Nuggets for Nigeria’s sustainable economic rebirth, by Lemo

Babatunde Olakunle Lemo was between 2003 and 2014, Deputy Governor of Central Bank of Nigeria, variously in charge of Operations and Financial Systems Surveillance. A Fellow of both the Institute of Chartered Accountant of Nigeria and the Chartered Institute of Bankers of Nigeria, the consummate banker and administrator, who was the Group Managing Director of Wema Bank Plc, holds a Bachelor of Science degree in Accountancy (first class division) from the University of Nigeria, Nsukka. Lemo is currently the Chairman of Lambeth Trust and Investment Company Limited, CBC Netcomms, among others. Reminiscing over his 30 years financial management experience at various management levels within the economy, he spoke with Business Editor, ADE OGIDAN on the country’s golden moments, lost opportunities and the leeway to economic rebirth, on a sustainable basis. Excerpts. 

How would you assess the current situation with the nation’s economy? We need to look at the nation’s economy within the global context.

The economy is not doing well enough. We expected the Gross Domestic Product (GDP) to have grown beyond seven per cent but it is slowly growing at about five per cent because of the oil price shock and other headwinds.

So, this is not the best that this economy can do. Of course, the most recent oil price fall actually slowed down the economic growth. In summary, within the global context, Nigeria’s economy is not doing too badly.

However, being an economy that depends on petroleum, given the global shock in the price of oil, we would say that this economy should by now have grown much better as we lost so many opportunities. I can say we almost lost a decade.

It is unfortunate we are where we are. What do you mean by the lost opportunities? You will recall that we had a reserve level of about $60 billion before the global financial crisis of 2007/8 and the exchange rate was fairly stable and we thought by now, we should have grossed beyond $100 billion in reserve level.

That was when we said by year 2020, Nigeria should be one of the top 20 economies in the world. However, I am not sure we did well in the area of fiscal expenditure.

What we did was that as we saw that price going up, we expanded the fiscal activities to a point that government business became very bogus.

The government expenditure skyrocketed, not just in terms of recurrent expenditure but we began to undertake activities like there would be no tomorrow.

Corruption was a major issue for us as well as oil theft. We didn’t do anything about the constitution that specifies that ministers should come from each state of the federation. Saying that ministers should from come every state means that the constitution wants a large government.

And thank God, the present government is doing the right thing. Though, the President has not said it, the Joda commission has suggested that the government must cut down ministries.

I think that is the way to go. Let’s free resources for social services and the infrastructure we need. If we had conducted the fiscal activities with greater level of discipline, we would have increased the level of our reserve.

There was capital flight out of the country and you saw the effect on the exchange rate and the rest is history. On the other hand, we now have the exchange rate that has to be better managed.

Now, governments at different levels are owing workers several months’ salaries because the recurrent expenditure was made so large, while what comes into the revenue account is very small and the numbers are simply not adding up.

Even Lagos that has been assessed to be relatively rich enough has a large government. We should really have more resources for more infrastructural development that could impact more on the people’s standard of living.

That is the only way we can grow this economy faster. Don’t you think the expanded fiscal expenditure must have been accentuated by the high salary bill profile of political office holders? The weight is on both sides, that is, political office holders and also in the bureaucracy itself.

Why should we, for instance, adopt bicameral legislature in the country? Britain has bicameral legislature because of the nature of the system over there.

You have the House of Lords because of the history of United Kingdom. U.S. has it because of the nature of the country as well. That doesn’t mean Nigeria should have it. Ghana has a unicameral legislature.

Secondly, why should government officials not be using vehicles that are not as expensive as the ones they are using now? I could remember that Peugeot 504 used to be the official state cars in this country.

We were not even having as many ministries as we have now. Also, we now have over 600 federal parastatals. Some of them should be privatised, as government has no business in running commercial activities.

It has been proven all over the world what government activities are better concentrated on provision of law and order, security and related activities.

I don’t believe in very low pay. I believe that the salaries of the political office holders are not too much. That is not the money sucking expense line.

We can however reduce travelling, trim down the number of foreign delegates, cut down on non-essential activities, reduce foreign embassies, reduce convoy of vehicles, among others.

At the state level, should we have 40 commissioners and another 40 special advisers? Can’t we just have 12 commissioners and six advisers? I was in Ghana for a programme and the President came in a convoy of just four cars.

This is really where the issues are. Salary is just a small fraction of what we are talking about. We need significant restraint in fiscal activities at the federal and state levels. Look at how infrastructural facilities are decaying.

The Governor of Kaduna State, Nasir El-Rufai has set a good example. Others should follow suit. But most of the developed economies started off as public sector controlled and along the line, they were empowering their respective private sector operators so that at a particular time, they were able to cede responsibilities to them.

How effectively have we been able to empower our local entrepreneurs to take up the responsibilities under the privatisation programme? Today, we have tested and proven the privatisation exercise.

Look at the example of the telecommunications sector. We now have telephone lines of over 140 million and we are still counting. So, the cost has been brought down substantially.

People have been empowered; we have people on the various levels of the value chain. And they have been creating values. This is clear from the economic activities from the value chain. You can also see how the sector has created jobs for many people. Look at the area of cement production as well.

There was a time that we could not supply close to 40 per cent cement need for our nation. But today, the area has been filled up. Today, Dangote Cement Company alone can meet the market demand of the country and Nigeria is now a net exporter of cement. In fact, the brand from Nigeria is now renowned across some African countries.

Two months ago when Dangote Cement opened a 2.5 m metric ton cement factory in Ethiopia, the whole country was appreciative of the entrepreneurial spirit of Dangote. Another 1.5m metric ton factory was opened in Zambia in August, while there are commitments to open in South Africa, Tanzania, Senegal and Cameroon before the end of the year.

Nigerians are very entrepreneurial and I can affirm that we have enough skills and resources to actually influence the entire Africa. All we need is government freeing up resources for entrepreneurship.

That’s really where the issues are. Refineries should be privatised as soon as the downstream oil sector is fully deregulated through the removal of petroleum subsides. Do you think the interest rates would be supportive enough for local entrepreneurship? There are so many things that determine interest rates.

First, let’s look at the economic environment when you have a very deep money market, have stable market economic environment, definitely you are likely to have stable interest rates.

But I must tell you that CBN has so much provided stable market but on the other side, when you look at the legal and physical infrastructure, when people have to provide their own generators, roads, water and other amenities for themselves, and you price-in other risks of doing business, the interest rate appears unsustainable not because of the micro economy but the environment at large.

But I can tell you that it is getting better overtime and as we begin to see rapid development in infrastructure-physical, social and legal, interest rates will come down.

But don’t you think this is delayed development strategy when you emphasise too much on market determined interest rate, knowing fully well the impact of high interest rate on businesses? Can’t the CBN for instance use its discretionary power to enthrone a reasonable business supportive interest rate regime? Everybody desires very low rate.

It is better for our economy. But what you need to do is to look at each economic factor that will make it low and work on them. Actually low interest rate is good for everybody but you cannot force it down by fiat.

If you do so, you are going to distort so many things and at the end, it will boomerang. There was an attempt to do that in the past. I was in the banking industry in the early nineties when CBN instructed banks to lend at very low interest rates.

It even prescribed margin, but because then, the economic fundamentals suggested a higher rate, what happened was rates were negotiated on the table but there were some other rates under the table and it became very messy.

At the end, the CBN had to scrap it. You can’t sustain that unfortunately because you must have rates that are good enough to mobilise savings and people will save and accept that high rate if there is low inflation.

So, you see how interconnected things are. If inflation is 15 per cent and you want to give instruction that loans should be obtained at five per cent, who will save at that rate? And that is how fund will suddenly dry up.

But at the same time, you can say savers will earn a lot of money, let them save and have 20 per cent but then, lenders will say the rate is too high and that it should 30 per cent and one can’t do any meaningful business activities by borrowing at 30 per cent.

So, there will be no bank, no outlet for lending. That is why the economy then prescribed equilibrium through a visible hand. That equilibrium will depend on so many other issues that are mentioned earlier.

Will you say the same thing about the foreign exchange market? That is an area that is very interesting to me. I always tell Nigerians that exchange rate can be whatever we want it to be. Let me start from the basis.

It is only Nigerians that don’t eat their own staple food. When you go to US or Europe, their staple food is potato or wheat. If you escape it in the morning, you can’t escape in the afternoon or evening. If you don’t eat potato in the morning, you will eat it as chips or roasted in the afternoon or evening.

So, you find bread and potatoes all over the place. What can be compared to it in Nigeria is cassava. We are the world’s largest producer of cassava. Tell me how many Nigerians eat cassava on a daily basis.

There are so many things we can make out of cassava, but we don’t patronise cassava. Instead, it the wheat produced in other places. Let’s look at rice, we consume five million metric tonnes of rice yearly, yet we don’t produce it.

These are things Nigeria should not be importing and you know exchange rate is all about demand and supply. When your import is so high, then the exchange rate of your currency will be at risk.

Why should we sit down and bemoan our situation when this country has what it takes to be great. But these primary production areas need support from the government just like in other parts of the world? I agree with you, which is again why I am in favour of subsidising production and not consumption.

But in Nigeria unfortunately, we subsidise consumption not production. The revolution you are seeing in agriculture today is because of what you mentioned. I will also like to commend CBN and the Ministry of Agriculture for the bold initiatives.

Let us design a national programme that will bring an end to food importation. What I believe is that you can use tariff to make it almost impossible for people to bring in rice, if you want to. Let it cost five times what it should have cost.

The demand management in my view should be through fiscal action so as not to create unnecessary distortion in foreign exchange market.

Talking about tariff barrier and enhanced local production, it is like some of our trade partners at regional and sub-regional levels are not favourable disposed to local production,especially with what we are experiencing now in respect some of the treaties we reached that are making textiles, products to come into the country? I understand this, though I was not part of those who sat down to look at that but I think we need to take another look at the ECOWAS common tariff treaty, because when you go to international fora to sign up, national interest must come first.

The fact is that most of the neighbouring countries feed on Nigeria. There are ways by which we can sit them down and understand what the issues are.

If it is about revenue, we should find ways to compensate them and influence what happens there and by extent, you influence the common tariff rate in your favour, because we are the market.

With 170 million people, we are about 60 percent of West African population. Still on the foreign exchange market, there was a time CBN initiated redenomination of the Naira when Charles Soludo was the Governor. The scheme didn’t take off and it coincided with when his tenure ran out.

Ghana redenominated its currency and we could see the turnaround in its economy. What’s your opinion about redenomination of the Naira? Redenomination, like we tried to explain at that time, has its benefits.

For instance, when an economy that has seen high inflation over a long time, you have so many zeroes of shame after any reasonable figure and so those zeroes can be taken off through redenomination but redenomination does not stop inflation.

Since Ghana did it, its economy suffered higher inflation than Nigeria and in fact, the economic situation has been worse than Nigeria. So, the outcome is not all about redenomination that will deliver a better run economy.

I still feel it would have been better if we had redenominated. The CBN wouldn’t be wasting money printing currency as we do. We would have saved a lot more money on that but whether or not the economy would have been better run is not in the domain of redenomination.