How to exit recession: Saraki explains remedies
Contrary to reports that he endorses outright sale of national assets as an exit strategy from the harsh realities of economic recession, senate president Dr. Bukola Saraki, on Friday, clarified that what the Senate did at Thursday’s plenary was to recommend 12 options that could boost the country’s foreign reserves and shore up confidence in the economy by both foreign and local investors. Out of the 12, selling of assets was just one option.
He said for Nigeria to get out of recession, it needed to shore up its foreign reserve by about $20 Billion, which it could get through selling part of the government assets, not primarily to Nigerians.
In a chat with the media in Lagos, Saraki argued that borrowing could only help to execute capital projects, but cannot boost the country’s reserve to stimulate the economy.
In his view, what Nigeria needed to do at this critical point is to look at what to do to increase the foreign reserves.
He said: “It is like a company, you go round to banks to say, can you borrow me money? And you cannot get money, but you have 100 shares with Guinness, which you are keeping for your children. To raise fund, you can decide to sell 20 shares. ”
The Senate president disclosed that when he advocated the sale of some national assets, he was not saying they should be sold to Nigerians, because some of these national assets already have existing shareholders that are multinationals and non-Nigerians.
For him, the country can say it wants to come down from 60 per cent shareholding to 40 per cent, which is sold to even existing shareholders and the proceeds go into the reserve, which then gives the needed liquidity.
“That is the concept I have. It is not selling to Nigerians with naira because with that I do not see value added.”
“We are in a situation where the forex inflow into the country, which comes from different sources; government, sales of crude oil; export proceeds; foreigners and Nigerians investing in companies in Nigeria; hedge fund and Nigerians that have money abroad bring it in.
“Out of these five, only one is functioning today; which is government source, the others have dried out. So the forex inflow has gone down, reserve is low but demand is still high. There is no confidence in the economy that will encourage these four sectors to bring in money for obvious reasons either they believed that the naira has not yet found its bottom, so if I bring in my forex, I am going to loose straight away. And as long as that continues, we are not going to see inflow. And then you have the Niger-delta problem on top of that.”
According to him, the case is complicated because the period the country should have saved, it did not. “For example, if the reserve had been like 60 billion dollars and it goes down to 40 billion dollars, we would not have gone into recession, that is the blunt truth. At the same time, even if oil price went below 40, we should not have gone into recession, if we had the confidence of those four sectors.
He maintained that if the country built its reserve with $15 to $20 billion, it would have foreign reserve of about $45 billion, then the guys sitting outside with their portfolio know that the economy is strong. “If you decide to defend your currency, you have the capacity to do it, which will likely stimulate the economy and people will be saying lets go to Nigeria.
“Everybody is putting their hands off Nigeria and that is why we did not get value when we devalued. As people still believe that naira is still going to go further down, you have the capacity to say naira is going to stay at N400, you have the capacity to do that. So I can project as hedge fund manager that I am going to invest in Nigeria, the interest rate is good.”
He noted that because of lack of confidence in the economy, the naira started coming down and a dollar is exchanged for about N430, and still going down further. “And anybody that is looking at it can predict the direction. I looked at your balance sheet and see that you only have 20 billion dollars there and I see your demand and money is not coming in. And speculators are saying that by next month, it is going to over N500.
“The complicated part of it is that because of the situation, CBN is facing two things; first, it is trying to safe the naira, preventing excessive liquidity, because of that, the CBN is mopping up, and that is why they cannot reduce the interest rate, as they are concerned. The other problem is that all that liquidity is likely to be chasing the dollars. So, at the end of the day, you cannot bring interest rate down.