Interview: Jimoh Ibrahim advocates for more debt to reflate economy

As the Nigerian economy continues to wobble, there appears not to be any headway towards digging the country out of the raging poverty which has spread to all nooks and crannies. Nigerians also fear that the nation’s total debt, which is now put at N24trillion is mounting again and that it may portend doom for the nation going forward. But on the sidelines of the World Bank meeting in April 2019, Jimoh Ibrahim in an interview with Business Hallmark advised Nigeria to borrow more if it must survive and tackle its infrastructural challenges.

A report came from IMF recently advising the Central Bank of Nigeria (CBN) to roll back its intervention in infrastructure, agriculture among other areas it exerting energy on? What do you think?

I think the worry of IMF is that you need a coordinated effort to revive an economy. So, the argument is on whether the activities of the Central Bank of Nigeria are coordinated. Can you really capture accountability in interventions that are uncoordinated? If you cannot, then it’s a pseudo path, something that looks real but is not real. So there’s no substance in it. I think the apex bank may be damaging the economy more if it is not coordinating its intervention activities.  It has to be coordinated.

For instance, if you talk about infrastructure, it’s not something you can do by Central Bank intervention alone. You need a lot of things to get the projects done. You need design, you need planning, you need Research and Development and you need payment schedules. So, you cannot just do these by intervention, you cannot say ‘oh I intervene; this road is bad and it will break things’ and just do some uncoordinated activities. I think IMF is right for the first time on this. Though I don’t agree with them all the time but I think in this matter, the Central Bank’s activities are not coordinated and they are more damaging in terms of their interventions. Intervention is not bad but you need to get it coordinated; we need to know clearly what you want to do; you need to get stakeholder involvement, you need to really get things – as in the goals – clear, with objectives well spelt out and what you’re spending must be budgeted for.

Otherwise, if you have a government in future that is not worried about accountability or that is not fighting corruption, that intervention can be a source of fraudulent activities because anybody can say ‘do that road for $10 billion’ and then you release the money. It is during war or emergency situations that you do interventions that are not guided but I think the Central Bank has good intentions to do interventions but it must be guided for it to be properly accounted for.

Talking about this point, doesn’t the IMF seem to be speaking from both sides of its mouth? We were listening to them and they said they expect unconventional monetary policies in the EU. Unconventional would mean breaking away from the norms and doing things that are not exactly within your purview. So why would they okay something for one part of the world and say it’s not okay for others?

It depends on the environment. The environment in the EU is different from the one in Africa. So in the EU for instance, there’s concern about money laundering. That is not prominent in Africa except in Ghana.  So, you will need unconventional means by which you can get over money laundering in the UAE and the Middle Asia. So obviously, because we are looking at coordinated financial institutions, if you’re not doing that, that is not right. IMF is again right by saying, use conventional and non -conventional means to make sure that you coordinate your economic and financial transactions, but be prudent and be seen very clearly not to breach the rules so that you can have clear transactions and people can go to sleep.

Let me say this to you from my Dubai experience, and I think that has been very impactful.  Now there’s a more conscious effort about money laundering, particularly in Dubai. So you see now, there are checks at the airport, machine checks to discover money, and with sources of money needing to be explained, and as such banks are therefore a bit more careful and I think that’s very good.

The last time we had discussions with you, infrastructure featured prominently which is a space where you have been playing for quite a while, mobilizing infrastructure to areas where they need them and you did mention if I recall, that we are not doing enough to tap into the global sources of funds that are available in that respect. You have seen what the budget estimates are for 2019 and everybody knows what the infrastructural needs are and we know that the budget cannot adequately address our infrastructural needs as a country. From your position, in very clear terms, what sources of funds are available for us to tap as a country to close the funding gap and enable the kind of growth that we need to create jobs in Nigeria?

This question you ask me is a consultancy question which would require me to charge you a fee, but let me throw some light on it nevertheless. Nigeria is spending 50% of her gross income on servicing external debt. You have 50% left of the projected income, and that simply means you would do 70% recurrent expenditure so you’re in 30 percent  deficit straightaway, and there is 0% for capital projects. So, that again is not a good way of planning because you must service your debts. That is inevitable. You know last year, I made a point to the IMF here and I think they took that advice. I said; stop advocating payment of taxes as a veritable revenue raiser from people in a country where 86% earn $2/day; where will the tax come from? Is it from the $2? If you take 86% off tax net, and you have 14% left, what can they do? So tax isn’t the way to go in that kind of economy.

Coming back to your question, and the issue of sourcing funds: what do I think is the solution that can bring Nigeria out of this predicament in respect of sourcing funds? I will give you two insights from my doctorate degree thesis in the University of Cambridge, and those were my preliminary findings.  We have a country of 186 million people with a debt of 21 billion dollars. Nigeria’s debt is now equal to that of Ghana. Nigeria owes 21 billion dollars similar to that owed by Ghana. We are now the same in terms of debts but our population is different; our population is 186 million while Ghana is 21-25 million.  Obviously Ghana’s population is just about one fifth or maybe 10% of Nigeria’s and both nations’ debts are the same. This means that Ghana is clever enough to get more money to build infrastructure. If you go to Accra, you will see a lot of things there. So what do you think Nigeria is supposed to do with its monetary policy? What you need to do is very simple. Get a clear legal instrument for infrastructure, then, do a budget covering 20 years regarding what you want to spend on infrastructure. Let us have a coordinated budget, create an institution that can win peoples’ confidence across the international spectrum. Now what do you need to do? One simple solution is to borrow more money, don’t borrow $1 billion, $2billion and use it to pay salary, because very soon you will just be grounded. If you want to borrow, borrow because your GDP to debt ratio is 20% so you have room of 80% to borrow more money. But the lender must be convinced that what you want to use the money for is real and will bring development.  Obviously what you need to do is, if your debt is $20billion I suggest you borrow $40billion and then pay off your 20billion so you get to 0% debts and then do a moratorium of 10 years and borrow for 25 years and then put the whole money into infrastructure. I think that will really give you what you want as a solution

Borrow big, expand your debt net by about $20billion, in fact, go and borrow about $40billion. That I’m looking for $40billion is different from when I’m looking for $1billion.

Now pay creditors some $20billion out of the $40bn. Project the payment back to 25 years and ask for a 10 year moratorium period, interest only. Everything will just change in one second. You will have a one percent GDP to debt ratio.

We have a lot to make Nigeria a fantastic country, if we can put $20billion in infrastructure, Nigeria will be the greatest country any time any day.

I don’t know if you have been following the numbers where FIRS said they generated N5 trillion, and customs several billions and other government agencies like that. With these huge resources that the FG claims to be making, how come we borrow so much money to finance the budget?

Because the budget is projected on income that you’re not sure of, that’s why it’s called projected estimates; you don’t have that money from the day you’re looking for it.

FIRS is doing credibly well, an excellent job because N5trillion from the budget is about 50% of the money they try to raise from tax, that is fantastic, a good effort that must be commended provided that it doesn’t impinge on investment. If you drag it too much, people have selective options about where to invest so that is what to watch around for there. But coming to your point, you have 50% of that income going to debt refinancing.

You must keep paying your Interest on loan, so what you’re paying now for the 50% is just interest, you are not paying back the loan. 50% of whatever you make goes to that repayment. What are you left with? You’re left with 50%, so if FIRS makes N5trillion, N2.5 trillion goes to repayment, I mean servicing of debt. So what is left physically is N2.5trillion. You have about N9-12trillion budget. Your recurrent expenditure is 70% of the total budget; obviously, you have a deficit of 30%.

What about capital projects? People want to see roads, hospitals, oil platforms and all that? Where do you want to get that from? That is why you still see the need to go out there and borrow more money and if 50% is not enough, you have 100%. If 50% goes to the servicing of your debts and the remaining 50% is not enough to pay salaries, you still need additional 20% to borrow to add to the 50% to your monthly bills. That means you’re in a fairly dangerous financial lane. This is why you need to borrow more money so that your capital projects will not suffer. There could be a separate arrangement on borrowing to fund capital projects. Dubai which is owing $146billion has a population of 2 million. You are 186 million people and you owe $19-20 billion.

In the last couple of years, government has embarked on a lot of reforms to improve the ease of doing business in the country. How would you assess the impact of these reforms?

We need to have a coordinated arrangement, a selective reform you know, will not help anything. You can only use selective reforms during an emergency and we are not in an emergency. Reform to me is not the issue. What we really need is a coordinated effort. You need strategy, you need a system and you need structure. If you do reform without strategy, it’s zero. If you bring strategy without structure, it’s zero. If you bring structure and there is no system, it’s zero. These 3 X out of these 6 X taken out of elementary strategic class, you need strategy. What is strategy? You can explain it as allocation of resources to achieve goals and objectives. Then when you have the strategy, the strategy is that we want to borrow $40billion, what’s the structure? The structure we put in place we want to use it to fund infrastructural projects and these are the projects A,B,C and all that.

What’s the system? If I borrow you the money, what’s the guarantee that the system is accountable and transparent so I can go to sleep.

Is this why you think businesses are not doing well?

Businesses will do well if government is doing well because government is the largest spender in the economy. Government’s spending accounts for 70-90% in the country. So once government is not spending the businessman who depends on government will not be able to get money to do business.

If you have a hotel for instance and government departments decide to do seminars and workshops there like they do in various hotels, if they have budget constraints and they cannot pay salaries, they will cut off all those expenses. What will happen to the hotel? We have about 10% customer occupancy and the hotelier must put on the lights for about 24 hours for that 10% of their paying patrons when 90% of the customers are not coming? The business will of course go down with time.

Another way to explain it is by considering the country’s growth? You hear Nigeria’s economy is growing between 0-3%, however, the realistic growth is about 1.8%. If you grow business by 1.8%, that 1.8% is so insignificant that you cannot find the impact on the balance sheet and if you have one little problem, it can drag down the whole thing.

The economy is growing, but very sluggishly. In fact, the projection now, according to the World Bank, is that Nigeria may achieve 2% growth, implying further that the growth will be about 4-7% in 2022 and about 10% in 2025.

You have a lot of investments in Nigeria, huge ones, what are you doing to improve them?

I have investments across the world, not only in Nigeria. I’m a global citizen; but the origin of the trajectory is Nigeria. Now to your question, what do we need to do about Nigerian investments? We are doing our best, we don’t claim that we have solutions to all of Nigeria’s problems but the investments we have here are growing in accordance with the balance sheet of the country.

If I appoint you as an MD/CEO of a company and you’re growing at 8% and your country is growing at 1.5%, I must query you, because it does not add up. What are you doing to achieve such growth? Are you doing money laundering? How can you grow 20 times more than your country? That is not true, it means you’re doing something illegal otherwise your whole country, an oil producing country can’t be growing at 3%, and you’re growing at 60%. So, we cannot grow above our country and the investments we have here are still here. We have NICON, Nigeria Re-insurance, hotels and we have Energy Bank in Ghana, we have in São Tomé, we have investments all over the place but the key thing is that we do investments for the purpose of enhancing economic value so, we didn’t sell them and close them down and some of them must have progressed. You can’t have 20 investments and all of them stay or survive. You know as a parent and you have 20 children, if one didn’t die, you’re lucky. And if all of them survive, they won’t all be billionaires ordinarily.

Are you indirectly saying that banks that have grown their profits, some by 20% and some by 59%, that something is not really clear?

You know that’s not real; those bankers tell a lot of lies, you know that, you and I know that. Because you know a loan is not performing and you’re earning profit on it, so, if all their customers want to take their money, will any bank survive in Nigeria? They are just telling lies; I mean it’s not real. Okay, you grow by 50%, your shareholders fund is N25billion and you make a profit of N50billion. That’s 200% of your shareholders fund! How much dividends did you pay? What is the impact of that growth to tax? When you look at the balance sheet of that bank, they bracket the tax. What we mean by bracket is to suspend payment till next year and next year again what happens? They also bracket it.

Before you save yourself $50billion, it means you must pay 30% as income tax. If that is the case, Nigeria must be very rich by now. Those things are not real.

Experts say that politics is superior to economics. What would you say is the problem of Nigeria? Is it coming from politics or economy?

The problems of Nigeria are not coming from both; they are coming from policy.

I’ll give you one example there are three abandoned projects in Nigeria which can account for 60% of our national debt. Do you want to know them?

There is the Ajaokuta project which is about $5billion, the second Niger Bridge $4.5billion, Sure-P $4billion and one other one other that is about $4billion. That comes to about 17.5billion and you owe 19-20billion as debt, that’s about 69% of the national debt. If you complete them, what is your GDP to debt ratio? It will just be about 4%; no nation in the world has that!

Nigeria has fantastic economic indices that can match this. The policy of abandoning those projects and the impact on the economy is severe. For instance, in Ajaokuta’s case, you spend 2.5 trillion Naira to import iron, meaning that of a budget of N12 trillion, about 20% goes to servicing the debt for setting up an iron manufacturing plant and you have an iron company that is on site; in fact the site opened 39 years ago and it is not completed and $5billion, 25% of the nation’s debt is in there.

Sure-P project is money directly deducted from the pump price of petrol and credited. What has come of that? That’s for Jonathan’s administration that was a complete disaster.

So the 2nd Niger bridge, who is doing that? Jonathan started that. How do you have pillars there and abandon a project like that?

The key point is we have about 11,386 abandoned projects in Nigeria and if 20 of them are put in working condition they will earn about 300% above the national debt. In fact, if you solve just 3 or 4 of the abandoned projects, unemployment will go down by about 42%. More wealth will be created and you will save 2.5 trillion naira that you will use to import iron if you complete Ajaokuta. As long as you do not complete Ajaokuta, that 2.5 trillion naira will continue to go out. As more people want to build houses, they want iron so you need to bring in iron from outside. Your Foreign Direct Investment (FDI) is helping other countries than your own country so a lot happens between the political actors and the institutions and that is where the issue of policy comes in. Political actors do policies that favour them because they are the owners of the economy and this is not difficult to trace even to theory. You know what Adam Smith said? He said ‘I went to the factory and saw the proletariat who are oppressed by the bourgeois;’ in other words, if we continue to expand this gap between the two of them, it may lead to anarchy and these are the kind of things that are happening.

John Locke says ‘For government to be respected, it must respect the right of the people’ and Holby says we need not just a government but a government that is submissive to understanding that it doesn’t belong to the actors. The actor is not the owner of government but in Nigeria people say actors are the owners of the government. They operate as if government is part and parcel of them and the institutions constitute an extension of their private companies. How do you expect policies to come out neatly and to be continuous and sustainable?

I’m studying those theories to assist Nigeria to be able to raise funds when they are ready. What I’m trying to do is to expose those abandoned projects and the importance of those projects to Nigeria’s economic dynamics. So, if people see it in World Bank, in IMF, people get a bit curious and if you do a policy for loans, that is to borrow money, it should center on borrowing to fund abandoned projects. Here are the abandoned projects and this is the implication on the economy. If you lend me this money and I invest it on these abandoned projects and complete them, these problems will disappear from my economy and I can repay. Any lender will take that and go to sleep. But today we still spend $200 million on new projects. If you spend money on new projects and don’t touch 11,886 abandoned projects, is that coordinated?

So, there’s policy somersault.

Taxation is a key issue that is supposed to solve a lot of problems for Nigeria. Now, some offshore digital companies like Facebook, among many others that are actually international firms which don’t have deep physical presence in Nigeria but are doing business here, including suppliers of banking software don’t pay tax. In other jurisdictions, they pay taxes running to billions of dollars but in Nigeria such revenue is typically lost. How do you think that we can harness such huge innovations which should help to form part of the budget to build infrastructure and do so many other things that we can’t do based on our current scarcity of funds?

I think that’s a very brilliant question; we call it air tax, you know, tax in the air. If you transfer money from Nigeria to the UK for instance, it passes through the air and you can’t get anybody to really ask questions. But the key point to me is that you can use tax to build the economy rather than using tax to discourage the growth of the economy. In a situation whereby even physical companies are going down because of tax default, there can be discourse over it. When you talk about Facebook and Google, there is still much coming in those areas because very soon you will see that Facebook and Google are going into banking. So you wouldn’t need the local banks. You can do everything on Facebook because they have data about you and how much you have. But the terms of legislating for tax in that area are not easy but you can look at some regulatory frameworks to adjust. Google went to China in 2006 and in 2010 they came back and built a 91 floor building.

What happened afterwards in China? China just shut them out of the airspace. If you type Google on your phone in China at that time, it will not work. It is not available because the airspace was shut. In Dubai for instance, you can’t use WhatsApp and call people, why do you think the government decided to do that? So that local telecommunication companies will be able to get money from the calls you make. If they free WhatsApp in Dubai, those small local companies will die. Government too must have a place for business to see that people make investments in your country, and this runs into billions of naira in telecommunications for example. You cannot begin to say everybody should go to WhatsApp and make calls because you want the citizens to be happy; those investments will just go zero and nothing will happen.

Those are the kind of things we look at in terms of regulatory framework. Uber is one example you are citing. Uber is doing taxis all over the place today. Everybody knows how to find a taxi driver but do you think Uber is interested in the taxi business as such? No, they are going to businesses whereby they are going to do all the imports and exports across the country. You have your car outside and they are going to deliver it to you in Lagos. How does that happen again?

Government needs to be intelligently aware and ahead of emerging trends but in Nigeria you take a geographer to be running the ministry of finance; is he going there to draw maps?

A geographer will be better in aviation; what’s he doing in the ministry of finance? Is there geography in finance? So, these are the kinds of challenges that draw us back. You need to get the real people and you must train them to deliver. You cannot just get people and employ them and not train them because in a situation where they are not aware of how to go in the way you’re talking about, and they now have to interface with the likes of Google, Uber, Yahoo and Facebook, it will be very disastrous.

Some people are recommending selling of assets to raise funds…

Nobody will buy your assets because the problem is that there are a lot of things converging around your assets. If you buy a government asset, you know you know won’t sleep for the next 10 years. Government will change, new people will come, and they will say ‘where is the receipt? The National Assembly will come and say ‘you were sold an asset during privatization that was done 25 years back,’ so you can’t sleep. Because of that experience, people will say, ‘I’m not touching such stuff again’ and unfortunately, there’s no buy-back clause, otherwise you could have just returned the asset to the government and take back your money, but that is not going to happen.

We need to borrow massively because there are so many things that are dangerously going wrong. For instance, the educational system is a disaster. It is a country where those doing PhDs cannot even define quantitative methodology because when you ask them ‘what’s your design method’ they don’t understand.

People are graduating with PhDs and cannot construct simple sentences! It’s not as if they are not brilliant but the trainer doesn’t know; the person they are training too also doesn’t know! The point is that we need to restructure the university system to make our universities become relevant. They need modern journals, modern articles, modern exposure and modern slides. What methods do other universities use? If you did PhD in Cambridge and Oxford and you fail one course in the first year of methodology, you withdraw the same day and the pass mark is 60. You’re going to die in the library because you must know it.

What about the first degree level? Have you seen the university graduates coming out and what they want to do? Do you see parents now marrying for their children, paying their rents and things like that because of incompetence?

So the university system in Nigeria should be revisited. Can government continue to sustain the funding of our universities and paying of lecturers? It is not possible. For instance, in my own university, we give money to the university?  That is different from our system which has failed.

Do you think Nigeria is ripe to face the issue of corruption?

I think the present government is fighting corruption to a large extent. I understand they had recovered more than a billion dollars, which is about N250 billion. That’s a lot but what is the percentage of that to the budget?

EFCC recovered 250 billion naira in a year; that is an excellent job, first class, A-grade for all the operators, all the people working there. But the question that I want to ask you is, what is the percentage of N250 billion in a budget of N8 trillion or N9 trillion? It can’t be more than 5%.

If you’re a business man and 5% of your money is lost to the management, you think that is the reason why you should shut down the business? I’m not saying fighting corruption is not important, I’m not saying it is not endemic but I’m just saying that if you put up a better system, you probably will be able to get things out better. And I think I said it before: it’s interplay of system, structure and strategy.

Professor Owasanoye Bolaji of the ICPC did a paper recently and talked about executive corruption issues, and they are working out a system that can combat that.

The same thing should apply to the legislature because it is not only the executive that is corrupt; the legislature also is very corrupt, and particularly on the issue of constituency projects. It is a source of corruption.

There must be a system put in place that can combat that when there is corruption in the handling of constituency projects and that is true. If 10 senators are sincere with their own constituency projects, 90 will not do their own properly. That means 10/100. That’s an F, that’s not going to work

The key point we are driving home is that we need to work on the system. A functional system brings about trust. So, if the system is not right, nobody is going to do it properly.

The federal government had tried to resuscitate the national carrier, because look at all of us, the number of Nigerians who came here for this event in America spent a lot of money using foreign airlines and we are not getting foreign exchange from it and of course there was this bold attempt but somehow it crashed before it took off. In clear terms, what’s your opinion?

It’s a very simple thing. As a young man then; I had this youthful exuberance that I must do an airline for my country because I felt so bad that we did not have an airline. No airline has survived more than 10 years of continuous and sustainable flights on the tarmac from 1970 to the present day. Dana? What is Dana? When I’m talking about airlines, I’m talking about an airline that is consistent and of course is secure. Don’t forget that AirNigeria was the only member of IATA during my days. No other airline was audited internationally and passed the audit. AirNigeria had stopped operations before Arik became a member of IATA.

So, Arik didn’t meet us in IATA but that international audit caused us N1.5 billion. In the audit, the plane has to fly for 200 hours; you fuel the plane and auditors will fly with you as you fly up and down to any destination they order you. Mid way they just say ‘go to Ilorin and land immediately ‘. They are testing you at a huge cost. When I now wanted to fly internationally, Lagos-Heathrow, we did another N1.7billion because NCAA says you must fly solo, you won’t carry anybody. You fly for a number of hours. Calculate the number of hours and the number of litres of fuel that is involved. Don’t also forget that these aircrafts are on lease, you’re not using them for making income and you lay back.

Now when we started, everything was fine then. We would however just hear: ‘NCAA is coming to check your airline’ so we need to assign time for them to check the aircraft. You are obliged to park the aircrafts for a number of weeks before the officer will finally come. After checking, they will then say you need to come and take your papers, and it takes you 4-5 days to get your papers, and all this while the aircraft is parked there, idle. Note that we are working with money borrowed from banks! Do you think it’s safe and healthy to do this continuously on a sustainable basis? So our knowledge of the airline industry was not quite as brilliant as it is now, because we learnt by experience. Safety was of paramount importance to us on AirNigeria and throughout my period, we never had a crash or even a forced landing. That means a lot of money was put into maintenance because we pay about €4-5 for each passenger that we carry to our German partners, you know, for maintenance.

If the government wants to have an airline, what they need to do is call the few people who have operated airlines and ask them questions. I have done so with 22 airplanes. We had 22 airplanes on the tarmac but what people don’t understand is that they were not airplanes that we bought. We leased those airlines but the newspapers said: ‘Jimoh Ibrahim buys 20 airplanes.’

People were looking for me all around; the story was creating problems for me, with many thinking that I had 20 aircraft when I didn’t even have the tyre of an airplane! I had only leased those aircraft and branded them ‘AirNigeria,’ but the moment they entered the country, people began to say: ‘oh he has got a lot of money, can’t you see his aircraft fleet?

These created problems because people who wanted to collect 100 Naira now increased from me now increased their demand to N500 because they said you have 22 aircraft!