Ekpo: Nigeria Requires Urgent Structural Reforms

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The Director General of the West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, who is also a former board member of the Central Bank of Nigeria, spoke with Obinna Chima on issues pertaining to the Nigerian economy. Excerpts:

Recently, the debate on whether to sell or not to sell some national assets was a major issue. What was your position on that?

Well, my take is that it doesn’t make sense to sell national assets because we are in an economic recession. It is a panic measure. It is what I call a fire-brigade approach in the sense that we have not been told that we have exhausted all the financing options. And then, recessions come and go. It is part of being a market economy. So, if you sell assets now, when it comes again, what are you going to sell? So, it is not the way out. Secondly, we have to do some analysis. What are the assets? Which assets are we going to sell? We need to know. Who are those going to buy the assets? Take for example NLNG, government has 49 per cent stake in and it has been doing well. It has been giving government a lot of money.

So, why suggest that it should be sold? So, it is not a good idea at all. Even if you have to do, it has to be done such that Nigerians that own those assets buy the shares and you have to limit what anybody can buy so that the few elites don’t buy up public assets. So, my view is that we have not gotten to the point to sell our national assets. Even if we reach it, I would never suggest selling of assets. The other way round is that when you say you want to sell national assets, it’s like you want to privatise.

We have gone through that before. There are so many privatised government businesses littered all over the country, not making any return. So, we should jettison that idea. I can tell you that I was a member of the ad hoc expert team that the Vice President invited. This idea was muted at that meeting, but we never thought they would push it further. And as you are aware, government came out to deny it. But I can tell you that it was on the agenda. I won’t mention names, but one or two of the experts at the meeting proposed this idea and a few of us opposed at that meeting. I even warned that labour would fight it for ideological reasons. So, for me it is not a good idea.

Some have said the sale of these assets might bring about efficiency and some even cited the transformation in the telecommunications company as a result of the sale of NITEL?

As I said, we have gone through this before. The process has never been transparent. Not just NITEL, even look at NEPA and Power Holding Company of Nigeria (PHCN). They went through bidding processes, we unbundled the PHCN, what has been the impact? Power supply today is worse than what it used to be. For a long time, we talked about selling NITEL until recently. So, the problem of NITEL is a little bit different in the sense that we watched over the years, the inefficiency of NITEL. For PHCN, when you sell your assets, both sides would do due diligence and you sell both assets and liabilities.

But in the case of PHCN, we said we have sold, later those who bought came back and said they didn’t consider other factors, such as the price of gas. And government gave them money through the Central Bank of Nigeria (CBN), which is wrong. Something like power, which is very critical to Nigeria’s development, we know those that can give it to us. It is not a rocket science. You invite the companies that have the expertise, the money, you invite them and you discuss with them how to go about it. And you set timeline.

But what we did, to a large extent, with the sale of PHCN was that some Nigerian elites had fronts who bought those assets on their behalf. That is why we are where we are today. So, I always prefer that we commercialise government enterprises than to privatise them. When you commercialise, it means that the management may be outsourced to private hands, but government still retains some ownership. And when you sell the shares, Nigerians would be asked to buy it. Then you limit the amount individuals can buy so that you don’t put it in the hands of few elites.

What about the talk of giving the president emergency powers in taking certain decision, as a means to get the country out of recession. Do you support that?

You see, that is another panic measure. For me, you don’t need emergency powers to get the economy out of recession. There are already existing instruments that government can use to do it. Secondly, if truly members of the House of Assembly represent Nigerians, they will not be dilly-dallying. Why was there a delay in passing the budget? Around March this year, i warned that the economy was close to recession, at a lecture I delivered in Lagos. At that time, they were still dilly-dallying on the budget. If they had passed the budget on time, the fiscal side could have spent and that would have enhanced the economy.

That budget contained stimulus that would have helped the economy. Even when they passed the budget, it took several months for them to implement the budget. So, the president doesn’t need emergency powers. So, that was why I said it is a panic measure. We told government that it has to spend out of recession by borrowing externally and domestically to finance capital projects. Again, our recession is a special type because it affects also the supply side. It is not just a demand issue.

The demand issues are not even the federal government issues, it is more of the states. About 26 states owed salaries for almost eight months, meaning that people didn’t have money to buy goods and services. So, it is a special recession because it affects the supply and demand sides. So, the delay in forming the cabinet, the delay in passing the budget and implementation have been part of the crisis. At that time, only the central bank was talking, only monetary policy was trying to do something. So for me, recessions are recurrent in the market system. It comes and goes, but it gives you an opportunity to make sure that you manage the economy properly. No two recessions are alike. Also, they need experts to help them manage the economy. It is not a tea party.

They need technocrats to advise them. And in our system, no government has a long-run luxury. Every government has four years, so they have to move fast. My worry for Nigeria is more than the economic recession. Let me ask you as question. If for example, the third quarter Gross Domestic Product (GDP) growth becomes positive marginally, that means the economy would be out of recession. But has the problem of unemployment been solved? Has that solved the problem of inflation? Has that solved the poverty problem? It has not! So, we need to carry out long-term structural reforms and be serious about what we are doing.

You just said there is need for the federal government to assemble technocrats and have an economic management team. Are you saying the ministers and other cabinet members are not doing the right things or do you think they don’t have the capacity to lift the economy out of its present situation?

If you look at Nigeria’s economic history in the last 56 years, there are some episodes where you could say they appointed technocrats to manage the economy. But since 1999, there have been problem because politics dominated the economy before then, the military system. But the military, for some reasons were able to recruit some technocrats. I can tell you that everything about the Nigerian economy has been researched, documented and written about, before 1999. They are on shelves. But when 1999 came, in fairness to former president Olusegun Obasanjo, he tried in putting together experts to macro-manage the economy. He brought people who were good.

Then, he had an economic team that constituted mainly of experts. Those experts co-opted other experts to look at the economy. I think continued up to the time late president Yar’Adua. In Yar’Adua’s tenure, I was a member of the team. After Yar’Adua it continued, but with an error. I even told Ngozi Okonjo-Iweala that it was a mistake to have an economic management team that included private sector players and government players same time. You don’t do that. You have a different forum where you meet businessmen and a different forum where the economic management team meet. This is because when you are practicing capitalism, the government tries to surprise the private sector, while the private sector tries to predict the government.

If you put all of them in one room and government brings out a policy, they are rational to exploit it. For example, if there is a policy on cement, a private sector person in the economic management team would exploit it easily. So, you make life very easy for them to make money. Their role is to predict government, but you (government) try and surprise them. That didn’t happen. This government is even not the same. What they have now is a ministerial team. But they invite experts on ad hoc basis. I have attended two of such meetings. But what they need is a strong economic management team. Nigeria has a lot of experts. But let me explained that the Nigeria Economic Summit Group, as far as I am concerned is not the team of experts I am talking about.

Every country needs intellectuals to assist. So, we need a strong economic management team to assist government. More so, when some people running the key ministries are not in the profession that you need to look at the economy. They are either core politicians who have not been involved in running an economy for a long time. I will give you an example. During the tenure of late General Sanni Abacha, he appointed Chief Anthony Ani as minister of finance. But Anthony said he is an accountant and that he does not think he has what it took to run the economy alone. So, Abacha approved for him a ministerial advisory committee. He brought in only economics and a lawyer to drive the process during that process. Go and look at the macro-fundamentals at that period. And there was a link between the ministerial advisory committee and the national economic team headed by Prof. Sam Aluko.

So, even Abacha who was a dictator left the economy to be ran by experts and the economy did well then. I was involved. In fact, I was the chairman of that ministerial committee in the ministry of finance for four years. We ran the economy. Another problem we are having in Nigeria is the issue of exchange rate. As an economy like Nigeria, you do a managed float, you don’t float your currency freely because ab initio, your own currency, the naira, is not convertible. The foreign currency is not your money, so you have to always put up the attitude that it is always scarce. Economics is usually about scarcity.

When a commodity is scarce, you don’t use demand and supply to find the value. You allocate efficiently, but you don’t ration. You can see that the misalignment between the interbank and parallel market rates is too much. When I last check, government was still the greatest supplier of foreign exchange, and they give it to the banks to sell. Any bank official would be rational and want to round trip. So, the gap is just too much. And that is going to affect foreign direct investments. What you will have is hot money. So, when there is a recession, you adopt what is called economic nationalism. So, let’s pray that the economic recession does not continue for a long time, because if that happens and we enter into a depression, we may just be like Zimbabwe or Venezuela.

So, what can government do to attract foreign currency to the economy because this appears to be outside the control of the central bank?

I pity the central bank. They have been doing their best. It is a supply problem. They don’t have the currency and then we need to change the structure of our economy. Our economy only consumes, we don’t produce anything that brings foreign exchange. So, what you do is that you direct policies that would encourage people to encourage and manufacture, no matter how little, something that would add value, before you export. What we need now are structural policies. What we have seen is that the central bank has been doing a lot of what it ought not to be doing. The central bank is pushing out a lot of intervention funds. A lot of times, their intervention funds have fiscal coloration. And that is not supposed to be their business.

But they are forced to do that because of their development functions. I say this as someone who was on the CBN board and monetary policy committee for over five during the tenure of Prof. Chukwuma Soludo and briefly under Sanusi Lamido. So, I know the problem. Under their development functions, the central bank does a lot of things because the fiscal side is weak. So, if the recession prolongs, monetary policy may be ineffective, because what we are facing is a fiscal and structural problem. My quarrel with the central bank is that certain aspect of the new flexible regime framework is not tailored for our economy. For example, they brought in futures market into the forex market. That is not for an economy like ours and that is because the commodity you are dealing with is a scarce commodity.

This is a system that works where the people don’t even bother about the foreign exchange market and they have several ways of earning other foreign currency, their economies are industrialised and they manufacture. What they are trying to do, we all studied in the post graduate school. You want to align the prices and so you keep moving until you find equilibrium.

But you can never find equilibrium in exchange rate, it doesn’t exist in practice. We teach students that as a benchmark for comparing other model. The market gives you a sign or a guide, then, you move the band. You can find it mathematically, you can find it by drawing the curves, but in practice, it doesn’t exist. It is a day-to-day issue. In practice, you manage it that is why it is called managed-float. This government should be careful of political issues.

When life becomes so hard for people, they have may vote them out at the next election. So, we need a balancing. I rather borrow externally because it gives me long-term to repay, than depend on sterilising the dollar. Nigerians are expectant because for over 26 years now, they have lost confidence in government. Most people don’t trust government any more. In recent times, economists have come to realise that if you ignore political economy issues, you do so at your own expense. So, it is left for government to think its way through, get people who are knowledgeable to think outside the box. This is because if they are able to implement one or two things right, then, they are sure of staying longer in government, otherwise we would just be changing government every four years.

The people are not happy. There is even a disconnect between Nigeria’s ruling class and its people. If we don’t take, they may be forced to implement the Structural Adjustment Programmes (SAP) again, by going to the International Monetary Fund for short term facilities and they give you conditions. Don’t forget that the rich are still consuming imported goods. And if you don’t have money to pay for those imported goods, it affects your balance of payment.

You have stressed the need for technocrats, with emphasis that they should be economists. I read an article recently by a former deputy governor of the CBN, Prof. Kingsley Moghalu, where he looked at the history of economic thought and concluded that most economic thinkers and those that laid the foundation of economics, such as Adam Smith and Keynes, did not study economics. Did you agree with him?

He is not right. In economic history, the early economists were called moral philosophers and in philosophy, they deal with a lot of social issues. What we even call economics presently used to be known as political economy. But as we moved on with time, it became narrower. To say that Keynes was not an economists is not right. If you read all the works of Keynes, it would show you that in modern terms, he was an economist. You see, the problem with Nigeria is that people claim to be everything. Then why do we have economics Programmes in universities? Even in Nigeria, most people who call themselves economists are not economists.

By definition in most schools, even if you don’t have a degree in economics, your transcript should show that you have taken some courses in economics to understand what is happening. If someone tells you that he has made a forecast that by next year, the GDP would grow, it should be based on a model. If you didn’t study economics, how will you understand the model? That is why in most countries, even if you have someone who is widely read to head a ministry, for example, the ministry of finance, you would have technocrats who understand the issues around that person. In my view, you must study something to a certain level. So, it is good for us to put round pegs in round holes, especially when you are a developing economy.