Ekpo: I’m Always Worried Whenever Oil Prices Rise

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The Director General of the West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, in this interview with Obinna Chima and Nosa Alekhuogie, stressed the need for policies that would help change the structure of the Nigerian economy from its reliance on crude oil revenue. Excerpts:

With recent events in the global economy, what do you think is the future of globalisation?
Well, the way President Donald Trump has taken it is to show that neo-liberialism is dead. That is, we are back to the old era of nationalism. But there is a problem because any vacuum they leave, I think the Chinese would fill it which is very strange because the Chinese are not meant to be imperialistic in a way. So, if Trump persists, and it looks like he is serious about it, you would see globalisation dying slowly because every country would also want to be nationalistic and then we are going to have problem because of the so called free world. For us in the third world and Africa, we have not really gained from globalisation because for us to enjoy from globalisation we need to have a strong national economy. For us it wouldn’t really mean much. America stopped buying our oil sometimes ago. But generally, the way the world is going, a la American approach, it points to the fact that globalisation is beginning to die off the way we understand it.

What do you think at this point in time Nigeria should be doing?
Nigeria from a long time ago should try to build a strong domestic economy so that it can absorb external shocks and it is still not difficult. For example, at the time when we were depending a lot on agricultural products we would have industrialised via that venue. For example, you were exporting raw cocoa, why not begin to manufacture chocolate? You are exporting cotton, why not have a textile industry? Then oil came again, and created another problem for us. Even the oil sector itself was not diversified. So, if we are honest, we can go back to the drawing board and say it shouldn’t happen again. That is if we are serious about it and begin to implement some reforms, so that we can change our structure of depending only on exporting crude petroleum to manufacturing, produce certain things, even if it’s not the complete product, maybe add some value before you export.

Otherwise, we would still be having problems. Monoculture was more of depending on exporting the crude oil to earn foreign exchange. We still have problem and so we need to change that structure. We keep saying it all the time, but at the end, we never do it. That is why each time I see prices of oil go up, I worry. This is because once it starts going up, we are relaxed. That is not the way to go and we have the market. Nigeria has a market where even if people produce for the economy alone, it can be absorbed. 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.

I think your proposition also has to do with the level of our infrastructure development?
It is part of it. You cannot industrialise without having infrastructure. The early founding fathers in my opinion, no matter their own fault, they had the right direction. They were interested in Ajaokuta, Oshogbo machines, all these research institute and so on. The idea was to build infrastructure -rail way, road, dam, power. They started them, but it was truncated. Now if you try to travel within our roads in Nigeria, you would see that we are in a very bad shape. Just roads, so infrastructure is part of it. And luckily for us, we have the resources to do those things if we are committed and if we think strategic. I always argue that this power, we know the companies in the world that have the expertise, they have the resources and so on.

Why not invite? 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 gas price. 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 convinced that I have not seen as a government, whether this one or the previous government, 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 gotten to that point.

And that leadership issue appear to be affecting confidence and trust in the system?
There is leadership and there is also followership. Now, when you say leadership, you have to define it in context. Is it just the president and his cabinet, the House of Representatives and Senate? The leadership, are they thinking about development of the country? People forget that development is a struggle. There are people who want you to remain the way you are because they are benefitting from it. There are people who want to change the status quo. So, it is not easy. So for me, we are the ones that voted the leaders under this democracy, except it is military setting where they come by coup. That means we also have to change the orientation of followership. I used to ask in my community that someone came and told you guys that I would do A,B,C D, if you vote for him. You gave him your vote. He came after four years again and he has not done one, he distributed the same bag of rice or whatever, you voted him in again.

I wonder if it is poverty that causes that. You see, the system Nigeria is building is such that we do not have a large middle class. For example any country you go, the rich are very few relative to others. So during election, they would not be able to influence who would govern them. They may give money to influence it. But when you have a large middle class, they can decide that leadership whether it’s of good quality. The middle class would take your money and whatever and vote their conscience. But in our country where the middle class is very small, poverty is all over the place and you have a few people at the top, it is a big problem. So most people you see that call themselves leaders are not voted in by the conscientised followership. They use money as we are seeing being revealed every day.

I used to argue when I was very young that we needed a benevolent dictator. That is, they would come, build the country and the next generation would come and enjoy and vote. Singapore is a good example, China is also. The United Nations and the World Bank agree that china model has move millions out of poverty within a short time because they were strategic in their thinking and they were committed to development. In Nigeria, when I look back, the founding fathers were less tribalistic and to build a nation, the tribe must take secondary position. Religion is no longer a private affair in Nigeria. Today, every two houses, one is a church. The pastor that should galvanise them doesn’t do that, rather he wants to take from them and tell them to leave all to God. And you see that in most parts of the country. Everybody believes in one kind of miracle or the other. No country moves forward with that type of orientation. Do we have to go back to re-orientation?

What is your take on the aggressive intervention in the foreign exchange market by the Central Bank of Nigeria since February as well as the call by the IMF that the naira should be freely-floated?
Before the different intervention, 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, they began to push out the dollars and increased supply so see whether they can align with the parallel market. You see, my worry is that is it sustainable? Let us assume that tomorrow oil prices fall below $42 per barrel what would happen? So, for me, the windfall should have been managed because you don’t accumulate reserve only to back your local currency. Government needs to sterilise those dollars to do a few things. So I hope it is being well managed? You pump some into the forex market; you also leave some for government to also exchange. It is still being driven by oil prices.

I don’t know of any other source that is bringing huge foreign exchange than oil. But what they are doing now, in the short-term it makes sense because they want 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 that they made mistake when the naira was officially at N197/$. When the market gave them the sign of scarcity, they would have moved the band to N250/$, 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 saying that we should float – one time the central bank almost floated the naira when it introduced the flexible exchange rate? They saw that it did not work; they now decided to be intervening in several ways. So, I would not support IMF saying that we should float the naira.

You see, when you float it, it can get to N700/$. The naira has appreciated but prices 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 about floating the naira. My argument is very simple, the currency is not yours, either dollar or pound, your local currency is not convertible, you have to convert to naira, because of that you manage your foreign exchange and the external reserves. How you manage it, you need some skills; you use technocrats to do it. It is almost like a trial and error game and you do it every day. That’s why in America here, you manage an economy 24 hours a day. We all blame the CBN; 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 because that intervention fund on agriculture, we are not sure if it was done in conjunction with the Agric Ministry. They have intervention fund in power, etc.

But their main mandate is price stability but they also have development functions. But I think they take up so much and you cannot draw the line whether they are doing fiscal policy or monetary policy. I don’t think we should be blaming them for everything. So, government too has to play its part. Look at the budget, it is taking too long. What is it in passing a budget? When you delay, monetary policy may not be effective. When you delay passing a budget, it creates adverse dislocation for the economy. First of all, you further erode confidence that people have of the economy, and then you delay project implementation.