The Vice Chairman, Alpha African Advisory and former Managing Director of the Asset Management Corporation of Nigeria, Mr. Mustafa Chike-Obi, in this ongoing interview on Arise Television, spoke about the effects of the coronavirus pandemic on the economy as well than the federal government’s response thus far. Nume Ekeghe presents the extracts:
Recently the Central Bank of Nigeria (CBN) reopened currency sales for some invincible is this a welcome development and what else would you prescribe the CBN in the context of trying to respond to the new normal that emerges from COVID-19 and economic shocks?
I think the impact of COVID-19 on the Nigerian is going to be two dimensional. One dimension is the health dimension, as you have discussed with doctors, and the second is the economic dimension. I think in the long run, if those two things aren’t handled properly, economic problems could lead to other problems later; in terms of livelihoods, security, health and happiness. The field of health, which is managed by doctors and scientists, and the economic fields must be handled delicately. Stepping back, instead of dealing with specific things the CBN has or hasn’t done, I think we need to take a holistic look at what the economy is like today; what it should look like and the things we should do to make sure we come out on the economic side so that Nigerians have healthy and happy lives. Life has to go on, depending on the extent of what CBN has done with SMEs, with BDCs, that’s fine. This does not solve the larger problem that we have to face in the future. And I think it’s those larger issues that we should be discussing.
Speaking on the $3.4 billion loan from the International Monetary Fund (IMF), do you think there is a risk with the funds that we should be wary of?
First of all, we have to congratulate the Minister of Finance and her team for organizing what I call a lifeline. You’re absolutely right, it’s a loan and it’s supposed to be repaid in three to five years. This is the time range for refunds. Although it does not come with any strings attached or conditionalities, it does come with strong suggestions on what to do with the money and how the money should be spent. And $3.4 trillion sounds like a lot of money, but it’s about one to two percent of our gross domestic product (GDP). It’s just a lifeline; it is not enough to solve our economic problems. Therefore, depending on how we use the money and how transparent and proactive we are, we will need a lot more money. I think we will need over $20 billion from various global agencies. And they look at what we do with that $3.4 billion, and I think if that money is spent properly, I suspect we might attract more money later. But it’s one percent of our GDP and it’s not enough to solve all our problems. But it’s a welcome lifeline and the minister should be congratulated for being able to get that lifeline at this time.
How significant is the N850 billion local loan request recently approved by the Senate?
I have always been against foreign lending or borrowing in dollars because as everyone knows, every five years our Naira exchange rate devalues by around 30-50%. Second, borrowing in foreign currency ends up costing more than borrowing domestically. So if it was a loan that was previously approved and now they’re changing it from dollars to naira, then I think that’s a very smart thing to do and I welcome that. Even if there is an additional loan, I also think this is the time when the Nigerian government should borrow money. I think goals are what matters and what you do with the money. There are some things we should not do with the 850 billion naira and even with the $3.4 billion. We should not use it to support our foreign currencies. We should not share this money with the States. It is a federal government loan that must be repaid between three and five years, and it must be used to solve problems that would solve our immediate problems, and then build for the future. The third thing it should not be used for is subsidies. As long as it’s not used for those three things, I think we’d be fine. We would borrow more money and use it for the right things.
You said we need over $20 billion to close the country’s financing gap, do you think we should go back to the IMF for a proper conditional loan?
I think we should go back to the IMF for a proper loan and I think we should go to the World Bank for loans and other agencies around the world that are set up. Even under IMF guidelines, if your GDP is hit by 20% or more, there is a new facility you can access. So we would need over $20 billion and I think that’s a test. If the government manages this money in a very responsible, very transparent way, it would open the door to more money later on. But if we use this money as we have done in the past, I think it will be more difficult for us to find the rest of the money that we will need in the future.
The IMF has made some suggestions to Nigeria, what do you think our priorities should be?
In my opinion, there are four things I think we should do with the money. The first is health. We need to start building our health infrastructure. This is a good opportunity to do so because too many Nigerians are dying of all kinds of diseases, malaria being the first, then Lassa fever and all kinds of things. I think the time has come for us to start building our health infrastructure. The second thing is education. We need to start looking at digital learning. We need to start building infrastructure so people can learn remotely and from home. We are also going to look at security, and finally we need to seek support for industries that are essential. Manufacturing industries, energy and many other things that can give us long term productivity. This shock would happen again, and this is an opportunity for us to start preparing for the long term. I’m not a big fan of overseas tuition so CBN opening a window for overseas tuition doesn’t seem like a priority to me at the moment but in their wisdom that’s what they chose to do. But I think we should start investing for the future and we should start now.
Local oil companies are said to have lost around $12 billion due to market volatility. How exposed are local banks to these companies and what does this mean for the Nigerian financial system?
Well, I think the banks are exposed to a lot more than the local oil companies. I think we should look at the loans that banks have with state governments. I think that’s a significant number. Also, with this new oil price, aside from this extraordinary Federal Accounts Allocation Committee (FAAC) split from last month, I think the FAAC is likely to fall into the 400 billion naira range, which would put many States under monetary pressure. So I think the outstanding loans to the states should be looked at. Banks have to be very careful. I think now is not the time for over-regulation by CBN. I read that they had to sterilize money from the banks recently – over a trillion was taken out of the banks. I think now is not the time to over-regulate, but the time to work with the banks and find a way. All banks need is time, if you give banks time they will make money in the long run. So we have to find a way for the CBN and the banks to work together. Look at all these loans, restructure them in a sustainable way, so that the banks survive and the financial system does not collapse. But there is a real risk of the financial system collapsing if we are not careful at this stage.
A few weeks ago, the president of the Federal Internal Revenue Service issued a statement recommending corporations to pay their taxes earlier and help Nigeria deal with its revenue squeeze which you reacted to on Twitter, can you tell us more?
When a government is certain and can demonstrate that it expects tax revenue at a certain time based on audited financial data and based on a number of things, companies cannot pay taxes of their own free will without knowing what their financial statements are at the end of the year. So what people do all over the world is they anticipate that income, issue bonds if they have immediate cash needs, and issue bonds that are paid back when the taxes come. Obviously, your ability to anticipate your taxes and your honesty about it is important. But if the president of the FIRS estimates that he will have additional tax revenue at the end of the year, the best thing for him is to issue a one-year tax anticipation bond, to which the Caisse de retirement. Fund administrators, I’m sure. And when the taxes come, pay the bond, instead of asking companies to do something they’re not equipped to do. It was a misguided statement and I think we should just forgive him.
What would a post-COVID-19 Nigeria look like to you?
I think before COVID-19, Nigeria was doing a lot of harm. I think our governors did wrong. There is no reason on earth for a governor in Nigeria, who depends on the people for a living, to walk around with 10 to 20 convoys and all the extravagance we see associated with governance. I think the time has come for us to significantly reduce the cost of governance. The President of Nigeria, when he travels, if you are in Abuja, there are police on the streets for four hours before he even leaves the Villa, and the Inspector General of Police accompanies him, and Minister, this should all stop. We should have a very lean government. If the president is going to the airport, he should go there with five cars, get on his plane and go where he is going. And if he did, the governors would follow. But this waste in government and governors having 200 special advisers, all of this has to stop. We have to seriously look at the cost of governance in Nigeria, and we all have to make sacrifices from the top down. We expect two or three years of very difficult economic conditions. The oil market would not improve significantly next year or two years from now. Nigeria is going through very difficult times, and we all have to make sacrifices, and face the fact that we have to sacrifice ourselves to build a new and stronger Nigeria. And we can, and we have the potential to do it.