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Nigeria: Huge economy amid widespread poverty – CIBN boss

By on April 14, 2014

Mr. Abolade Isaac Agboola is the Chairman, Lagos State Branch of the Chartered Institute of Bankers of Nigeria (CIBN). An investment banker, he is also the Executive Director, CashCraft Asset Management Limited. He speaks in this interview, on the GDP rebasing rating of Nigeria as the biggest economy in Africa, among other issues.

What is responsible for the decline in Nigeria’s economy with prevalent unemployment rate of about 24 per cent and poverty rate of 70 per cent?
The  decline in the nation’s economy is not unexpected but the reality is that we are not producing  enough locally. We must remember the fact that there was a global economic crisis between 2008 and 2010 and we are just recovering . Crude oil price, which has been the main stay of our economy, declined in 2008 from 147 dollars per barrel to about 40 dollar, and, today, it is just about $100.

Now, the oil market has recovered and we are selling for about 100 dollars per barrel, which is not up to what we sold before the global financial melt-down in 2008. In oil production, we are also not producing optimally because we are not meeting the OPEC quota. So, this is also a challenge facing our economy. There is also the Niger Delta crisis, which has disrupted the production capacity of crude oil. The issue of oil theft is another thing.

Beyond these challenges, the key element is that the demand for foreign goods has escalated and we are facing the problem of erratic power supply. So, government has to start depleting the foreign reserves, because government believes there is need to maintain the exchange rate stability. Maintaining exchange rate stability has to be with a cost.

You  either deplete your foreign reserves to stem the demand or  devalue the local currency to achieve the same objective. Once you devalue, you must continue to devalue, because we are import-dependent.  We are not producing enough locally to meet the increasing demand of local goods consumption in the country.  Nigeria is also not exporting enough, that is why we continue to devalue the Naira, but the thing is, when we devalue, it does not really favour our economy.

Some experts are of the opinion that oil has created many problems in Nigeria’s economy. What is your take on this?
Oil has been a blessing and a curse to the nation because of the way it has distorted our economy .For example, 85 per cent of our annual budgetary income is from crude oil sales while 95 per cent of our foreign exchange earnings come from oil. The first problem is that of employment because of the limited linkage between oil and other sectors of the economy. For example, not up to 1% or  1.7million of estimated 170million Nigerians  are working directly in the oil industry.

As a nation, we consume like the rich Arabian countries, which have very small population and small land area .The way we manage our public resources does not take into consideration our huge population and vast land area . Imagine the amount of money we need to build modern rail lines ,power grid ,road network to link our cities that are far apart and dams to supply water for our teeming population .

Nigeria’s Gross Domestic Product (GDP) rebasing rating revealed that Nigeria is the biggest economy in Africa, and has overtaken South Africa. How true is this rating, considering the high level of poverty in Nigeria, which stands at 70 percent, and unemployment rate of 24 per cent.
We are rich in natural resources but poor in terms of infrastructure development.
Our  population is an asset but could become a problem if we don’t manage it well .We need to have the right family size in order to manage over population in the country. Unfortunately, our culture  encourages people to have as many  children as they could. It does not occur to most parents that when they have a child, they must provide  all the  child would  require  until  age 18 to 25 years, when he  could stand on his own. This is also another challenge facing us a nation.

The World Bank rated Nigeria, China, India, Indonesia and Kenya, among the 10 countries accounting for two third of the world’s poor people. What are the indices of poverty in Nigeria that made the World Bank to categorise Nigeria as a poor country and what steps should be taken to get the nation out of this situation?
That is true because heavily populated nations have higher absolute number of people living below poverty line. However the situation may be untrue in percentage terms. If 10% people of a country with 1.5billion people are living below poverty line, it means government has to worry about the fate of 150million people which is almost the size of a nation like Nigeria .

You can appreciate the indices of poverty in Nigeria if you estimate the per capita income of a family of four (father ,mother and two children) earning N50,000 per month. The par capita income of that family will be about $880 .(N50,000 multiplied by 12 divided by N170 and 4). You can relate that to our minimum wage of N18,000 and the massive underemployment and unemployment in the country . My take is ,we all have a lot work to do to reduce poverty in the nation.

Nigeria’s foreign reserves have consistently dropped since 2008. The  latest drop, according to the Central Bank of Nigeria (CBN) is about 5.7 per cent. Experts said money from the reserves have been used to shore up the value of the Naira and fuel imports, as well as the importation of manufactured and industrial products. What is the economic implication of this depletion in the foreign reserves?
What we must also look at is the fact that since 2008, we faced a major economic crisis, which is a combination of our local stock market and banking crisis and the global financial crisis. The multiplier effect of that global economic melt-down pushed the crude oil price downward from 147 to 40 Dollar per barrel and that affected Nigeria’s economy, as oil is our major source of revenue.

After that, the oil price went up to about 100 Dollar per barrel, which is what is being sold currently. Following that effect, our foreign exchange also declined and when our economy eventually recovered, it could not really get back to where it was before 2008. The foreign reserves were also depleted recently to shore up the Naira because we wanted to retain the hot money that came to the economy to some extent .

Otherwise, the investors will just take their money to other countries. The reason being that investors always move to economies where they can have more returns on their investments. Globally, money chases investments for higher returns. Once investors realise that the returns in your country cannot be sustained, they will take their money away.

Is the value of the Naira sustainable now?
That is a major challenge, which the new Governor of Central Bank of Nigeria (CBN) will attend to .As expected, the sudden exit of the former Governor, Mallam  Sanusi Lamido Sanusi, created some panic in the system, which has subsided now . Aside from sustaining the local currency, I think government is also conscious of the fact that something must be done to tackle oil theft, pipeline vandalism and disruption in crude oil production in the Niger Delta. That, I think, will enable us get closer to our OPEC quota and boost revenue earnings

Budget 2014 has just been passed by the Senate, what impact will it make on the economy?
It’s good news but it came too late. The budget came out early last year earlier and we thought this year we will be better by getting it out in January but that was not to be. Budget must be treated on non-partisan basis .I hope 2015 will come earlier so that the economy can run on seamless basis from year to year.

The banking reform embarked upon by Sanusi was designed to consolidate banks to lend to agric-enterprises and the real sector. Following the reform, the number of banks shrank to about 21. How do you rate Sanusi on the reform?
Now we have new generation banks focusing mainly on core banking activities and there is room for good corporate governance. The regulatory oversight has also improved, because the banks are few and functions are streamlined.

The thing now is that banks are not into too much real sector lending, which is going to be a challenge for the new CBN Governor. Lending to the real sector is important for us to achieve optimum productivity. I believe the power sector will improve for the real sector to pick up, because banks cannot lend to non-profitable ventures.

Banks should start engaging agricultural officers to expand lending to agri-businesses. The agricultural officers should go out and educate farmers on the information needed on every aspect of farming, so that they can utilise agricultural lending well. These officers need a book like Agricultural Finance (written by him), to give them vital information, in order to educate the farmers.

I believe with stability in the financial sector, gradually, agriculture will have good lending. This is the essence of the banking reform.
Economic reforms are often carried out so that if crisis occurs, the economy will not be devastated and there should be institutional safeguard for the economy.

Are you saying that Sanusi did well on the banking reform?
Yes, you can not fault Sanusi in terms of his courage in doing certain things in the sector. He made impact, though there were area, he could have carried out the reform to make similar impact without causing so much panic in the system. Agreed that he made positive impacts, he made mistakes in some areas, because there were some things he did, which could have been done in a better way to achieve the same result.

What are those things you think Sanusi could have done better to achieve similar result?
If you look at it from the global perspective, there was panic in the system. He could have still achieved those things without causing panic. If you look at the American example, you will see that at the time Sanusi came in, every bank was at a precarious situation. The local currency was devalued so much and the price of crude oil had dropped from 147 to 40 dollars per barrel, the reserves were depleted.

So, it was the weak financial institutions that were vulnerable.  Those institutions could have actually been taken out in a calm atmosphere, and not in a manner that created panic in the eyes of the people. The role of government is to create more institutions, get the weak ones out for the economy to thrive. As a nation, we went through a trauma and the manner we navigated out of the situation is a subject for future review.

 

 

[Vanguard]