Barely 10 months into the administration of President Muhammadu Buhari, a former President of the Nigerian Bar Association (2006–2008), Dr. Olisa Agbakoba, takes a critical look at the state of the nation. Agbakoba, who argues that Nigeria was already sliding into recession, given its equal negative growths in two quarters, however, advises Buhari on how to save the nation.
10 months into the administration of President Buhari, there is this argument that the administration doesn’t have an economic team or policy, thus the slide into current economic crisis. What’s your take?
This has been the argument. But it is not true. The administration has an economic policy and it is referred to as Strict Monetarism. It is an economic policy where government uses its money to control goods. This is a very difficult policy to use, because there are other major elements that must be present.
So, what government has done is to slow down economic growth and development on a wrong premise. However, it is conceptually correct in the sense that government, with this policy, has to block all the loopholes and corruption areas. In doing so, everybody will agree, for instance, that the National Broadcasting Commission (NBC) losing billions or that there is money missing in several ministries is not good news for us. So, all Nigerians would honestly applaud government’s anti-corruption drive, as well as the raking of about N3trillion through the Treasury Single Account (TSA). Nevertheless, not to use the money is what surprises me. Buhari’s anti-corruption saving-money programme is, in my view, used the wrong way.
The administration saving money by blocking loop holes and not spending it, internationally, is making the country slide into recession. Now, if this continues, we are likely to see depression, where growth becomes absolutely negative. The National Bureau of Statistics, probably for obvious politically correct reasons, may not have used the word recession, but if you are following very carefully, and taking a proper diagnosis of the nation’s economy, the fact is that Nigeria is in recession already. If you carry out your research accurately, recession is two equal negative growths in two quarters. So, we have to be extremely careful.
Do you think the administration understands these enormous challenges?
I think it does. The first good news is that the government’s understanding of the horizon of the business environment is the most keen of all governments since 1960.
It is good news the government understands that nobody will come to invest in Nigeria if the business environment is constrained. If it takes you as an investor about six months to start a business, why would you come in? If you have to pay kick-backs before you do business, why would you come to Nigeria to do business? If you are not sure that government gives you concession to do business and the same government breaks it, why would you come here to invest?
So, it is a good thing that the Vice President is going to head this new business environment committee, with the Minister of Trade, because Nigeria is 168 out of 190 in the league table of countries with favourable business environment.
This is terrible. Nigerians must applaud people like Alhaji Aliko Dangote for putting their money here, because the environment is a very bad one. I would assume that for government to put this committee in place, means they want to make the Nigerian environment conducive for businesses. This will make investors come into Nigeria to invest massively.
What do you make of the calls for the Federal Government to devalue the Naira, looking at the huge dollar to naira parity in the interbank and the parallel markets?
The devaluation debate has really caused a big problem in the country, that everybody claims to understand the debate. The fact is that investors would not come into the country, if they feel the naira is being held down.
Although the President has said that he won’t devalue, the fact is that we already have devaluation. Looking at the exchange rate of the pound to the naira, as well as the dollar to the naira between two years ago and now, we will understand that the argument should not be about devaluation. Rather, it should be about revaluation of the naira. The naira requires to be revalued. In revaluing the naira, all Nigerians would agree that we want to see the naira stronger.
The CBN super-regulation of the naira-dollar parity is not ideal. The CBN has no business trying to shore up the dollar against the naira. This is the first mistake. The second mistake is the CBN’s creation of an official window for forex, as if they are the only ones whose contribution matters in ascending the forex. The President said correctly that if you want to school abroad, you must be ready to foot the bills, because government can’t support you. I wonder why that error is being made. The general principle of foreign exchange reserve is that everybody puts its hands in the basket.
For instance, Dangote is going to have his refinery on stream in 2017/2018 at Epe area of Lagos State. He (Dangote) is not going to sell his product in naira but in dollars. I, as a lawyer, will also have the possibility of earning in dollars, but I am excluded from the window, because I am not a trader. The only traders are the licensed banks, or the Bureau De Change (BDC) operators.
This act makes the black market to thrive. People now go to the black market because they want to make profit. So, the correct approach is to abolish the official window and allow all Nigerians, in public and private sectors, to harness the resources. For instance, China that has over $1 trillion in foreign reserves, it is not government’s money, rather, it is the money collectively generated by the national resources of China. In that way, the pressure of the dollar on the naira will lower.
Also, if you go to the United Kingdom, you can go to the money shops to buy foreign exchange. Nobody is going to ask you, do you have the Bank of England license? This, I think, is the way to reflate. If we revalue the currency, Nigeria will definitely be an attractive destination for investment.
What can be done to moving the economy forward?
I think government’s economic policy is still developing, but there are critical milestones. Like I said earlier, the administration is running a very stringent economic policy, known as Strict Monetarism.
The highlight, so far, seems to be plugging leaks and cutting budget in order to boost the anti-corruption campaign. However, there are critical nuggets to salvage the economic crisis. The first is getting the Financial Services Sector (FSS) aright.
This would involve limiting the role of the CBN and creating a Financial Services Agency (FSA). CBN is currently overburdened. CBN should focus on lending, interest rate and exchange. Again, it is what is referred to as Quantitative Easing (QE). Tied to FSS, the role of CBN should be to keep inflation in check. Nigeria is technically in recession with her 10 per cent growth rate dramatically reduced to three per cent. To carry out QE, central banks create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before.
The new money swells the size of bank reserves in the economy by the quantity of assets purchased—hence Quantitative Easing. Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans. The idea is that banks take the new money and buy assets to replace the ones they have sold to the central bank. That raises stock prices and lowers interest rates, which, in turn, boosts investment. Second, the Federal Government can salvage the current economic crisis through job creation and stimulating small businesses. How do we achieve this? If we get the FSS right, job creation and stimulating small businesses would naturally fall in place. Jobs can only be created when we have a vibrant manufacturing and real sector.
Currently, the manufacturing sector is in a comatose state with the Manufacturers Association of Nigeria (MAN) constantly complaining of the need to reduce the cost of doing business. Small businesses are hindered because of absence of capital. They cannot easily access loans from banks. Interest rates are high and banks are shy to lend because of the problem of bad debts, exacerbated by inefficient regulatory environment.
Third, there is an urgent need to review the public/private sector economy. Public sector economy is not properly defined in Nigeria. Whilst Nigeria’s state-owned public enterprises are often ineffective, China’s model appears very effective.
The privatization escape route that Nigeria is often eager to employ has not been successful. In fact, none of the privatized entities in Nigeria could serve as a model. It is urgent, therefore, that Nigeria reviews her public/private economy. Government must control the overarching sectors of the economy. There is need for a strong public/private sector framework. It is important that despite current challenges, Nigeria is still rated as the 20th largest economy in the world. Reviewing Nigeria’s public/private economy would go a long a way in turning potentials into reality and move the economy forward. Again, the Buhari administration must look at the issue of meeting the funding gap. Like I said earlier, the devaluation debate is between regulation and deregulation.
The regulation logic would encourage the CBN to dictate the exchange value. In this case, devalue it. This is the position favoured by the IMF. The contrary view, which I feel is more reasonable, is to deregulate the environment and allow market forces to determine the exchange value. Also tied to this is that the CBN should allow free flow of forex. CBN should expand the space and allow all Nigerians to participate. Currently, the centralized system on this issue excludes critical stakeholders from Dangote to the ‘Mallam’ on the street. The problem with forex is that CBN does not have enough, but if we expand the space, we would be surprised that many Nigerians can participate and increase the stock. All that is needed is to create a legal framework to encourage this participation, subject to money laundering rules. To salvage our plight amid the current economic crisis is diversification. This is already notorious in the face of the post-oil economy that we are witnessing.
The roadblock, however, is the massive infrastructural deficit to serve as a backbone. We must return to ‘receivable financing options. The proposal that Nigeria pledges her oil to receive loan from countries like China should be revisited. We need to fill our huge deficit gap by receivable financing. It is only such huge receipt of funds that could plug the serious infrastructural deficit that impedes diversification in Nigeria.