Adeosun: Our Focus is to Get the Economy Out of Recession


The Minister of Finance, Mrs. Kemi Adeosun, in an interview with journalists in Abuja, unfolded the various stimulus measures by the fiscal authorities to pull the economy out of recession. She emphatically stated that massive spending on capital projects, fixing infrastructure, housing and environmental problems are key strategies to enhance inclusive economic growth. Excerpts:

Now that the Monetary Policy Committee of the Central Bank of Nigeria has decided to retain the interest rate, what are the options available to the fiscal authorities to stem the recession?

We are looking at a range of options and one of the biggest issues for us was the cost of borrowing because government is the biggest borrower. So what we said from the beginning was that we will look for cheaper borrowing to bring down our cost of borrowing. Currently, it’s cheaper to borrow internationally than borrow locally. So what we are looking at and we are working with the Debt Management Office to try and refinance existing debts into external to get lower interest rate and to structure it over the medium term. That will reduce the cost of our debt service and increase the amount of money available for capital, which is really our focus to get the economy moving out of recession. The strategy for getting us out of recession is to spend on capital
projects and that is our priority.

The country has been trying to get loans from the IMF/World Bank, China Export-Import Bank and other external sources but little or no result has come from that endeavour. Is Nigeria no longer attractive to foreign creditors?

Those loans have a very long process. If you remember, at the last Federal Executive Council meeting, we got the borrowing plan approved and that has to be approved by the National Assembly and once it’s approved by the National Assembly we can begin to access those loans. That was why we rushed it at FEC very quickly and now it’s with the National Assembly and once they finish their oversight functions we will be able to draw down on some of those facilities.

When will the funds from the loan start coming in?

African Development Bank President is coming on Monday and I’m sure he will give us an update on where we are on that one. The China EXIM is in process at the moment especially for the rail. Some of the China EXIM loans are currently running like the airport project but the big one is the rail one and that is the one we are hoping will come in before the end of the year. And then the Eurobond; we are just finalising the appointments of the parties and we are confident that we will close that one before the end of the year. We are confident on the Eurobond because we already had commitments even before we open the offer. They can see we are serious. We went to London and the
feedback was positive and we are confident we will get that money. So it’s not an indication that Nigeria is not attractive. Nigeria is very and extremely attractive.

What are the measures to attract investors into Nigeria considering the fact that we are now in a recession when people are unwilling to come?

One thing we need to understand in Nigeria is that majority of the investments in Nigeria are by Nigerians. If I can’t persuade you to invest, then I cannot persuade a foreigner to invest. So our focus is let’s get the environment right.

Once the environment is right and there is an opportunity to make profit, foreign investors will come but the most important thing is what is that environment and those things that investors want to see in order for them to invest both Nigerian and foreign investors.
Sometimes we focus more on foreign investors and ignore the people that are really putting money in Nigeria.

We need to sort out the infrastructures. That is what investors have been saying is a limiting factor; the corruption because people get frustrated by going from one ministry to another trying to get a permit and afterward they will just say let’s forget it and these are the things we are trying to do so we can have an environment where business can flow.

What has been the impact of the capital vote released so far?
The second N350billion has just gone out and so we have to wait for that impact. But the first one we are quite satisfied with what has happened because many of these contractors have not been paid since 2012. So when we did the first one, they were not sure of us if we are going to sustain the releases and so the second one for us is far more significant and a lot of them came and said we haven’t been paid since 2012 and the tendency is to hold on to that money rather than working.

But now, we have done the second one and I think that confidence in government ability to meet up to its obligation is being restored. So I’m sure that with this second release, you are going to see a whole lot of activity on our roads, rail and those big infrastructure projects.

Another area of infrastructure which was approved by the National Economic Council is our housing fund and that for us is one of the most radical changes that this government wants to bring. We’ve looked at what are the things that are problems to the Nigeria workforce apart from road, power. For the average man on the street, after food, is housing and it’s the thing that is sucking away people’s income and making cost of living very high.

You pay rent a year in advance and that one is like a burden and that is because rent is so high, you can’t afford to save to buy your own house. It’s never done like that in developed countries. In any other developed country, you pay for your house little by little over 20 years.

So NEC approved a programme, which is the family home fund and this is affordable housing. What is going to happen is that we’ve raised a fund and we are starting with N500billion but we are hoping to get to N1trillion and what that fund will do is it’s a financing solution for housing.

We’ve looked at the reasons why Nigerians cannot afford to buy their houses little by little like in other countries and the problems are high cost of land, no infrastructure, and high cost of financing as high as 22 per cent for the developer and by the time the developer finishes building the house, you can’t afford it. And on the mortgage side, when you tell somebody to come and do mortgage and you are charging him 22 per cent, he can’t pay.

So we’ve come up with solutions to intervene. One, the fund will provide funds to the real estate developers to develop affordable standard housing and not the house where you still have to go and sink your own borehole and do your own transformer. It will have power, running water, drainage in the estate that we will create, the roads in the estates would be tarred.

The houses start from N2.5million and it will go to a ceiling of N18million but 40per cent of the houses will be N7million or less because that is what our assessment shows that the average man can afford. So you put down 10 per cent and pay the balance over 20 years at single digit of 9.99 per cent rate of interest.

We ‘ve presented that to the governors and we are trying to do 100,000 houses next year and rise to about 400,000 a year because our housing deficit is 17 million and it increases every year by 900,000. So if you can put down 10 per cent and have a salary and have Retirement Savings Account, you move in and will be paying monthly. The smallest house of N2.5million is like a studio and that is in areas where land is abundant but in areas where land is not abundant, we have to do flats in high-rise buildings.

This is one of the things that will drive us out of recession because for every house you build, you create about seven jobs-builder, plumber, carpenter and the rest. The other thing we are doing is that we recognise diaspora remittances, which is about $20billion and a lot of that money come into families and if your brother or sister wants to help you, then let him help you to buy house. If you can help me buy a house, then I will be free of my problems and that is the innovative way to recognise the power of diaspora and the way our family operates.

So we already have sites in Delta, Nasarawa, Abuja , Lagos, Ogun and Oyo and within the next three or four weeks, the developers will move to site and you will see that this is a reality for Nigerians and it will be a fulfillment of one of the promises of this government and it will really address the cost of building for many Nigerians.

In Nigeria, we have the lowest rate of mortgage penetration, which is 0.3 per cent of GDP, Kenya is 1.2 per cent and Zimbabwe is 1.5 per cent and South Africa is 5 per cent. So we don’t have mortgages at all in Nigerian.

Won’t the National Housing Fund clash with the roles of the Nigerian Mortgage Refinancing Company?

The NMRC finances mortgages after the Primary Mortgage Bank has created the mortgage.
The problem we had was that there were no mortgages being created and so NMRC had nothing to refinance. What we have done is to fill that missing gap. You have to have a mass housing programme to create mortgages. That is how countries that have developed did it and that is why when you walk down the street of London, all the houses are the same because they were built with government support. If you go down the street of Nigeria, every house is different and a country as big as Nigeria needs mass housing.

Another challenge is that houses are expensive which has to do with high cost of building. Is there anything being done in that direction?

One of the things the governors will be doing is to provide the land while we provide the infrastructure because land and infrastructure is about 40 per cent of the cost of the house. Secondly, by building en masse, the cost goes down and so we’ve done a lot of work around how we bring down the cost of houses by doing mass housing. We are also using modern building techniques rather than so much concrete so that we can provide housing at an affordable price and it has to be standard.

It is quite easy to build these houses but another thing is the issue of corruption. What measures have you put in place to ensure that those who are connected do not come through the back door to take these houses at the end of the day?

These are affordable houses for Nigerians and it’s going to be linked to Bank Verification Number; it’s one house per person and so you cannot buy the house and rent it to somebody. We are also having this cooperative structure and for us that is the strongest group of community in Nigeria and they will be the ones managing wastes, security and others. We’ve been to Kenya and we’ve studied it and it was successful. So we think by using BVN, it will be difficult for anyone to come and hijack it because you can’t have two BVNs.

The annual meetings of the IMF/World Bank will hold in Washington DC next month, what agenda will you be taking there and what in concrete terms do you expect to bring back to Nigeria from the meetings?

We talk to the world bank and IMF every day and I think we will be telling them what plans we have for the Nigerian economy and how we see the Nigerian economy going forward, which and we are committed to inclusive growth and we are confident around the plan that we are pursuing and we are willing for them to support us.

They are already supporting us in fairness to them, heavily in so many areas such as education, polio and rebuilding of the North East. They are very supportive for this country and we want to continue to deepen the relationship so that we can get concessional funding that we need for these projects and giving them the assurance that the reforms we are
pursuing are working.

The administration said the release of capital funds would be tied to performance. So far you have released about N770billion. How do you measure performance in this case?

The budget has been split from finance. The monitoring is in the Ministry of Budget and Planning and they have actually done some monitoring. Those that made request for funding, budget and planning have gone there and see that based on the last one, you have not achieved the milestone because before we release monies, the permanent secretary actually signed off based on the milestone they are to achieve.

In some cases, people have excusable delay of waiting for the public procurement and we said fine, you don’t need more money because you have not actually used the one that was given to you. So I think that monitoring actually kept everyone on their toes. This money actually belong to all of us and so we do not just give them without it being tied to something and the more we continue to do that and improve, people will be able to see what government is spending money on.

The diversification agenda of the government has been seen by some people as mere rhetoric. How soon are we going to start seeing action in the area of diversification?

The economy is already diversified to an extent because oil is only nine per cent of the GDP. 91 per cent is real estate, services, banking, telecoms and so on. The problem is that government relies on that nine per cent, which is oil for its revenue and so the issue is not whether the economy is diversified but we don’t want to rely on oil as our source of revenue.

Why are those other areas of the GDP not contributing more to the GDP? Real estate is about eight per cent of our GDP and so what does real estate contribute to government revenue that is what we want to be looking at. Are there leakages there, are there taxes they are supposed to be paying and they are not paying? Are they paying to some agencies and the money is not coming in. For those areas that have potential that are yet to take off, there are some things we need to put in place such as infrastructure. Take agriculture for example, if you go to Benue for example, you will see oranges rotten and that is money.

And the problem is how to get those oranges from there to where to export or process into orange juice since we don’t have the infrastructure and that is the missing link in any economy. The other problem is power. Even if you have those oranges and you want to process them, you are handicapped because there is no power and as such you cannot compete. And that is why we looked at the economy and said if we can fix infrastructure, different areas of the economy will be moving and as soon as we can do that consistently, you will see great progress. It’s a very difficult time but we have to do it.

There have been divergent opinions on the sale of some of the national assets, considering the fact that some of the ones previously sold have not been properly managed. Why sell these assets when we could generate money from other sources?

I think there a lot of assets that are being considered. There are some unused assets that are just lying idle and people have come and said these things you are not using, can we lease it from you? I think when you are looking for money, some things that government is sitting on, we don’t have money to do it and so it makes sense for me to unlock those things as it will bring money to the economy at these difficult times so that we can move forward.

I don’t think we have gotten to the stage where we say it’s this or that asset. I think the conversation now is should we just keep continue borrowing or now that things have gotten to this stage we should start to dislodge some underutilised assets and it’s not exclusive to us. Saudi Arabia is selling some of its oil assets. So if you sell an asset and use it to finance another asset, which is going to give you more, then I don’t have problem with that.

Which one is more profitable? Leasing it for a while and then you still have it or outright sale?

It depends on which one. There are some assets that you can lease and there are some which you may need to divest. The investor will need to look at the risk and pricing accordingly. We can sell to the Nigerian people or the pension fund and you can also list these assets on the stock exchange. So there are different type of sale.

Is the sale of assets likely going to reduce the amount of money the government would be borrowing?

Yes, the deal is we’ve done a medium term expenditure framework and debt strategy and we feel that the infrastructure challenges that we face are so serious and the kind of money that we need, we chant borrow because when you have an accumulated deficit, you need to look for the money that will sustain what you are doing for the next three to four years. So that is what we are looking at and having a more strategic approach so that over time, we will borrow less and which of course is good in the long run.

Can we be out of recession in this quarter?
I don’t want to predict when we will get out of recession but let me tell you that we would get into growth and that is how you get out of recession because of the stimulus that we are providing and it may take long than we would like but we would definitely going to get out of it. We are already seeing some positive signs around agriculture and solid minerals and with what we are trying to do in other sectors, I’m sure we will get out of it.