A member of the Economic Advisory Council and Chief Executive Officer of the Financial Derivatives Company Limited, Mr. Bismarck Rewane, in this interview on ‘The Morning Show’ on Arise Television, a THISDAY broadcast station, sheds more light on the controversy surrounding the Eco Currency. Hamid Ayodeji provides the excerpts:
What is your take on Nigeria’s position on the Eco currency?
First of all, the way i see it is that the things outside our control are more than the things within our control. The global economic momentum, oil market, non-oil markets are driving economic decisions within economic domestic decisions. Therefore, you have to be strategic and tactical in your response. The Eco is taking over from the CFA Franc. The CFA started in 1945 and remains between the French treasury and the French- speaking African countries. So what happened? The arrangement was that French-speaking countries leave 50 per cent of their reserve in the French treasury and the French government guarantees a certain parity between the French franc at that time and the CFA franc.
When the French joined the European Union (Custom Union) and the single currency, the French guaranteed parity between the CFA franc, in other words, guaranteed convertibility based on the French economy. Now, don’t forget that there were two types of colonial masters. There was a British colonial master which practiced indirect rule and the French system which practice assimilation. Nkrumah wrote a book called, ‘Neo-colonialism: The Last Stage of Imperialism.’ The time between the Custom Union and a single currency even in Europe took about 15 years. Between the Maastricht treaty Customs Union and then the Euro as a single currency, there were regional convergence criteria and it comes with many risks. Now, look, if you are in turbulence in an aircraft and they say if the oxygen mask drops, you first put it on your nose before you put on your child’s nose. But if you put it on the child’s nose and the child cannot help you, then both you and the child may go down if there is a crisis. Now, Nigeria is 66 per cent of the ECOWAS region, Nigeria is the biggest and largest economy in terms of population, size and all in Africa, Nigeria in my own judgement is not yet ready for currency convertibility at this stage.
Currency convertibility has two stages – current account convertibility and capital account convertibility. So, you find that advance emerging countries like India are going towards current account convertibility. But if you are going into this arrangement, you will have both current account and capital account convertibility. The terms trade of Nigeria has deteriorated over the years. In other words, our exports have not been rising as fast as our imports. So, there are external sectors vulnerabilities. If we throw into this, the fact that we have to carry the baggage of all of these countries, then there is a problem. But, what has happened presently is that there is a change of name from the CFA to Eco. But the French said, you will no longer have to deposit 50 per cent of your reserve with us, which to me is a trap. That means that at any point in time, the French can say you are on your own.
I will like you to duel more on the politics of this arrangement. Don’t you think Nigeria’s decision to close its borders is also a factor?
I am not too sure. I think we are over estimating the impact of the border closure. It is a tactical response to with a strategic motive. In other words, Nigeria has to decide what role it wants to play in Africa. Nigeria stands to benefit more in regional integration. There is regional integration and there is a currency and Custom union issue. Regional integration means that you are an efficient manager of your own economy and you are going to carry that across to your neighbours. For example, if Aliko Dangote’s refinery is completed today, it will not be serving Nigeria only, it will be serving the whole of West Africa. We need a lot of infrastructure, pipelines to carry these things across to those places. So, Nigeria is the one that stands to benefit more from the economies of scale and regional integration. What the French has actually done is to say okay, if you still want to benefit from the regional integration then come and put your money where your mouth is, start taking responsibility for it. But if you don’t have that capacity to take responsibility, then come down.
Since the CFA has been changed to Eco, what does that mean to the naira, the CBN?
The value of the currency is either aligned or misaligned with its true value. There are two things about a currency you must understand. Firstly, it is a medium of exchange. It doesn’t matter when they say the naira will exchange for whatever value the market thinks it is. There is also what is called the store of value. The store of value has to do with where do I keep my money in January, so that by December, it would not have lost much value. In the French-speaking countries, the average inflation rate is between one and two per cent, because it is guaranteed. Our rate of inflation is about 12 per cent, Ghana’s rate of inflation is about eight per cent. Now, where will you store your money? Where the rate of inflation is maximum one per cent or where the rate of inflation 12 per cent? The store of value will decide.
So they will do transactions with Nigeria, but they will not store their money in Nigeria because of the rate of inflation or with Ghana. So, we are disadvantaged. However, from a long-term of micro-economic perspective, political independence is not the same thing as economic impendence. At one point in time these French countries will have to bite the bullet. Not now, maybe in the near term, but in biting the bullet these people are trying to put us at a strategic disadvantage. Another thing is on the border closure. You cannot have that border closed indefinitely. In any case, even if you put Customs officers in every kilometer, you will have to have the entire customs, because there are about 1800 kilometers of borders. So, this is a short term measure for it and the president alluded to it in a statement, that once the safe guards are there and the assurances are there, we would reopen the borders.
There has been so much talk around what is called the convergence criteria and we are told that only Togo has been able to meet that convergence criteria, what is your take on that?
You have to be careful before you jump into these things. The size of the Togolese economy is $63 million. Togolese economy is not bigger than the Festac economy. Lagos State is about 10 times the size of the Togolese economy. So, when you talk about economies, currencies and inflation, what does it take to manage Togo? It is not that much especially when you have the backing of the French. Togo is made up of two things to me – Ecobank headquarters and Asky airline that has its headquarters there. Apart from that, nothing else happens in Lome. I want to go back to the fact about what happens to the naira. The naira remains a stable currency, the naira serves the purpose of trading domestically and internationally for Nigeria. The naira is subject to so many vulnerabilities because of OPEC, gas, oil, and all that. But for now, the strategic objective is to manage it, for it to be predictable and stable. A point will come when we will have to look at it. Just like India, South Africa and all that, how do we intend to position our currency as a tool for competitiveness? I don’t think we should be stampeded into making precipitated decisions about the economy, the currency, regional integration and our role as a giant of Africa.
Another issue that has been raised is the foreign reserves that will anchor the currency. There is a lot of conversation that has been going on around that, what do you have to say about that?
Again, I keep on saying that when the oxygen mask drops in turbulence, you cover your nose before you assist the next person. So of what use it is to us at this point in time to protect Benin, Togo, Burkina Faso and all that? We have strategic relationship, for example the River Niger starts from the Futa Jalon and run through two other countries. If we don’t provide power to those countries and they dam the River Niger, then that is the end Kanji Dam.
So, there are loads of things. But then, it brings up the question about how do you want to manage your economy efficiently first, then how do you want to benefit from economies of scale and regional integration? So, for now Nigeria is the biggest economy, Nigeria is the main beneficiary of a regional integration when the time is right, Nigeria has the strongest currency as it were in West Africa, but now, Nigeria has to concentrate more on how to manage its own economy much more efficiently. This is because you are only as good as your economy and as your economic strength is.
So, Nigeria should focus on its own economic interest. You can only be a champion of people if you can do things for them. In the past, we took a position in Liberia and Sierra Leone when they had military issues and we put ECOMOG. But that time we had the resources, we had enough oxygen so we could give the oxygen to the other people. Now, we can’t afford that, we first of all have to take care of our own interest first, like Donald Trump said, we have to make Nigeria great again. We have to make Nigeria reliable, we have to make it strong, we have to make as efficient as we can. But don’t forget that we are the beneficiaries of regional integration. We have Arik Air, Air Peace and others and you can, you can see what Africa World Airline is doing. It has dominated the Lagos-Accra route. Now, so many of those things are happening. Nigerian banks are all over. When you look at the banks with African footprints and Africa strategic intent, there is Ecobank Transnational Incorporated, which is essentially a Nigerian bank, headquartered in Lome, there is Standard Bank of South Africa, which is Stanbic and then there is United Bank of Africa and now Access Bank Plc is expanding. So, when you talk about African footprint and those who will benefit, look at Dangote, he is in about 12 African countries. The reality is that we have to now become extremely strategic. There is what is called economic diplomacy and engagement where we now say this is what we want. For instance, how we handled the South Africa xenophobia issue was good. They have corporates here such as MTN, Shoprite and other companies. We needed some entry into their own market, so that we can get things done under African continental free trade. So, South Africa has South Africa Airways flies in here, we don’t have an airline flying into that country. So, we have to start making ourselves competitive. We have to incentivise investors to come into our country. We have to help our own African and Nigerian companies to invest in these other African countries and get the benefit of it.
They tell us all the time that Africa is the centre piece of Nigeria’s foreign policy process and we got to a point in our diplomacy in the continent that our domestic policy was almost subordinated to foreign policy. Nigeria was busy doing across West Africa what it was not doing for Africa and Africa what it was not doing for its people at home. Do you see a shift? And if you see a shift is it a good thing and is it sustainable in the long run?
I see a shift in that charity begins at home, you don’t dress from outside to come in, you dress from home to go outside. So let’s get that clear. If your house is in disarray then you can do all you want to do outside, nobody is going to respect you, so you start from home. If your rate of inflation is 12 per cent and your rate of interest and your treasury bills is as low as four per cent, people will now look at the store of value. There would be foreign portfolio investor who will come in for short-term gains, but the long-term strategic direction of the economy – savings mobilisation, output expansion, growth, employment – those things would be driven by how efficient you are in managing your economy. If you don’t do that, becoming diplomatic is of no use. So, we have to show evidence that we can manage our affairs efficiently.
I strongly believe that a lot of people still don’t have a very clear understanding of what this currency is going to do for Nigeria especially for millennials. What will this do, in terms of, for example, minimum wage, ease of doing business, pension, how would this shift affect it and where will the headquarters of the central bank likely be?
First of all, it is a French-speaking thing to start with, so probably they will have it in Abidjan. The African Development Bank is already headquartered in Abidjan, so they will have it there. Abidjan wants to become the financial hub of West Africa. And for your information, Abidjan is not the capital of Ivory Coast, the capital is Yamoussoukro. Abidjan is the financial capital of Ivory Coast, the headquarters of the African Development Bank. Because the Ivoirians at the beginning said we will not vie for the presidency of the AfDB, we will want the AfDB located in our country. So the point you are making about millennials and everybody in this country, it comes back to the same thing that, the store of value argument is driven by how efficient your economy is managed and your level of optimism of investors. Investors are the people that drive these whole thing. We are making emotional decisions about currency values. But economics is about rational decisions, you have rational mind and you have the emotional mind. Emotional mind is for Romeo and Juliet love stories and the rational mind is about N3 is more than N2, it is about the economic agent. But there is a point where both can interact. The millennials are more rational than emotional, that is why they don’t stay on one job for more than 2 year or 3 years before they move, they are restless, so it is a different world.
How optimistic are you that the state government’s will end up paying the new minimum wage early enough because that is major problem?
The states will and I will tell you why. The new VAT law is now 7.5 per cent and 85 per cent of that revenue will go to the states and 15 per cent to the federal government. Two, there is the rate of exchange between the state government, the federal government and central bank and there are some internal adjustments that will take place in that respect, which will give the states and the federal government additional revenue from that. Generally speaking, the impact, when you take the total amount of salary increase both at the federal and the state level, as a percentage of total money supplied the impact is not going to be that much. What is more important is that we are increasing salaries and productivity is not increasing, so output is an issue. So what are the output constraints? The output constraints are things like the infrastructure bottlenecks, things like rail, road, power and all that. Those investments are now being commissioned and some have commenced, but there is a time lag between when those projects will take off and the impact. The most important thing is how do we incentivise everybody to invest? To incentivise Nigerians to invest as well as international investors to take a positive look at this economy, you need to start acting differently. We can’t be seen to harass our guests, that is Nigerian investors and international investors. There is nothing wrong in companies making profit, and we can’t look at profit as a crime. The thing is that, attitude about regulation, policy making and all that, is very important.
What about the business owners in terms of the minimum wage implementation, how do they overcome those factors beyond their control?
Minimum wage is a law that affects people that employ more than 25 people. If you are employing less than 25 people, you are not bound by it. The market will determine what you have and there is a conversation about should minimum wage be a federal issue? Shouldn’t states be able to determine? But right now it is a federal issue. I think that once you start seeing growth, then the ability to pay could not be so much, it will not be such a contentious issue. There are some critical decisions that have to be made. You are going to see that in power supply. If something happens significantly in power supply because the president has instructed and has said that by July, we will have some kind of change in the tariff, there is engagement in terms of transmission capacity to take idle power to the discos. If those things are done, you will find that the number of people that are sitting down idle waiting for power to come to produce, if those people are in production, we will definitely see some output. Right now, we are celebrating 2.3 to 2.5 per cent GDP growth, forgetting that 10 years ago we grew at eight and nine per cent. So, when the new normal is that you are celebrating 2.3 per cent growth when your population growth is three per cent, you are actually celebrating failure. If you are growing at rate slower than your population, therefore your per capita income is actually declining. That is why a lot your people are migrating to Canada because they are running to greener pastures.