“Government would come in prepared to take some recommendations so that we can hit the ground running,” Bukar
The Nigeria Economic Summit Group has concluded arrangements to host this year’s summit to hold in Abuja from October 10th -12th. In this interview with BusinessDay’s Lolade Akinmurele, the NESG chairman, Kyari Bukar says the theme is apt as the economy lurches in recession, even as he spoke a few words to the asset sales discuss making the rounds in the country.
What is the theme for this year’s summit and what influenced your selection?
The theme for Nigeria Economic Summit 22, which will be hosted at Abuja, between October 10 and 12, is “Made in Nigeria.” The board deliberated and considered several themes, after which we found that Made in Nigeria addresses the current economic situation in the country.
Asides the reality of where we find ourselves economically as a country today, it is also something that requires that we be deliberate and purposeful in terms of having a long term strategy for the economic state of Nigeria.
There is no better theme or subject matter for discussion than to have an inward look at our economy. I do understand that we are but a part of the global economy, we have to respect that, but at the same time we have to also protect our citizens and their interest in jobs, our companies and their interest and so on. That theme was looked at and considered by the board to be one of those things that we need moving forward. Some of our various themes in the past have touched on competitiveness, Agriculture, education and the likes. But I think today, Made in Nigeria is quite appropriate for the state we are in, economically speaking.
At a time where FX reserves have plunged and unemployment rate is at a record high. How exactly will the Made in Nigeria help steer the economy in the right path?
The situation we find ourselves with the FX reserves is caused by a disastrous consumption habit which wasn’t and is not sustainable and so we must change our consumption pattern.
However I do believe that if we have a country where we look inwards in terms of developing and building our products and services for the economy and we do it so efficiently and with world class standards, what will happen is that it might begin to earn us FX.
The foreign exchange situation is dire and some of the structural factors of the economy also need to be considered to arrive at a solution. I think the solutions to the economic situation are multifaceted and we need to be firing on all engines. We have to basically face all the fronts. Whether it is local production, Agric, solid minerals, whatever it is that we decide to embark on, we need to be careful that we don’t do what we did with oil. It’s a commodity, unless you add value it never becomes an enhanced technological product. So if you are just selling crude oil, it is not going to be any different if we go into Agric and Solid minerals and still produce crude of those forms.
They are all products whether rice or maize cocoa, palm oil, whatever it is we produce, if it remains at that crude level, it is also commodity and you will be faced at those vagaries of price swings of those commodities. But say it is cocoa that we are producing and we also have the value chain developed and we are selling chocolates, then there will be an enhanced value. It’s the same thing with crude oil, if we are refining all that we produce then we will be exporters of petrol, diesel and other refined products.
Now if you are beginning to look at petrochemical complexes etc, lots of value and jobs will be created and then it is that single enhanced product that goes out and sells and that can attract FX.
Though the FX situation in the short term may be very dire, if we deliberately have policies that encourage Made in Nigeria and we provide necessary incentives, encouragement and support, I believe three things will happen. One is that we will begin to be self-sufficient in almost all facets of our lives. Secondly, we will be creating sustainable jobs and thirdly, the FX situation will be improved. The pressure on dollar demand will subside and we will end up earning more. So in the long run it is going to be a win-win. But there must be deliberate policies.
In your opinion, what shape must these policies take?
There must be incentives to stimulate local production, because what happens is that companies respond to the type of incentives provided to them. It could be tax credit; it could be support from the government in terms of infrastructure or assisting them in some of their research and development aspect.
Those will basically position the need for our ecosystem to become competitive. And if it is competitive, what happens is that even a foreign outfit may decide to produce here in Nigeria and add those values, because if they don’t do so, they will be cut out.
It is not about going out to beg people to invest in Nigeria. No. You simply need a consistent policy thrust, which is clear that if they come here they will produce and in so doing, they will be making money it will be win-win for us and the entities that are coming in.
I would also like to see a situation whereby the government could as a matter of priority, select three or four industries and agree to make effort in being the best in the world in them. When you do that and you put your mind to it and focus on it, there is no reason why you shouldn’t thrive in the selected areas. There are a number of ways of skinning the cat, but I think purposefulness and deliberate policies are the things that will help us come out of this.
Access to finance is a tough nut to crack in Nigeria, how can government tackle this conundrum and by implication, spur local production?
I think there are some successes recorded in some of the developmental initiatives that the CBN has embarked on in the past, whether for the Agric sector or Small and Medium scale Enterprises (SMEs).
What we need to look at very carefully is why whether interest rate regime is high despite the liquidity in commercial banks in Nigeria (depending on who you talk to). What is normal is that when there is so much liquidity in the banking sector, interest rates should be low. So something is structurally at fault here in Nigeria.
We have a Monetary Policy Rate (MPR) that is so high despite excess liquidity, and to mop that excess liquidity you continue to raise MPR, meanwhile when you are faced with recession and you are supposed to be cutting interest rates.
There is a necessity to relax CRR so that you can inject more liquidity so that people can have access to finance more and more. So our situation is, for a lack of a better phrase, completely upside down. Having said that, commercial banks are commercial enterprises and they are looking at where they can access the risks and give out loans.
In spaces like SMEs, there is a Bank of Industry (BOI) for example, which is a developmental entity that has given out loans where there have been cases of extreme success and in some cases, there may not be.
The banks need to have skills that would give them the capability to access risks and give out loans, but if it is a smaller size of money, I think developmental finance institutions would be better.
The commercial banks from their own standing will be giving out loans; but they have shorter durations when it comes to giving out loans to companies. What we need in terms of helping SMEs grow transcends just finance.
Finance is certainly critical, but skills are probably more important than finance. By skills I mean how to run a business, keeping your books and the discipline you need to grow as a business, whether it is a one man or five man business.
These skills need to be provided along with the finance and what you would get is that with the little finance they get, they will utilise it optimally because of the skills in their disposal.
What we believe that needs to happen is an integrated approach. We have manufacturing outfits that recently got over $8 million from offshore investors. Beloxxi, makers of crackers, secured the first round of finance 5 or 6 years ago, under Obasanjo’s regime for their expansion.
Now they are getting $80 million for more expansion, and that company making the investment that only bought a minority stake. So what you find is that there are opportunities in certain spaces. Of course “crackers biscuit” is a commodity that will be consumed at a very small chance and you need to crank out many of those to really make a success of it. But when you look at Nigeria and the type of population we have and the direction the economy is growing, these two negative quarters is an aberration. So investors need to position themselves to take advantage of the long term sustainable growth the economy will be faced with.
What audience are you targeting for the summit?
The summit has always been a meeting ground for the public and private sector stakeholders, meaning that all the government ministries, departments and agencies would come and meet with the organised private sector.
We are looking at encouraging SMEs to be part of this conversation, as well as the youth. In the summit proper, we always have a forum for the youths and we will continue to do that because it is part of building sustainability because those of us that have been in the NESG for 10 or 15 years would want to see younger faces coming in. For example, we have the communications and new media segment. There is also forum dealing on innovation, and we have a number of people that are involved in the new industry. We believe that as part of the fourth industrial revolution, Nigeria must also have the conversation regarding what is going on in the ICT sector.
What is your assessment of Nigeria’s self-sufficiency target and do you think government doing enough to drive this?
Economies go through ups and downs and ours will not be an exception, a major part why we found ourselves here is because of things that had happened in the past. We had heavy consumption and we also had the abuses and wastages. Those should be historical lessons; unfortunately human beings tend to have short memories and so when things start to look good after a rough start, they forget.
In that regard, in whatever policies we want to pursue let it be done in a manner that those polices become part of us and part of the institutional structure of the economy. If you do that, what happens is that from our behaviour will change and some things may not happen to the extent that they did today.
So down the road, we have learnt our lessons and certain things will not be as bad as it has been now. If we have these, then what we could do is to encourage those policies and make it into a virtuous cycle, meaning, say the government were to resolve to reduce taxes in certain industries, and you see growth there, of course over time that industry will be fiercely competitive and it may not be profitable to go in, but what you will tend to see is that it may be self-sufficient and the need for importation of that product for that industry becomes non-existent. In fact, the reverse could be the case. For example, if our agriculture push works out and assuming that rice production grows at the rate at which it is going now, doubling every year, four years down the road, we might be exporting rice. That will be an FX earner. So the lifestyle of those farmers will also change and may be they will begin to send their kids to school, meet their health care needs and so on.
Those ecosystems or clusters where those agricultural products are being produced will need to have some level of micro economy, whereby value addition takes. So rather than have all the young people come to Lagos, Abuja or Port Harcourt for jobs, they will be moving towards those clusters where they will then have housing needs, mortgage, stores etc, and that way you now have zones in the country where economic activities will go on and it would be local, in the sense that you will find a lot of productive capacity and productivity going on over a period of time and that will be the kind of engine you need in growing the GDP and making ourselves self-sufficient.
There is no country that is absolutely self-sufficient. However, you can reach a level whereby, with the surplus you are taking out, you will be able to have avenues to meet other needs by importing them.
I think this is a strategy that can be worked out and with the kind of dialogue we are having between October 10 and 12; I believe that the government would come in prepared to take some of the recommendations so that we can hit the ground running.
The optimistic outburst that greeted the new administration in Nigeria is cooling; do you think the new government has derailed?
Government is actually doing a lot right now but it is not being properly communicated, sometimes when you do something that has not been shared, people have the tendency to think you are not doing enough or you are not doing anything and so one of the things I would like for the government to do is to constantly communicate all its initiatives even if it’s a tiny one because the act of communication will bring out a dialogue and that dialogue should be seen as a means of feedback, so that the process could be improved upon where necessary.
There is no wisdom in any person, entity or organisation. Wisdom can only come through that constant dialogue. So as long as the government realises that sometimes in the means of sharing information, it may appear that people are criticising you, but you should continue to work on it and go back to the drawing board if necessary. Their communication is not clearly articulated, they need to have a script to play out, so that every party within those agencies are speaking to the same thing. It is terrible when one agency of government says one thing and another seems to be saying something different.
How successful have the previous summits been and did your recommendations yield fruition?
I’ll start with the recent one, NES 21, or I could go as far as the first. The first summit was where we articulated the need for Nigeria to relax government ownership of businesses and to embrace privatisation as a means of sustainable economic development and growth.
I believe that depending on which government we have had and engaged with, privatisation whether it is the GSM operations, the power sector, has been fantastic to the average person. Although we still have some hiccups with the power, but generally speaking, anytime government takes its hands off a business and hands it over to the private sector, the value add becomes immense. The reason is very simple; it is because the motivation for running the business changes.
For a private entity, the motivation is profit but the motivation for government has social and welfare components to it; because of the difference in motivation, the success of those businesses differ.
NLNG for example is not purely a government owned entity. Government owns about 49 percent while the private sector holds 51 percent and it is managed with an excellent governance structure and it has been giving dividends to government every year and it is paying its tax.
Now if those spots in Nigeria where successes have been seen in terms of a PPP arrangement, which is another one of the initiatives that the summit brought as a phrase to the Nigerian lexicon, the successes there also amounts to huge benefits, creating jobs.
I would not even begin to fathom if we had just NITEL up till now. We may have GSM, but I don’t think we would have as many jobs created by having those four GSM operators. Even some guys who have developed apps for mobiles are living through it and creating jobs as well as adding value to our lives quite immensely.
So the NESG as an organisation has achieved quite enough and we continue to engage in conversations paramount to Nigeria’s economic future and we would also continue to make recommendations. I think that five or six years ago, all of our recommendations were forwarded to the Federal Executive Council (FEC) and to me that was a laudable achievement. Some of the policies may not necessarily be adopted, but others may and if we succeed in having 10 or 15 of our recommendations adopted, and we continue to have these conversations, then it is going to get better for the country.
Can you speak briefly to the intended asset sales making the rounds in the media?
Government has so many assets that it can actually raise funds from. There are a number of ways of raising funds, one is by borrowing.
But if you don’t have a good credit rating, then the lenders might not lend. So you need to combine a mix of domestic and external borrowing and if the revenue gap is not closed, selling of assets could be considered.
Someone recommended that the government can reduce its holdings in the NLNG, which has been a very successful company, giving $1 billion in dividends. That dividend over a tenor of 15 years amounts to $15 billion. If you are selling that shareholding or half of that shareholding, then you will need to do a proper valuation before selling it, because N2 billion next year is different from N2 billion right now. So the proper valuation and the net value of the future cash flows would determine how much it is worth and if we are in dire need of that, we could sell part of that and be able to then use the proceeds for something that if we do immediately can generate more than that N1 billion per year to government.
How do you do that, for example, if it is sold for N20 billion and you invest that cash in power and it’s so good that Nigeria achieves constant power supply, I believe that the multiplier effects from that is going to be more than a billion dollars a year. So the good side of it would be in the investment you are making and if the investment generates more in terms of the well-being of the society, then so be it. We should do that. It does make sense to hold on to an asset amid acute revenue shortages. If you can arrest the economic gloom by selling assets then quickly apply it in such a manner that it would generate huge returns. You could also use it, as I believe Dangote mentioned, to boost investors’ confidence.