Productivity, key to economic recovery and ultimately, growth- Mustafa Chike-Obi
The Nigerian economy is struggling to exit its first recession in decades and the nation is confronted with a myriad of issues that continue to stifle economic development. Some of these issues include high cost of funds, difficulty in accessing capital, fluctuating exchange rates, low capacity utilization, liquidation of companies, exit of foreign investors, loss of jobs, upward trending price of goods and services and a lack of sustainable economic policy direction. In an attempt to reverse the current situation, the present administration recently launched its Economic Recovery Agenda but Mustafa Chike-Obi, immediate past Managing Director of AMCON and now Executive Vice Chairman of Alpha African Advisory Limited says the solution to the economic down turn lies in the radical transformation of the economy to a self-sustaining one; in particular focusing on strategies that inspire consistent year-on-year double digit growth and job creation for the foreseeable future. In this interview with Godfrey Obioma, Chike-Obi also warns that, Nigerian banks which compete with their global peers, may face worse banking distress if urgent action is not taken.
Since last year, the Nigerian economy entered recession. A number of people have given reasons for this. Could you give a background and reasons for the current recession?
Let me start by saying that I have been happily retired from public service for almost 2 years now. I have since then been focusing my interest on building a very exciting company called Alpha African Advisory Limited (‘Alpha African’ – formerly Travant Capital Advisory Limited) to become a leading pan-African investment banking/ advisory institution. For now, we are covering West Africa and very soon we will reach out to the whole of Africa. I spend most of my time at Alpha African when I am in Nigeria.
My warnings for the economy started with the former administration as there has been a number of lingering structural problems with the Nigerian economy; most of which must be addressed in a holistic fashion in order to achieve any meaningful impact. I think when we rise above personalities and politics, and focus on correcting the structural imbalance in our economy, then we will be able to deal with the real problem of the economy. We need to understand that when you are criticizing policy, you are not criticizing persons or offices.
The major reason why the economy entered into recession is that ours is not a productive economy. We do not make things that we eat, drink and drive. We can’t treat or educate ourselves. We import all these things and the ones we make are of inferior quality compared with the ones we import. We must become a productive economy. If we don’t, our currency will continue to structurally weaken against other currencies.
Ours is the largest import-dependent economy that there is. We do not have enough earnings to meet our aspirations, desires and needs. Our poverty rate is unsustainable and must be reduced. There are two ways of doing that – either we grow the economy or slow down the population rate. We can’t have population growth of 2.5 percent per annum of higher when the economy is growing at a negative rate. That is a recipe for disaster.
It is disheartening to hear government officials say things are okay in the current state, that -1.3 percent is better than the -1.8 percent that the IMF predicted. Negative 1.3 percent growth is a disaster ;positive 2 percent rate is also a disaster; 5 percent is a time bomb. So, it is saddening that government is celebrating a reduction in growth rate to -1.3 percent from -2.2 percent.
The government gives the impression that decline in negative growth from -2.2 to-1.3 percent suggests that we are coming out of the recession. Do you agree with this?
Economies are measured in margins. When we say, an economy has grown by 1 percent, it is marginal. When we say, the economy has declined by 1 percent, it is also marginal. No economy will forever remain negative in growth. When the population growth keeps increasing, there is a certain growth in GDP needed to sustain the population growth.
For Nigeria, given the current population growth rate, we should be growing at a minimum of 7 percent. Some people would say 6 percent but I think our growth rate should be at least 7 percent. When GDP was 7 percent, we were celebrating that we were the fastest growing economy. I was disturbed and was screaming that we should be aiming at double-digit growth. Any growth below 10 percent is undesirable. So, let the people who run the economy tell us how they intend to grow the economy at a minimum of 10 percent. If they think they can’t do it, they should let principal officers step aside for those that can do it. Until we do that, the poverty rate will keep growing. And when poverty rate reaches 80 percent, there will be unrest.
You have been an apostle of economic productivity, double digit growth of GDP for 15 years, and job creation as a catalyst for economic well-being. What strategies should be deployed to make the economy deliver such a performance?
There are two things to be done to make the economy productive. Firstly, we must make capital available. The set-up of a development bank is a good thing but I don’t think it is big enough and I don’t know if it is properly structured. In simple terms, to make it work, capital must be available at a reasonable price. Today, Treasury bill rates are approaching circa 22 percent which means on a risk adjusted basis, banks should be lending at 30 percent or above. No economy can grow in such cost environment. In like manner, we also do not have enough equity capital for several of the businesses seeking to raise debt financing. Lack of capital is therefore making it impossible for manufacturers to produce. Those who are seemingly successful at the moment, in the present circumstances, are people who trade because their activities have relatively short life cycles. When there are changes in the economy, they can easily adjust their price. In effect, capital must be made available in a massive way and it must be impactful.
Related to that, I have also advocated interest rate of 8 percent and CRR of 10 percent. People have argued that that will make the value of the Naira fall. Now they are adopting the opposite by making interest rate high, yet the Naira has weakened and inflation is still high. And worst of all, government is paying huge amounts of money by financing the budget with huge borrowing at high Treasury bill rates. If you lower interest rate, debt service will be less and inflation can be managed.
Before we go to the other two issues of growing GDP to double digit for 15 years and job creation, could you offer suggestions on how to make capital available?
The answer is guarantees. AMCON raised N5 trillion because they had Federal Government guarantee. A guarantee programme to stimulate capital flows is something that can be critically analyzed and managed by the right team of professionals. I believe that the Federal Government can issue guarantees of up to N30 trillion to support infrastructure development. Money can be raised on the back of those guarantee but not in a high interest regime. That is why I am saying we should find ways of stimulating sustainable capital formation in order to engender infrastructure development and its multiplier effects on productivity and growth. In summary, the way to go is through a creative system of Federal Government guarantees dedicated for particular purposes.
Now can we have your thoughts on the other two issues that can drive double digit GDP growth and job creation,
The second factor is what I call “tools”. I don’t want to call it infrastructure. By tools, I mean infrastructure, machines, etc. Let me give you an example, if you have to try to change a flat tyre on a car and you don’t have a jack, it will require many people to do it. If you have the right tools – a jack and wrench, anyone can change a tyre. As such, you need to have the right equipment to be productive. The final one is education, for lack of a better word. The Federal Government should seek to spend less to educate doctors, lawyers, graduates in English, mathematics, mass communications, etc. It is not because they are not good but because the money is not there. Government funding of education above primary school level should focus more on vocational training for bricklayers, mechanics, plumbers, etc. Government should support those that can make things, those who can build bridges, construct roads, fix electricity, etc.
In your rating of major problems of the economy, you have argued that lack of competence is number one ahead of corruption and culture. Could you throw some light on this?
Yes, I believe the major problems facing our beloved Nigeria are competence, culture and corruption in that order. The reason for this ranking is primarily because people who are competent are less likely to be corrupt. They believe, rightly or wrongly, that being competent and qualified can get them access to other jobs in the event they have to leave their current positions. They are confident in their abilities and less likely to be corrupt. According to studies, there is a correlation between incompetence and corruption. So, if we have very competent people who know their job, the level of corruption will drop.
The second problem is culture. It is the culture of Nigerians to celebrate incompetence and corruption. I went to Harvard University to visit a friend and it was very interesting to observe that the President of Harvard with a responsibility for a budget of over $6 billion a year; was walking about in the campus all by himself – no fuss. His annual budget is similar to the budget of the 6 states in South West of Nigeria put together yet if you see him, you will not even know he was the President of Harvard University. If we adopt a culture of simplicity and disdain for obscene displays of wealth, corruption will surely decrease.
You have also suggested that the country should grow GDP to double digit for 15 years to get our youths into jobs. How do we achieve this?
Double-digit growth in GDP terms and reduction of poverty level is a must if the economy is survive; it is not a choice; it is like blood in the vein. If we don’t do it for a long period of time, this country will not survive. So, we don’t have a choice than to grow the economy. China grew its GDP at an average of 10 percent for about 30 years. Today, China is not comfortable in growing the economy at less than 7 percent. We should be growing at 12 percent for the next 15 years. Is it difficult? Yes. Is it possible? Yes.
We currently have a foreign exchange system that feeds people who are travelling abroad for medical check-up or who are studying non-vocational courses abroad.
They are paying those who are going abroad to import things, some of which we can make here. Money is going out and creating jobs for outsiders; we are doing that in an environment where we are in a recession.
If we agree that we want to grow at 12 percent for a certain period of time and the Finance Ministry and CBN have a growth plan to deliver this, we can assess everything based on whether it fits in to the growth plan; and every policy and effort can be geared towards the plan. As it is now, issuing Treasury bills at 22 percent cannot fit into any growth plan; we need to be more creative in our policies.
The third arm of enhancing the economic welfare of Nigerians, according to you is job creation. How do we make this happen?
As I have been alluding to, with increased GDP growth at an average of 12 percent year-on-year, for example, productivity levels will improve significantly across several sectors and will ultimately lead to extensive job creation.