The outbreak of Covid-19 has visited untold strain on the global economy, including Nigeria’s. In this interview with Ndubuisi Francis, a former Deputy Governor of the Central Bank of Nigeria (CBN), Dr. Obadiah Mailafia, says he is not impressed with government’s response to the scourge, so far. According to him, his hope resides not in government, but in the resilience and indomitable courage and generosity of Nigerians. The development economist laments that the nation’s failure to diversify the economy will continue to undermine its long-term development prospects in the coming decades
There has been a spike in inflation rate. What does this tell about the economy?
Yes, we would recall that in January, the National Bureau of Statistics (NBS) announced inflation had spiked to 12.12 percent, up from 11.98 per cent in December. Inflation, is of course, a signal that things are going off tangent. Inflation taxes the poor, discourages investments and dampens the prospects for real growth in the economy. But there are other issues as well. As you know, poverty has also worsened in recent times. The World Bank estimates that in 2018, the number of poor in Nigeria stood at around 85 million. Today, the figure is more like 94 million. This is to say nearly 50 per cent of our population of 200 million are destitute poor as internationally defined. Growth has been painfully sluggish over the last couple of years, but I do not think the prophecy of another recession as feared by the CBN boss has not come to pass. Obviously, a few things have been done right. The IMF Article IV visitation team early this year listed some of those positive interventions as being: adoption of the Finance Bill 2019; the passing of the 2020 appropriation bill in December 2019, accompanied by a new determination to improve budget execution is a big plus; the tightening monetary aggregates in January 2020 through the MPC’s announcement of higher cash reserve requirements to respond to worsening inflationary pressures; and new initiatives to improve power sector performance and commitment to further improving the business climate and the ease of doing business. You would also recall that a new Economic Advisory Council has been put in place, headed by some of the best economists we have in the country. But none of us could have foreseen the perfect storm ushered in by the global coronavirus pandemic that began late last year in the Chinese industrial city of Wuhan. It has spread around the world like a scourge. World oil prices have collapsed. A big hole has been opened in the 2020 budget by way of a worsening deficit. If truth be told, I am not impressed by government responses so far. The president has not addressed the nation to allay fears and anxiety among our mass publics. There is an alarming rate of despondency in the atmosphere of diminishing expectations. The naira has wobbled and has only recovered through yet another expensive intervention in the forex market by the central bank. This has led to further depletion of the external reserves. You can only do so much until rational actors see that you are only bluffing yourself. At this rate, we must brace ourselves for hard times.
Many analysts have blamed the failure of the government to diversify the economy for the current hysteria over the impact of Coronavirus, especially with the drop in oil prices. What is your view?
I would say Yes and No. Yes, to the extent that our monocultural dependence on oil and our abject status as a rentier oil state in the international political economy keeps us in a very weak position whenever oil prices fall. Although oil makes up only 10 per cent of our total GDP, that 10 per cent accounts for 50 per cent of total government revenues and a staggering 94 per cent of foreign earnings. Relying on a relatively small sector for half of our income and almost 100 per cent of all our foreign earnings, is a really dangerous position to be in. This means that when the oil market sneezes, we catch fever. Our failure to diversify the economy will continue to undermine our long-term development prospects in the coming decades. The ‘No’ aspect of my response centres on the fact that failure to diversify is not the only variable at work here. China, Italy and the other advanced industrial nations are highly diversified economies. And yet the Covid-19 has impacted on them severely. Ability to cope with pandemics of this nature derives not only from the robustness of the economy but also from resilience of national health systems and the solidity of social capital that holds communities together in hard times. The news from Italy portrays a nightmarish scenario. A dear friend who happens to be a highly successful businessman and investor, sent me a heart-breaking SOS from Milan yesterday. And it simply says: “What is happening here is frightening, agonising. Please, pray for us!” Italy has one of the best medical healthcare systems in the world. And yet, the pandemic has been most devastating there. We hear of 400 casualties every day. And it keeps spreading like a harmattan hurricane. If this can happen in an advanced industrial society like Italy, then God help us! I am still not impressed with the quality of our preparedness in Nigeria. My hope resides not in government but in the resilience and indomitable courage and generosity of our people. We defeated the evil winds of Ebola and we will defeat Coronavirus. By God’s grace, we shall overcome!
The Group Managing Director of NNPC last week told Nigerians to brace up for real tough times in at least the next three months. Do you think the alarm is justified in the light of the impact of Coronavirus on the economy?
He who wears the shoes knows where it pinches. If the Group Managing Director of the NNPC, Mele Kyari, expresses such alarm, who are we not to cry wolf with him? The GMD was lamenting the fact that hundreds of oil tankers from our shores are wandering aimlessly in the Atlantic Ocean, with nowhere to go. Some of the biggest buyers in Europe and Asia are in a complete economic lockdown. Europe has closed its borders. When societies face life-and-death choices, business often has to take a back seat. This is the drama that is unfolding at present. In the past couple of weeks, the global price for Brent crude has gone as low as $27 per barrel, before rising to something like $30 per barrel. You would recall that the oil majors that dominate our oil sector have made us believe that the cost price is $27 per barrel. Anything below that would throw us completely out of kilter. The NNPC recently warned that hundreds of oil tankers from our shores are wandering aimlessly in the wide expanses of the Atlantic Ocean, with nowhere to go. The lockdown in Asia and Europe is largely to blame. There is yet another geopolitical spoiler – Saudi Arabia. The Saudis have boasted that they are prepared to bring down oil prices to $10 per barrel. That has less to do with the pandemic than with their desire to settle geopolitical scores with Iran and the Russians whom they believe are allegedly encroaching on their traditional markets. If this continues, we may well be heading to a nightmare scenario. As you know, the naira has taken some hard knocks. The other week, it went to as low as N400 to the dollar. It is currently hovering at more than N364 to the dollar. There is a glimmer of hope, however. We are told that the emergency hospitals that were built up in the thousands by the Chinese are being shut down one after the other. The rate of new cases is going down. This might turn out to be China and Xi Jinping’s finest hour. The Chinese have won one of the worst wars that were ever inflicted on them. And I believe they will come out the stronger. In the case of Nigeria, even as we speak, our president has not deemed it fit to address the nation and to allay fears. We hear rumours that the cases being reported are well below the actual reality of things. And I am not persuaded that we are adequately prepared. We need to do more work and get more facilities in place while conscientising our people.
Many analysts have expressed apprehension that the Nigerian economy might slip into another recession, if the current global emergency and oil price drop continue. Do you align with this school of thought?
A recession, in our present circumstances, is not inevitable. But it can happen if we allow panic, fear and folly to take over. Medical science shows that many people afflicted with terminal illnesses die more from fear than from the actual affliction. The same is true of the economy. Worsening oil prices and a falling exchange rate will create a further fiscal crisis. Imports will become more expensive and inflation pressures will rise, even as the productive sector continues to wobble. Unemployment and poverty will worsen. Our external reserves currently stand at $36.4 billion. Governor Emefiele himself had announced a threshold of $30 billion at the level at which some form of devaluation might be unavoidable. At the rate we are going, we are careening dangerously close to the edges. As you know, the naira has taken some hard knocks. The other week, it went to as low as N400 to the dollar. It is currently hovering at around N380 today. Other macroeconomic fundamentals are looking weak. But a recession will not happen if we steer the economy with boldness and courage. Economics is the science of alternatives. As revenues dwindle, we must of necessity reorganise our priorities. My biggest worry is that consumption has been the dominant paradigm in our public expenditure system instead of capital projects and long-term investments. We must therefore re-prioritise in the context of increasing scarcity. Secondly, at a time of anxiety and mass panic, government must preach calmness. Behavioural economics theory shows that panic, fear and emotions can be more destructive than generally realised. So, it is vital for the authorities to come out and reassure the public. Sadly, the president we have has seemingly self-isolated himself as it were. He is not coming out to address the public and to allay their fears. I also expect an announcement of a big intervention fund to make quick injections into the economy in order to cushion some of the deleterious effects of the fallouts from the global pandemic. President Trump in the United States announced a figure of $2 trillion as an intervention fund. He has also signed an executive order placing a moratorium on mortgage and other debt payments. Prime Minister Boris Johnson of Britain announced an amount of £350 billion. The FGN has announced nothing remotely close. All we heard is that the CBN is to provide a paltry N1.5 billion to support action towards tackling the coronavirus problem. Like I said earlier, the economic fallouts are staggering. Sometimes, it is not a disease that kills, but the fear that accompanies the disease. We need a major intervention fund to counteract the economic nightmare and the spectre of diminishing expectations that stalk our economic landscape.
The federal government has unveiled a cocktail of measures in response to the impact of novel Coronavirus, otherwise known as Covid-19, including cutting the 2020 budget by N1.5 trillion, 20 per cent cut in capital budget as well as the reduction of oil benchmark price from $57 per barrel to $30. What is your take?
I believe these to be realistic measures. But it would have been good to know the sectors that are being affected by the budget cuts. There are notorious areas of consumption that I think must not be our priorities. On the other hand, social programmes that focus on the poor and vital infrastructure projects ought to be a priority.
The CBN also released six policy measures to battle the economic impact of Coronavirus. Do you think these measures are adequate and timely?
We welcome these new initiatives on the part of the CBN. First, the CBN’s intervention facilities have been granted a moratorium of one year on all principal repayments, with effect from March 2020. Second, there is to be a reduction of interest rates on all applicable CBN intervention facilities to five per cent from nine per cent per annum, for one year effective from March 2020. Thirdly, the apex bank announced a N50 billion facility through the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) microfinance bank for households as well as Small and Medium-sized Enterprises (SMEs) that have been hit as a consequence of Coronavirus. Fourth, the CBN grants leave for commercial banks to consider temporary and time-limited restructuring of tenor and loan terms for businesses and households most affected by the pandemic. Sixth, there is to be some credit facilities, although amount is unstated, to be granted to the health sector. And finally, the loan deposit ratio (LDR) of the banks will be refined to ensure great credit access for SMEs and households. In addition, the CBN also announced that it is now to operate a unified exchange rate. This is a welcome development. As far as I am concerned, the operation of multiple exchange rates was only a wilful form of profligacy that opens the doors to rent-seeking and corrupt behaviour. So, better late than never. I am just so sad that the level of iniquity involved in maintaining multiple rates has done untold damage already. All these measures, if fully implemented, will help to cushion the effects associated with the pandemic while restoring business confidence.
The Senate has approved a $22.7bn foreign loan at a time the DMO lamented that debt service is becoming difficult. How do we reconcile this?
I do not think the Senate should have approved these new loans. Before we incur further loans, we needed to have done a thorough evaluation and audit of all the loans we have taken in the past. And I have always said it, that no foreign loans should ever be incurred, unless they are for specified infrastructure projects with a guaranteed return on investments. And we should ensure that we have robust expenditure frameworks that block all financial haemorrhages in the system. Honestly, I am far from being impressed with what is going on at present. However, I think the government recently announced it was suspending those loan applications. You may also need to know that the Igbo East have sued the federal government to warn that they will never be liable for any loan repayments in future. This is because Igbo land is not a beneficiary of any of the projects being planned. If I were in their shoes, I would take the same position.
There has been a steady decline in foreign reserves as well as a depletion of the Excess Crude Account (ECA). With little or no buffer, is there a real cause for alarm with the current global economic emergency foisted by the Covid-19 pandemic?
As you know, our external reserves currently stand at $36.4 billion. Governor Emefiele himself had announced a threshold of $30 billion at the level at which some form of devaluation might be unavoidable. At the rate we are going, we are careening dangerously close to the edges. At the same time, our Excess Crude Account has something like a paltry US$70 in its kitty. During the Obasanjo years, we had something of the magnitude of US$18 billion in that account. Obviously, not only are there robber barons around; we have shown ourselves to be poor prudential managers of our public finances. But tackling a pandemic has less to do with the health of the macro-economy than with the resilience of national health systems and the solidarity networks that help communities survive perilous times. It calls for leadership and vision. I am not impressed with the leadership, but I have faith in our people. Nigerians are a great and resilient people. At the hour of maximum danger, we have proven to be a brave and resilient people. I therefore urge us never to panic. What we have to fear is fear itself. We should conscientise our people to do what medical science tells us are absolute imperatives for survival: avoid crowded places; keep away from anyone coughing; abide by the strict rules of physical hygiene; wash your hands regularly; apply sanitisers every now and then; and have regular intakes of things like garlic, lemon and ginger with warm water. Our traditional neem tree, I am told, also works magic. It is the raw material from which chloroquine sulphate is made. Boiling it and drinking it helps, in addition to covering yourself with a cloth while inhaling it and getting its heat into your body can kill coronavirus. Great nation, good people!