The Executive Vice Chairman, Alpha African Advisory and former Chief Executive Officer of the Asset Management Corporation of Nigeria, Mr. Mustafa Chike-Obi, in this interview, among other issues, speaks about the need for the federal government to implement policies that would leapfrog economic growth in the country. Obinna Chima presents the excerpts:
Do you think the list of 43 items not eligible for forex on the central bank’s window should be increased?
I believe the policy should apply to all imported items, because when you are allowing certain items to get preferential foreign exchange rate – between N305 and N360 to a dollar – you are basically intervening in the free market principle. Let the people who can use the foreign exchange, which is a scarce resource most efficiently use it. But the people who can use it at N360 to a dollar would obviously be the ones that are most efficient. So, the government should not interfere with market forces. If you want foreign exchange, go and get it. Government should make it available, but at a price that people can compete and not at a price that should be determined by the government. That is my view.
But in this case, have you taken into consideration the fears of Central Bank. They often talk about the need to protect items that are essential and that if you open them up to competition at the parallel market rate it would lead to an increase in the price of those items?
Everyone is pricing their goods at N360 to a dollar. So, if you get a preferential rate, it simply means you are making more money. What you see in the market is N360 to a dollar, so if you are getting it for N350 to a dollar, you are making profit. So, if for example, I get forex at N305 to a dollar and I am pricing my goods at N360 to a dollar, then I am getting an arbitrage. Even though I am not doing round tripping in your face, but I am selling the N305 at N360 to a dollar, in the end through my goods and that is unfair. Now, If you determine that there is a critical area of the economy that needs help, let them buy at N360; when it has come at an unexpected rate and has been deployed in a national interest, you can then give them back the tax credit and rebate.
That way, you acquire more tax efficiency which is what I have been saying about subsidy. If we do fuel subsidy on an income-tested basis, everyone then goes to buy fuel at the market rate of N350, at the end of the year or at the end of every quarter, you file a form claiming your income level and then you get back 30 per cent of your subsidy. So, the subsidy can then go to the people who are poor and you also bring more people into the tax net because they have to file a form to get the money. But that way you direct it where it is needed, and as people are migrating from earning zero, for example, students, and as they keep earning more and more, subsidy for them would reduce as they become wealthier.
This way you can use subsidy for what it is meant for. But, currently the way subsidy works, a man living in Ikoyi with ten SUVs is getting far more subsidy than a poor person and there is no reason why a man with ten SUVs deserves fuel subsidy. The same applies to power. The man who is living in Ikoyi with an air conditioner in every room is getting power at the same price as the man at Mushin who can barely power his fan. So, electricity subsidy is fine, but charge the tariff such that and the people in Mushin can file a form indicating they live in one-bedroom house. And people like me who have air conditioners in every room of their houses do not get subsidy.
There is this comment around the need to allow the different forex rates converge. What is your take on that?
It should be one rate that is market-determined. If it gets excessive, the CBN can step in to manage it. What I have been saying for years is that CBN should allow the currency to adjust by one per cent a month every month. With that, you can sit here now and you would know where it would be in the next 12 months, which allows you to plan. That is because human beings are rational and at some point it would get too cheap, so people would start buying the naira and it would find its level. The idea is very simple, Radisson Blu, here in Victoria Island, there is an identity room in Kenya, everything is the same. But the room here costs about $300 per night; but the room over there cost about $150 per night, with same facilities, because their currency is strong.
So, if a white man wants to go on vacation and he looks at the hotel room, he can stay here for $300, but when he changes it, he is getting few naira, but if he goes to Kigali and stay in the same room for one $150, where do you think he would go? When I went to South Africa, the most striking thing to me was how cheap food is over there. You can go to the best restaurant there and eat anything you want. They allowed their currency to weaken.
So, when you change your dollars into South African Rand, you get more, their hotel rooms are cheaper and better than what we have here. So, as a tourist that wants to do business, it is cheaper for me to go as a foreigner to South Africa. Thus, we need to be honest with ourselves that we are going nowhere. So, this Economic Advisory Council that he has been constituted, the best thing about it is that the federal government has admitted that there is a problem. But how the council would work is something I am not clear about.
Let us assume that the team is the best team that can be put together and then they get together and say let interest rate be at 10 per cent and they all agree on this, and then meet the President to inform him about it and they give him the recommendation. What I think the president would do is to consult the CBN Governor telling him about the report that has been presented to him. The CBN Governor would receive it but he cannot say it is a great idea because if he does, people would ask him why he had not done it before. The CBN Governor who wants to do the best for the country would receive the report and highlight the advantages and disadvantages of the recommendations. He might tell the president that the currency would fall, inflation would triple and other negatives, and would send it back to the president.
If the president gets the feedback and then says I still think we should do it. By now, we are now six months into this in this scenario I am creating. So, if I am the CBN governor I would say; since you think the good outweighs the bad, we would do it but we should not do it immediately, because if we go from fourteen to ten it would lead to higher inflation. We should transition into it for a year, that is, it should take a year before we go from 14 per cent to 10 per cent, but remember we told you these bad things would start happening. So, if at the next Monetary Policy Committee meeting, they reduce it from 14 per cent to 12 per cent and the currency goes to N420 to a dollar and inflation jumps. He would then say to the president, I told you and that could lead to the end of the Economic Advisory Council. So, I do not see how it would translate.
If the perfect economic team comes up with the perfect economic plan and it is executed perfectly by the Ministry of Finance, it would take at least three years for it to show because development takes a period of time. So, if you do everything correctly today, you are most likely not going to see the impact immediately. Sadly, Nigerians do not have patience. Let us take a look at another example; if subsidy is removed people would complain. The benefit of that in terms of fiscal improvement is that we use it for two years and then people would keep quiet. What we need is a president that has an economic vision and is willing to stick to it. I always ask them, what the economic vision is, but they have never been able to specifically tell me. For example, the president would say he wants to lift 100 million out of poverty in ten years, but the most important factor is how he intends achieving it.
Therefore, the leaders should to start showing more sacrifice to us because the country is in a bad shape. We all feel it in our daily lives. If your income has not dropped, then the income of the people around you has and they are asking you for money. We are all feeling the worsened economic circumstances and the longer it takes for us to tackle it, the harder it would be.
There is this proposal to raise Value added Tax (VAT) at this point in time, is it something you are in support of?
VAT is easy to collect and very regressive, so I do not think that is the way I would have done it. The best thing the government can do to raise revenue is to raise the two things that concern us – Gross Domestic Product (GDP) growth and productivity. Our productivity capacity is very low at $4 per hour per worker and I think there are countries that are up to $8 per hour per worker. We must aim to raise our productivity per worker to about $15 to $20 and there are ways to do that. Also, we must grow our GDP by double-digits. If we do those two things, government revenue would improve. Chasing same people up and down to pay taxes is not going to work; people only pay tax from what they earn. Look, if a worker earns $4 per hour based on productivity, you cannot pay him more than $2 per hour, which is a lot in Nigeria.
If his productivity goes up to $12 an hour, you can pay him ten. So, we have federal government workers whose productivity is less than N30,000 a month and the government cannot even pay. His productivity needs to be increased and the ways to do that is by giving him better office space, better transportation, so he can get to work on time, you give him computers at work, train him better, streamline your civil service and make sure that the 90 per cent of the stuff you do in government is digital, so you do not have to see anybody.
There is no reason why your licenses should not be done online; so you train your civil service make it more efficient. So, when each person is producing one N100,000 a month in productivity, then you can pay them N60,000 and tax them. There is no reason for there to be physical files anymore; the Minister should be able to go on his phone where ever he is, to read documents for approvals and approve it on his phone. Thus, I maintain that we have to deal with productivity and GDP growth, if we can fix those two things Nigeria would become the next United Arab Emirates. Even our judges write their judgment by hand. If I was in judiciary what I would do is dictate their judgment and then it would be transcribed by a legal transcriber can be printed.
Recently, the federal directed that all land borders should be closed, do you think it is the way to go?
No, the thing about closing the border is that things like that have an immediate impact that appear beneficial, but you have to wait until after a year to see what happens. I can guarantee you that those borders would not be closed in a year time because the impact would be devastating. It is one of those things that when you do it, it appears to have worked. Sanwo-Olu made the toll on the Lekki Bridge free for certain hours. Studies have shown that such initiatives do not work and I said in about a month that he would re-institute it. People would adjust to the timeline and go when it is free. So closing the border would not work, especially when we are a member of ECOWAS and the introduction of the AfCFTA.
But China once had a closed economy and it worked for them so why would it not work for us?
China did so many things we cannot do. One of them is one- couple-one-child policy; secondly they kept their currency weak for two decades, they sacrificed for 10 to 15 years before they could get to where they are. Are we willing to do these things? I agree with you that there is no single solution to Nigeria’s economic challenges but the solution has to have a vision and subordinate everything in that vision. What I am expecting from President Buhari or Atiku if he prevails, is that vision, including the personal interest of the country as a whole. And the vision is to make Nigeria an economic power house.