Nigeria’s industrial base is low and the only option open to the country is not protectionism but to have a weak currency. The Executive Vice Chairman, Alpha African Advisory, Mr Mustafa Chike-Obi. In this interview with CHIMA NWOKOJI, he looks at import substitution, currency management and leadership issues taxing the Nigerian economy.
There has been arguments that Nigeria’s total imports as a percentage of Gross Domestic Product is one of the lowest in the world, meaning that the country does not depend on imports to survive, is this true?
That is not true. It is unhealthy and inconsistent that we import so much of what we consume. We import 100 per cent of the cars we drive. We import virtually everything. Now, it is not sustainable and not healthy. So the question is, how do we stop, how do we start making what we eat, what we drink, what we wear? We are the largest rice importers. Don’t listen to what these people say. I repeat, we import rice, we import clothes. Nigeria is import dependant. Nigeria is the only country in the world with a population of about 50 million people that imports what it eats, drives and even imports education. We are a huge consumer of foreign goods relative to our size. Yes we are import dependent.
We had a vibrant five textile industries but they are all gone. So like I always say to people, how do we stop being importers and that’s the question everybody asks and the biggest answer is two fold. We can buy foreign goods which have two problems: your borders are porous, you just create a whole generation of smugglers or (a) you can put tariffs on foreign goods but people will retaliate against you. (b) You can sign a couple of trade agreements that make it very difficult for the economy.
General election: Those who will cause trouble will see trouble, TB Joshua warnsMustafa Chike-ObiMustafa Chike-ObiMustafa Chike-ObiMustafa Chike-Obi
The only way left to make foreign goods very expensive is to make our currency weak. If your currency is weak, foreign goods become very expensive, if the currency is strong, foreign goods become cheaper. As long as you don’t have the industrial base to compete, then your only option is to have a weak currency and if you study every country that has industrialised in the last 50 years, they have had a weak currency regime for a period of no less than 10 years. That’s official policy. China and America have been arguing for 20 years about how weak the Chinese keep their currency and it is that weak currency that allowed them to industrialise.
Don’t you think that as Nigeria does not produce anything, devaluating the naira will send the country to the Venezuela experience and one dollar may be equivalent to N10,000?
Well it’s not a matter of whether it is possible, unfortunately for us, the laws of economics cannot be ignored. So you can ignore it for a little time. Like somebody tells you he has cancer, you have a number of options. Option one, because cancer starts as a small thing, you can ignore it. But you will be dead in a year. Or, you can treat it, or you can deal with it and use chemotherapy and radioactivity. You know chemotherapy is just poison. You poison yourself so you can kill it. You lose your hair, you lose weight but it’s a radical treatment. Or you use radiotherapy which is again using radioactive stuff. So it is like when people ask me can Nigeria remove fuel subsidy. Nigeria must cease fuel subsidy. It may not happen now, or in two years time but you will pay for petrol in Nigeria like what Americans are facing, sooner or later. America produces more oil than Nigeria. They are now exporting more oil than Nigeria and yet in America, the price of a litre of petrol, the last time I checked was about three dollars and a dollar in the official window is N350 and N360 in the parallel market.
We cannot afford to subsidise petroleum, neither can we afford to subsidise electricity and that’s why we don’t have them. We are subsidising electricity and that’s why we won’t have it. If we allow electricity prices to be free, like we allowed GSM when it started, we would have it. We bought sim card for N20,000. Now it is almost free. The way to do these things is to let the rich people pay the high price and because they are paying high price they will get all the electricity they want and instead of selling the 4000 megawatts we have that we are selling at a regulated price of N50/ watts, we sell at N120 which we in Ikoyi will buy at N120 and they will make so much, money and create more megawatts.
That’s why everybody has a phone now. My driver has two phones and that’s the way it should be because MTN and all those people made so much money initially and so started giving phone for almost free. So if you tell people to sell electricity at N50 per kilowatt, they have to go and collect their money from government because it is a subsidy and the whole thing won’t work. My point is that we must face the price. Let petrol, electricity and all that face their prices and we can make more in the long run. But that’s why you need leadership. You need a leader who people can follow.
Recently, a systemically important bank was taken over by the government, what do you think is the cause?
I think that when a bank has problems and the bank is to be recapitalised, where we are talking about close to N800 billion. It is caused by a number of reasons. The general economic condition in Nigeria and tight monetary policy were the initial problems that finally led to the withdrawal of Skye Bank’s license. Contrary to the belief in certain quarters that Skye Bank’s problems started with the acquisition of defunct Mainstreet Bank, the lender only paid N126 billion which is far lower than N786 billion CBN has just recapitalised it with; so one cannot say that it was because the lender bought Mainstreet bank that it went into liquidity problems. Even if the money was returned to Skye Bank, it would not have solved the problem. At worst, that could be 10 per cent of the problem. People said the problem was caused by insider abuse that created huge bad loans. All of that are exaggerated because even if you add up all the so called bad loans, it does not exceed N100 billion. May be they are contributory factors. I think the heart of the problem was that the economy of Nigeria went into a very difficult phase. There was a recession and weak recovery still going on. The combination of having to contend with high foreign exchange rate, high interest rate, tight monetary policy, weak economy and recession contributed to the problem. This is because when that happens, some banks that are positioned in one way or the other must take a hit. In this case, Skye Bank was positioned in such a way that all of those factors affected the bank. Even in the United States, there are banks that are focused on consumer lending. Others are focused on corporate lending, government securities among others. The same thing applies to companies whereby they focus on different sectors of the economy.
There were banks that focused on mortgage in the US. So, when there was mortgage problem, those banks went under. So, it is just that the sectors which Skye Bank was focused on, got hit hard by the economy,
I believe CBN injected money into Skye Bank when they brought in the new management. And I believe that money is somewhere between N350 billion to N400 billion and I don’t think it was a secret. That was supposed to keep the bank alive until a permanent solution is found. My understanding is that the amount of negative capital pushed into Skye Bank was about N786 billion. But that N786 billion includes the money CBN had already put in. so I think AMCON is issuing bonds which will total N706 billion and the 1st thing that will happen with those bonds is that Polaris will pay back CBN the money lent them. Then the balance of about N500 billion will be used to bring the bank’s capital to zero, thereby guaranteeing sanctity and safety of the deposits. Thereafter when at zero, there will be a new investor. In this case AMCON will temporarily own the bank waiting for who will now invest the required capital. When that is done, the bank will be a fully capitalised functioning bank. The plan as I understand it is that the new bank will be responsible for paying those liabilities and it doesn’t add to the burden of other banks or AMCON. I think that is part of the reason this was approved, that the bank showed a clear way of paying these liabilities.
Who is the loser in this case?
The shareholders have lost all their money but there is a hierarchy in a bank and that’s why it’s a regulated entity. The Most important people in a bank are the depositors and they have been protected. The next most important people are people who have secure liabilities, then the employees, management and lastly shareholders who are least protected. So I think in the hierarchy of an ideal deposit money bank, the most important people have been protected.
The 2019 election is around the corner, what is your worry about Nigerian Politics?
My worry about Nigerian politics is very simple. By any standards this government has not done well. Now, instead of telling us how bad we did and plans to get better, they are playing silly games. What they have offered us the last three years is not good enough. So let them tell us the plan to make things better and since they are not doing that, they should be thrown out. Am not interested in what people say about the VP. What I know about him is that he is a good man, intelligent and works well. People say different things for different reasons.
In a multi-ethnic group like ours, can Nigeria ever have a leader who people can follow, according to your description?
We need to find somebody who the people can follow. Who will tell us this are the sacrifices you have to make because it’s best for you. Follow me and I will lead you to the Promised Land. You need a Moses. And we don’t have a Moses yet. We thought Buhari would be one but it turned out he isn’t. And that Moses must be a leader who is with us. Who flies commercial flight in Nigeria, who doesn’t have more than 5 cars in his convoy, who can come to Lagos, get out of his car in a market place and walk around and that’s the guy we can follow. We can get that in a multi-ethnic group like Nigeria but not in the way you think. You see when Buhari became the president; the biggest fear was that he would be northern- centric. What he should have done is to overcompensate the South initially. Initially, he should have identified with the south. Then people will exclaim and say that they thought a northern president was to be feared but it isn’t so and in time he would have balanced it for the North. He could have been walking in Onitsha and people will be hailing him today.
But he made a choice and he missed an opportunity to permanently end the notion of tribalism and so we missed that opportunity. If his chief of staff was Igbo, his SGS was Yoruba, his ADC middle belt and if he had overcompensated Eastherners and other zones, he would have been a hero but he made a different choice. So we can get somebody who realizes that this is the fear Nigerians have and goes out of his way to tell them no, that they have nothing to be afraid of where he is concerned. Unfortunately, we have a president who is very removed from the people, who when he came to Lagos had to shut it down.
The post Weaken Nigeria’s currency to reduce importation —Chike-Obi appeared first on Tribune Online.