He is one of the sought-after voices on economy/finance. A former Deputy Governor of the Central Bank of Nigeria (CBN), and presidential candidate of the African Democratic Congress (ADC) in the 2019 polls, Dr. Obadiah Mailafia’s is known for his unequivocal position on national issues, In this interview with Ndubuisi Francis, he proffers a number of solutions to some nagging national economic problems, including the burgeoning debt crisis, and the need to ensure a coordinated approach between fiscal and monetary policy, among others. Excerpts:
The CBN has projected a rise in electronic fraud cases in the banking system to N6.1 trillion by 2021. This sounds alarming. How do you react to this?
This is of course worrisome. Electronic fraud in the banking industry remains a big hazard. In the past, it was mostly perpetrated by school dropouts popularly known as “Yahoo-Yahoo boys”. Today, we have more sophisticated criminals who are defrauding bank depositors of their hard-earning savings. You would recall the case of Michael Williams, a 28 year-old well-trained Nigerian medical doctor who was able to clone the bank cards of some wealthy individuals and was using them to support a lavish lifestyle. He had qualified in medicine in Canada and was introduced into the illicit business by an Israeli friend, according to him. When police were on his trail, he cleverly jumped ship. He came back to Nigeria and continued his wicked business. He met his Waterloo when he paid N28 million for a Porsche in Lagos. When he paid with a card, the payee received an alert which he immediately sought to verify. It proved to be fake. When he was busted, he was questioned why a well-trained doctor with a bright future would descend so low. He replied that his profession would not sustain the life-style he craved. Government and CBN must always be ahead of the fraudsters. Banks need to build in more robust fintech products to prevent fraud. And punishment must be more severe for offenders. Let me hope that the forecast about trends is only indicative. Given that we know the extent of the problem we must upscale our precautionary measures.
At the recent presentation of the 2018 Regional Economic Outlook for Sub-Sahara Africa, the IMF expressed concern over Nigeria’s debt-service-to revenue ratio, with about 50 per cent of revenue going into debt service. What’s your take on this?
When the current APC-led administration took over from the PDP, our national debt stood at N11 trillion. This is what a supposedly corrupt PDP administration accumulated as debt between 2007 and 2015. Today, in just three and a half years, the APC government has accumulated what has taken our national debt to a staggering N23 trillion, and the sad part of the story is that Nigerians have not seen anything that these loans have been used for. Only a fool would borrow to spend on consumption. If we cannot cut our coat according to our size, tough luck! But to borrow for consumption and recurrent expenditure is unworthy of a great country such as ours. At the Central Bank of Nigeria where I served as Deputy Governor, I was on the team that helped negotiate our exit from the Paris Club debt. I personally signed the cheque of the first tranche of repayment in the value of a staggering sum of US$7.50 billion. I had fever after signing that cheque and had to have bed rest. It was physically painful to give our people’s money to a bunch of rich Shylock creditors in Paris, London and New Washington DC. But we had to bite the bullet. That debt settlement saved us more than US$5 billion annually in debt repayment obligations, thereby freeing up the policy space for economic development. It is a pity that in such a few years, we have managed to go back to our vomit like the proverbial dog, accumulating debt that is double what we had in 2005 (US$70 billion). There has been no prudence in the management of our public finances. What is even more worrisome is the fact that we have reportedly pledged some of our oil fields in the Niger Delta to the Chinese as collateral in the event that we fail to service the loans. China is using capital as a weapon for re-colonisation of our continent. We need a new generation of Nigerians that would be more than a match for them. But let me make one point clear: There is nothing inherently wrong with borrowing. The smartest investors would always tell you that it is better to use other people’s money to get rich. But you must borrow externally only for capital projects that have a guaranteed return on investments. Borrowing for consumption and for frivolous projects can only spell disaster. And even for the capital borrowing, we must put in place iron-cast monitoring and implementation frameworks to ensure that loans are invested properly and that they reach the desired impact on ground. What is clear is that our borrowing has reached a dangerous threshold where 60 out of every 100 naira of government revenue is going into servicing our loans. At a point, it will undermine our creditworthiness and this in turn will put a dent on confidence of local and foreign investors. As they get discouraged, the naira will come under pressure. And when the naira comes under pressure, we would do the normal reflex action of dipping into the external reserves. And dipping more and more into the reserves will put additional pressure on the exchange rate, leading to vicious rather than a virtuous cycle of growth. A word for the wise!
The IMF report also commented on the quality of fiscal consolidation in Nigeria and other oil-producing countries, with declining capital expenditures. Do you think this is a valid submission?
The general regional trend is of great concern. This is because growth is conditional upon investments in capital projects rather than in recurrent expenditure or consumption. Dwindling public revenues and bloated bureaucracies often mean that there is less and less available for capital expenditure. A society that spends the bulk of its savings on consumption will hardly grow. And when growth is weak, poverty will worsen and the livelihoods and life-chances of the populace will diminish. Several African countries are unfortunately entering such a period of diminishing expectations. For Nigeria, I would say that there have been marginal improvements in terms of the ratio of recurrent to capital expenditure. In years past, the ratio was as high as 85 to 15. Last year saw our budget hitting the 30 per cent mark for capital expenditure. Of course, we can do far better. It focuses the imagination when we realise that the average for emerging Asia Pacific is 70 per cent for capital expenditure and only 30 per cent for recurrent. We in Africa have done the reverse. This largely explains why the Asian countries are making such giant strides in growth and economic development while we in Africa are doing so poorly.
The IMF report equally expressed concern that the quality of fiscal adjustment in Sub-Saharan Africa is threatened by the re-emergence of fuel subsidies. What solutions do you proffer in this regard?
In principle, I do not think subsidies provide the best solutions. This is because they provide a vehicle for corruption and rent-seeking behaviour. You may have heard recently that the current APC administration took a whopping US$1.5 billion from the LNG funds without authorisation by the National Assembly. When confronted with the facts, they retorted that the money was taken for payment of subsidies. This whole subsidy business has been the perfect means by which the state has defrauded Nigerians for decades. As you know, some of the oil-importing sharks used to connive with the NNPC to give fake figures for imported oil. In several cases, they would bring empty ships, report fictitious volumes of refined oil importation and then share the humongous “profits” among themselves. In other cases, the tankers will roll in, sign the volume brought and then retreat back into the dark night of the primeval Atlantic. Some of our neighbouring countries have been reaping staggering profits from such iniquity. I think we should liberalise the market. Liberalisation will actually reduce prices, unlike of course we allow the importers to constitute themselves into a cartel. We need strong government regulation to ensure that customers are given a fair price and that the public are not defrauded. In addition, I am optimistic that when the Dangote refinery comes on stream in 2019, the question of scarcity will be taken care of. My only worry is that a monopolist might force a higher price on people and we would have no choice but to take it. The responsibility of government is to regulate the sector in accordance with best international practices to ensure fairness for buyers as well as sellers.
The IMF, World Bank and several analysts have called on Nigeria to build fiscal buffers. However, Nigeria’s foreign reserves have been depleting in recent times? Do you think this shouldn’t create some apprehension for a fragile economy?
Yes, there has been a downward trend in our external reserves as of recent times. At its peak, the reserves had risen to US$60 billion, as of 2008. And at the height of the recession, they had gone down to a low of US$28 billion. Today, they have gone from US$47.4 billion in April 2018 to US$42.13 billion in October. This decline reflects partly the volatility in global oil prices and partly on account to fiscal imbalances that have put additional pressure on the naira exchange rate. In a bid to stabilise the exchange rate, the CBN had to dip into the reserves to intervene in the forex market. This is the price we pay for our follies. But whether we should be “apprehensive” is another matter. The fragility of this economy will always be magnified so long as we have failed to diversify the economy away from dependence on oil. But diversification is not enough. We must pursue an aggressive and diversified exports base that ensures a robust inflow of multiple streams of income from international trade. In this context, fiscal buffers are of considerable importance for economic management. They help reduce economic and financial fragility. But fiscal buffers are dependent on robust revenue. As we speak, the revenue base remains fragile. About 60 out of every 100 naira is being spent on servicing debt. Government must therefore seek ways and means to expand the revenue base. We also need cost-saving. Fiscal discipline and fiscal responsibility is the watchword!
There have also been calls for the CBN to stop defending the naira, but allow market forces prevail. How do you react to this?
I do not know of any economy in the world that allows its exchange to be determined entirely by market forces. It is a fiction. What is essential is to determine what rate of exchange is acceptable to the country; paying due regards to the country’s economic priorities and economic development strategies. For my part, I would like to see a strong and stable naira. But let’s bear in mind what factors determine the value of a national currency. One of the first elements is the volume of production as well as the rate of output growth in GDP terms. Another factor is the level of participation in international trade. Yet, another is the confidence that foreign and domestic businesses have in the economy and in its decision-makers. If they feel confident that the economy is being run by men and women of competence and that they can be trusted to act responsibly, such confidence tends to encourage investors to bring in their money. Capital outflows borne of geopolitical uncertainty lead to financial haemorrhage. But confidence boosts capital inflows. This in turn provides impetus for the stabilisation of the national currency. As matters currently stand, nobody trusts the government and the monetary authorities. The prestige of the CBN as a national institution is at an all-time low. Nobody takes them seriously and nobody seriously believes that they know what they are doing or even that they are disinterested actors acting in the national interest and the common good.
Only recently, the US’ Consul-General in Nigeria, John Bray, lamented that $1.3 billion American businesses in Nigeria are under threat as a result of instability in the exchange rate, policy inconsistency, poor electricity, dearth of infrastructure, regulatory and security issues, among others. Do you think the diplomat was crying wolf? If not, what should we do?
I do not think Consul-General John Gray was crying wolf. He would have no reason to do so if the situation was not dire. Diplomats are not the sort of people to be caught talking in highfalutin idiom. As you are aware, we have lost considerable ground in terms of capital inflows from the international investment community. Investors have been voting with their feet in droves. This downward trend is because of all the structural bottlenecks that abound: lack of transparency in the forex market, multiple and opaque exchange rates, policy inconsistency, the power deficit, the parlous state of physical infrastructure, self-satisficing regulators and widespread insecurity. Much of the inflows that we have seen in recent times have been more by way of portfolio investments while FDI is being directed mainly towards oil and gas and telecoms. Our country is today the kidnap capital of the world. Without stable electricity that can be no industrial or technological development. What we must do is listen carefully to what the American Consul-General is saying and we must try to address those concerns. We need to reform the public service to ensure greater deliverance of social services. We should also address the rampant bottlenecks that discourage foreign investors.
The nation’s economic fundamentals are not inspiring: Unemployment is at an all-time high. For two consecutive months, inflation rate rose from 11.14 per cent in July to 11.23 per cent in August and 11.28 per cent in September. The economy also contracted from 1.95 per cent in the first quarter of 2018 to 1.5 per cent in the second quarter. In the first half of 2018, foreign direct investment (FDI) in Nigeria equally fell to N379.84 billion compared to N532.63 billion recorded in 2017. What should be the priority of our economic managers at this point?
Well, as a matter of fact, you have spelt out all the main issues. Inflation is rising; FDI is declining while unemployment is at an all-time high. The urgent priority should be stabilisation of the economy. What we have at present is a fragile recovery. There are no guarantees that the economy would not relapse into recession. We need a robust economic management tea in place. What we have at present cannot seriously be considered an economic management team. The institutions of economic policy management must be made to work in concert. We need to ensure a coordinated approach between fiscal and monetary policy. Priority must be given t to fighting inflation, ensuring a robust fiscal stimulus, promoting growth and bold measures to tackle unemployment. The key bottlenecks strangulating this economy must be confronted head-long: the power and infrastructure deficit, insecurity, weak policy implementation and geopolitical uncertainty.
The implementation of the capital component of the 2018 Budget is another source of worry in the eve of an election year. What’s your reaction, sir?
We are already in the fourth quarter of the budget year. I do not think Budget 2018 has achieved up to 50 per cent in terms of implementation. As these things go, implementation of the recurrent budget in an election year is often easier than implementation of the capital component. But the simple reality is that it is the capital budget that drives growth, not the recurrent. So slow implementation of the capital budget can only mean slower growth. And slower growth on its part can only mean declining collective welfare, increased poverty and worsening life-chances for the long-suffering masses of our people. I am a passionate advocate for a new politics of development. We need to put in place a developmental state that prioritises economic development, accelerated growth and structural transformation of the economy. If we had such an approach to national politics and leadership traditions a new electoral-political cycle need not spell doom for the economy.
The federal government’s position is that it is hamstrung by paucity of funds, and cannot implement the 2018 budget without the sale of assets. What’s your position on this?
They are being penny-wise and pound-foolish. It begs the question: What have they done with all the billions of dollars they have taken in loans in recent times? What is the one major project they can point to as a great success? I am in no position to that the erstwhile PDP administration was a great one. But the truth is that most of the projects coming on stream at present were all started by the previous administration. This APC administration has not achieved anything worthy of being celebrated, beyond ballooning our national debt from N11 trillion to over N23 trillion in three years. Even their good intentions have only led to perverse results. They may claim to be fighting corruption, but in reality, this government is probably the most corrupt we have ever seen in the annals of our great federal republic. Nepotism is among the worst forms of corruption. Surrounding yourselves with worthless thieves who are bleeding the national treasury is the worst form of corruption. Only a few days ago, they illegally withdrew US$1.5 billion from the LNG account without approval from the National Assembly. No, this is not a serious government. It’s a government of Jihadists, genocidaires, hypocrites, liars and thieves. And some of these people are not even Nigerians – that’s why they are so wicked and diabolical. They themselves know that they are impostors and that the country is not theirs. So they are treating our people with such barbarity and impunity. Before God and man, I decree that this iniquity shall not stand. The French statesman Napoleon Bonaparte used to say that does not want geniuses in his cabinet, he only needs lucky people. I think Muhammadu Buhari is an unlucky man. His real name should be Badluck!
As the presidential candidate of the ADC, could you allow us a peep into your economic blueprint?
Our vision of a New Nigeria is anchored on the four interacting pillars of Peace, People, Power and Prosperity (the 4Ps). The first Pillar, Peace, is premised on the conviction that without security and harmony, nothing of worth can be achieved. But an enduring peace must go with justice and security. The second pillar, People, is about human capital, job-creation, skills, education, literacy, welfare and universal access to healthcare. The third pillar, Power, is about enhancing universal access to electricity for all. Linked to this development of our physical infrastructures, without which our economy cannot fulfil its potentials. The final pillar, Prosperity, is about economic development and structural transformation of the economy. We are committed to building a fully diversified world-class trillion dollar economy that will create massive jobs while enhancing welfare and prosperity for all. Unlike what obtains at present, we shall take bold steps to confront the demons of corruption. We shall integrate EFCC and ICPC and give them judicial powers to independently investigate, prosecute and jail. If you follow the normal court system you will get few convictions. When thieves and knaves know that the machinery of justice will swiftly catch up with them they will be less inclined to defraud the state and the people. What we are committed to implementing is a vision of a New Nigeria – a country that is prosperous, peaceful and just — that provides expanding economic opportunities for its millions of teeming youths. We are going to pursue an aggressive policy of mass electrification and infrastructure development. We are going to implement an agro-base mass industrial revolution that will generate over 20 million jobs. We will declare a full-scale war on insecurity. We will isolate, confront and defeat the enemies of our country. My name, Obadiah, in the Hebrew language of the Old Testament means “servant of the Most High”. And my family name, Mailafia, in Hausa means “the one who brings peace and well-being”. So I come as a servant of God and a servant of the good people of Nigeria; an apostle of peace. Servanthood and peace are my name! And this is what I humbly offer to the 200 million people of our dearly beloved country.