Prof. Akpan Ekpo, who is the Founder, Foundation for Economic Research and Training and a former Director General, West African Institute for Financial and Economic Management, in this interview speaks on the performance of the economy in 2019. He also speaks about his expectation in the new year. Obinna Chima brings the excerpts:
Review of 2019
In 2019, the economy did not do very well in my own perspective. But the data speaks to that. For example, up to the third quarter of 2019, the major macro indicators all moved the wrong direction. For example, the inflation rate is still double-digit at 11.8 per cent; unemployment and underemployment is about 43 per cent, and once you have those two that high, then there is a problem.
The rate of economic growth is about 2.1 per cent, granted that it is a sluggish growth, since we came out of recession in 2016. But, that rate of growth is less than the rate of growth of the population. So, if you combine all of those marked indicators and look at the lending rate which is still very high, then there is no way you can say the economy has done very well. It has been a dismal performance. If you look at the sectoral performance, agricultural sector seems to have done marginally okay, manufacturing has not done well because it is still less than 10 per cent of the Gross Domestic Product (GDP) and then services now contributes about 55 per cent to the GDP, which is misleading.
That is because in economic development, you move from primary development, such as mining and quarry, to industry and then to services. But the data we have today will make it appear as if we have arrived, but the services sector is still of low quality and rudimentary. So, we cannot say we have arrived. That is misleading because we can only industrialise through manufacturing. Then, if you look at the poverty incidence, it is still very high at about 70 per cent.
I calculated the Misery Index from 2006 to 2018, for each year. At 2018, the Misery Index stood at 84.5 per cent. I calculated the Economic Performance Index. In 2018, Nigeria scored about 62 per cent; you have to score 80 per cent to say you have performed better. So, if we are honest we will say we have not done well. The high rate of unemployment means that there is a lot of output lose.
We have not met our potential output. Then you now come to what we call social services, you look at education at all levels, it is still not the quality we expect to have as a country that is almost 60 years of Independence, and it is not improving, but declining. If you look at the health sector, it is a big problem. Those who have money go abroad and sometimes water supply is a problem. What about power? Research shows that if power increases by one per cent, it will stimulate GDP by 3.5 per cent. Power is still epileptic and no country develops depending on generator.
So, we are essentially running a generator driven economy. And so, 2019 has not being a good year. If we are honest, we have not done well at all. And then, you have this mass exodus of people going to Europe in search of better life and they die crossing the seas. And those who are well trained and skilled are going to North America to look for greener pastures. So, if you put all of that together, if you are honest, you will say the economy has not done well in 2019. Of course, there is always hope. But let me also make a clarification, people will say well, some people have made it, it is a very small number.
On Mass Exodus of Young Professionals
I agree the government should worry because, first, a lot of these young people were trained by resources within the country. Skilled manpower, engineers, nurses, doctors, you name them, they are all trooping out, and the government seems not to be concerned. These are the people you need to build the country. People who have studied chemistry, physics are all leaving. So it is an irony.
But with the diaspora commission trying to woo people to come back, if you have the right incentives here and everything is in place, they will come back on their own. So, the government should take it serious, and create incentives so that Nigerians who are trained can stay. They can do this by building infrastructure, reducing insecurity. These are some of the things people are concerned about. The economy is very insecure; by the time the economy is secured, people will stay if they can find jobs. Granted, the government may not be able to give everybody the job they want, but if the government invests massively in infrastructure to generate jobs, some may decide to stay back. Take for example, building a railway system, the jobs it creates.
All our roads are bad and I can tell you that it takes me five hours to drive from Calabar to Uyo, which has been part of the east-west contract for years. This used to be a one-hour journey. So, if you build infrastructure and you have power supply for even 15 hours, then people can plan. You see, the countries we are admiring they have power 24 hours, so the factories operate 24 hours, they create jobs, but here, that is not the case. And the irony is that we have what it takes to get this thing going. That is why for me, over the years I have come to realise that Nigeria’s greatest problem is a governance issue. So the government should build infrastructure, create incentives, create the enabling environment for companies to operate and let them pay above living wage.
The wage structure in Nigeria is terrible. The telecom, oil and gas and banks, pay high wages.
In fact, for the banks, to be honest, a lot of the staff are on contract, even oil companies. And the government should be concerned because these companies don’t want their workforce to benefit from the allowances. Some stay on contract for even 10 years, so I think the government should be concerned. You see, Nigerians will still travel out, but let it not be mass movement. People are quitting their jobs to go to North America and these countries are using our people to develop their economies.
In the past, even before we came to this world, during slavery, they use slaves to build the United States of America, now they are using our trained manpower, which we have trained here to sustain it, and develop countries like Canada. So, for me as an academic and as somebody who is involved in manpower development, I get worried when somebody is well trained and before you know, he or she is gone. Okay, they may come back but at what age are they coming back? Their best years have been given to the other countries and they come back when they are about to retire.
On Creating Incentives for Private Sector
I think what you are going to say is that if you create an environment where you stop multiple taxation, you have power and new businesses coming to play, they will create jobs. Also, we are under policed. You need more people in the police force, the military, civil defense, that is how the government create jobs in the time of crisis. What I meant about private sector was that the government should create incentives for new SMEs to emerge and they will employ people. This is because if you stifle them too much, they will not be interested in staying afloat. Now, some good things have come up recently in my view. I think the CBN, after a very long time is trying to curtail banks from putting all of their monies in treasury bills by forcing them to lend to real sector. I hope that works because that has been the complaint for a long time, that banks can put their money in government finance papers and make profit and not border about the real sector. That is because the major crisis now in my view is unemployment. It is a ticking time bomb and I am surprised that it hasn’t even exploded.
On Early Passage of the 2020 Budget
To be honest it is one of the major plus for this government. I think for the first time in 20 years, a budget has been passed on time. This means that from January they should start implementation; meaning that they will not be bug down with affairs that we used to have up till May. So, it is a major development. I think the president should be given kudos for that. Also, all the problems associated with lag should have disappeared. Now, the budget is still an estimate and there is a lot of revenue projection to fund the budget.
The government may decide to raise revenue from all sectors. I have no problem with that, but we should also know that our major source of revenue is the oil sector and oil revenue is not a secured source for obvious reasons. The global price of petrol and output are all determined out the control of government. So, it is an exogenous source of revenue which you should not depend on.
So, they want to raise resources domestically, that is fine, but my problem with that is that, when you are looking at revenue, you should also look at the other side of it, expenditure. The expenditure pattern has to be properly examined. First the cost of governance, I just think it is too high. So, if you want to keep revenue in that direction, you have to also look at expenditure. There are several ways to do it. One is either you cut some expenses or you do what we call expenditure switching. Otherwise, you will end up doing what they are doing now – borrowing. They are borrowing to pay for expenses which is wrong. But they need money to execute some projects, so where do you get the money from? So you have to now prioritise.
For me, there should be massive expenditure spending on infrastructure because it has a long time multiplier effect. Borrowing to pay for expenses is not right. They won’t tell you that, but that is what they are doing because they have already incurred the expenses and so they have to pay for it. So, they should explore other ways. For example, we were told they are issuing Sukuk bonds, it should be directed at infrastructure. Oil revenue is volatile, so it should be channeled to infrastructure development. Some years ago, precisely in the 90s, the then Minister of Finance, Anthony Ani, had suggested that we should have a budget without oil. If they had implemented that then, by now we would have been used to it. One day, oil will finish.
So, I give kudos to the government for the early passage of the budget. But like I said, it an estimate, they are looking for money to fund it and a lot is coming from borrowing and we need to know what the borrowing will be spent on. They said we have not met our benchmark for borrowing. That is a little bit misleading in the sense that we rebased our GDP and so the denominator is large than the numerator. So, if you have the space, but must you continue to borrow? And then GDP does not pay debt, revenue pays debt. So the debt to revenue, if you calculate it, it is in a terrible position. We are in trouble. I have done the calculation and our revenue can’t even pay our debt. The budget is a deficit budget. So, government must cut down on its expenditure. I have not said it is a balanced budget, but any deficit should be to finance infrastructure which has a long term multiplier effect. Power, road, dams, health and education, should also been given priority.
On proposed N30 Billion Borrowing
For me, they should be honest about what the money will be used for. They say they are in a fix; they have this budget running into trillions of naira in nominal terms. In real term, it will be lower and trillions is for servicing debt.
Where will the money come from? That is why they want to borrow. Are they borrowing actually for infrastructure or are they borrowing to pay for expenses? In situation like this, we are just servicing the debt, we have not even touched the principal. But if they borrow to improve power supply for 24 hours, we have good roads, good train system, then there won’t be problem with borrowing.
If not, they will have billed us in our graves.
I was looking at the issue of power, all agencies have made provision for diesel, for generator repairs, for generators in the 2020 budget. So, when do we want to solve the power problem? There are still areas they can cut and still spend money on infrastructure without borrowing money. Debt is like this, when you are borrowing the economy grows, after sometime when you get stuck you borrow again, you borrow again the economy does not grow any more. And more so, for a country that has once had debt forgiveness, I hope they don’t get back to debt trap. Let them be transparent, tell us what they are borrowing the money for. You see, we are running a very interesting democracy, where the same party controls the executive, and the National Assembly, so anything can pass. Let the government tell us, “we are borrowing $100, $5 is for rail, and $5 is for power, and so on.”
On Nigeria’s Rising Population
We need to control it, but not in a manner where it will have adverse implication. This is because population growth is an advantage if you grow your economy. When the economy is growing population is an advantage, but when the economy is not growing, you have many poor people, because research shows that the poor people have more children. So, if you reduce poverty, educate people to a level where the girl child will resist not having too many children. I am talking as someone who is exposed, but education is the only way of solving it. People say okay, if you are a Muslim you can have four wives, but if you are not a Muslim you can have 10. So, where do you draw the line? People who are generally educated, according to research have fewer children.
Then there will be fallouts, where the state government can now make provision for those fallouts. China and India virtually have more than the world population. China had that population law that stated that one child per family and later they made some adjustments. They wanted people to have male children because there were lots of female children. But China economy has grown because China’s strategy is different. You know they closed their borders for years and did selective engagement. When they opened up they just shocked the world. But it is a different system, they vote but not the way we do it. So within a reasonable time, they moved 300 million out of poverty.
That 300 million is a number that will protect the government. If you want to overthrow the government now, that 300 million will fight because they have been lifted out of poverty. That is what the government don’t know in Nigeria. If you lift Nigerian poor, if you say you want a third term they will give you. So, if you solve poverty, population will control itself automatically in the long term. So it is a heavy debate, people are scared because this generation have seen a lot of crisis, but it has to be looked at carefully. Babangida had said once that there should be four children per woman.
A lot of people came from polygamous homes and they try to avoid having too many children because of their experience. For example, my late father, I surprised we were only four but his generation, nobody had four. When I asked him, he said he came from a polygamous home where you only know your mother. And then cultural issue, a lot of people are having children but they will tell you they are looking for boys. But they forget that these days the girls who are educated are doing even better. So, everything is education. So, for me, to grow the economy, government should be involved in distributing the growth so we can have development.
On Call for Naira Devaluation
The exchange rate now is officially N306 to a dollar, but there are others which the CBN calls forex windows. But, if you look at the technical definition, we are operating a multiple exchange rate regime. So, is N306 to a dollar not realistic. Do we devalue? Now this is the argument, you devalue to make your goods cheaper so that you can export more and make more money. All we export is crude oil, we don’t control the price, we control the output. So what are you devaluing for? So, the naira is not a convertible currency, so you have to manage it.
How you manage is very important. It is tied to the oil revenue which again is dangerous. Our reserves is about $40 billion, but that is gross reserves. The net could be half of that because there are bills that have to be paid. So, theory is one thing and practice is another thing. When they even said we have reserve of import of six months, when oil price drops, everything will be in disarray. Some people are arguing that we should devalue or to depreciate, but I say let’s move towards a more market determined exchange rate regime.
For me, you can be flexible within the manage float, if you allow total market forces to determine the naira, it will completely go a-wire and you put pressure on the poor persons. So, inflation will go up and when prices rise, the poor suffers. And that is the danger of putting an economy or making an economy to be oil driven. Nigeria’s economic history is the oil story which is very dangerous. Not even a story of refined products, but we are still exporting crude oil at this time. So, they have to diversify the economy. We have been saying this for years. And for me it means moving away from oil dependency.
On Expectations for 2020?
If they begin to implement the budget in earnest and invest in infrastructure, by the middle of the year there will be some improvement in the economy. All the capital release is one thing, to monitor it whether it has been done is another thing. We are in the recovery part in terms of GDP growth, but that is not the answer. I will be happy if I see unemployment drop, the health sector making progress, education making progress, then we can say that we are making progress as a country not just in terms of data.