Country already bankrupt, hence high level of penury — Ekpenyong

• Sustained Emphasis On Agriculture Could Reverse Trend

With stakeholders warning that all is far from being well with the economy, and that urgent measures should be taken to prevent the country from sliding into depression, a renowned economist, chartered banker and Chairman of the Davandy Group of Companies, Chief Asuquo Ekpenyong, discusses the way forward. ANIETE AKPAN reports.

What’s your view on CBN’s recently announced recapitalisation policy for banks?
Let me inform you that some of the banks in operation are not liquid. They are living on lending windows created by CBN to aid their borrowing for a lifeline. There is some degree of capital inadequacy right now, and what is the cause? It is delinquency caused by mismatching of funds, as well as dishonesty and business failure on the part of customers. The totality of these knocked down shareholders’ funds of some banks over time.

The N25bn minimum capital base that became effective during Soludo’s tenure cannot keep most of the money deposit banks in effective operation today. Thus, there is need to review the capital base by introducing additional long-term funds into the system, although some of the big banks may have crossed that limitation.

People are speculating that the new capital base should be at N100bn or more and that banks that cannot cope should merge. Somehow, I don’t think they will adopt the hard approach by Soludo, but a few of these banks today are adequately capitalised. N100bn is nothing to them. But for banks to provide proper services, there is need for them to be well capitalised.

On merger, of course, that is usually the solution for banks that cannot meet a new capital requirement. Some years ago, when we had a similar scenario, some banks had no better option than to merge.

Should government end subsidy for petroleum products, as is being advocated in some quarters?
The truth about subsidy is that people hold different opinions about the reality or not of subsidy in Nigeria. There are people who think the subsidy we are talking about is a scam. But somehow, there is no empirical evidence to prove this fact, because no government department or agency has even come out to show in terms of numbers and prove that it is a scam. So, it is neither here nor there.

There are people who also feel that the subsidy is not beneficial to most people, particularly those in the rural areas, and that the subsidy is mostly of benefit to people who drive exotic cars; use diesel-powered generating sets and the rest.

Let’s assume that subsidy is real. If you remove subsidy, there is going to be enormous hardship in this country. If we remove subsidy, the same elites we talked about will not feel the negative impact comparatively as the people at the low rung of the ladder, the vulnerable individuals in the villages and cities.

However, the truth is that subsidy cannot be there forever. The Federal Government has failed to do what it should do. It should set up a time line of maybe 10 years, and within this period, put into place a mechanism to achieve the processing of crude into petroleum products through value chain.

If there is timeline, my expectation is that a lot would have been done. So, rather than relying on imported processed crude, we would depend on locally processed products, with prices at the same level, if not lower than subsidised prices.

Inflation is ravaging the economy, and loans are at double digit. What can be done to check the situation?
We are referring to two different things: inflation and lending rate. Somehow, there is a positive relationship between inflation and rate of lending. When inflation is high, lending rate is bound to be high. And talking of inflation, there is nowhere you will not witness high inflation in an economy that is not producing, where the real sector is not paying attention.

We have an economy that government and CBN’s interventions are only on paper and not going to the real sector for which the funds are meant. We have double-digit inflation because we have fewer products that are being pursued by same amount of money in circulation or even higher, which in effect reduce purchasing power.

The major thing is for government and companies to produce more goods. Take for instance in the last one year, the government spent a lot of money, but would you say a good proportion of the spending was towards production? It was not. So much money was in circulation and was pursuing the same goods in the market. This tends to push prices high. An increase in production would lead to our doing less of import, because we have these goods locally.

The interest rate is related to cost of banking operation. If the infrastructures in the economy are improved upon, for instance, electricity, interest rate will come down because somehow, the interest rate is a major source of revenue to the banks. And the banks’ quantum of net income derivable over a period is a function of their total operational expenses.

But for effective competition in the banking sector, interest on lending would have gone much higher. Banks have to meet their cost and if you force them to bring down to single digit, they will find other charges to bridge the gap. Funny enough, the banks have put in so much in technology.

With the development in technology, cost of operations should have reduced, but there again, if you go to major banking halls, they look empty because technology is taking over human capital. But technology comes with a cost, though lower in the long run.

Is the country truly going bankrupt?
You know in the later part of 2016, when recession set in, lots of measures were taken by the CBN and other regulators of the economy to check and reverse that recession. And we still have to thank God that we did not continue into depression, as prolonged recession leads to depression. Somehow along the line, because of some positive measures they took, the recession was addressed, but I think those measures were not sustained.

People suddenly became happy, and it became the talk of town that the government of the day had halted the recession. When you halt or reverse a recession, you must sustain those measures, but this was not done. Added to that is the fact that by 2017, political activities had started and government was not sending money to the real or productive sector. I am aware of the various interventions in hundreds of billions of naira by the CBN. But how much of that was appropriately channelled?

I believe that the country is already bankrupt if you aggregate states and federal finances. It is just that a country in practice will continue to exist, while the citizens are subjected to much sacrifice and penury. However, with the government’s current emphasis on agriculture, if sustained and transparent, will see the economy through.

What happens to microfinance banks, given current situation of recapitalisation?
When the Obasanjo administration launched the microfinance banking system in 2005, it was well intended. It was to ensure and guarantee financial inclusiveness all over. This category of banks was expected to move into the rural areas and open branches and so on and then provide services. But 13 years after, most areas remain unbanked. There are still people who have no access to banks and I don’t think that microfinance banks have achieved substantially what they were intended to do.

Today, the capital base approved for microfinance banks cannot open one branch that can enable them have enough funds to give to customers. So, the truth is that microfinance banks need to improve on their capital base.

Of course, that has already been announced and a timeline has been given. It is expected that within the next 18 months or so, they should be able to achieve the new approved capital base. There is need for their capital base to be shored up. It is categorised. We have the unit banks, which is to be N100m. It used to be N20m. Then we have the state banks, which will be N1bn, as against the present base of N100m. Then, there is the national microfinance bank, which will now be N5bn, as against existing N2bn.

Why does it seem impossible to get it right with power, refineries, iron and steel and general development?
THERE is no doubt that the leaders have failed in these areas. If we have an effective government, most of these things will be addressed and solved in 10 years. What we need is the kind of leadership that would generate ideas, put into place achievable goals and plans, timely implementation with transparent feedback mechanism. The apparent lack of continuity in policies and projects implementation are added drawbacks.

Can you quantify losses Nigeria may have incurred as a result of this?
I have no basis to provide this. In trying to quantify, you have to take many things into consideration in terms of financial losses, people who have lost their jobs, people who died because there are no jobs and many other factors. So, if you want to quantify or give financials to all these, you will be talking in multi-trillions of naira. Nigeria is a very rich country, but the management of its resources and opportunities is absolutely poor.