconic career by giving illegal insider tips to anyone. It will be interesting to see how this investigation shapes up. Icahn claims he has yet to be contacted by any of the authorities. “We are always very careful to observe all legal requirements in all of our activities,” he told me.

You can bet that prosecutors will be looking closely in the coming weeks and months to make sure that every i has been dotted.

TIME

China’s Culture of Compliance Is Crippling the Country

Demonstration at Tiananmen Square in Beijing, China on June 01st, 1989.
Standing tall A Chinese youth at a demonstration in Beijing’s Tiananmen Square on June 1, 1989 Eric Bouvet—Gamma-Rapho/Getty Images

Next week will be the 25th anniversary of Tiananmen Square. It was a turning point not only for China, but also for the world, in the sense that it heralded a new era in which growing wealth and growing political freedom in emerging markets didn’t necessary go hand in hand. This year, China will very likely overtake the U.S. as the world’s largest economy. It has certainly become wealthy. But it has also become less free–as have so many of the world’s largest developing nations–think Russia, Turkey, many parts of Africa and Latin America, etc.

The question is, that can juxtaposition last another 25 years—or even another five? It’s something I’ve been thinking about a lot lately, particularly as I delve into New Yorker writer Evan Osnos’ very interesting new book on China, “Age of Ambition: Chasing Fortune, Truth and Faith in the New China” (FSG). The core premise of the book is that individual ambition and authoritarianism in countries like China will inevitably come into conflict with one another. As people get richer, they want more freedom, and they put pressure on their governments to deliver it. The problem is that these governments are often much better at delivering wealth than they are at delivering anything close to liberal democracy.

I think we may be reaching a tipping point in the next few years around that juxtaposition between growth and choice in the emerging world. China is, as always, the most dramatic example of this. The recent cyber-hacking scandal, for example, was portrayed by many pundits as yet another example of how the Middle Kingdom is leaping ahead of U.S. government and business interests, stealing American intellectual property and using it to gain a competitive edge. But as I argued, China’s IP theft actually underscores what a “me too” economy the Middle Kingdom still is. China is good, very good, at copycatting other people’s ideas (Osnos’ stories of various Chinese entrepreneurs, like the village woman behind the Chinese version of match.com, are fascinating on this score), but it has yet to create many global brands–aside from Lenovo’s computers and the college mini-fridges made by the low-end white goods producer Haier.

I think the lack of a top-shelf innovation culture has a lot to do with the lack of choice in Chinese society. I once spoke to a Wal-Mart executive in China who told me that he had trouble getting employees in one department to address basic problems in another–picking up boxes that had fallen off a shelf, or order new supplies, for example–because they were afraid of stepping out of their silos. That’s not about work ethic–the Chinese have that in spades–but a culture of compliance. In China, it’s important, sometimes deadly important, to swim in your own lane.

Another issue with the growth of higher end Chinese business is that entrepreneurs don’t trust the stability of the government. I’ve heard time and time again from wealthy people in China (many of whom are looking to get their money out – witness the percentage of high end property purchases in luxury real estate markets worldwide that are made by the Chinese) is that it doesn’t pay to develop businesses for the long haul here, because uncertainly and political risk is so high. People tend to get in, get out, and become serial entrepreneurs, rather than spending decades working on innovation, a la developed countries like the U.S., Japan, or Germany.

How will all this affect China? If the Middle Kingdom can’t make the leap to the “middle income” stage of development, which history shows is the trickiest one (only a handful of developing countries globally have made it), then unemployment will rise and social stability will fall. How will that affect Americans? In a sense, it already is. Trade tensions mean many U.S. companies are rethinking how, or if, they’ll do business in China, with myriad ramifications for us all. For more on all of that, as well as the economic legacy of the Tiananmen event, listen to my radio show, Money Talking, on WNYC this week.

TIME russia

Russia’s Blockbuster Gas Deal Makes It Look Weak

Russian President Vladimir Putin speaks during a meeting with Ministy of Defence representatives at the Bocharov Ruchey State Residence on May 15, 2014 in Sochi, Russia.
Russian President Vladimir Putin speaks during a meeting with Ministy of Defence representatives at the Bocharov Ruchey State Residence on May 15, 2014 in Sochi, Russia. Sasha Mordovets—Getty Images

The politics of energy are getting ever more interesting following the signing of a historic 30 year gas deal between China and Russia. The deal has been portrayed as Putin’s revenge for Western sanctions imposed following the conflict in the Ukraine. He’s sending a message that Russia has other options aside from exporting its natural resources to Europe. (The U.S. is increasingly energy independent and doesn’t need Russian gas.) The photo-op of Chinese president Xi Jinping and Putin downing a shot of vodka following the deal close was classic.

But it’s not time to click glasses quite yet. In fact, I’d argue that the China deal makes Russia–and Putin–look weaker, not stronger. For starters, as a recent Capital Economics report on the topic points out, “while the headline figure of $400 billion seems large” given that it’s 20 percent of Russia’s current GDP, that take is spread out over 30 years. That means we’re talking about $13 billion in additional annual export revenues for Russia–less than a quarter of what they typically export to Europe. Selling to China isn’t going to mean that sanctions won’t hurt. Europe remains Russia’s most important energy market.

Secondly, Russia has been in talks with China for years about this deal, and it’s not an accident that they signed only now, when the country is in a tough spot. The Chinese got a bargain in terms of gas price–they are apparently paying $350 per thousand cubic meters, $50 bucks less per unit than the Russians had wanted, and $20 bucks less than what the Europeans currently pay. No wonder Gazprom shares trade at a huge discount, despite the fact that the company made more money than any other firm in the world last year.

The Russians are also picking up the bulk of the infrastructure development required for the deal (the Chinese are only committing to $20 billion in spending so far, while the project will require at least $55 billion). And, they have plenty of other gas import options from the central Asian republics, which they can of course play off of each other, and Russia, in the years ahead.

What’s particularly sad about this deal is that it just solidifies the image of Russia as a low-end natural resource exporter to more savvy developing nations. This is a country that used to be a world power, and still has plenty of human capital and growth potential. With Putin focused mainly on doling out the country’s resources on the cheap in order to appear politically stronger, it’s unlikely either will be developed.

TIME

One of CEOs’ Most Powerful Tools Is Starting to Look Dull

NYSE Opens For Trading A Day After Major Losses
John Moore—Getty Images

A lot has been made in recent years of the record amount of corporate cash on the balance sheets–around $2 trillion in U.S., and the same amount in firms’ bank accounts abroad–as well as the fact that companies aren’t spending it. But the latter isn’t totally true. Firms have shelled out some cash, just not by investing in factories or equipment or new workers. They’ve done it with share buybacks, which involves a firm buying back its own shares on the open market. This almost inevitably raises a company’s share price, thus enriching existing shareholders.

Many companies see this as a more flexible way of returning cash to shareholders than giving out dividends, because they don’t have to set and meet specific dividend targets but can just buyback shares as and when they like. But some critics say that it’s just a way to make the rich richer, without actually putting a firm’s capital to use creating jobs and growth in some more sustainable way. Either way, it’s been one of the major trends in the market in the last five years. As I’ve written in many stories, including this cover profile of Carl Icahn, the volume of share buybacks in the US has been at record levels in recent years. Indeed, the total volume of buybacks in the first quarter of this year amongst S&P companies was higher than it’s been since the third quarter of 2007, before the subprime crisis really got going.

Now, that’s changing. As a new report by London-based Capital Economics points out, share buybacks have begun to slow just a little bit. Having risen by more than the broader market in each of the last five years, the S & P 500 Buyback Index has risen by less than that so far in 2014. To understand what that might mean for the markets, you have to understand what the history of share buyback data actually tells us.

The most interesting research on this topic has been done by William Lazonick, a professor at the University of Massachusetts, whom I’ve written about in the past. His data show that while firms may want you to think that buybacks are a vote of confidence in their own stock, buybacks are typically done not during bear markets in which stocks are undervalued, but during bull markets, particularly end bull markets, when companies are trying to ride a wave of price increases that have little to do with fundamentals. Indeed, Lazonick shows that while buybacks provide a short-term sugar hit, they tend to go hand in hand with lower margins and growth prospects over the longer term (paging Apple and Yahoo). That may be because if you look at four decades of data, buybacks tend to increase at the same time that spending on research and development is falling. In short, companies pay out their seed corn to investors, rather than re-investing in themselves by developing new businesses, hiring or retraining workers, building new factories, etc., etc.

I think the fact buybacks are now slowing could foreshadow a larger market slowdown, or even a broader correction in stocks (the Capital folks agree). We’ve already seen a correction, of course, in very over valued areas like technology and certain emerging markets. And the fact that the big blue chips are finally starting to buy back less of their own stock could indicate that they see a slowdown coming, too.

Ultimately, the valuation of stocks reflects the future earning potential of companies. While there are lot of things in the economic environment right now that are good for companies–interest rates are still low, the U.S. economy is improving–I keep thinking about the fact that people having gotten a raise in five years. As long as wages stay flat, and spending is relatively constrained, it’s hard to imagine the market staying this high forever. The slowing of share buybacks may turn out to be the canary in that particular coal mine.

TIME trade

What Chinese Cyber-Espionage Says about the Chinese (and U.S.) Economy

The Obama Administration's outrage over Chinese hacking has its roots in conflicting views of the government's role in private business. So don't expect a meeting of the minds anytime soon.

Imitation is the sincerest form of flattery, but that’s probably cold comfort to firms like Westinghouse and U.S. Steel, which the U.S. Justice Department says have been hacked by Chinese cyber-espionage teams. By indicting the Shanghai-based team allegedly responsible for the attacks, which are largely conducted in order to give the Chinese an edge in the global economy, Attorney General Eric H. Holder Jr. is trying to draw a line between the sort of snooping that the U.S. National Security Agency does for strategic security purposes, and the kind that the Chinese do, which often involves intellectual property theft or the culling of business secrets for competitive advantage.

The problem is that the Chinese don’t recognize that difference, because in China, the state is the economy. I was actually in China as the Edward Snowden story was breaking in 2013, and I remember the Chinese being indignant about what they perceived as U.S. hypocrisy around cyber-snooping.

The importance of the Chinese state in the Middle Kingdom’s economy, which has been growing over the last 15 years or so, is crucial to understanding the hacking affairs. During the period of China’s highest growth, in the years leading up to 1995, the country was all about unleashing the private sector, and paring back the public. A lot of public sector workers were laid off, Beijing liberalized various sectors of the economy, and the private sector took off. But since the mid 1990s, that trend has been shifting.

State-owned enterprises, or “SOEs” have been sucking up more of the countries financial resources (they get about 80% of all debt financing, while providing only 20% of employment), which is one of the reasons that the Chinese economy is slowing. That makes it harder for the country to move up the economic food chain, from lower-end manufacturing to higher-end products and services, which is what it needs to do to move from being a poor country to one in which most of its citizens are middle class. It’s telling that some of the highest levels of unemployment in China are amongst new white-collar college graduates; the country just isn’t creating enough high-level companies, or jobs.

Which goes right to the heart of the hacking indictments. Despite all the hoopla recently over the fact that the World Bank expects China to surpass the U.S. as the world’s largest economy this year, there’s a big difference between being big, and being rich. Average U.S. worker wages are between 6 and ten times what they are in China because U.S. companies produce higher end goods and services. The Chinese economy is still largely a copycat economy—albeit a very good one. Chinese companies tend to take ideas from developed country firms (either legally or otherwise) and try to tweak them slightly to make them cheaper, more suited to local markets, etc. That’s why Chinese hackers were searching for intellectual property secrets at Westinghouse, and probably countless other Western firms. It’s something that American firms in China complain constantly about, and have largely taken as a cost of doing business there.

What’s more interesting, though, are reports that Chinese hackers were also looking for things like the trade deals and strategies of U.S. steel firms. This may speak to one reason that the Obama administration decided to make a big deal of Chinese hacking now. In an age of slower global growth, when all boats are not rising, issues like intellectual property theft and trade tensions become more fractious. The U.S. has been complaining for some time now that China won’t play by the existing rules of the global economy, and that given its size and economic heft, this can’t be allowed to continue. Since the financial crisis and recession of 2008, analysts have been predicting that the U.S. and China would eventually come to blows over trade issues—and it’s interesting that many of the firms being hacked were also those that had approached the WTO about Chinese trade violations.

It will also be interesting to see how the Chinese respond to the Justice Department indictments; needless to say there’s no way they’ll be handing over any hackers and they’ve already pulled the plug on a cyber-espionage working group with the U.S. that was supposed to address some of the tensions between the two countries. One thing you can count on, says Conference Board China economist Andrew Polk, is that the slow growth, increasingly nationalistic environment in the Middle Kingdom is going to “make it tougher for foreign firms to do business there.” As if it was ever easy.

 

TIME Economy

Job Growth Good, Labor Market Bad

What happens with workforce participation will determine how you experience the recovery

Midway through the year, how is America’s economic recovery really doing? It’s complicated.

We’ve just gotten what in many ways appears to be a stellar jobs report. The U.S. economy created a whopping 288,000 jobs in April, and the unemployment rate fell to 6.3%, its lowest level since 2008. Unfortunately, it didn’t fall just because tens of thousands of new jobs were created in construction and retail, for example. A bigger reason it fell is that fewer people are looking for work. In fact, the workforce-participation rate–the percentage of people who are actually in the labor market–dropped to its lowest level since 1978.

The question now is whether or not people who are shut out of the labor market for various reasons will be able to return to work as the recovery strengthens. Ultimately, the answer will determine how most Americans experience the next few years–how much it will cost you to buy a new car or home or what you will pay in student loans.

It’s not hard to see why workforce participation is such a hot topic. Over the past five years, the percentage of the population working in America has dropped to the levels of Europe as a whole. Typically in the U.S., about 15% of unemployed people are among the “long-term unemployed,” meaning they’ve been out of a job for more than six months. After the Great Recession, that share reached 45%, and even today it’s still 37%. The long-term unemployed suffer not just economically but also socially: they have higher rates of divorce, depression and suicide.

Will those people ever work again? Many experts say no, because research shows that employers often discriminate against the long-term unemployed and also their skills tend to atrophy. “More than ever before, skill erosion will be a major obstacle for those who wish to return to the workforce,” declared a recent Conference Board report. And then there’s another group: the baby boomers dropping out of the workforce who had likely planned to retire anyway but may have pushed the decision up by a few years because of gloomy work prospects. Historically, few such people ever return to the workforce once they leave.

So what does all this mean for the price of your mortgage or car loan? The amount of slack in the labor market is one of the key factors helping the Fed decide whether to raise interest rates. When markets are slack, or too many people who want work don’t have it, wages and prices stay down. But if labor markets get tight, wages go up, and that causes inflation. When inflation starts to rise, so do interest rates.

But inflation is tricky. It moves fast and often unexpectedly, which means it’s important for central bankers to try to anticipate it. That’s why there are vigorous disagreements about what to make of these latest numbers. Economists who see the bulk of labor-market dropouts as a lost cause believe they don’t really matter with respect to inflation. The short-term unemployment rate, which they believe is a better measure of the true slack in the labor market, is just a little more than 6%, right around where it ought to be historically. And important metrics, like the National Federation of Independent Business survey, show the labor market is as tight as it was in 2005. Whatever the unemployment rate, we may not have enough workers with the right skills. And a tighter labor market implies that inflation could come on sooner rather than later–and that rates could rise as early as 2015.

Plenty of people in the fed believe that could and should happen, but chair Janet Yellen isn’t one of them. Yellen recently said, “My own view is that a significant amount of the decline in [labor] participation during the recovery is due to slack, another sign that help from the Fed can still be effective.” The data on her side include the recent disproportionate declines in the unemployment rate for lower-income workers. The idea is that companies are starting by hiring cheap labor and they’ll eventually hire more workers higher up the pay scale. There’s also the fact that right before the Great Recession, there was a nascent trend toward older workers staying in the workforce longer, in part because of better health and the desire to work but also perhaps out of necessity: the average retirement savings of Americans ages 55 to 64 is about $120,000, not enough to fund anyone’s golden years.

If that’s the case, we may see many of those longer-term unemployed people come back into the workforce, keeping inflation (and rates) lower for longer. In economics, three’s a trend. The next two months of data will be crucial in understanding where labor markets, interest rates and the price of your debt are headed.

TIME

Nigeria’s Nollywood Is Thriving Despite Terrible Conditions

Nollywood film set- Brookeville, MD
The Washington Post—The Washington Post/Getty Images

Nollywood Is Hollywood with more bribes, gunplay, and crime

Nigeria—with its booming growth, and its nearly 300 missing girls—has been all over the news lately. I’ve been here for the last 7 days, first reporting on the Africa meeting of the World Economic Forum in Abuja, and now in Lagos, to report a piece on the country’s burgeoning film industry, Nollywood. In some ways, the story of this industry is the story of the entire Nigerian and even African economy. It’s about sheer entrepreneurial will overcoming any number of obstacles, from inept governance, to corruption and crime, to the lack of basics like power, roads, and infrastructure.

The chirpy David Brook’s piece in the New York Times the other day certainly put forward the optimistic story—7% growth, a GDP that recently jumped by 89% thanks to a recalculation by the World Bank, huge consumer spending potential, a growing middle class, etc., etc. But what I have taken away from my reporting here is that this growth is happening in spite of incredible governmental roadblocks, and that much of the money is still flowing out of the country, or up to a small group of elites. If things got even a little bit better, Nigeria, already the largest economy in Africa, could truly boom in a more inclusive way.

Consider electrical power, or the lack of power, which everyone from Africa’s richest man, Aliko Dangote, to the small producers of Nollywood says is the biggest obstacle to doing business here. The power setup in Nigeria is similar to the water setup in India. The government controls a grid, which runs haphazardly—sometimes because of poor infrastructure, other times because power gets pulled to choice areas. Either way, it means people have to buy generators and diesel to keep the lights on. (BTW, the lights just literally went off in my hotel, supposedly one of the nicest in Lagos, as I wrote this post.)

I spoke today with a filmmaker who was in the middle of making movie when his generator blew out. He bought a new one the next day, but it was stolen by one of the neighbors. (He hired the local vigilante police to find it; the real ones never come because they don’t get paid off.) Lack of power is one big reason production values in Nollywood, which churns out more movies than Hollywood and is second only to Bollywood in terms of number of films produced, have remained low for so long. But this kind of crime is just the tip of the iceberg.

The same producer released 50,000 copies of a movie to local distributors in Alaba Market, which is the birthplace and heart of Nollywood, and the largest consumer electronics market in West Africa. The next day, he got a call from Greece, from someone who’d seen his movie via a black market tape. It turned out that 100,000 copies had already been pirated (he believes by his own distributors in Alaba). The $5,000 in profit he’d hoped to make on his $5,000 investment was gone.

In fact, Alaba embodies all that is good and bad about the Nigerian economy. It is vast, chaotic, rough, entrepreneurial, and lawless. To get there from Lagos’ main business district, you drive hours in standstill traffic, on roads that are half pavement and half dirt. Once at the perimeter, I had to hitch a ride with a boy who had a motorbike, speeding along through the narrow market streets to get to where the Nollywood section was because the market itself is so big. (I felt like an extra in the Bourne Identity.)

Inside, you feel its possible to get lost and never emerge. It was a sea of bodies all selling everything you can image: extension cords, plantain chips, porn, cassava, washing machines, black market DVDs. Everyone everywhere is looking for money-making angles. One woman was selling empty plastic bags, and another was buying them and filling them with grain, to sell again. There was an open sewer with a 6 foot long board over it and a couple of guys had commandeered it and were making people pay a 25 naira toll to walk across.

Once inside, you see the different layers of the Nollywood economy—I followed a young man who’d come 80 minutes to buy DVDs for 50-85 naira that he would sell in a stall at home for 100 naira (about 75 cents). Interestingly, the foreign pirated movies, like 12 Year A Slave, sell for 35 naira—less than the local stuff, which is more popular. Distributors take the movies given to them by filmmakers and make copies of them (sometimes making extras for themselves), which they keep in warehouses and sell in the market to people from all over—Ghana, Kenya, Nigeria, the Caribbean.

Once, I was told, four of the biggest filmmakers in Lagos got upset about the distributors pirating stuff and skimming too much off the top, and decided to go into the market with armed military police. They all came out a little while later, running, and being shot at by the distributors. Some of the larger filmmakers have since started their own stalls in Alaba and many now do their own distribution.

Despite all this, the industry thrives. The recent World Bank rebasing of GDP numbers has found that Nollywood contributes 1.4 % of the country’s yearly GDP (entertainment is 3 % in the US, so 1.4 % is really very good for a county like Nigeria). There is an entire ecosystem of stars, minders, and hangers-on here on Victoria Island. I went to a Nollywood party last night and saw them all getting dressed for the red carpet at an event sponsored by MTV and Absolut Vodka. They are already huge in Nigeria, obviously, but are also big in Africa and are increasingly grabbing the diaspora market in the UK, Caribbean, Germany, etc, in part because the industry is finally starting to digitize; expats are coming home and building out digital video on demand platforms, which is bolstering demand and helping production budgets and quality to grow.

I met a young woman who is the star of “Lekki Wives,” a take off on the real housewives theme. Lekki is like New Jersey—a part of Lagos where strivers live. Her character, Lovette, is a lens into the various socioeconomic issues that Nigerians now face—inequality, corruption, wealth than can be taken away in minutes, etc, etc. While there are plenty of sensational Nollywood films—thrillers, horror pics, religious ones—an increasing number show the way the country is changing and the challenges its facing.

I have another day of reporting to do, but so far, I’ve come away feeling that Nollywood, like the Nigerian economy itself, could be much bigger, but only if the government actually gets its act together and supplies basic business infrastructure needs (or the industry gets big enough to build it all out themselves, as rich business men like Dangote have done). Of course, the former would require a sea change in the political economy. It can’t come soon enough.

TIME Globalization

Nigeria’s Missing Girls: The End of Terror Is Nowhere in Sight

A member of Boko Haram in a suburb of Kano, Nigeria, in 2012.
A member of Boko Haram in a suburb of Kano, Nigeria, in 2012. Samuel James—The New York Times/Redux

Terrorism is the most pressing of many issues facing Nigeria, TIME's Rana Foroohar writes after a visit to Abuja, amid the government's sluggish response to the April kidnapping of almost 300 girls by the militant Islamic group Boko Haram

Outside the airport in Abuja, Nigeria, where the World Economic Forum’s Africa conference recently wrapped up, I noticed a local workman’s truck, which had a sign painted on the back that read, “Every problem has an expiry date.”

There are plenty of problems in Nigeria–inefficiency, inequality, corruption, unemployment–but the most pressing one right now is terrorism. It is unclear what the expiry date might be. Nearly three hundred girls taken from their boarding school in the northeast of the country by a militant Islamic group called Boko Haram are still missing. A new report by Amnesty International claims that the national government headed by President Goodluck Jonathan knew about the impending attack–and did nothing.

At panels I attended at the World Economic Forum (WEF), just as the report was coming out, President Jonathan said that the kidnappings would be “a turning point in our fight against Boko Haram, and the beginning of the end of terror in Nigeria.” At the WEF evening welcome soiree last Thursday night, a Nigerian pop star serenaded the President, his coterie of plumbed generals, and the rest of us, in tones that managed to be both mournful and saccharine, with a song about the missing girls. It seemed tone-deaf at a forum sponsored by the government, which began with a moment of silence for the missing girls, but offered no real sense of urgency around finding them, or combatting the growing terrorism in the country.

The big question at the WEF was whether terrorism, and in particular the kidnappings, would have any impact on the Nigerian investment story, which up until now has been one of the biggest recent success stories in emerging markets. Just a few weeks ago, Nigeria “rebased” its GDP numbers to account for the fact that old calculations weren’t taking into account new industries like telecoms and Nollywood. The result was that Nigerian GDP grew by 89 % overnight, making the country the largest economy in Africa, trumping South Africa. Growth is high–around 7 %–the middle class is growing strongly, and oil and gas represents about 14 % of the economy, about half of what was previously thought. Overall, that means more growth is coming from sustainable sources. Six out of ten of the world’s fastest growing economies are in Africa, and Nigeria is first among them.

Yet unemployment is still high and inequality even higher. Half of Nigerians live in poverty, despite vast oil and gas wealth. In fact, that’s one reason that many prominent citizens say that Boko Haram has gained a foothold in the country. Some Nigerians are getting wealthy, but there aren’t jobs for enough of them, particularly given that over 50% of the population is under 18 years old. That’s exactly the kind of demographic and economic combination that bred the Arab Spring uprisings.

“Terrorism hasn’t stopped business from coming here to Nigeria yet, but the situation is out of hand,” says Aliko Dangote, the head of Dangote Holdings and Africa’s richest man. “I think the government is trying to get themselves together [around this issue]. I think they have been taken by surprise–there are people in places like Spain who are saying, ‘where are these Nigerian girls?’ That hasn’t happened before. It’s good that the government has asked the US and the UK to help. And it’s important that the private sector do its part, too. Unless we create more jobs, we won’t eliminate Boko Haram. Even if we do, another such group will come. We have to empower our people.”

In some of the WEF meetings, President Jonathan tried to play down the link between terror and poverty, presumably to turn the spotlight away from the fact that the government has much more to do in terms of building infrastructure, improving education, bolstering efficiency in agriculture, and cutting corruption, all of which would improve job growth in Nigeria. “Terrorism is a recent problem for us,” he said. “It’s not about poverty, but extremism.”

But a number of Western businesspeople I spoke to at the WEF said they were concerned about terrorism spreading, particularly further south to areas like Lagos, where the State Department recently issued a warning about potential attacks on Sheraton Hotels. While big oil and financial deals will likely continue without interruption, consumer goods companies–food suppliers, retailers, and others that depend on a secure and growing middle class–were more concerned. That’s in part because of what the Amnesty Report implies about the attention that the Nigerian government pays to safety and security, particularly for women and girls in the country.

A glut of research from institutions such as the World Bank and the UN shows that if girls don’t stay in school, and women aren’t economically empowered, economies don’t grow in a sustainable way. “For things to work here [in Nigeria] you need two things: foreign direct investment, and local capacity, meaning human capacity. That requires education. If you have a situation in which women and girls can’t be educated, that’s a big deal,” says John Rice, the vice chair of G.E., and a co-sponsor of the WEF Africa conference.

“There’s a good news story and a bad news story here,” says Rajiv Shah, the administrator of USAID, here attending the WEF meeting in Abuja. “The good news is that Nigeria is thriving economically. But the bad news is that this [incident with the girls] cuts to the heart of the continuing problems with safety and security here. Boko Haram has displaced 500,000 people in northern Nigeria. The president has instructed Secretary Kerry that we will do everything we can to help.”

Yet at the end of the day, the impetus for managing the crisis has to come from Nigerian leaders themselves–and so far, most seem much more interested in discussing foreign direct investment and GDP growth and privatization of the country’s various industries rather than talking about how to ensure security for its people, and particularly how to find the missing girls and insure that something like this never happens again. “People have no idea how fragile things are here,” says Anton du Plessis, managing director for the South Africa based Institute for Security Studies. “You can have growth without development.” That’s exactly the situation in Nigeria right now.

TIME World Economic Forum

An Hour With Africa’s Richest Man

Honoree Aliko Dangote at the Time 100 Gala at Jazz at Lincoln Center in New York on April, 29, 2014.
Honoree Aliko Dangote at the Time 100 Gala at Jazz at Lincoln Center in New York on April, 29, 2014. Jonathan D. Woods for TIME

I’m waiting for Aliko Dangote. Everyone is. Africa’s richest man, worth $24.7 billion (more than Carl Icahn, George Soros and any number of lesser Western billionaires) is probably the most in-demand person at the World Economic Forum here in Abuja, Nigeria. He enters the Hilton on a red carpet, a mere 30 minutes late, with minders, the head of his foundation, and the second of his three grown daughters in tow. The hotel employees literally bow before him, lesser oligarchs wave and backslap, and the merely rich try to bum rides on his private plane. “I don’t know what to do, my wife really needs to get home,” says an Indian businessman to one of the numerous Dangote staffers hovering nearby, who smiles sympathetically and promises to look into things.

Dangote himself is unassuming. A 57-year-old man with an almost shy smile, he’s a practicing Muslim that acquaintances call “generous” and “prayerful.” He’s also a sharp elbowed business titan, the 24th richest in the world, who has survived ten different regimes in Nigeria, building a $2 billion empire on cement, sugar, salt, and more recently, energy. Dangote sat down with me in his suite at the Transcorp Hilton in Abuja Wednesday to discuss wealth, power, politics, and the future of Africa. Below are lightly edited excerpts from our talk:

TIME: I hear you haven’t taken a vacation in 20 years. Is that true?

Dangote: It used to be. I was working very hard for a long time to build up my business. Now, I try to take a week’s vacation every two weeks. We live in Lagos, on Victoria Island, but I like to go to Miami with my family. I used to own two homes in Atlanta. But it was a lot of trouble. There are leaky roofs, you have to call people. It takes up too much time to own property everywhere. Now I stay at the St. Regis. I used to like cars a lot, too. I had 25 of them, Porches, Ferraris. I would drive from Lagos to Kano at 180 miles per hour. But I stopped that after I had my second daughter.

You came from a certain amount of wealth. What was your upbringing like?

My great-grandfather was a kola nut trader, and the richest man in West Africa at the time of his death. My father was a businessman and politician. I was actually raised by my grandfather. It’s traditional in my culture for grandparents to take the first grandchild and raise it (Dangote’s older sister died as a baby in a car accident). I had a lot of love, and it gave me a lot of confidence.

You started with a loan from your uncle and built the most successful locally owned business conglomerate in Africa. What were the turning points?

I always tried to move up the food chain. I started with cement, and then moved into textiles, and banking. When I was trading sugar, I added salt and flour, so that then we could do pasta. And then I thought, why not make the bag for it too? So, we started making packaging.

This is a very entrepreneurial culture, but not a lot of people have your kind of success. What did you do differently?

We had a lot of capital, and we were able to build out our own power grid. The number one thing that kills businesses in Africa is power, or the lack of power. We wanted to have our businesses completely independent, with our own grid. So we built it. It took $1.2 billion. That’s a lesson I took from the financial crisis. It’s so important to have capital. At that point, we had about $2 billion in debt from expanding so quickly, so we had to scale back. But if I had more capital [in hand] in 2008, I could have bought so many things – homes, airplanes, land – so cheaply.

Now you are going up the food chain again, getting into energy, and in particular oil and gas refining. Nigeria has a lot of oil, but not a lot of refined gas. A lot of people feel that Africa could grow a lot faster with more of its own refinery capacity.

Yes, we’ll finish our refinery in 2017, and with it a petrochemical factory. This should take us to the next level. It’s all about integrating what we have. From the sugarcane we use, we can make ethanol. People say, “why get into agriculture?” but there is huge vertical integration between food and fuel, and Africa has both. Our rice and sugar business will create 180,000 new jobs in the next four years. We want to have a market capitalization of $100 billion by 2017. It’s my goal for my 60th birthday!

What’s your goal for this World Economic Forum meeting?

I want people to understand what’s really here. I feel Nigeria is like Colombia. People think about it based on information from 20 years ago. You think about Colombia, and all you think of is drug cartels, but really, there’s a lot of investor interest. It’s the same here in Nigeria. It’s not the 1970s. Things have changed.

But isn’t that the crucial juxtaposition here? You have growth, but no security. You have 8 % GDP growth, and over 200 missing girls that have been taken from their homes by Boko Haram.

It’s true. It hasn’t stopped business, but the situation is out of hand. I think the government is trying to get themselves together [around this issue]. I think they have been taken by surprise – there are people in places like Spain saying “where are these Nigerian girls?” It’s good that they’ve asked the US and the UK to help. And it’s important that the private sector do its part, too. Unless we create more jobs, we won’t eliminate Boko Haram. Even if we do, another such group will come. We have to empower our people.”

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