Mr. Johnson Chukwu is the Managing Director/ Chief Executive Officer of Cowry Asset Management limited. In this interview with the Business Hallmark team Mr. Chukwu ex-rayed the Nigerian economy; its challenges and offers some strategic solutions to steering it to growth and development.
Are stock broken and investment banking profession still as attractive as they were during the boom time in the market 2007/2008?
Investment banking is still very attractive. Stock broken is still a viable profession, but the society is a very dynamic environment. Some of the things that have happened is that investment in securities may not have continued at the rate it was going during the post-banking consolidation when everybody wanted to buy shares. Of course, the market crash sent a lot of concerns and dampened investors’ confidence in the capital market.
Beyond that, we have also seen that technological advancement has made it necessary for the practice of stock broken to change. For instance, today most active stock broken entities now avail customers the capabilities to trade on their own. So, you no longer have the crowd of people flooding the market to request you to trade for them. Many institutional traders have their traders in house and offices , others are trading from their homes and even the stock brokers are trading mostly remotely. But most importantly many investors can actually do their trade on their own through sale service portals. These advancements apply in all facets of human endeavor.
Recall that people used to go to the banking hall to withdraw money but that has changed because the ATMs are there, people now do their transfers instead of sending people to transfer units of banks to do their transfers for them. So this advancement is all encompassing, people used to go to buy scratch cards to load their phones but now people buy their air time online without any voucher. In this light, those who were printing cards and vouchers are no longer doing so because there is no need for them today. Therefore, the advancement are really all encompassing and in all aspects of human endeavor. Digitization and technological infrastructure have created different ways of doing things. I will say as a profession it is still viable. But the way it is practiced now makes the changes in tandem with technology.
Giving the harsh operating environment where would you advice people to invest today?
Let me put it this way, advising a person on how to make investment is like a Doctor advising the kind of treatment a patient needs. The first thing is to conduct a diagnostic analysis of your patient. It is the same way that you have to analyse the investor by looking at the capital of the investor; look at the risk appetite of the investor; look at the stage in life; look at the income and cash flow and look at the purpose of the investment.
So, we look at a lot of things, we don’t just tell an investor to just go and buy that or invest in this. For instance, we can expose a young person to growth stocks or higher risk investment opportunities because they have the opportunity to increase their assets exponentially. But there is a higher risk loss of investment. But for a more advanced person we tell you or ask you to invest in minimal or risk free instruments because you really don’t have time to start all over again incase any thing goes wrong. We also ask for your cash flow and whether you have a regular stream of income because we advise you.
We are not going to ask you to invest and you run out of cash and then you have to do a fire sale and may be lose your capital. For us to make a recommendation, we look at the individual and look at several attributes of the individual investor. We will certainly still advise you to invest and investment will continue till the end of the world. But what we advise you to invest in is dependent on who you are and your risk appetite.
We have seen the CBN raise rates which have not yet curbed inflation. Would you encourage further rate hikes to beat down inflation?
I never really supported increase in monetary policy rates because I understood the factors that are driving inflation and I felt that those factors were not demand driven, they were supply driven. And particularly given the fact that if you look at current inflationary pressure, it is not coming from excess liquidity occasioned by credit expansion. It is rather coming from the shortage of supply of food items as well as the effect of depreciation of the local currency. So those factors can not be addressed by increasing interest rates and that is why if you recall when the CBN first increased the monetary policy rate this year from 11.5 to 13 per cent inflation rate for April 2022 was only 16.8 per cent.
We have gradually increased interest rates by 400 basis points call it 15.5 per cent, yet inflation has gone to 21.09 per cent, indicating that the increases we have made on the rates have not had the desired impact on inflation because the current inflation is driven by supply short fall.
You know that farmers have been displaced and they are no longer producing enough farm produce which has therefore, affected negatively supply of food. That is why food inflation is at about 23.70 per cent. The other factor I mentioned was that if your currency depreciates your landing cost of imported food or what ever it is will be higher so, increasing interest rate will not affect those things positively.
If you want to fight inflation you look for the root cause of inflation. You must not use the same tool to fight every type of inflation and I think that until we address the root cause of the current inflation in the country the approach of monetary policy using increase in monetary policy rate, increase in cash reserve ratio may not solve the problem.
From the perspective of the fiscal policy if you were the finance minister what will be your approach in this circumstance?
In the first place, I will eliminate those unnecessary expenses that come in the recurrent or expenses that you consider as non-critical, one of which is the issue of subsidy. The government incurred subsidy amounting to N2.5trillion in the first 8 months of this year and that is even because in the early part of the year crude prices dropped drastically before it started going up given the war between Russia and Ukraine. So, that amount of N2.5trillion, assuming we had implemented the removal of subsidy as the government had planned earlier the money could have been saved. And because we have that subsidy, we are spending a lot more on importation of refined products because we are also importing for neighboring countries. We are further eroding our reserves by importing for the neighboring countries that we are subsidizing. Second, we should have focused on improving food production. Most oil producing countries are actually enjoying lower inflation rate, more stable exchange rate and Angola is a classical case. Angola’s inflation figure for January was about 27.9 per cent. Today is has gone down to 18 per cent.
Nigeria’s inflation was 15 per cent in January this year and now it is 21.09 per cent. So we are a reverse of what is obtainable in other oil producing countries. The approach would have been to address those issues that have led to reduction in crude oil production. I had earlier mentioned in passing the issue of food production. If we address the issue of insecurity in the Northern part of the country mostly there will be improvement in food production which will help us moderate food inflation. So we need to address the issue from its root, that is what the fiscal authority needs to do.
By 2015, Naira exchanged for the dollar at N250 in the black market and N197 on the official window. Today, 7 years later we are talking about N700 and above. Do we still have an economy?
We did not focus on economy but on other things. Like the saying goes, if you get the economy right, every other thing will fall into place but if you miss the economy every thing will eventually collapse. We took our eyes off the critical issues in the economic management. I have talked about those critical issues, when you have insecurity you have one of two things, displacement; with insecurity you experience reduction in productive activities; we have allowed that to permeate all the sections of the country. It is happening in the North, South and South/South. So, over time we have not addressed the issue of food production. We allowed breach of the oil pipelines to be the order of the day. Crude production reduced propitiously and we can only produce 1m barrels per day, that is a critical factor. Then, in terms, of economic policies, we toyed with the removal of oil subsidy and we have not been able to do it. We have also had multiple exchange rates which has kept away investors from the economy.
Some of the issues we should have tackled quickly are left until they become cancerous. We are not able to meet the demands of forex for foreign portfolio investors whose monies are trapped here. Look at what happened to meeting the demands of airlines whose monies are trapped, we have allowed that to snowball into a crisis. So, some of these things are sending wrong messages to investors and therefore, making them to pull back from investing in the country. Locally too, at some point we shut down the boarders and stifled trade activities between us and the neighboring countries including export of Nigerian made products to those neighboring countries. What we have is a series and sequence of wrong policy decisions that have begun to hurt us or that have manifested in weak economic performance, unstable economic environment.
You Seem to support the redesigning of the Naira, Why?
Yes, I support it because of the singular fact that it could help us fight some level of criminalities in the country. It has nothing to do with the value of the naira, but if we reduce the volume of naira in circulation it will reduce some level of crimes. It is very simple, if you cast your mind a few years back even before the cashless policy, armed robbers used to come to homes and people were afraid of armed robbers visiting them at their homes because they expect you to keep money at home.
Today nobody worries about armed robbers coming to their homes because there wont be any cash to steal. So our transition from a cash based economy and gradually to a cashless economy will keep away some crimes if we reduce the amount of money in circulation. When that happens and our monies are kept in the banks kidnappers will find it difficult to get cash from victims. When most of the transactions go through the banks the effort to kidnap will either lead to you being caught or useless, and that for me are the ways to go. We need to use technology to eliminate some of the factors of crimes that we do not have the force of the law to eliminate.
Some of the things that are happening today are automated in that you fill your forms online, submit online and get your approval on line. So with that approval you do not need to see anybody let alone somebody asking you for any gratification before you get approval because they can’t even see you. Similar to that is that the issue of vote buying may be curtailed especially if there is no cash available. This will constrain those whose intention is to compromise the electoral process and foist the will of the people on the country. So, if you cant twist the minds of those who because they are poor they collect stipends, it is better for the society.
Looking at the debt profile and sustainability question surrounding it, do you think a budget of over N10 trillion deficit is healthy for this economy now?
When I spoke earlier I said we had allowed simple economic decisions that should ordinarily be taken to be deferred. The current government has been kicking the can forward on the issue of subsidy. If you look at that budget there is a N3.6trillion subsidy in the first half of the year. If you extrapolate that you are getting a N6.7 trillion or more on subsidy for the year. Even if you take out that N3.3trillion and you reduce the deficit of N10trillion by N3.3trillion, you are down to N7trillion and if we are doing the right things you have a N5.5trillion for capital expenditure which will be entirely borrowed.
Instead of government to borrow for capital expenditure given that the government is not known to be the most efficient deployers of economic resources if that money has to come as borrowed funds why don’t you allow private sector to do the same project at a cheaper cost and at a more efficient rate. So why borrow for such projects when you know that part of the money will be stolen. If I were a minister of finance, I will create appropriate policy environment so that private sector can invest in commercially viable infrastructure and the government will be left with no need to invest in any social infrastructure. If you free up N5.5trillion and N3.3trillion you have already freed up about N9trillion and what you will be looking for is a cash deficit of N1trillion which I will find from some of the duplications of the economic expenditures. It is all about who is charge of government.
You seem to have dwelt so much on economic challenges, where does politics come in here?
Ideally politics is about taking decisions in the larger interest of the society. Unfortunately, we have not had that history of leaders in the political space taking decisions in the larger interest of the society. It is either they lack the altruistic motive or they are incompetent or both. So, the key thing about politics is that it trumps economy in the short term, but in the long term economy dominates. Economy really comes to take over the driving seat. It is a collective decision of those who have been given the mandate of the masses to rule, and that defines how the people are ruled.