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If inflation is not reined in, Nigeria might turn into another Venezuela – Ekpo

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    A former Director of the Central Bank of Nigeria and the West African Institute for Financial and Economic Management, Prof Akpan Ekpo, shares his thoughts with AYOOLA OLASUPO about the state of the economy and the way forward

    There has been a continued slide of the naira, and the Federal Government appears to have no solution to it. What do you think can be done to stabilise the national currency against some foreign currencies and prevent it from further depreciating?

    The value of the national currency is influenced by production. Our economy is not exporting and producing non-oil goods and services to earn foreign exchange. That is the long-term solution. It has to be a producing economy. The economy has to diversify and industrialise to earn foreign exchange because the dollar or the euro is not our money, and the naira is not a foreign currency. So, it was a mistake to open up the foreign exchange market.

    We have to go back to a managed float. We don’t have enough supply and the demand is more than supply. That is why we see ourselves in the current situation. So, on the supply side, you can only get more if you are manufacturing and exporting non-oil goods and services. We get dollars for exporting crude oil, and the demand is more than supply. The solution is to go back to manage float and curtail demand in the short term because supply is not enough. But we have a problem now; the Central Bank has unbundled those 43 items. So, that will increase the demand for foreign exchange. The only way now is to move fast to diversify the economy and become a creative economy. In the short term, they have to find a way to manage float or curtail demand. That is the way to manage the problem. What they are doing now will not solve the problem.

    The Federal Executive Council recently approved another $3.45bn loan application from the World Bank to finance five projects in the power, renewable energy, states’ resource mobilisation, adolescent girls’ empowerment, and women’s empowerment sectors. Will you consider this necessary despite the huge indebtedness the country is currently facing?

    I wish they could put a stop to borrowing because right now, for every N100 we earn, we spend more in servicing debt. The debt profile is just very high. So, we should curtail borrowing. If you look at the revenue-debts ratio, it is very high, except you are borrowing for infrastructure like power, and then you have to do studies to make sure that the project pays its way. For me, we have already spent so much on the power plants and they are not working. Let us find out why it’s not working and what went wrong before we start borrowing again. If the government should borrow to finance infrastructure, it must carry out a study to ensure that the projects will pay their way in the end. Right now, I heard the Minister of Finance saying that there are some funds from the World Bank for budget support. We cannot keep doing that because budget support has implications.

    The budget has recurrent, capital, overhead, etc. So, if they are borrowing that for budget support, is it meant to pay salaries? We need to know because we need transparency. Right now, the so-called budget is used to service debt. We need to be careful because if we are borrowing, it is not done for us to pay now. We are doing that for future generations. So, borrowing has what we call inter-generational consideration because if our children and grandchildren see that we borrowed and there is nothing on the ground, they will abuse us in our graves. So, we need to be very careful. I don’t support unnecessary borrowing.

    The debt-to-GDP ratio is said to be a determinant of a country’s economic strength and with the current realities, how do you think Nigeria can drive sustainable economic growth within a short period?

    The debt-to-GDP ratio is not a good measure. We gave ourselves 40 per cent as the debt-to-GDP ratio. Because we rebased our GDP, the denominator is very high. What is important is the revenue-debt ratio, revenue-GDP ratio, or revenue-to-debt service ratio. An economy will be doing well if you have double-digit economic growth and sustain it for about 16 years. That is when you can have a dearth of poverty, but growth itself requires development. So, we need some aggressive government policies. The government has to put in place policies that will support the productive sector of the economy, policies that will generate jobs, and if people are employed, they will pay taxes to the government. So, the debt-to-GDP ratio is not a good measure.

    We need more policies to support production, job creation, and infrastructure. That is what will grow the economy. For instance, in Nigeria, if the electricity supply increases in Nigeria by one per cent, GDP will grow by about 3.5 per cent. So, we need to make sure that we have at least 18 hours of power supply. No country develops with the use of generators. Now, we have a generator-driven economy, and that is not the way to go. We cannot make progress if we continue in that manner. Now that they will allow states to generate, transmit and distribute, there is a need to look at the power issue because without a constant power supply, we can’t make any progress.

    Many have said that Nigeria’s dependence on oil exports has largely affected the country’s economic stability and that the Federal Government should consider the functionality of modular refineries. What are your thoughts about it?

    Of course, it beats everybody’s imagination. How can you export crude oil and import refined products? It doesn’t make sense. So, the refineries should work. If the refineries fail to work, they should tell us how they want to sell them. Let the public know if they are not working, but the way to go now is modular refineries. When you have modular refineries everywhere, you will now have enough supply of PMS for example. That is the way to go. The government subsidy can go to all the supply side, encourage modular refineries, and give them support, even if it is a loan. They can pay back when they make it.

    If we have enough modular refineries all over the place, then the price of PMS (petrol) will come down. Now that we are exporting crude oil and importing refined products, it doesn’t make any sense. That is the way to go. We need more modular refineries and if people do not have enough money to go into it, the government can support them through loans. If the government cannot subsidise the business, those going into it (modular refinery business) should be given loans that they will pay back. That is the way to go. So, for all these artisanal refiners in the Niger Delta that are called illegal, the government can encourage them to convert to modular refinery.

    But the security agents always seize the illegally refined oil and set it ablaze. Do you think that is proper?

    As far as I am concerned, it is illegal, but those guys have been refining oil for a long time. If they have the technology, sometimes it is good to encourage them. You can tell them to come and do it properly. When you catch them, they will know that okay you’ve caught them doing it illegally but encourage them to start making it legal. They can now come out in the open and make it legal as modular refineries. They (artisanal refiners) have the technology and it is no longer rocket science.

    Some have said the circumstances that led to the removal of the former CBN governor may make his successor to be timid or refuse to take action where necessary in dealing with the economic situation. What is your view on this?

    I was a member of the CBN Board for five years. The CBN should exert its independence, but Godwin Emefiele was denied that independence. When the government interferes too much in the CBN, it creates a problem. The House of Parliament can call the CBN, and they go into a closed-door meeting and discuss, but when the government wants to control the CBN, there is a problem because the independence will now be eroded and if the CBN does not exert independence and bring policies that will favour the country, what you will see is a situation that is called state capture. When that happens, the entire country is finished. So, any CBN governor or its management should be able to exert its independence.

    It should be able to tell the government it cannot do certain things that will not help the country’s economy and to exert its independence. Part of Emefiele’s problem was that he did not know how to exert his independence. Take for example the issue of Ways and Means; the law says that you cannot give the government more than five per cent of your last year’s actual revenue. But that wasn’t the case because he (Emefiele didn’t know how to tell (former President Muhammadu) Buhari no. Yes, it is a political appointment, but he should have exerted his independence and told the government ‘This is not possible’. Once you start doing that, they will respect you; if not, you resign. The CBN is very important, and the economy is meant to be in the hands of the CBN, if it is controlled by the ruling party, we are in trouble.

    What advice will you give to the new CBN governor?

    The advice to give is that he should listen to the experts within the CBN. The CBN has a lot of technocrats. They should be allowed to do their evidence-based research and he should listen to them and constitute a new board of competent people. For example, as a member of the board when Professor Charles Soludo was the CBN governor, he had competent on the board and not too many politicians. Let’s have competent people so that they can advise the governor very well. He (the CBN governor) should rely on the technocrats in the CBN. The CBN has a lot of qualified technocrats, and they should be used. Then he should rely more on competence and evidence-based research within the management and not on loyalty.

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    Inflation has affected the purchasing power and increased the hardship faced by the common man. While some have suggested the introduction of a tax rebate by the Federal Government, others have clamoured for an increase in the minimum wage. What do you think is the way forward?

    The Nigerian inflation now is caused by several factors. It is mainly caused by the supply factor, which we call the cost-free factor. In other words, you remove oil subsidy, so, you are going to have structural inflation. Utility cost has gone up; there is insecurity in the food-producing areas of the Middle Belt, the North-East and the North-Central. So, food inflation has gone up. Inflation hurts the poor more. Today’s inflation is almost 26 per cent. It hurts the poor more because they will lose their purchasing power.

    The rich can draw savings temporarily to survive. The way to fight inflation is to look at the money supply and demand side of the Central Bank. I think it is important to increase the minimum wage but beyond minimum wage, the way the country is now, the short-term solution is to give money to Nigerians who have National Identification Numbers or bank accounts so that you can be sure of their demand or their consumption, and they can cope with inflation. Once that is done, you will solve the problem of insecurity so that farmers can go to their farms peacefully. When that problem is solved, food prices will come down and that will reduce the overall inflation.

    When refineries start working, it will bring down the price of PMS and bring down the cost of transportation amongst others. A lot of inflation we are now having in Nigeria is what we call the exchange rate pass-through because you now need more naira to buy a dollar which is now N1,000 plus. It affects business. The exchange rate pass-through is what is causing the inflation. So, you have to curtail demand for forex and then make sure that you diversify the economy to increase the supply of forex, and that is a major long-term.

    In the short term, Nigerians in millions are suffering because there is poverty. You should put more money in their hands. We should behave as if the economy is worse than a recession and put more money in the hands of the people so that they can have money to spend. I did a calculation called The Misery Index. The Misery Index for Nigeria now is about 85 per cent which means that only 15 per cent of Nigerians are enjoying the country. There is a lot of hardship, even the President said so. Another way is to put money in people’s bank accounts because it is not everybody that is working and so, cannot enjoy minimum wage. I don’t know how to describe it because, in Economics, we have recession and depression. What we are experiencing in Nigeria now is the one we call recession.

    Are you saying that Nigeria is about to enter an economic depression?

    Well, depression is a prolonged recession; so, I’m very careful, but things are so bad that it’s as if we are in a recession. You know that recession is a technical term which means that if your GDP is negative in two quarters, you are in a recession as a country. The way we are now, our GDP may appear positive, but things are very hard, and everybody will agree that about 130 million Nigerians are in poverty and the hardship has been elongated by this fuel subsidy removal.

    The President himself says so that he feels our pain. If he feels the pain, people need money to buy food and pay for transport and they don’t have the money. So, he should increase the minimum wage for those who are working with the government and put money in the bank accounts of other Nigerians who have NIN instead of giving poor households only for three months. That won’t solve anything. You should give them about one year so that they can cope with inflation and then they can solve insecurity, and the power problem, and going forward, inflation will come down, otherwise we will end up in what economists call runaway inflation where we have no control anymore. That is very dangerous because we will become like Venezuela.

    There are reports that the Federal Government plans to take a loan to service its external debt. As an economist, is it a good practice for the government to continue to take loans? What impact will this have on the economy?

    The way the economy is now, it is not a good practice because already we are so indebted. What the government should do is discuss with our debtors and reschedule the debts. We can talk to financial institutions and reschedule our debts. For now, to borrow and pay more debts is like we are getting deeper and deeper into a debt crisis or what we call debt overhang. So, I will not advise that they should take a loan to service debt. I know they are getting loans from the World Bank, but it is not advisable now. They should talk to our debtors and tell them that we cannot pay now and that when our economy improves in the next five years, we can start paying. The problem is the commercial debt but that of International Monetary Fund and World Bank, they can talk to them. They shouldn’t start borrowing now when the economy is in bad shape except you are transparent and convince us that they are borrowing for a capital project that will pay its way.

    In your opinion, how do you think Nigeria can deal with the challenges hindering its ability to attract foreign direct investment?

    Foreign direct investment means that we have input. We attract foreign companies in the country, and they build factories and employ people. One way to do that is to ensure that there is no security problem because if there is a security problem, they will not come unless they go into the oil sector where no matter the crisis, they will make good returns. Let’s solve our security challenges. Then we need to have microeconomic stability where the foreign exchange market is stable, and the inflation is moderate. Those are the major conditions and then there should be a legal framework where they can repatriate their profits. At least, one’s money can be sent away without too much bureaucracy. However, for Nigeria now, the major one is the security problems.

    Why does the Nigerian government always tilt towards countries like China and the USA for loans when other notable countries are ready to do so?

    There are bilateral and multilateral loans. The Chinese came in recent years in a big way. They build roads, airports, etc. Loans from the US are not that easy. The US has several agencies like donor agencies or development partners. Most of our borrowing comes from the World Bank, the IMF, the ADB, China, and Britain. From Europe, we call them donor agencies or development partners. When you go to a country, you should go with your experts and negotiate properly so that it becomes a win-win situation.

    The Senate recently justified the purchase of 360 Sports Utility Vehicles valued at N57.6bn. Do you think their position of spending such a huge amount of money at a time when Nigerians are facing tough times is justifiable?

    It is not justifiable because it is crazy and insulting. When people are suffering, they are spending millions to buy vehicles for themselves. It doesn’t make sense. In fact, in this period, members of the parliament and those in the Presidency should cut their salaries by 50 per cent to show that everybody is concerned. If they must acquire new vehicles, some companies assemble vehicles here in Nigeria. What is wrong with driving Toyota Corolla cars? Why multi-million-naira vehicles?

    But these vehicles are bulletproof and are meant for them to be protected?

    If you are elected to that position, why are you scared? So, there is no need. It doesn’t make sense and in fact, it makes a mockery. In a serious country, they will all be in trouble because the way the economy is, you can’t be buying vehicles with such an amount of money. If they say the roads are bad, that means they are indicting themselves. They should be able to pass laws to access money and fix the roads. So, they should lead by example. You know in Nigeria, they are the 15 per cent who are enjoying the country, and it is wrong.

    What is your thought on the implementation of tax reforms?

    The tax reform is quite necessary but there must be a multiplicity of taxes. So, it needs to be properly codified. For example, you will start a small business before you know it, they put the tax on you. There are so many types of taxes and levies. So, it (tax reforms) is necessary. Tax reform is necessary provided they do it properly, but they’ve already given a report to the President and such a report is necessary because the idea is to bring more people; the rich who are not paying tax, into the tax net. There are a lot of people who are not paying taxes. So, they may not necessarily increase the rate and then they can look at the different levies and see whether you can make it a single tax.


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