Managing Director, Bristol Investment Limited, Dr. Chijioke Ekechukwu, in this interview with James Emejo, reasons that the quantum of monetary interventions by the federal government to the states in form of bailouts ought to be deployed to the private sector in order to boost job creation and stimulate the economy. He also spoke on other issues affecting the economy. Excerpts:
After much delays, the 2016 budget has finally been passed into law, what does this signify for Nigerians?
Obviously there’s going to be a lot of relief in the sense that the economy can be again; when this kind of delay happened in other countries like America, their economy was shut down and so for a country to run for five months without their budget means we should have actually shut down for five months. And so there should be relief given that there’s going to be a reflation of the economy; the economy is going to be stimulated again by the pumping of the money that is to be released from the budget into the system. There’s going to be some life in the economy with the signing into law of the 2016 budget-so this is a good news.
Compared with previous administrations, the capital component of the 2016 budget showed some improvement, could it have been higher?
When people talk about the capital budget been almost 30 percent, obviously it is a thing to note in comparism with what used to happen-the amount of money budgeted for capital bite before now. But it is not all about it. Here we are running a deficit budget. The country could just have had up to N10 trillion, N20 trillion or up to N30 trillion but the question is-how will the budget be funded? To run about N2.2 trillion deficit in a budget as far as I am concerned, is not a terrible situation as this could be funded using several other means like borrowing from the bond market locally or from the international lending institutions like the IMF, World Bank as the case may be.
But my concern is the fact that the capital budget should such that would open up the entire economy; should be such that would build capacity and open the entire economy in terms of building infrastructure that would enhance the expansion of the economy. If we do not spend this 30 percent of our budget on that aspect of the economy that we can consider in the areas of building capacities in manufacturing sector, creating opportunities in energy and power sectors and probably in the transport sector that would actually enhance the real sector, then we would have wasted our energy in celebrating that we have 30 percent of our budget in capital.
What do you foresee concerning the implementation of the 2016 budget?
It is for this reason that the federal government established what we call the Fiscal Responsibility Commission as well as the Bureau of Public Procurement, and it is for this reason that the government had budget and audit departments in various ministries and parastatals. It is for this reason that we also have the office of the Auditor General for the Federation in the country. Unfortunately, these various institutions or positions have not optimised themselves in doing due diligence to the work which they’ve been selected to do.
I have mentioned all these parastatals that are supposed to actually make sure that the implementation of the budget is well done and followed routinely. The problem is not just in the implementation but in the budget preparation itself. No particular ministry or parastatal or agency has been put in charge of making sure that in preparing this budget by various MDAs-that only things that are necessary are put in there.
We’d been told that this budget of 2016 is supposed to be a zero-budget for the year but for what I saw as an economist-I do not see a zero budget. What I saw was an incremental budget where various budgets were dusted and added 10 percent or 20 percent as the case may be. I have seen situations where ministries and parastatals which already bought office furniture two years ago, today they are also buying office furniture. What are they buying office furniture again for? Have they used those ones or are they opening new offices? No, just that nobody supervised what went into those budgets.
So in implementing the budget, we shouldn’t just be looking at the passage of the budget, we should also look at the inputs being made. The inputs should not just end up with the National Assembly when they start scrutinising the budget because many times, they don’t have the time; they may not even have the technical know-how to be able to go through all those budgets. Professionals or probably chartered accountancy firms or core professionals in these areas should be deployed into making sure that inputs of budgets are exactly based on things that are needed by these ministries and parastatals and not just accepting a document only for them to be asked quatrains for a few minutes by the National Assembly- it is not going to be enough. So as far as I am concerned, we still have a lot of work to do in the preparation of budget itself to avoid what Nigerians call paddling today. Padding is not done after signing the budget, it is actually done before the budget is passed into law and so that’s where the problem starts from.
Still on the fiscal side, states government have continued to seek bailout from the federal government in order to meet their financial obligations. Is this practice really sustainable?
The question we haven’t asked ourselves and the governors and all the people who benefited from the bailout is what did they use the bailout for? In an economy that is dwindling, in an economy that’s experiencing depression like ours, you don’t give bailout to pay salaries. If you remember when bailout was given out in America, bailout was given to the private sector and not the government sector; bailout was given to various industries-the banks, the mortgage institution, the automotive sector -and when this bailout was given to them, they were given a time-frame to pay back this money and it was for a particular interest rate.
Many of them sprang up again and came back to business because the money was pumped into the private sector. If you keep giving bailout to state governments to pay salaries-and they’ll end up paying for two months-so what happens to the rest, are you going to keep giving bailouts? You don’t give bailout on continuous basis, you only give a bailout to pump money into the economy through the private sector and that’s actually what I think we haven’t gotten right with the bailout. If you ask me, we really shouldn’t pump more money into bailout for the payment of salaries, that’s not what bailout is meant for.
So what remedy would you recommend for state governments who appear helpless at this critical period of a near-recession?
When I was growing up in school, I read a book by Peter Drucker who said we do not have underdeveloped countries-what we have are under managed countries. There’s no state of the federation that doesn’t have a resource that can be tapped. Even if you don’t have a resource, you have investment opportunities you could give; be it tourism, be it creation of wealth that you can do within your state and before you know it, everybody in the state would have an increased income based on the level of business that is taking place in the state. Unfortunately, the system we run in the country is such that money money is being expected from the federation. I have a problem with that and it is so necessary for our leaders to start thinking about this in the future. I still don’t understand as an economist where workers are working for the state and their salary would come from the federal.
If we are borrowing our system from America, running a presidential system, have we bothered to ask how they run their economic system? No federal government in America gets money and sends to the states. Now, if the workers in the state are working for the state-tourism department, industry and works departments and you’ve done work for the state, why are you going to fetch their salary from federal to pay the work that has been done for you in the state? So, it’s just for our leaders to actually look into this and think about how to cause a revolution and change this system in order for the states to take responsibility in making sure that they the states should be run like a private venture where you grow your business and if you are doing well in your business, your state will earn more money in income and your people will actually enjoy the GDP of that particular state as its growing. Now, if state A is doing well and state B is not doing well, state B is not doing well then state B will be under pressure from the people to say look at how state A is doing, we also have the kind of resources they have. Every state in this country has one resource or the other. You have one investment opportunity or the other, you have one way to make money or the other; people should not be talking about taxes-the people who are going to pay these taxes are the same individuals who are already suffering from inflation.
I can tell you that taxation is another way of inflation, so we should not over burden the people with taxes. There are many business and investment and tourism opportunities. Many of these people have rivers and oceans in their areas, have you been able to build a water park that people are going to come from all over the world to see and pay you a lot of money for? These are the questions we’ve not been able to ask ourselves as heads of various states. The state governor should go back and bulls their economic and investment team and think about how to build businesses of their various states so they can start thinking less of getting money from the federation.
Now that the national budget has been passed, what recommendations would you give to the government for maximum impact on the people?
First, the government has to have probably what we call town hall meeting with players in these sectors, for example, the government should sit down with the textile industry players and find out what their problems were: why did you go down in business. Government should have a total meeting with all the owners and directors of textile factories that shut down in Lagos, Kaduna and other places, sit down with them and articulate one after the other, the reasons why they shut down. Did you close down business because of over-taxation? Did you close down your business because of lack of power which we could not provide through electricity?…how can we come in? It’s only when you sit down with these people that they can outline all their needs and all the things they’ll need to come back to business.
When we are talking about bailout, that’s where the bailout should go to-textile industry, brewery industry, the tyre industry.min this country, we watched two major tyre companies-Dunlop and Michelin close down their businesses and they met with government and government could not listen to them and solve their problems and they shut down and over 500 Nigerians workers lost their jobs. They’ve entered into the unemployment market. And so in the same way, we’ve had many other sectors, the manufacturing sector which had closed down just because their needs could not be met. So, I think the first way to start is just to have a town hall meeting and identify their problems and start solving their problems one after the other.
The second major area is the fact that we must provide funding for them with single-digit interest rate over a long period of repayment. This should be a term loan-you don’t fund these kinds of transactions or restructuring with overdraft. They should be given a term loan that reaches up to fifteen, twenty and thrifty years as the case may be. And then you give them milestones-you don’t just release the entire money to them at a time-give them milestone disbursement-at a particular level, we would give you this….you are going to keep supervising the utilisation of these funds to the extent that you are 100 percent certain that the funds are being utilised for the purposes so they don’t get diverted to other areas. That’s the way to go. Then you make sure that their repayment payment is followed strictly and you penalise them if they don’t repay. And if you do this, each factory that you’ve resuscitated is going to have as many jobs created as possible…And then the power sector must work before the real sector works again.
There are increasing concerns over the galloping inflation, which has made life more difficult for Nigerians. Is there an end in sight?
I have not in the history of economics seen any country that is growing at the rate they want to grow while there’s insecurity their country. It’s not possible for this country to grow where it wants to grow to with the level of insecurity. First, it’s difficult for even Nigerians to invest their money in the midst of insecurity; it’s difficult for foreign investors to come in and invest their money in the midst of insecurity. And so, if you deal with insecurity, then that’s just on one side; the next thing that’s also causing the inflation you are afraid of is the amount of money being spent on the importation of weapons to fight insecurity. These equipment you see on the field are paid for in foreign currencies and they come in very expensive. That is a major cause of inflation; as far as we keep spending that amount of money on daily, weekly and monthly basis, there’s no way it would not affect is adversely.
These are the things that are depleting the foreign reserves of the country. The other thing which is depleting our foreign reserves which is also causing the inflation and fluctuation in exchange rate in the country is the fact that we are spending a lot of our foreign reserves in the importation of petroleum products. I have said it times without number that until we stop the importation of petroleum products, it’s difficult for us to fight inflation today and fight the depression we see ourselves in and it will be difficult to try to build our economy because the amount of money we deploy into the importation of petroleum products is enormous and is enough to overwhelm the country in its economic crisis.
Also, you know that each time the price of petroleum product is increased; now note that increasing it is not when government increases the price because that’s not what determines the price of petroleum; what determines the price of petroleum is the one you buy as black market, the one you buy at an unusual filling station, that’s what influences the prices in the market. Until that’s also controlled, and what will control it is to have enough supply of petroleum products in the system. If we have enough, then there’s nobody who will increase his own price of fuel to the extent as to affect prices of goods and services. One other thing which is affecting inflation rate heavily and influencing the prices of goods and services and also impacting negatively on the consumers is the exchange rate. And this exchange rate as I said is being affected by the demand and supply of the foreign currency.
Today, we do not have enough supply of the foreign currency be it in pounce or dollar or other currencies-we do not have enough supply and so because of the price of oil being low, which is one, because of the volume of importation of petroleum products, because of over dependence on importation of generally goods that could have been produced in the country-as long as we continue doing these, there’ll be over dependence on our foreign reserve which will affect our the value of our currency against other currencies and so these are the things that are causing inflation. Until these things are dealt with, it would be difficult to solve the economic problems of the country. Now, economics is this when they say ‘all things being equal’, you can put all the economic theories in place but all these things we have said are not equal. And so until all these things are equal, then economic theories would work but today economic theories are not going to work because of a lot of things drawing them back.
How do you assess the recent restriction placed on 41 items from accessing forex from the official windowed the CBN?
I can tell you the decision taken by the CBN was right. From the time it place the restriction, the value of the foreign exchange has stabilised a little. When we were experiencing the hyper-jump in rates is over-even though it’s still high but it’s stabilised. I know from economic point of view that when you restrict importation, you are trying to draw a balance in your balance of trade; you want to have a surplus balance of trade and if you want to have a surplus balance of trade, you are automatically having a surplus balance of payment. Now, this is only going to be possible when you are producing locally and exporting.
As far as we keep importing virtually everything, we are not gong to have any positive balance of payment. I agree with the CBN that there are a whole lot of things that can be restricted in other to grow the local industry but the feeling I have is that many people are beginning to look into the manufacturing of one thing or the other. Now, local manufacturers of furniture did well over a period of time because there was a ban on the importation of furniture in this country, many good and big factories sprang up in Nigeria and they did very well. You also know there was a time we used to import cement until there was a ban and we started opening up opportunity for limestone to be used for the production of cement.
Today, we are net exporter of cement to other countries. If you want to stop the importation of rice today, completely by sea or road, but of course you know there’s a ban by sea but no ban by road- whatever the amount of money we would have used in importing, if we should deploy them to the local manufacturers of rice, you’ll be so shocked what we are going to get locally. And so the country is going to save a lot of foreign currencies that we spend in the importation of these items in developing the local industry. And if you develop the local industry, you are also going to create as many jobs as possible and people are going to be busy. You will also see that automatically crime will reduce because a lot of people are gong to be engaged on these farms, factories and agro-allied areas.
There had been concerns that the reluctance by the CBN to devalue the currency and the lack of an economic blueprint had continued to put off potential foreign investors form the country. What is your perspective on this?
That was then, with the signing of our budget into law. By the time investors had this fears there was no budget in place and now that we have a budget, there’s something that also looks like a blueprint in the budget and we expect government will follow the blueprint but I also know that any investor who’s not coming in because we’ve not devalued our currency is not the kind of investor we want. I am an economist and I have looked at the merits and demerits of devaluation and seen that we are not better of with a devaluation of our currency. So our currency in my opinion should not be devalued because if we devalue this currency, the common people of Nigeria are going to suffer it because inflation is going to swallow whatever disposable income anybody has today. And when the inflation of this country goes up, it hardly comes down and so we cannot devalue right now. The blueprint of our country is good enough for any investor to come in once the issue of security is addressed and we also hope the price of oil will not crash below it current levels so we can stabilise and plan based on our $38 per barrel projection.
Following a negative growth rate in GDP for the first quarter of the year, do you agree that the threat of the economy falling into recession is real?
GDP is the aggregate value of the goods and services produced within the country over a period, usually, a fiscal period. With Nigeria’s oil production capacity dropping by a reasonable percentage, reduction in production capacity due to a drop in electricity supply, the delay of signing the 2016 budget into law, and the debt burden of the country, the GDP is expected to drop.
The implication is that so many jobs are already lost, our revenue base is reduced and our external reserves will also be affected negatively. For a country to be said to be in an economic recession, there should be significant decline in economic activity spread across the country lasting for more than a few months and visible in Real GDP, Real Income, employment, production and general sales activities.
The question is; are we experiencing already, general decline in economic activities in the country and other indices mentioned above? The answer is Yes. What we should be measuring now is the extent or size of recession facing Nigeria. Then we will know the depth of the recession.