The just-concluded 2016 Spring Meetings of the IMF-World Bank in Washington DC, United States of America got the feel of how Nigeria is responding to its challenges as the economic team were at their best churning out the measures being adopted by the President Buhari-led administration. At the end of the meetings, Minister of Finance, Mrs. Kemi Adeosun, and Governor of Central Bank, Dr. Godwin Emefiele, jointly fielded questions from journalists. Kunle Aderinokun, Chika Amanze-Nwachuku and Funke Olaode were there
Can you please explain how Nigeria fared in the just-concluded spring meetings?
Adeosun: We have been here in the last few days leading the delegations representing Nigeria’s and also in some meetings, Angola, and South Africa constituency. The meetings of course deliberated on the global challenges in the economy and how we would like to help our sub-region as it relates to our nation: how individual economy responds. There are common things: that is recognition for need for investment in quality infrastructure as a driver for economic growth. And that is what government is focusing on right now. The other issue discussed was illicit capital flows and what could be done to track and prevent it especially around security and counter terrorism.
The issue of tax evasion and base shifting was also addressed in both local and global terms. We had a meeting with the Managing Director of the International Monetary Fund, Ms. Largarde. All the meetings have been very positive, and the outlook for Nigeria in the medium term. Generally, there is a positive side of the current economic reform agenda of the President Buhari-led administration.
What were Nigeria’s gains from these spring meetings?
Adeosun: I would say that the gains are for us and would be long-term positive for the Nigerian economy. Of course, we were able to network with our colleagues and other ministers of finance of other G7 countries, and G24 countries. We compared notes and experiences. I think the takeaway from the meetings is that the course we have tried to chat for Nigeria seems to be the right one. We got very much of endorsement for our policies and the direction in which we want to direct the Nigerian economy. Specifically we had bilateral meetings with a number of financial institutions including The Islamic Development Bank where we have agreed to work together on micro finance scheme for women, a Japanese Investment agency where we have agreed to work on power project and they have agreed to make a very significant investment in the area of power, which I believe will be very beneficial for Nigeria.
Similarly, we also had a meeting with the IFC this morning (last Sunday) and again they were talking about investment in power and in some of our banks to spur up their positions. Similarly, we had a meeting with AfDB, which has also agreed on investment in agriculture and collaborations on a range of initiatives that will help the project that would help drive the economy. Also, we had discussions with the World Bank around our budget support requests and we have been able to have very productive meetings to understand what the next step would be in that process. We are very positive about good outcome on that.
The other issues is more representation of African countries in the IMF. I mean the lack of adequate representation of African countries at the senior level was raised. This is the body that makes decisions that affect the entire economy and if Africans are inadequately represented you may not get the best decision.
How would this meeting help boost the continent’s economic growth that has been on the slow side?
Emefiele: You probably know that this is a spring meeting where ministers and governors of Central Bank from about 189 countries meet in a year to deliberate on global policy agenda. And for this meeting basically, the objective was to look at the world economic outlook and the conclusions are that the global growth is not looking positive and indeed last year it was forecast at 3.1 per cent but at this meeting, global growth has been forecast at 3.2 per cent. Sub-Saharan African growth had been forecast at 3 per cent which means we are not expecting some positive results from Africa. This is basically because other than the issues bordering on drop in commodity prices and for Nigeria purely oil, there are also geo-political tensions; the migration problems in the Middle-East, the potential of British exit from European Union are issues on the table that is causing panic in the world. And of course, there are also financial markets vulnerability that have also been identified as one of the issues.
Basically, the issue is how countries should respond to these challenges. For the oil exporting countries, it has been identified that they have been badly hit, no doubt, and Nigeria happens to be one of them. Basically, the issue is how would the countries respond to what they are facing right now? Other than the area of investment in infrastructure, one other area has to do with structural reforms which have been suggested. These reforms had worked in the South Eastern Asian countries like Malaysia, India, Indonesia, Bangladesh and that is why growth from these areas have remained fairly very strong.
Diversification of economy is an issue that has been proposed as part of the structural reforms particularly oil export producing countries should be looking at. I must say here that I am glad that Nigeria is taking the issues of diversification from oil very seriously. Recently, we have seen people coming to talk about investing in agriculture in Nigeria. About two weeks ago, I inspected a 16,000 hectares sugar cane farm as well as a milling and refining facilities in Niger State. We have Nigerian investors looking at investing in fertilizer. So the biggest fertilizer plant in the world will be in Nigeria. We believe that over time and hopefully around the middle of early 2018 or the end of 2018, the pressure that the demand for some of these final products and the pressure they place on reserve and CBN will be substantially reduced and I think with that, we can see the green light at the end of the tunnel.
On the issue of whether Nigeria is not sick or doesn’t need IMF Loan?
Adeosun: We are not saying that as a country we don’t have challenges. We recognise those challenges and we are facing them. What we want is the opportunity to take responsibility for providing our solutions to our problems. That comment was made in respect of a non-Nigerian guy who said ‘Nigeria is in a mess’; I take an exception to anybody saying that. Fine, we have our challenges and we are not the only country in the global economy that have economic challenges.
But we have the diagnosis of our problems, the country is adjusting and people are going through very tough adjustment’ in their personal finances and government is going through technical adjustment on how it spends her money and trying to be more efficient in spending, how revenues are coming, trying to plug leakages. So we are fixing the problems ourselves that is what I mean and we say that as a country we have the capacity, we have the will; most importantly both political and will of the people to solve our problems our own way. We are not denying the fact that we have challenges but we have everything and what it takes to solve the problems. We have the local knowledge to solve the problems. Our priority is to position the economy properly for growth, recovery and creation of jobs for Nigerian.
What are the benefits and gains of the economic swap with China?
Emefiele: Let me say that, in 2015, practically all the countries in the world had challenges. In the third quarter of 2015, China’s growth was one of the strongest in the world. All the countries have challenges but China is coming out very faster. On the swap, we have been holding discussions with the People’s Bank of China about the swap arrangement, which entails using Yuan (Chinese currency) for transactions between Nigeria and China. At the meeting what we did was to sign a mandate agreement between the Central Bank of Nigeria and Industrial and Commercial Bank of China, which is the biggest in the world to act as our agent in concluding the consummation of the transactions. The issues are in two folds: it affords Nigeria important opportunity to open letters of credit using Chinese Yuan as a currency rather than using the dollar. As you know, in 2015, Nigeria net import between Nigeria and China was about $15 billion. The benefit with the arrangement is that it makes it easier for you to make your transaction in Chinese currency which put less pressure on you looking for dollars to carry out your trade transactions in China.
Also, China has appointed South Africa as its trading hub for Southern Africa countries, while Kenya will represent East African Countries and the mandate we signed is for Nigeria to be appointed as the trading hub in the West African Sub-Region. In all, it put less pressure and we expect it is going to be mutually beneficial and eventually, we will be talking to China about importing some of its own items from Nigeria so that the trading balance can be reduced. Will Nigeria benefit from this? I want to say Nigeria will benefit from it and put less pressure on the dollar and reserves.
Do you foresee any risk?
Emefiele: In everything you do in life there is risk but the important thing is you identify the risk. We would look at the issues and whoever your business partner you are dealing with in any part of the world, you must look for a way to take care of the risk.
On the budget support, are you planning to borrow and if yes, how much?
Adeosun: Based on our budget we are expected to borrow about ***1.8 trillion, which would be split between domestic and international. And the budget support we are talking with the World Bank is a request for a total of $2.5 billion in budget support and the AfDB.
That is part of budget financing. Why are we talking to the World Bank and AfDB? It is because they have concessional financing of a low interest rate as low as two per cent. With about 20-year repayment plan. This is very easy because the project we intend to fund with this borrowed money are for capital projects: The rail project, the road which need long term concessional money and so it makes sense to us. We recognise that we need to invest to get the Nigerian economy moving.
You have consistently said that we needed to broaden the tax base. How would you do this?
Taxes are collected by the state governments and indeed anybody who lives in Lagos State would disagree with me that Nigeria doesn’t have property taxes but have a land use charge and many states are now implementing it as a source of funding. It is a valid point and I think more states will look at it but it is under the constitution under the state government tax. On increasing our tax base, if you look at it, we have five per cent, which is one of the lowest in the world. Our strategy is to get more people to pay and to comply and when the economy is a little bit more robust we can look at increasing the rate. If only a few people are paying and you double the rate you are penalising those who are complying. The solution is to get those who should be paying to pay.
The chairman of FIRS has started a very aggressive campaign and programme of pulling those who should be paying into the tax net. That is the right way to go. The most important is to spread the culture of people complying with the tax law and pay as and when due because tax is the most sustainable way for any government.
On the issue of inflation and interest rates
Emefiele: The inflation rate is at 12.8 per cent in the month of March and if the policy rate is at 12per cent, it is not in our economic model to pursue if the policy rate is lower than the inflation rate, that is negative real interest rate, we can’t do that. Inferentially, what I’m trying to say is that, it would be difficult for you to run away from a fairly high interest rate in an environment of rising inflation.
But in any case, I had also underscored that the Central Bank of Nigeria in line with the development finance objective will continue to provide intervention to some of the target sector of the country, like agriculture, mining and some of the real sector of the economy that will help engender growth and improve productivity and when productivity improves, naturally, what you will find out is that prices would come down and that will positively impact on inflation, that is exactly what we are talking about. I’m optimistic that will work and eventually Nigeria will have a cause to smile.