Dr. Alex Otti, is a renowned economist and former CEO of defunct Diamond bank. His views on the economy are highly respected and his weekly column in a national newspaper earnestly expected. The condition of the economy and government’s policies to address it presents some intellectual and historical concern to him. According to him, the economy is getting mired in debt and development trap, and urgent steps are needed to reverse the cascade. He spoke to BusinessHallmark’s team of Uche Chris and Bayo Obajemo.
There is this problem of revenue and cost or expenditure with the budget. The government says the problem is not debt stock but revenue; where is the problem?
First of all we need to cut our coats according to our clothes. Size or cloth which one is important; I think it is the cloth. You cut your coat according to your cloth; if you’re too fat you need to come down; otherwise you will be struggling with it. To that point you first have to recognise what we have. You need to be realistic, the first argument is that we have a lot of people and it’s not a problem. We are not the most populous nation in the world but if we have a nation that is not economically productive you have a big problem.
So when you look at absolute sizes, and it’s not the magic: GDP is $450 billion; that is the biggest economy in Africa, right. When you now begin to look at the GDP per capital which is the most important thing, if we share that GDP what will everybody get? So in real term, we are a very poor country. So we have about $1700 and South Africa is chasing $7000, so we are not the same size that is the truth. I can also point a few countries in Africa where their GDP is chasing 14 or 15000 dollars. So it is actually the number of mouths that you have to feed but you can bring it down.
In the villages where we grew up your father had four wives and 20 children and another man had only one wife and four children and they had the same harvest; you had 20 mouths to feed as against four mouths to feed. So you can see that those people were richer than you. Even though in your farm you may have more farms and hands in absolute number, more yams than they did.
The point I was trying to raise is that we must first of all understand our size. Then you can now begin to manage your cost alongside your size. You cannot be flying private jets; maybe you have ten of them in your presidential fleet, when you are not in America. If you cannot afford it you cannot afford it. Now can our economy be bigger than that, of course? Can our GDP per capital be bigger than that, of course?
You must understand where you’re first, tell yourself the truth, come up with strategies that will take you to where you want to be. If you start by pretending then you will not get there. It is not necessarily to say that our revenue is high, even when you look at our 2020 proposed budget, the revenue projection is 8.15 trillion naira. You and I know that in the last three to four years that we have been only able to make 50 percent of our revenue, 54 percent was the highest; then we have recurrent expenditure of 70 percent of that your budget.
When you are only able to make 50 percent of the revenue, whether you print money there are costs to it. It means that the 30 percent that you allocated to capital expenditure, then you are only able to manage less than 15 percent.
Then we have a big problem, in fact, if we do not do something about it, then we will have real financial crisis from 2020. Everyone who understands economics will have to put on their thinking cap and see how we can bring down the cost. When we even look at our recurrent expenditure you find that a large chunk of it is in travels for all the people in the ministries, departments and agencies, for the legislature, for the executive, for the judiciary and so on.
Do we all need to be on the plane?
Remember those travels also go with estacodes and all the allowances. The reality is that we are pretending that all is well, while it’s not well. I gave clear instance in the past. In 2017 I had said that we imported a democracy and there is nothing wrong with it. You don’t need to reinvent the wheels all the times.
But we can tweak it?
Yes, tweak it to suit our purposes; there is a gentle man that I like his quote. His name is Alexander Pope; he says “For forms of government let fools contest, whatever is best administered is best”. So whether you say socialism or communism or capitalism, fine; but you need to look at your size at that stage, and what works for you. So, one of the questions that I raised in 2017 at Vanguard Economic Discourse was the issue of 36 states. I asked a question then. Do we need 36 states; 36 state governors; 36 deputy governors; 36 speakers; 36 deputy speakers, 36 houses of assembly?
The close to 1000 members across the entire national network with all their aides; there are commissioners, and there is no state that has less than 15 commissioners. So multiply that, the commissioners also have their aides. We have 774 local governments, 774 chairmen, vice chairmen, their legislators. Do we need all this waste? Do we need a bloated presidency? Do we need 109 senators and 360 representatives?
Shehu Sani said that their allowances are N13.5 millions in the Senate every month; that is not part of the constituency allowance and all that. So when you look at that alone, you find that we cannot survive. Do we even need a bicameral legislature? Can’t we have one? and I know that some countries, I think Senegal, and a couple of others like Mauritania have abolished the senate, and made it a unicameral. What are they doing? The issue is on the front burner now .There is a friend of mine who went to the senate, he said he had never been idler than now in his life, that the senators don’t sit on Mondays and Fridays, and it’s supposed to be a full time job.
So, can’t we reduce the size of the legislature, can’t we say oh, there is no allowance except sitting allowance, no wardrobe, no vehicle, when you do that most of the people that you see there that have converted the place to a retirement home will not contest; there won’t be any incentive to go and kill and destroy to win election to be called distinguished senators and honourable members of the house Those are the ideas that we are throwing on the table, we are not saying they are the best ideas, but we are saying we need to start looking in that direction. All we are saying is that if the sound of music changes, the dance step must also change otherwise, you will be cut off and somebody could be wondering who is beating the drum.
It is an American system you know that the senate performs a role apart from legislative in terms of representation. They represent the States equally; the house is based on constituencies. Now if we scrap the senate, we will discover that Kano alone has more members than the entire South east. How will that play out?
All those are human creations, they are artificial creations, you can always tweak it There was a time when we had only three regions in this country and it worked. The representation that you are talking about, in fact the ones that represent me I don’t know them. If at my level they don’t take any inputs, then they are representing themselves. All well and good to come and claim that you are representing the people. If you are representing somebody, at least you will want to hear from him from time to time, and you want him to also give you feedback as to how well he or she is representing you. The truth of the matter is that we can deceive ourselves, pretend that it is well, but the truth is that there are representing themselves.
So, when you actually do the restructuring that we are talking about you now get the real people that are okay, professors and sound people who will get there to give service. Some of us are not looking for money when we show up for service.
Sometimes I read or hear from people who want to serve who want to make a difference, there are people in Nigeria who if they go there will be proud to serve, but they will never be given the opportunity because there is money to be shared. And one of the ways to ensure that money to prevent that is this restructuring. Let us go back to regionalism, go and produce where you have comparative advantage. Think of when oil dries up in this country, when there is nothing to share at the centre, it will become unattractive.
Let us prepare for it, or when oil becomes unwanted, and is going to happen as you can see countries in Asia, Europe and parts of Latin America are phasing out hydro carbon fired vehicles from 2030- 2050. It is not that oil will become unimportant completely, but it will not be as important as it is today. So, when that happens, there won’t be much money to share at the centre, so the earlier we start preparing for the raining day the better for us.
How to we control the cost because people believe that bureaucracy is bloated and that the productivity level is very low, and not digital, we have people who have offices but don’t go there.
If you want to restructure, the next thing should not be about sacking people, to sack people there must be reasons for it. If you change the system, those people that are not coming to work will be the first to report for work if they know clearly that there is a system that monitors their productivity and ensure that they are assessed based on their productivity. They will sit up. What doesn’t get measured doesn’t get done. The idea will not necessarily be to downsize but to make the civil service more efficient. And if you have to right size you will have created the enabling environment for businesses to suck up the people that are going to be let go in the civil service.
You don’t just sack, you do the analysis and study if the place is over staffed, and you can only begin to talk of downsizing if you are sure it is over staffed. The problem right now is that we have not even gone in there. It should be based on empirical study, and not arbitrary action. There must be a process that will produce; first of all, do these people qualify to be employed; do they have the right skills, training and the productive ability.
From this it will be very easy to know who to keep and who to let go.
Today, our unemployment rate is chasing 30 percent when the unemployment rate in the U.S. begins to get up to 4, 5 or 6 percent they become worried. So, the first thing you want to do is not to add to the number of unemployed people, but you can get them redeployed to where they can become more useful.
We can get them to retrain, get them to up their skills, then you can now determine those who are not fit, and you can send them out if that is what you want and of course, there are people who actually are above retirement age. Some are officially given one, two, three years more, when there is a lot of people out there looking for jobs.
What is your take on President Buhari Economic Advisory Team?
I think it is a good development. I had written in 2016, and that article was entitled: “Mr President, you do need that economic team”!.If you go into record I had given them a lot of reasons why the president needed an economic team of people who understand economics. Economics is a science, you cannot google your way through it. It is either you know it or you don’t, and if you don’t know it you can study it.
When you apply the theory you find out that it makes sense. I will give you an example where increased VAT is 7.5 percent in an economy that is going through this mess. Economics will tell you that it is suicidal; when an economy is in crisis the demand is low, it leads to low supply and prices go down, plants shut down and there is reduction in productive capacity; it may lead to production lines shutting down completely or companies shutting down completely.
The more of that happens, the weaker the demand, the more people you have to sack with low purchasing power. In a depressed economy you put money in the hands of consumers so that they can demand and spend, and production capacity raised and good jobs can be created then economy will correct. But when you now tax people you’re doing the opposite. But again, that’s what we have done, and nobody seems to be listening but I am sure respected team that understands economy, somebody will call the president and say that is not where your problem is. In any case, you want to share up your revenue that VAT is only 15 percent that federal government is entitled to; the rest goes to states and local governments.
So you have done nothing but created panic and more problem for yourself and your people. In that article, I started by disqualifying myself because if there is anything I want to tell government I say it through my column. I had sent a confidential memo to a few people that such and such should be on list of advisers and I am glad that to say that three of the people that I put their names down are on the list.
I am sure they looked at the merit because I said it four years ago. I said they will do a good job that they know what to tell the president; my worry is that their recommendations don’t get politicised. It is one thing to advise, it is another thing to follow the advice.
So many rating agencies believe that so much damage has been done to the economy that it will take the country years to recover.
Those are opinions, the truth is that once an economy enters a recession it takes years to come out fully, and that is why we must avoid it. In recession, your economy is in decline, it is not yet, it gets to a point zero where you’re no longer growing, and it is still not recession. It now gets to negative the first quarter, it gets to negative the second quarter, you are technically declared to be in recession. So to pull back from negative to zero is a tall order and from that zero to begin to grow is difficult. You can see that since 2017 we are yet to pull back. We have been growing at not more than two percent per annual, that alone may not be recession but it is not growth. Why is it not growth because any growth that is less than a population growth is actually not growth.Back to our example about a man with four wives and 20 children and the man with one wife and four children!
The more mouths you have to feed, you must ensure that all those people you have added to the economy have food to eat; it is because not that we are now called the poverty capital of the world where close to 94 or 96 million people are living below poverty line. When I did say at some point that N700 per day is actually the new minimum wage, when you look at that everybody has a wife and children and job sharing in that poverty, it is a miracle that people have something to eat in this country.
What is your take on border closure?
Well, we have a problem. We have chosen to run a free economy; we must also have our eyes on regulation. If you don’t regulate properly the free economy has a way of going overboard. If you don’t have control in place somebody may say closing the border is one of the controls, but we know that we have control, we know there is a body called the Nigeria Customs Service. So, what are they doing? If you have a Customs service that is not effective what do you do to it? Do you burn down the house because you find one of the rats inside? Or you locate the rat and kill it?
So for me, we apply the wrong solution. If we have a Customs service that is not doing it’s job we must force them to do their job, or we sack all of them.
So, the solution is not in shutting down the borders for how long will you have the borders shut? And the people are suffering. There are legitimate goods that should have been coming in that are not allowed to come in. So you punish the culprits, you also punish the innocent people. For me, I would have done it differently, and I believe this is not the solution. This is a short term measure and at the end of the day we must come back to the real issue. Why are the people that we have given charge over our borders not doing their jobs?
Before this government came in it was widely believed that corruption was the problem of the country, but ever since it came in and fighting corruption, the economy has not really improved. So, what is the correlation between corruption and economic performance?
Well, corruption is there and has always been there. There is no country that will say there is no amount of corruption in it, it depends on how heavy it is. To what extent is corruption endemic? I agree completely that corruption is everywhere – the civil service, judiciary, the legislature, the executive. We are all enmeshed in corruption, the current administration actually identified it and made it one of its deliverables, but unfortunately they have not done much very well in tackling corruption.
So, it has implications on the recovery of the economy because of these things work at cross purposes. If I don’t feel that my money is safe in your hand I will rather leave it outside. I believe we need to pay attention to it, I will not say I am an expert in this, but there are tons and tons of literature on what we can do. If we refuse to do, the confidence of investors will not be there, because the economy also works on confidence sentiment. Investors are more concerned about the safety of their investments.
They want to know what happens to their Investments, how their money is converted and how they are going to repatriate their profits. If all this is not there, it will be difficult for investors to come because they want some high degree of certainty and safety of their investments.