That the economy is facing one of its hardest moments in 25 years is no longer news. The question is: How do we get it out of the woods? Critical stakeholders should focus on sustainable solutions, says the former Managing Director/CEO Asset Management Corporation of Nigeria (AMCON) Mustafa Chike-Obi, in this interview with Group Business Editor, Simeon Ebulu and Senior Finance Correspondent, Collins Nweze.
He also speaks on the exchange rate crisis, building of new refineries and the need to promote growth and productivity, among others.
It will be good to know what you have been doing since you left AMCON.
Since I left AMCON, I have been working to build, what I will call one of the finest pan-African advisory investment funds, Alpha African Advisory Limited.
We focus on three things: Fund- raising for worthwhile businesses in Nigeria, financial advisory services and something we call- gateway services, which is primarily targeted at assisting foreign investors who are looking to come to invest in Nigeria.
We try to fix some of the things that are not business related that frighten people from coming to Nigeria by collecting all the approvals necessary for foreigners to come to Nigeria. The willingness of foreigners to come to Nigeria has waned in the last two years and we hope that Nigeria puts its economic house in order, so that it will become attractive for foreigners once again.
That dovetails into the government’s desire to encourage foreign investors into the country. Do you key into the government’s plans in this area?
The problem with the government is that they have good goals, but the willingness to put in the work to actualise it, is difficult. The government aspirations are nice – remove corruption, diversify the economy, attract foreign investors, but when you look at the actions, and what is required to effect these goals, you realise a succinct lack of willingness and required effort.
I was watching CNN recently and the government of Indonesia was advertising Indonesia. The key part of that particular advert was how many countries could come to Indonesia without a visa and they listed about 20 countries. There is absolutely no reason an American businessman who wants to come to Nigeria should get a visa, especially because Nigeria’s visa process is rigorous. They don’t need us economically, we need them economically. We must be practical and that was what I advocated in the last government.
If you are from a G20 country and you want to come to Nigeria, come. If you bring money to Nigeria and you want to take it out, you can take it out. Now, the rate is a business risk. This period whereby people who brought in money legitimately, but could not take it out easily, have done us more damage than you can imagine. It will take us years to bring back that confidence.
Can we know some actions we can use to stabilise the nation’s desirability?
Well, let’s take a case of Ivory Coast. They had a civil war. After the government change, the new government kept many of their best minds that were there. Now, out of civil war, Ivory Cost is growing at eight per cent and they are heading towards double Gross Domestic Product (GDP) growth.
We must make use of our best minds. Not everybody in Jonathan’s administration was bad. We cannot be changing our best minds every four years. We need to recognise the good ones and keep them, for continuity matters. Anytime there is a change of government, everything changes. We must learn some continuity in government. What one person started should not be thrown away because of a new administration. The good things we should keep. If we are building a bridge under Obasanjo, it does not mean that under Yar’Adua, we should abandon the bridge and under Jonathan, we start a new bridge. What a new administration has put in place, the next administration must honour, so that we can have continuity.
Is that why we have this high level of corruption in the country?
Corruption is not our biggest problem, competence is. We must first of all make sure that the most competent people are in the correct positions. Now, it is also my theory that people who are competent, tend not to be corrupt. They think that when they leave a job, they will get another job, and so what is the essence of stealing. However, people who are unsecure about their competence, their wives will tell them to make sure they take care of themselves.
I think we should just value simplicity and competence and corruption will die. We have a culture that does not value simplicity and when we cannot afford the lavish lifestyle, it leads us to finding extra ways to make the money to be able to afford it. We will remain corrupt if we value display of wealth. Corruption is not just in the public sector. There is as much corruption in the private sector. And how are you going to stop that, you have to change your values.
Let’s come back to the economy, especially the exchange rate policy of the Central Bank of Nigeria (CBN). What is your view on the state of the naira, and the push by the World Bank for free floating of the naira?
Those are two different questions. As to what is necessary for the economy, the answer remains productivity and growth. We must be able to be productive as a country. We must be able to make things as cheap as other countries. As long as we continue consuming things that other people are making, our currency will never be strong. Our currency has done N180 to the dollar for two years, then N150 for a number of years, then N200 and now this artificial N305. But five years from now, it cannot be at N305. Five years from now, it could be far more higher unless we become a productive nation.
The question is: how do we turn to a productive nation with double digit GDP growth? That is the only thing that can save the economy, not crude oil proceeds. When crude oil prices were at $120, there was still poverty in the land.
The poverty rate, which is the most important measure, did not drop. Now, we are at – 0.8 per cent GDP, and poverty rate will still grow at five per cent per annum. When poverty rate gets to 80 per cent, there will be revolution. When people have no hope, they will get up and revolt. So, we must address the issue of productivity and growth now.
Which is preferred in managing the economy – a higher naira/dollar exchange regime, or lower interest rate?
If growth is the objective, then, we need lower interest rate. I am aware that a low interest rate has a consequence on exchange rate and inflation. If we grow at 10 to 12 per cent, for the next five years, eventually, inflation will come down and the currency will strengthen. When we go through a period of difficulty, and that is what leadership is all about; if the leadership comes and tells us, this is what is going to happen, we are going to go for double growth, in that interim, we may have to deal with inflation, and weak currency, but in the first year, in the next five years, we will be exporting clothes and shoes to countries in ECOWAS.
So, when someone has seen the steps and results, they will comply. But what we have here is a number of good things like stronger currency, but nobody can borrow money or run a business at 30 per cent interest rate.
So, businesses are dying, people are laying off workers. The only businesses that are surviving are those with very short life cycle. So, you buy something, you sell it, and take your profits. But if you want to manufacture or produce with machinery, you cannot do it.
If the foreign exchange is not helping us to achieve growth and productivity, then it is unnecessary. It will not solve our problems. It is not appropriate for us to have an exchange rate regime, independent of overall macroeconomic target of the country. So, if they tell you the exchange rate will be N300 to the dollar, the question is, what is the developmental objective of having it at that rate? They cannot answer you.
It has been a wonder to many people that a government that wants to grow the economy is setting different exchange rates for different segments of the economy. The government has no business setting exchange rates. I am an astute believer in what we call government priorities. If you are a road builder and you are building a 90-kilometre road between Lagos and Ibadan, and we can verify that you built the road, and this is your cost, we can subsidise it with our dollars at N100 to one dollar. If you build power transmission lines from Lagos to Ogbomosho, and it costs you $100 million, we will give it to you at N50 to one dollar.
So, we know what our priorities are and we subsidise it. But this one we are doing, is subsidising business and personal travel allowances, medical tourism. It is a subsidy. Someone who is going on medical trip can get dollar at N305 instead of N370, it is a subsidy. And it is administered by the Central Bank. Is it in the public interest? I think we should have a market rate for things that are critical to the economy, we subsidise it after, not before.
Many believe that our backwardness as a country is because we do not have credible data. What is your view on that?
World Bank has massive data on Nigeria that you do not even know, they are there. I know data is our problem. I give you an example. Senior government officials, including ministers, have variously said in different fora that we spend 30 per cent of our foreign exchange importing petroleum products.
That statement is not true. It’s a false statement. The reason it is false, is because it is double counting. You sell your crude oil, you get dollar. Let’s say you use 500 barrels of crude oil daily. You sell it, you get the dollar on the 500 barrels. You re-import it, and you say you spent the money re-importing it on petroleum products. But you have not, because if we have refineries in Nigeria, that 500 barrels that you sold, you will not get dollar for it. So, you have to remove the revenue from the oil you sold, to get the actual cost of the petroleum import and that number is about 10 per cent.
They said that building refineries will save Nigeria 30 per cent foreign exchange. No. Let’s say Aliko Dangote finishes building his refineries in Lekki. Will you sell him the crude oil in dollar or naira? If you sell to him in dollars, he will refine it and also sell back to you in dollars. You get dollars from him, and he will get dollars back from you. The only difference will be the profits. So, you cannot double-count the crude sales. Every research tells you, that in petroleum products, the crude oil is 90 per cent of the cost.
They will tell you that they spent $6 billion importing petroleum products in a year, but in that transaction, we received $5 billion selling the crude oil to the countries where they are refined. So, we are prioritising refineries, but we should care less about refineries because they are more capital intensive, they do not hire a lot of labour. It is better we take that money to build a six-lane super highway from Lagos to Kano, and you will see Nigerian GDP will grow by 10 per cent. That one act will increase our GDP by at least five per cent.
Now, you can go to Abuja by road in three hours. And all your farming and tomatoes and agricultural products will be preserved. We should build infrastructure and agricultural processing as a priority over oil processing. Agricultural processing is more important to Nigeria over crude oil processing and they employ more people, it creates more productivity and it is something we can have forever. So, instead of building refineries, I will build food processing plants.
What is your take on the nation’s loan profile, both foreign and local debts?
Nigeria by all economic standards is under-borrowed. The problem is that the CBN has kept the Treasury bill rate at around 22 per cent. We should never borrow foreign money because we do not have foreign sources of income. The issue is not how much local debt we have, but whether we can service it. The thing is that in defending the naira, inflation is still at about 18 per, so the private sector cannot borrow.
The issue is the loans over the years have not translated to much gain.
I understand what you are saying, but we are saying two different things. The fact that the government in the past misused borrowed money does not reduce the gains of borrowing to build infrastructure. For instance, the Third Mainland Bridge and Falomo Bridge are responsible for the entire development in Victoria Island and Lekki. Without those two bridges, we cannot have Lekki. Now, Victoria Island is a commercial and residential hub. But without those two bridges, it will be impossible. Now, if you ask me, should we borrow money to build the fourth mainland bridge? Absolutely. Because it will open up Epe down to Ondo. I think we can borrow to fund specific projects. The fact that money has been wasted in the past should not stop us in saying this is the way forward. We need to just step back and say, this is the right thing to do, and we put the right people to do it and it will work.
What do you say about Nigeria’s political configuration?
Politics is a very complicated matter. Politics means allocating scarce resources to legitimate groups. The scarcer the resources, the more difficult the jobs are. The easiest way out of it is to grow the GDP and sharing will become easier. When the national cake is smaller, the issue then is how to grab the available resources.
I have no tribal affiliation. I believe we should make the national cake bigger. I believe that the 36-state structure is not good for the economy. If you ask me, I will collapse all the states into six geopolitical zones and make the geopolitical zones the federating units. So, we will have six federating units. What we call a state, I will call a local government authority. We will have six governors, and 36 chairmen. From each of the local government areas, I will take three House of Reps people and one Senator. So, we will have 36 Senators and 108 House of Reps members. We will save a lot of money and have federating units that are viable. The 36 states’ structure is not viable.
The government is talking about taxation, even when revenues from taxes are not well utilised. What is you take on that?
Tax compliance is very low. Because tax compliance and tax rates are low, then Nigeria’s tax compliance to GDP is very low. So, when you say they haven’t done much with it, there’s not much that can be done with the amount collected as taxes. We must increase tax compliance and tax rate. I will not support increasing taxes because we are in a recession. When we start growing, we can then raise tax. The effective tax rate for a bank managing director in Nigeria is about 10 per cent and in America, such person will be paying about 40 per cent tax. I support a comprehensive look at our tax policy.
I remember when AMCON was floated, which you headed as CEO. The idea was to take bad loans from banks and allow the banks to lend more and grow. But today, the level of bad loans in the industry is rising very fast. What is happening?
The problem with the AMCON Act was that when it was made, it was meant to take non-performing loans from the banks. Unfortunately, that’s not what our vision for AMCON was. If you take the bad loans at the correct price, which is about 30 kobo per naira, it creates a negative capital for the banks. The banks did not want to sell their loans at 30 kobo per naira, because that will make them not to have any cash at all. So, the banks were hiding the loans and playing games and all that.
The first thing is to take the loans from them at the right price, and recapitalise them to zero, you give them back the money as capital. And then, the banks have up to 10 years to pay back that loss. It was financial re-engineering to give the banks time to pay back the bad debts.
So, whenever you talk about how the government has put money back to AMCON, it is not true. There is no government money in AMCON. The only government money in AMCON is the N10 billion initial capital. But from the N10 billion initial capital, AMCON prepaid CBN. The biggest beneficiary of AMCON are the depositors. They did not lose any money. AMCON was not just about bad loans, but providing the bridge for the banks to move from where they were until they were able to pay back.
From where we are now, what should be the government’s priority, focus?
Growth. There are ways to do it. The government has to get to market guaranteed programme, and from there build infrastructure.
How much success has Alpha African Advisory recorded with foreign investments in Nigeria?
We are not trying very hard because we believe our investors should make money. We do not raise money unless we are sure it is a viable business. And with Nigeria’s economic policy, I will not even accept anybody bringing money into Nigeria.
We need to know where we are going, and we do not. I do not see any coherent economic policy. We have seen the Economic Recovery and Growth Plan (ERGP), again nice, but let’s see the outcome. Every economic person will tell you diversify the economy. The growth rate is too small. Two per cent next year and seven per cent, by 2021.
How do we revive the economy?
Nigeria remains a country of great potential. Nigeria, however, is on a cliff edge economically. We have to realise that the economic situation is an emergency like the Boko Haran insurgency and has the potential of creating far more problems, hardships and deaths than the Boko Haram insurgency can in 30 years. We must pursue the economic situation with the same energy we are giving corruption and terrorism and the economy will have more potential to transform. We must declare an economic emergency and put our best minds forward. The economy must become the number one priority of the government.
The post ‘Declare economic emergency, make use of our best minds’ appeared first on The Nation Nigeria.
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