‘Current administration lacks clear economic policy’
Do you see any nexus between the 2019 general elections and the volatility of the Nigeria’s economy?
I don’t think the election is to blame. Everybody seems to know and understand that our economy has been in shambles since the coming of this present administration. And some of the actions taken by this government are based on the rule of the thumb; there is no clear economic policy; there is no clear industrialisation policy, and there is no clear commercial policy.
So, all those areas that touch and affect the economy are not covered by decisions of this particular government and because they are not covered, investment becomes something of guesswork, because you do not know what to invest or even how to invest. You do not know what your expectations will be. And because investment has become mere guesswork, no new jobs are created with results that our children will come out of federal higher institutions of learning and become unemployed, roaming the streets. The result has been that young people are not acquiring new knowledge; they are not acquiring new skills; they are not being prepared to assume leadership positions of tomorrow.
So many things are terribly wrong with the system and most of these things militate against the growth and development of our economy and that is why the economy is sliding backward almost on a daily basis. Take, for instance, the closure of the border; in a well-managed economy, it is a good decision to close the border. The whole idea of border closure is to encourage local investments, to encourage local production. But, when you close the border and you have no plans on how to encourage and develop local initiatives or how to ensure that the local industries benefit from the border closure, it becomes a waste of time.
If they had planned it in such a way that when the borders are closed, they will help the local industries to come up, then you would have achieved your goal, but as a local manufacturer, I can tell you nothing has changed. The fact that they closed the border has not changed anything; lots of goods are still being smuggled into the country on a daily basis.
They closed the border, but they are not doing anything to encourage local initiative and local production and all the things that work against local production are still there untouched. The roads are still very bad; the energy supply has not improved; security is still very poor and then funding is a very terrible thing in the country today. So, if the government truly wants the productive sector of the economy to benefit from the closure of the border, first of all, they will not be in a hurry to re-open it; that is number one.
And secondly, they will make sure that local operators within the economy are encouraged and supported so that they can improve on their productivity and be in a position to increase the number of young people being employed.
That is the only way the economy can move, but all the four parameters cannot be met immediately, because the government cannot wake up overnight and fix all the roads. The government cannot wake up overnight to fix energy, but something is very basic, and that is funding for local industries.
Are you saying that the government does not know all these things?
Sometimes, the people in government know the right thing to do, but they will not do it because they will not benefit from it. There is no country in the world, I have ever heard, where loans are given out to manufacturers or people within the productive sector at 32 per cent. It is never done anywhere in the world! That country has no intention of growing the economy.
In most countries, it (interest rate) sometimes is below one per cent, especially when it is being channelled to the productive sectors of the economy. In Nigeria, the banks are tuned towards supporting the importation of products into the country. The banks have aided the consumption capacity of this country for imported, not for locally manufactured products, because the locally manufactured products find it difficult to compete with the imported products. The reason is simple: the cost of doing business here is excessively high and the government is not doing anything about it. The first step the government will take that will save us a lot of heartaches is to look at and then legislate on the interest rate on deposit funds.
They must look at the interest rate the banks pay to depositors’ funds; they must look at the fixed deposits; they must look at the savings; they must look at even the treasury. They borrow and when they borrow what kind of interest do they pay?
A young man that suddenly wakes up one day and his cousin or brother becomes a governor and through that connection, he makes N400 million, he does not need to work again for the rest of his life. All he needs to do is to dump the money in a fixed deposit and be earning about N4 million every month on the idle funds.
Why does he want to work again? And that money is not doing any service to the economy. Some of them buy treasury bills at a very high-interest rate that comes to them and when the productive sectors go to the bank to borrow, they multiply what they pay times two. And once they do, it becomes impossible for them to borrow at that very high rate; if you borrow you cannot survive it.
For example, the net profit you make as a manufacturer in this country cannot be more than 10 per cent and then the bank is asking you to pay 32 per cent in one year. It is not possible; so, you do not borrow.
What should be done to address this funding anomaly?
It calls for legislation. If the National Assembly legislates on this, that no investment, no deposit would attract more than two per cent, three things will happen immediately. People that have the money can decide to take that money and keep it in their houses, which is very difficult for them to do. Secondly, they may decide to take out the money and invest it, which is very healthy for the economy. Thirdly, they could say since I do not have any immediate need for the money, let it remain there if it is two per cent, let me collect two per cent and when this happens, the bank will have enough money to work with at a very low-interest rate.
They can legislate again that all loans going to the productive sectors of the economy cannot be more than four or five per cent per annum. These people can be encouraged to go and borrow and when they borrow, they will deploy the money and at the end of the day, their cost of production will come down and they become competitive because we are investing in a global market.
Goods coming from other countries are cheaper because their cost of production is very low and this is the main reason our products have not been able to compete. It is also the main reason our industries have not been able to grow; this is the main reason why we have remained where we are today. So, if you close the border 10 times, it will not change anything; you must do something extra.
If you were to advise the government, what would it be?
What you need to do is to reduce the borrowing rates in the banks. Once you do that the cost of production will drop and once it drops, productivity will rise. With the increase in productivity, unemployment will be tackled by the productive sectors of the economy. But the only danger I see in what I am proposing is that the people that will make the decision are the same people that the decision will affect. They collect all sorts of money and because they have no investments at all, they dump the money in the bank and buy treasury bills and they live off the interest to the detriment of the society. But if the government can be bold enough, it has to say enough of this.
All deposit funds should be pegged at a maximum of two per cent interest; all loanable funds to the productive sectors of economy pegged at four per cent or five per cent; this alone has the capacity to lift the economy. And then if you close the border, it is not something that you open in a hurry, because if you open the border and then provide funds, facilities and improve infrastructure for the local industries, you need to give them time. They will come up and start producing at competitive rates.
What time frame do you suggest?
It is supposed to be a renewable thing. They will try in the first instance for a period of two years and by the end of the two years, they will look at how things have panned out and review it. If there is a need to extend it, they will extend it, because it is not right to stay without competition. But at the same time, you do not allow competition to stifle your own local production.