Lemo: Policy Reversals Hurt Economic Growth

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The Chairman of the Federal Roads Maintenance Agency and a former Deputy Governor of the Central Bank of Nigeria, Mr. Tunde Lemo, in this interview, expresses optimism that the country will achieve higher Gross Domestic Product figures by next year. He also supports the decision by the federal government to close all the country’s land borders, saying it is going to stimulate domestic production. In addition, Lemo provides insights into a new initiative his Foundation recently unveiled. Obinna Chima and Nume Ekeghe bring the excepts:

As the chairman of the Federal Roads Maintenance Agency (FERMA), are you comfortable with the state of roads in Nigeria today?
Definitely, nobody would be happy with the state of roads in Nigeria today because many of them, unfortunately, are not motorable. Some of them have failed over time. Then, of course, because of global warming whereby many of the hinterland that hitherto were not experiencing rainfall, now you see that the entire middle belt and even the savannah region are being impacted by heavy rainfall. And these have impact on the state of the roads. Bitumen and water are enemies and because of the and rising water level, we now have large number of Nigerian roads that are bad.

However, we need to also need to point out that every time you drive on a bad road, people think it is the responsibility of the federal government, but out of the entire road network we have in the country, the federal government accounts for only 20 per cent. Unfortunately, these are the roads that carry 80 per cent of the load factor and that is why there is so much pressure on federal roads. But, we are quite aware and the federal government is doing something good about it.

Thank God, the budget for 2020 has been passed in good time and I can assure you that the Minister of Works has briefed the Council about the state of the roads and of course, so much has been voted for that. Also, prior to the approval of the 2020 budget, the government made emergency interventions when Christmas was approaching and today those roads are not as bad as they were a month or two ago. This was because there was an emergency action to quickly intervene particularly those spots that are really very bad, like some that are near collapse and so on. That was just a palliative measure, but there is so much that has been allocated for road maintenance and road rehabilitation in the 2020 budget.

But with the funding challenge the government is faced with, do you think enough resources would be available to maintain many of the roads that are presently in bad state?

You are expecting me to bring a crystal ball and tell you that there would be enough revenue next year. But we are all very hopeful that there would be enough revenue next year. The government has taken certain critical steps that would ensure the revenue performance next year would be much better than this year. And one of those critical steps, of course, is the proposed increase in Value Added Tax (VAT), from five per cent, 7.5 per cent. That is going to generate more revenue for the government.

Tax administration is also going to be more efficient because if we get more Nigerians in the tax net, we would get more revenue. Besides that, we have been lucky that the oil prices have not really plummeted to a level that we would become worrisome. And we are hopeful that it would continue in the foreseeable future. In the first few months of next year, we would have winter and you know that during winter the price of crude ordinarily should go up because energy consumption appears to be high during that period. So, we expect revenue performance to improve over last year’s performance. Also, the government is very poised to ensure that no matter how much we have, one of the priorities would be to ensure that our roads are motorable.

Is FERMA carrying out any form of orientation on road maintenance to ensure that when these roads are fixed they are not destoyed?
We are working with agencies that are in partnership with us like the Federal Road Safety Commission (FRSC). FERMA runs a program regularly on the television to appeal to the public that Nigerian roads are critical public assets and they must be protected by all. And when you vandalise these roads, you are destroying national assets and that bounces back on us. And of course, irresponsible driving and so on, also affects the lifespan of our roads. The FRSC has done so much in carrying out advocacy and much more would be done next year. One of the things we also intend to do is to partner with so many states so we can have parks for all trailers, instead of the trailers obstructing the super high ways.

I believe we should be able to do something better. Besides that, Nigerian roads were also not designed for extremely heavy trucks. They were designed for a maximum of 30 to 35 metric tons. But you see some of our trailers today weigh much more than that. So one of the things we plan to do is to bring back the way bridges so that we would prevent those vehicles from some places. And when they do, we would charge them so that they can also contribute to the maintenance cost. But this is a short term measure, the plan really is that once the rail lines are operating, for instance, the Lagos to Kano rail line and then the south-east down to the north corridor, we would not allow extremely heavy vehicles to ply those roads.

Again, we are encouraging the construction of roads not with asphalt, but with concrete, because concrete roads last longer. And we are very glad that the federal government has signed agreements with some key private sector operators that would see them use such initiative in doing some of the roads with the aim of recovering through monies spent through taxes. The Dangote Group is doing that from Apapa, all the way to the former toll gate in Lagos. And because that road carries a lot of heavy trucks from the port, it is not going to be asphalted, but made with concrete. And with that, we would definitely be able to carry heavy trucks and then the roads would last much longer. So you see that from various areas we are trying to address road maintenance and by the special grace of God, there would be positive development going forward.

Can you give us an update of the roads tied to Sukuk bonds?
I don’t have the details. The details are with the Ministry of Works. The relationship between FERMA and the Ministry of Works is that we are actually more into road maintenance, but construction is the responsibility of the Federal Ministry of Works. But I know that the Sukuk has been very helpful in constructing some of the federal roads but those details are with the Federal Ministry of Works.

What is your assessment of the performance of the economy in the outgoing year?

In 2019, luckily the Gross Domestic Product (GDP) end the year slightly above two per cent, which is really not bad, considering all the headwinds that we are facing. Headwinds in the sense that budget performance was not very good. As at the first half of the year, the Minister of Finance told us that our performance was just below 60 per cent. We are yet to have the number for the second half of the year, but I believe there would be some slight improvement. But that affected the rate at which the economy would grow. But we are very hopeful that in the coming year, we should be able to have a GDP growth that is above population growth.

The population is growing above three per cent and any GDP that is below that rate means that on per capita basis we are getting worse. And then, of course, that is being addressed by the government to ensure that those key growth areas are attended too. One of those key areas that would make that happen of course is the border closure. On the border closure, I want to appeal to Nigerians that there would be temporary discomfort, but overall it is going to be in our interest.

That is because you are going to witness upsurge in the performance of the manufacturing sector particularly those in agricultural production. We simply cannot continue under our old regime where most of our companies were barely working because we allowed just anything come into our country. We are not saying that people cannot import legitimately, but our land borders have been very porous because of the activities of smugglers. This affected the food, textile and so many other industries. And since the borders have been closed, you can imagine the capacity utilisation that has increased in most of those sectors.

And so, we commend the Central Bank of Nigeria (CBN) and the government for that and we should not bow to political pressure. Yes, there would be short-term spike in inflation, but it would taper off as we continue. Every country, everywhere in the world protects its own. You heard Trump talking about America first and he is just being honest, while others are pretending. You don’t love your neighbor more than yourself, but at best, you love your neighbor as yourself. I believe that there would be increase in productivity in most of those sectors next year and we would begin to reap the benefits from it by the second half of next year. I am very upbeat about the economy from next year. So, with all things being equal, we should have growth numbers that would exceed 2.5 per cent next year.

Beyond the border closure, what other policies should the government implement to stimulate economic growth?

First and foremost, we should not have policy reversals. What has really hurt consistent economic growth in Nigeria is that we take one step forward and then three steps backward. Today, you look at industries like those who make vegetable oil, rice millers and so on; investments are being made now on the basis of government policies. And when you make such investments like acquiring plants and machineries and after six months there is a reversal, it would mean investments in those sectors would be lost.

That means government should be consistent with policies year after year. We should also ensure that we attract foreign direct investment. That is what makes an economy to grow. I see the present managers of our economy emphasising more of portfolio inflows. But we must always remember that portfolio funds are hot money. They bring in the money into fixed income securities. At best, it can help boost the capital market, but it flies back suddenly. So, we should tweak the policy a little bit and ensure that what we really have are foreign direct investments (FDI) not foreign portfolio inflows. With that, we would be able to also grow the economy.

I also believe that at some point, we must deal with subsidy. It is a very emotive, and a lot of the time we want to be politically correct. We should try and make so much investment in social infrastructure that would help the common man. I am glad that from the first quarter of 2021, the Dangote Refinery would be up and running and we would be able to save a lot of foreign exchange from importation. And as soon as that happens, we should really step back a bit on subsidy and then use the money that we save there directly to impact the lives of the common man.

That way, we would be able to mobilise and free up resources that are tied up in the downstream oil sector and you would see more investment coming in automatically. The reason we are not getting more investment in the oil sector today is that the economics would not add up today. There is no private sector investment in the downstream because the pricing is not economically viable.

So what sector do you anticipate to be the growth drivers next year?
The real sector, manufacturing sector and agricultural sector actually have been outperforming the oil sector in terms of growth in the last two to three years. I believe those are the sectors that would drive growth next year.

There has been prediction of possible naira devaluation next year, which the central bank has said is false. Do you think we should devalue the naira at this point in time?
I would always defer to the CBN because as I sit here, there are information that they are privy too which I’m not privy too. I left the CBN almost six years ago. So, there must be good reasons they would not want a devaluation of the naira. For me, what really matter is not whether or not there is depreciation, but what matters to me is how do we achieve macroeconomic stability that would power the critical sectors of our economy? How do we raise productivity for worker as supposed to making so much noise about minimum wage? We dissipate so much energy on nothing.

For me, what we should try and achieve is how to free up resources to ensure that an average Nigerian worker is twice or three times more productive. There was research done by McKinsey where it was found out that comparing us to our comparators in Africa and among the south-east Asian economies, we were extremely less productive than those other economies. Let us ensure that whatever is making a Nigerian worker not to be very productive is addressed. For instance, vocational skills are needed. We emphasis so much on paper qualification in Nigeria and how do we get workers to have sufficient technical skills to raise their productivity.

And how do we remove that structural rigidity and those structural factors that do not ensure that the Nigerian workers are not productive, that is social infrastructure. Once we do that and they become more productive, naturally minimum wage would become an easy thing to do. But you would be putting heavy burden on economic agents if the workforce that they use are less productive and you are forcing higher nominal salaries on them. If this economy is well structured, depreciation of the currency should be a welcome idea. People should clap when a currency is being depreciated.

China closed its borders for so many years and when they were prepared, they adopted a deliberate policy of making their currency cheap and that meant their exports became very cheap. With that, they grew rapidly and at some point at double-digits. Their growth has slowed down a bit but they still managed to achieve about seven per cent which is very superlative.

But in Nigeria, we become very touchy about depreciation all because we are import focused. If we are export focused, this should make us embrace the depreciation of currency; because it will make us more competitive. And so that narrative should change. It should be how do we get Nigerians to be more productive and then we would be able to take advantage of a weaker naira. I prefer a weaker naira personally so that we can boost export and then increase our productivity and then we can sell more and then increase our capacity.

Can you take us through the helping hands initiative you just unveiled, what is all about and what do you intend to achieve with it?

If you look at Nigeria, you would want to weep for this country because with 200 million population, and a large proportion of its being young people who are well educated, strong and vibrant we should actually be the productive base, not just for Europe but for the entire world. An example of this is if you go to Bangladesh, a country that is not as populated as Nigeria, but a developing economy in north Asia just after India, they have become the garment industry for the whole world. The textile and garment sector accounts for about 20 per cent of their GDP hiring 20 million persons.

That has powered their economy so far. Just imagine walking in any city in Europe, most of the products you see are either made in China or Bangladesh. You begin to imagine that Africa is shorter and Nigeria is actually half the distance so how come we cannot do the same thing. And the major reason apart from infrastructure that made all our textile companies fold up is lack of skills.

Nigerians are well educated, if you want to produce professors you would find them in thousands as well as people with a masters’ degree because we emphasise too much on paper qualification. And that is why we have so many unemployed graduates and non-graduates. The qualifications our youths carry are not aligned with the national manpower requirement. So my Foundation believes that there should be a quicker way to take these youths off the streets, up to 37 million youths who are unemployed. That is the population of Canada and so the alarm bell should ring that we must do something otherwise there is a problem. The structure of our population should actually be an advantage, but it is now becoming a disadvantage because these youths are becoming very restive as they have nothing to do.

So, the Lend a Helping Hand Initiative is from the Tunde Lemo Foundation and we are weaving it around the principal’s birthday as I turn 60 soon. It was decided that we can use the opportunity to invite friends so that we can call attention to this need and lend a helping hand for these young people to vocational skills. When I was young, we had technical schools all over, now they have closed down. If you ask around today, anyone doing a world-class building, the masons, bricklayers, etc are imported from Ghana or Togo. These are countries of 10 to 15 million people and we are a country of 200 million people and our youths are doing nothing. So, why can’t we then quickly ratchet up activities that would put skills in them so that they are more productive in the construction industry, agriculture and in the manufacturing sector? That way when you take them off the streets, crime rates go down and you raise the GDP and the economy benefits.

How do you intend to fund it?
We have identified credible vocational institutions and it would take about N250,000 to train one youth. So, we have a very modest budget of impacting 100 youths every year from 2020 to 2024. That adds up to 500 youths and if we spend up to N250,000 each, it means we have a budget of N125 million. My family would put down 25 percent of that and that is N5 million, on an annual basis. So we are looking for who would put down the balance of 75 per cent. So we are asking for support from partners to help mobilise N100 million because we would top it up with the N25 million we have.

But beyond that, we are using that forum to let Nigerians know that we must begin to do something about it. We would love to have this kind of initiative in 100 different locations in Nigeria. As I’m doing mine in Lagos, others can do theirs around other places in Lagos and then if you have more people across Nigeria doing same thing, within the next five years, we would be able to impact the lives of Nigerian youths.

The CBN through its development finance initiative has been aggressive, especially in the textile and agric sector through its Anchor Borrowers’ Programme, what is your take on that?
I think we need to commend the CBN for this initiative. Let me take Anchor Borrowers’ Programme, it is in the interest of the CBN for us to have very low inflation. And when you look at the structure of the Nigerian economy, agric is still a huge sector. So when the central bank intervenes directly in boosting production for agriculture, apart from the fact that there would be significant savings in foreign exchange in the future because all the raw materials we bring in would not be needed and there would be food security. But, the most important thing the CBN gets from there is that it is going to ensure that food inflation goes down and the inflation rate is contained. That helps policy-making and monetary policy and for me, this is very good and it is a quick way in which the lives of Nigerians generally can be impacted.

Look at the case of rice, it is a shame that we import rice from Thailand because these are rice that has stored up for a long time. I haven’t eaten imported rice for almost 10 years because the nutrition value is less than ours and yet we are killing local producers and providing jobs and value elsewhere. If you look at the textile, in the 80s when we came into banking, there were almost 200 textile companies in Nigeria largely owned by Indians and Chinese. But today, those companies have closed down. Just imagine the number of people who have been out of jobs. If those companies were around, they would produce for Nigeria and the rest of the world, we would not have kind of situation where we are today. So, that is also a masterstroke and I believe with that, we would begin to see the impact in the next two to three years.