The Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, in this interview on Arise Television, a sister broadcast station of THISSAY newspapers, speaks on the five-year target that was unveiled by the Central Bank of Nigeria last week. He also stressed the need for the federal government to end the controversial fuel subsidy policy. Hamid Ayodeji brings the excerpts:
What is your assessment of the five-year policy plan unveiled by the CBN Governor, are they achievable?
The target he set are the overall economic target of the country. If you look at each of those things he mentioned – reducing the level of inflation to single digit, increasing the GDP growth rate to double digit, financial inclusion of 95 per cent by 2024 – those should be the basic policies of the government in terms of economic development. One of the key challenges is that the economy is growing at a very slow rate. There is macro economical instability because we have high interest rate and high inflation rate. So, the capacity to carry out some of these pronouncements would be highly dependent on the policies of the fiscal authorities. Right now, we do not have a Minister of Finance nor a clear vision of what the government economic policy is. With the best of intention the efforts of the CBN to achieve these goals would largely depend on the fiscal authorities. Let us say for instance, they said they were going to encourage mortgage lending and consumer lending, to encourage those a lot of things have to be put in place. The per capita earnings of average Nigerians is very low so they cannot afford to properly service a mortgage loan. So for CBN to encourage mortgage loans it has to work with the fiscal authorities at the state and federal level to bring down the cost of properties. In that case, you are talking of the government subsidising prices of land and properties so they are cheaper and an average employee can afford to service a mortgage. In addition, the CBN can introduce a finance initiative to mortgage banks so that they can lend at sub-optimal rates or below market rates. So it is not enough to say you want to encourage mortgage lending, you have to look at the possibility of someone actually paying back. Can an average employee who earns N30,000 take a loan of N5 million and payback? That is also not possible. We already have an institution like Nigerian Mortgage Refinancing Company; although unfortunately we are not seeing its effectiveness presently because it seems like there is a shift in government policy. For such an agency to be effective in supporting mortgages these factors I stated have to come in to place. For instance, the issue of consumer lending, a couple of things have to be put in place, such as card identity management, so the person who borrows in Kaduna and runs to Kano can still be tracked trapped. You also have to consider the cost of such lending because if you have a high interest rate it is impossible for you to borrow for consumption.
You mentioned that the government could subsidize land, which takes us to the comments by the Emir of Kano concerning subsidy and the effects it has on the Nigerian economy. He said the subsidy on petroleum products and electricity are making us bankrupt; what is your take on that?
What the former CBN governor was trying to say is that subsidising consumption is not the way to go. There is nothing wrong with subsidy as an item to encourage economic activities, it is what you subsidise. You do not subsidise what you do not produce because it leads to an abnormal behavior. For instance the subsidy on petroleum products, he mentioned that we are spending about N1.5 trillion in subsidising petroleum products, and during his time we earned $16 billion on export from crude oil, spent $8 billion on importing refined petroleum products and used $8.2 billion to subsidise those products. So, when you subsidise consumption, the tendency is that you would encourage corruption.
Let me take you back to the 95 per cent financial inclusion target you mentioned earlier which is part of the CBN’s plan. How do you think that can be achieved?
What I think the CBN is going to do is bring in a lot of alternative service delivery in terms of providing financial services to the unbanked. For example, when you talk of payment institutions that the Central Bank introduced recently, some of the payment institutions are like pharmacies or chemists in rural areas where through the payment platform the CBN would provide, an average person can receive payment on the mobile phone and go to a nearby chemist to get it cashed. So, we are not looking at a situation where the banks would expand, that is why he is going to leverage on technology and then introduce alternative paying system or partner with financial institutions or banks that are not financial institutions. Also looking at the telecommunications services, today we have more than 150 million active telecommunication lines. The implication is that through those telephone lines, those who are living in areas that do not have access to financial services can also enjoy financial services through their phones. They are also simplifying accounts opening process. You do not need to feel bulky documents to open an account. Presently, you can open accounts using your telephones as long as you have your BVN which can be accessed through your telephone number and because your phone is a unique identity instrument you can have financial transactions by using your phones. So basically the CBN is going to introduce multiple channels for financial services delivery so as to allow those who live in places that do not have physical access to financial institutions to enjoy financial services.
What do you think of the proposal by the CBN to provide improved seedlings to small holder farmers and also incentives in terms of access to credit across ten commodities, rice cassava, maize, cotton, poultry, livestock?
I feel the central bank should look for the appropriate government agencies to work with. Issue of providing improved seedlings should not be the duty of the CBN. What they should focus on is providing proper funding to rural farmers. The basic thing is how we provide funding which is what they are looking into; they want to support the rural farmers by providing credits. If you look back at providing seedlings you are going to be taking risks. We have a Ministry for Agriculture at the state levels, the ministry for agriculture should develop extension services in order to educate the rural farmers on the best seedlings and enabling them to access the best seedlings. So for CBN to be in charge of providing such seedlings I think that would be over bordering the responsibilities of the CBN.
What is your take on the NIRSAL MFB?
I have actually battled with the issue of NIRSAL MFBs, which are microfinance banks. We should try avoid creating such government institutions that end up not achieving anything and becoming a draining pipe to the national purse. It is a micro finance bank so it should have access to the rural areas. I have my concerns concerning the institution, in the first place we are trying to create another National Bank in the like of People’s Bank, and meanwhile there are existing alternative channels the CBN and federal government could have used to provide micro credit to the rural areas. We have micro finance banks that are supposed to be located within the vicinity of the micro and small scale entrepreneurs. They have direct access to these customers, so why don’t we set up a wholesale financial institutions that would on-lend to the microfinance finance bank who would now lend to the ultimate micro and small scale entrepreneurs.
Can you speak on the CBN governor’s reference on the role of the silo operators stabilising maize prices?
The silo’s that were set up by the government where eventually privatised. In terms of stabilising the maize price, the basic thing about the silo is that you are able to take products that have seasons in terms of their yields and put them in the locations where the flow of supply can be managed, in the sense that off season periods there would still be enough to meet the demands of the consumers. However, we are not providing enough maize for local consumption. Secondly, the silo’s are located in places that are too far from the point where the maize are produced. So, the possibility of moving the maize from where they are produced to the silos is very difficult. Even some of these maize farmers do not know where the silos are located. And the processes of storing in those silos are not properly structured. In as much as we have those silos they are not operationally effective presently.
What kind of investment and trade policies can be enforced to ensure that we encourage local manufacturing and local production?
The trade policy is the responsibility of the federal government, while the CBN is responsible for the monetary policy. But let us look at what sort of trade policies should the federal government come up with that would encourage export. We have to start from the foundation which is the baseline and that is only crude oil as at today. Our annual export of non-crude oil products presently is just $4 billion. So our export in terms of non-oil export is very low. Thus, the first thing is to look into how we can grow the value chain of what we produce locally so they meet the standards for exportation. When we are able to produce products that are being demanded for outside the country, and at the same time the cost of production of those products are competitive, that is when you can talk of having a trade policy that creates a barrier that does not inhibit improvement of quality and also a trade policy that would ensure your products are not too expensive because you have to use our exchange rate policies to manage the competiveness of our products in the foreign market.
What are your thoughts on the re capitalisation of the banks?
My take is that the central bank should not come up with a one side fit all capital requirement. The capital requirement the CBN should come up with should be risk-based. We have moved beyond a one side fit all capital requirement, thus risk-based capitalisation requirement is what we should be going for. If you look at what we have on ground today, we have four tiers of banks in Nigeria. We have the merchant banks that require capitalisation of N10 billion; we have the commercial banks that have N15 billion capital requirement and capital ratio of 10 per cent, and we have the national banks that require N25 billion and capital adequacy ratio of 10 per cent. In addition, we have the international banks, that is Nigerian banks that are operating outside the country, they require N100 billion capital requirement and 15 per cent capital adequacy ratio. Beyond all these we have what the CBN categories as the tier one banks which require capital adequacy ratio of 16 per cent which means the central bank has also redefined some level of capital requirement based on the risk taken. If you look at the shareholders of Nigerian banks the first six banks which are tier one banks. So, I think the CBN should come up with a guideline that requires banks to carry the capital that would meet their risk operations otherwise we would have a capital base that is not profitable to investors, because they would look at return on equity. I cannot put in money when the return on equity would decrease from the current fifteen percent to five percent.
Do you think the stock market is strong enough to absolve this recapitalisation or we are likely to see mergers and acquisitions?
If you look at the capital market, if you bring in instruments in the markets that have very good yield low risk, the market would mobilise funds for it, like what happened in the case of MTN. So, basically there must be value. Good instruments would attract investment anywhere in the world.
According to the proposal, the aim is to position Nigerian banks into the top five hundred bank. But according to reports, four Nigerian banks have already cracked the top five hundred, namely, First Bank, UBA and Zenith, since that has been achieved already what else will be the pimpact of bank recapitalisation?
What the CBN is looking at is to maintain financial services in terms of sustainability. What the CBN is trying to do is to find away to resolve any deficiency in the banks.