Business
Nigeria must produce for export to save Naira — Alex Otti
OBINNA EZUGWU
Dr. Alex Otti, a renowned economist and former bank CEO has argued that the state of Nigeria’s economy does not come as a surprise to anyone who has followed the country’s economic trajectory. According to him, it was always obvious that the country would go broke if certain things were not done. Dr. Otti, who is the governorship candidate of the Labour Party in Abia State, bares his mind on the economy and country’s politics in this interview with a team of Business Hallmark Editors.
Excerpts:
Recently, the senate threatened Buhari with impeachment. What is your reading of the Senate move to impeach the president?
I don’t think I have all the details, but from the little information I have picked from the media, I think the Senate wants to put the president under pressure to act and act swiftly on the issue of insecurity. And I think it has gotten to such a level that absolutely nowhere is safe. If Boko Haram and bandits can launch attacks in Abuja, then nowhere can be said to be safe. The president’s convoy was attacked a few weeks ago.
So it calls for attention. I believe that the security forces are not doing enough, and that’s why the Senate is intervening. I think their intervention is in order. I hope the presidency, not just the president, wakes up and begins to deal with the issue of insecurity much more seriously than they are doing presently.
Also recently, the finance minister said that Nigeria is virtually broke because our revenue doesn’t cover debt service, and next year, subsidy is going to be about N7trn. What are we not doing right?
Maybe the question should be, what are we doing right? I’m not sure we’re are doing anything right. We have warned in the past that with the way the economy is running, we will soon become broke, and here we are. I’m very sure that it didn’t take anybody by surprise.
When you are exporting virtually nothing other than oil, and of your quota of over 2m barrels per day, you are only meeting it half way, it’s a problem. The last numbers show that we’re only exporting about 1.2m barrels per day.
So, the natural thing is for the exchange rate to head north, and that is what we have seen in recent times. So, if you brought in a million dollars a month ago and the exchange rate was say, N500, but today it is about N700, you see that you have lost N200m, just within one month. So, we need to hit the reset button. We need to begin to think of what we can produce to export.
My presidential candidate, Mr. Peter Obi talked about production versus consumption, he’s been speaking about it. If you’re a consumer and you don’t produce anything, it’s only a matter of time before you hit the bottom. We also seem to be stuck with fuel subsidy. I had argued that it is better to subsidise production than consumption. When you’re subsidising PMS, you are actually subsidising consumption. We’ve spoken extensively about it.
The entire economy needs to be reset if we want to make progress. As at the end of the first quarter, 150 percent of our revenue went to debt service. So, you borrow money to service existing debt. So, the country is broke.
How bad can it get, I mean, the naira free fall? Again, how do you remove subsidy and manage the fallout?
How bad can it get? It can get worse; it can actually get worse. Don’t let me begin to say, Oh, we may hit N1,000 or we may hit N2,000; that’s not what is important, what is important is that we need to do things that will stop it. Once supply is weak and demand doesn’t go down, the theory of economics tells you that the price will shoot up, it’s a demand and supply thing. And the more your currency weakens, the more your foreign investors get jittery about your economy.
I’ve given an instance. Assuming you brought in $1 million and you change it to N500 million today, and tomorrow you go to take it back, and you have to spend N700 million to get your $1million, from that point of view, you will find out that your foreign investment, both foreign direct investment and foreign portfolio investment will continue to be weak. And that is also putting pressure on supply.
Meanwhile, you are still acting the way you are acting as if everything was fine. There has not been any reduction in demand for foreign currency, even when the supply has reduced. So, it would continue to go up until something drastic happens.
First of all, there is need for reorientation, but more importantly, economy is about rationality. If it’s not rational, it’s not rational. You can preach, you can do whatever you want, but when the conditions are not there for production to happen, it won’t happen.
I was joking with someone yesterday. I said, if you look around here, maybe the only thing that is made in Nigeria is probably the tooth pick.
But when we grabbed it, we discovered that even the toot pick was made in China. And what is the rationale, it is because of the cost of production in Nigeria, and that cost will include that you are generating your own power; you are buying four wheel vehicles to go through bad roads. You are spending so much money to secure the facilities and people that work for you.
When you put all those as part of your cost of production, somebody is waiting in the wings to bring it from China, and the landing cost of the Chinese product is lower than the production cost in Nigeria. People will go to China. After all, all they want is tooth pick. So, it’s an integrated web. You can’t deal with one without dealing with the other, and that is why it is important that as we approach another election year, that we are careful with the choices we make.
How do you manage subsidy?
Well, it’s a chicken and egg situation… So, if it’s correct, as you said, that we’re going to spend about N7trn on subsidy next year, what can that money do in this economy? It can do a whole lot. Is it better to use it to subsidize PMS or is it better to use it to build infrastructure? So, it’s a choice that we have to make. Of course, when you remove subsidy, prices would go up.
But it’s unfortunate that we’re talking about only petrol. How about other things? How about water? How about rice? Everything has gone up. If you’re actually stuck on fuel subsidy, then you also have to subsidize food that people eat.
But the forces of demand and supply will eventually lead to an equilibrium at some point. Intervention may help, but I think that the intervention is more important to support production; to support job creation… those are more important than subsidizing what people are consuming.
NNPC recently changed from public to commercial entity. Do you think that the change would make it more efficient and transparent?
Well, it is still early days. In principle, yes, it should make it more efficient; more transparent, more accountable – taken out of the control of the government, in principle. But in practice, NNPC is still owned by the government, I think the ministry of finance and the ministry of petroleum. That doesn’t change anything, and if you ask me, that would be like moving something from your right pocket to your left pocket, it’s still with you.
But I expect that it would change so that private investors and private ownership would be encouraged. It is the private sector that will ask the hard questions and ensure that the right things are done. But it’s a step in the right direction; we’ve been advocating for it. What has been happening is unfortunate because oil is just like every other thing; it’s like agricultural products, it’s like solid minerals and others.
There’s hardly any of them that is owned 100 percent by the government. So, you see oil companies all over the place being privately held. The National Petroleum Company should actually begin to operate like a commercial business, just like others. We are waiting to see that they go the whole hug. If that happens, I can now tell you that yes, the expectations from the public will be much higher.
The CBN recently increased the MPR rate, first from 11.5 percent to 13 percent in order to curb inflation, but inflation got angry. Now, they have increased it to 14 percent; do you think that it’s the right thing to do at this time?
The interest rate play is a very interesting one. When you have an economy that is bedevilled by inflation, you need to manipulate your interest rate to deal with that inflation. If your inflation is 10 percent and interest rate is 7 percent, what will happen is that inflation will keep going up because it means that the incentive to save will not be there. Because if I’m saving N100, in one year, that N100 will give me N7, at 7 percent interest rate.
But it would have been eaten by inflation at 10 percent, meaning that if I want to be at equilibrium, the interest rate should be 10 percent to take care of that inflation. And if there is a disincentive to saving by keeping interest rate much below inflation rate, then inflation will not come down. That is theoretical economics, and that is why Central Bank is doing what it is doing.
But there are other facets that cannot be taken care of by interest rate. Exchange rate for instance, GDP growth rate, unemployment rate. This is not one of the best times to be CBN governor. Sometimes you have to also put yourself in his shoes. He doesn’t manufacturer dollar, so he’s just juggling too many balls in the air, and even economics has not resolved some of the issues.
In the past, we used to say that a growth in GDP would necessitate a little growth in employment, but today you have inflation, unemployment and GDP decline, all at the same time. So, instead of what we used to call inflation, today you talk about stagflation… where unemployment, recession and inflation are going in the same direction.
So, I understand when they are moving interest rate up, because they also want to encourage savings that would bring down inflation. But because of the external factors, there are too many things that are not within the control of the CBN, that’s why they have to struggle.
How successful are they likely to be given that the society is already poor and inflation is already high and people are struggling to get by?
For the Central Bank, there are a lot of things that are not within their control. But inflation and interest rate, at least they believe that they can manage. They can be patching up, but they can’t claim to be successful with things that are not under their control.
The party primaries have come and gone, but people are still angry. The controversies it provoked are still there. Where did we get it wrong?
Well, the first thing is internal democracy. A lot of people who lead our political parties these days keep moving from one impunity to another. And any time you don’t let people express their opinions, it’s a problem. There is a saying that when you drive people from the arena where opinions are expressed, they are only going to converge at the cellars where revolutions are born.
So, when people are not given the opportunity to make choices, what you end up doing is that you are building an insurrection in the organisation. Some parties set out and decided that they are not in any mood to organize free and fair primaries. Some of them allocated positions to some favoured people. And that is why you have all sorts of anger, protests, court cases all over the place. Anywhere that the process was transparent, free and fair, I’m not too sure that people complained.
Unfortunately, we’re in a situation where you cannot have independent candidacy. So, you can only stand for an election on the platform of a party. And once you make it difficult, or even impossible for some people to participate, then you have already thrown them out, and they would resort to protests, and some would go to the extreme of working against the party.
So, that’s where we got it wrong. Fundamentally, it is not being in the mood to organize democratic primaries. So, anywhere there was a democratic primary, people didn’t complain.
You’re running for governor in Abia again after two previous attempts. One would think that having tried this well and it would appear that the forces in Abia are too strong; you could have just decided to throw in the towel. But why are you still insisting, especially considering the enormous challenges?
Very interesting question, and sometimes I actually sit down and ask myself why am I doing this. But there was a reason I came out in 2015; there was a need I was trying to meet: the need to serve the people, the need to rescue the people from poor leadership. Unfortunately, those needs have not been met. If anything, it has even gotten worse.
So, to the extent that that aspiration has not been met, I will keep pushing. If somebody else had met the aspiration, I wouldn’t bother, because it’s not about me, it’s about my people. If you look at Abia today, more than half of the people who are looking for jobs actively cannot find work. The level of unemployment in the country on the average is about 33.3 percent, which is very high. But in Abia today, it is 51 percent, above the national average.
And there are few states like Benue and Osun states that are 11 percent and 12 percent. I’m sure those people are not sleeping. In economics, you assume that full employment is about 3 to 5 percent, so anytime your unemployment figure begin to go towards 8 and 9, just like in the US today where I think it’s about 9 percent, you see what the Fed is doing, just to be sure that jobs are created.
So, I will continue, and, of course, I know that I will get it this time. I won in 2015, but it was stolen, the same thing in 2019. But with the amendment in the electoral act, I have no doubt that votes will count this time. And if you followed what happened in Ekiti and Osun, there is hope for this country. And by the way, in history, there are a lot of people that tried twice and got it at the third time, including our current president.
The electoral act has done something, which gives us confidence. But the former VP said something about your party, that it would be a miracle for your candidate to win because you don’t have structures. In Abia State your party typifies you as a person. Are you confident that you have the necessary ‘structure’ to be able to overcome the two big parties?
I guess the person you are talking of is His Excellency, Atiku Abubakar. Well, he’s been a beneficiary of miracles too, so miracles do happen. If he believes that Labour Party’s success in the next election will be a miracle, then he should expect the miracle to happen.
The question of structure is true, but then, what does structure mean? Just human beings. The more people are joining our party, the stronger the structure. Let’s not also forget that a lot of the people that are in Labour are not first joiners in politics. They have been there, they know what happens, they’ve been part and parcel of those structured parties, including Mr. Peter Obi who was the vice presidential candidate of PDP in 2019, having been in APGA and the PDP.
So, we’re not all greenhorns. The more the people join, the stronger the structure becomes. I’m very confident that our party will win the election in 2023, and the confidence has also been boosted by the amendment to the electoral act, which ensures that transmission is done from polling units, because where elections are rigged is at collation centres.
So, if you have vigilant people at polling units and they are there to ensure that the results are transmitted to the server as was done in Osun, there is hope. INEC has promised that they are even going to improve on what was done in Osun, so I’d advice Alhaji Atiku Abubakar to hold his fire.
You talked about the unemployment rate in Abia, and how important it is that jobs are created. How are you going to go about it, especially knowing that some of the issues that cause unemployment, such as power, are within the purview of the federal government?
In the past, taking us back to the pre-independence days, before oil was discovered, different regions that eventually became states were operating; they were competing. In the Southeast for example, it was agriculture. The farm settlements were there, and nothing fundamentally has changed, except that we became lazy because every month, we go, cap-in-hand, to get our federal allocation and come and share it.
Experience has shown that when you get something free, you’re very unlikely to value it. So, we shut down virtually every other thing and everybody started looking at federal allocation.
When you get into Abia today, there is hardly any industry that is working. I remember growing up in Abia, in Umuahia for instance, you had Modern Ceramics Industry and so on. Today, they are moribund, and nobody cares. There is a road called Factory Road in Aba, all the companies were there: Nigerian Breweries, Lever Brothers, Nestle, PZ, Bata, Aba Textile Mill and so on. But today, none of them operates there.
So, if all these industries are closing down and you are not doing anything about it, it is a problem. I won’t kid you, the government has a role to play. Sometimes the government can even set them up and privatize them because the private sector is still very shallow. The government should set up industries, and my government will do it.
For instance, ceramics. The raw material is in Ohiya in Umuahia, so you build the industry there. As you go towards Arochukwu, there is so much limestone. So, you create the conditions and the enabling environment for another Obajana to be set up in Abia State. It is possible. Everything you require in Abia can be produced in Abia. You move from there.
When you talk about the textiles, the shirts and the shoes that we wear. We have a larger number of people making these wears in Ariaria Market. As a banker, we commissioned a project there and as at that time, about 55,000 shoemakers were in Ariaria Market. They just need government support, and when you’re doing that, you also improve your chances of generating revenue.
So, yes, power is a problem, but Aba is on the verge of solving its power problem with the Geometric Power. Somehow, God told me to support them when I was in the banking industry, but they got entangled in a trade dispute. Fortunately, that has been resolved. I also made my little input to resolving the problem. So, once Aba gets carved out as an island and Geometric switches on, Aba is sure to receive 24-hour power supply, and that alone will change the dynamics.
The other one that is so critical is road infrastructure. In the Ariaria Market that I talked about, now that the rainy season is back, it is simply impassable. It is not rocket science to do that road. To solve the flooding problem that you have there, you do underground channelling. You channel everything into the place they call Waterside in Ogbor Hill.
Anytime you build a road without taking care of the drainage, that road would be susceptible to damage. And then, you clean up the place. The Aba people, they just need access; access to funding, access to stores, the market and all that. They don’t need much from government. Once you do that, they will pay you.
This Aba issue has been there from the time of Orji Uzor Kalu. I remember that there was a time they did a survey and discovered that about 400 houses would be demolished to able to create channels and drainages. Why has nobody been able to do that?
Unfortunately, I can’t tell you why. It is because of that why that I am coming. I agree that it wasn’t done, so it’s one thing to say what you want to do, but it’s another thing to do it. The first thing is for you to even understand what the problem is, and once you understand the problem, then you are on your way to solving the problem, if you want to.
But there is no political will to solve the problem. If houses are standing on channels, they need to be removed. But I know that you can actually do underground tunneling such that you won’t need to touch houses if it’s not necessary. And I know that there are some parts of Aba that people were just building anyhow. So, if a house is standing on a drainage, it needs to be removed. So, in all, the answer is that they didn’t do it, and I want to come and do it.
Your presidential candidate has been talking about production. But the question is, how can production take place with this kind of insecurity that we have?
Like I said, the economy is integrated. Insecurity is one problem that you must solve. Now, there are two angles to insecurity. The one caused by unemployment, poverty and hunger, and the one caused by criminals. But you see, today you can’t differentiate. The truth is that a lot of people who are involved in criminality today feel that they don’t have an option.
And when you engage some of them, they will tell you, well, unfortunately, we’re hungry, and the two options open to us is to remain hungry and hunger will kill us or to join gangs, possibly succeed and feed well. The worst case scenario is that you join the gang, you don’t succeed and you get killed. They will tell you that all die na die. So, we must solve that problem. We must differentiate between circumstantial criminals and born criminals.
Of course, you see that the level of insecurity is increasing as poverty and unemployment is increasing. If you don’t solve that problem, it would be a vicious cycle. We need to break it. Rome was not built in a day, but you need to start somewhere.
If it’s agriculture, as soon as you have policies that will encourage people to go back to the farms, you will also see that you are reducing the level of unemployment and poverty. So, you are solving the problem of insecurity by solving the problem of unemployment. But it’s not something that you just wave your hand and it will happen, but we want to see that you are going in the right direction. And for sometime now, we’ve not gone in that direction. We need to take it boldly as a policy. That’s what my presidential candidate is talking about.
People who are even 70 are leaving the country. How do you give people hope about the country?
Well, one thing I can tell them is to stay and vote for Peter Obi.
Yes, at this point, we have to make a choice, but are we ready for that choice?
That’s the point. I believe that we are. A lot of people have registered to vote. It’s really tough to stop a man that has decided to relocate, and unfortunately some of our best are the ones that are leaving. But this is a country that is potentially great. We just have to get a few things right, and once we get that, I think the economy will start moving in the right direction.
It’s not going to be easy, it may take years, but for me personally, I can’t lose hope. I believe that I’m at that stage where I can contribute to make things better.
But looking at the situation in Nigeria, and the Peter Obi candidacy, is there a sense in which you feel that the country’s problems may overwhelm him if he becomes president? Look at insecurity for instance?
The truth about it is that it’s not everybody that is cut to face challenges. So, if you don’t have the vision, you don’t have it. A lot of people fail when they come into leadership because they are not prepared. And how do you know those who are prepared for leadership? Go back and check their track record. What have they done in the past, how well did they do those things. Once you can resolve those questions, then you can decide whether this is the direction to take.
Peter Obi, particularly, had been governor of Anambra for eight years, and when you check his records, you will see that he was a very successful governor. As at the time he took office, the administration that handed over to him was owing several months of salaries and pension. The first thing he did was to clear it. And at a time when everybody was borrowing, he managed resources very well such that by the time he was handing over, he handed over so much money.
I’m not sure that I’ve seen any other governor in this country hand over that much money. It’s that same state that some people have incurred debt and have not been able to pay salaries.
So, the difference between one person and the other is actually preparedness. When you are prepared, and you have the vision, and you understand what you have to do, and you have the willingness to do it, that’s it. But if you are not prepared and you are woken up from sleep to come and govern, of course, people waking you up from sleep know what they want to achieve by ensuring that you are a governor or a president.
I believe that he has what it takes, he understands the problem and he can deal with the problems if given the opportunity.
