Ekpo: Our economic structure still susceptible to external shocks
Director General, West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, in this interview with CHIJIOKE NELSON, stressed the need for policies that would help change the structure of the Nigerian economy and support the currency.
What do you think Nigeria should have done or be doing now to strengthen the naira?
Nigeria should have, a long time ago, tried to build a strong domestic economy so that it can absorb external shocks, and it is still not too late to do that. For example, at the time when we were depending a lot on agricultural products, we would have pursued industrialisation. Instead of still exporting raw cocoa, why can’t we begin to manufacture chocolate? Why are we exporting cotton instead of fully supporting the textile sector? Then oil came and created another problem for us and still remains our undoing till now. Sadly, even the oil sector itself was not diversified. So, if we are honest, we can go back to the same usual drawing board and say it shouldn’t happen again. If we are serious about moving forward, we should begin to implement some reforms, so that we can change our structure from depending mainly on exporting crude oil, to manufacturing, production of things. Even if we do not completely produce some things, we should add some value to our raw products before we export them otherwise, we would still have problems with our revenue stream, as well as some spillover effects on our economic growth, and exchange rate, which has remained poor till now.
Monocultural dependence on crude oil export to earn foreign exchange is a problem that has been with us for a long time. So, we need to change that structure. We keep saying it all the time, but at the end, we never do anything to change the situation. That is why each time I see prices of oil go up, I express worry, and this is because once it starts going up, we are relaxed. That is not the way to go. Nigeria has a market where even if we produce for our economy alone, our products can be absorbed because the market is very large. I think that is what we should be doing. We should demystify the oil sector. If we have to, let us refine and sell our refined products outside, not crude oil.
What is your take on CBN’s intervention in the foreign exchange market, and persistent calls for full free-float of the naira?
Before the different interventions, there was a wide margin between the official and the parallel market rate. So, when the reserves started picking up because of the increase in oil prices, there was a new impetus to push out the dollars by way of increased supply to the market. This was to see whether they could align with the parallel market (now positive). You see, my worry is the sustainability, even though it is working now. But if by tomorrow oil prices fall below $42 per barrel, what would happen? So, for me, the windfall should have been well managed because you don’t accumulate reserves only to back your local currency. Government needs to sterilise those dollars in order to do a few things, in other words, you pump some into the forex market and also leave some for government to exchange. But right now, it is still being driven by oil prices. I don’t know of any other source that is bringing huge foreign exchange to this country than oil. That is why the sustainability fears continue to reappear.
Having said that, let me add that what the government is doing now, in the short-term, makes sense because it wants to make sure there is stability. The problem with the foreign exchange market is the volatility. I always tell my friends at the Central Bank of Nigeria that they made a mistake when the naira was officially at N197/$. When the market gave them scarcity signs, they would have moved the band to N250/$, but they delayed and trying to catch up became a problem. I am very careful to criticise the CBN because I know that the technocrats there do a lot of work.
But the IMF and others are saying that we should float. This is not totally a good one. The CBN is fully aware that it will not work, and that is why it decided to be intervening in several ways. I would not support the IMF on floating the naira because when you float it, it can get to N700/$. The naira has appreciated, but prices of goods have not come down and inflation affects the poor more than the rich. That is why we have to be very careful about the IMF suggestion on floating the naira.
My argument along this line is very simple- dollar and pounds sterling are not ours and our local currency is not convertible, except by exchange. Because of this, we must manage our foreign exchange and the external reserves. This also requires some skills and you use technocrats to do it. It is almost like a trial and error game, and you do it every day. That’s why the American economy is managed 24 hours a day.
How do you see the blames being heaped on the CBN for the naira slump?
We all make the mistake of blaming the CBN, but no one remembers that there is also a fiscal side. What are they doing? There is a Ministry of Trade, what are they doing with the trade policy? All these things have to be coordinated.
In Africa, we tend to blame central banks for everything, but it is not right. The CBN only does monetary policy. In fact, our CBN has taken too much with series of interventions in the fight for economic stability, when the fiscal policy is almost absent. It has intervention funds in power and the aviation sectors, and in the small businesses segment. Although its main mandate is price stability, it also has development functions. But I think that it is taking up so much that it is difficult to draw a line whether it is doing fiscal policy or monetary policy.
Candidly speaking, I do not think we should be blaming the CBN for everything that is happening to the naira because the government too has to play its part. Look at the budget, it took too long before it was passed. What is in passing a budget? We should know that when we delay too much, the monetary policy may not be as effective. In addition to this, delay in passing a budget creates adverse dislocation for the economy as the confidence that people have in the economy is further eroded, and project implementation are delayed.
Do you also see dearth of infrastructure having an impact in the whole mix?
It is part of it. You cannot industrialise without having infrastructure. The founding fathers in my opinion, no matter their own fault, were on the right direction. They were interested in Ajaokuta, Oshogbo machines, research institutes and so on. The idea was to build infrastructure- railways, roads, dams and power. They started doing all these, but it was truncated. Now if you try to travel within the country on our roads, you would see that they are in a very bad shape. And luckily for us, we have the resources to do those things if we are committed, and if we think strategically. I always argue that in the issue of pow
er for instance, we know companies in the world that have the expertise, the resources and so on. Why not invite them? We say we have privatised the power sector, the assets were sold to fronts that didn’t have the money and expertise. After they bought the different power companies, they came back and said there is no money and started talking about the price of gas.
Power is very crucial for industrialisation. Prior to 1948, America had power failure. But in 1948, they decided it would never happen again and you can see where they are today. So, we have a very long way to go. Sometimes I’m worried that I have not seen any commitment to move the country forward. We keep doing things ad hoc. I always say that if you keep patching your trouser, one day you would have to buy a new one or you go naked and I think we have got to that point.