Adebajo: Govt Should Have Deliberate Policies to Create More Dangotes
After strong headwinds, which pushed the economy into recession, it appears to be receiving a new lease of life, albeit with a fragile growth. In this interview with Kunle Aderinokun, CEO, The CFG Advisory Ltd, Adetilewa Adebajo, who, believes the economy
Ni ger ia was 57 on October 1, which means the country has come along way. What’ s your assessment of the economy?
First of all, in assessing the current state of Nigerian economy at 57, we have to take a look at a perspective that is pretty much more holistic. Nigeria gained independence in 1960. If you take a look at the countries that Nigeria gained independence with about the same time, the two countries that Nigeria was well ahead of, were countries like South Korea and Singapore, even Malaysia and Indonesia.
Those countries considered Nigeria as a model and it is clear that even the legendary Lee Kuan Yew, in his book, said he came to Nigeria and stayed at the Federal Palace Hotel. It was a marvel for him and he felt he wanted to emulate Nigeria.
When you take a look at these things and you put them into perspective about where we started and where we found ourselves, there is a lot of soul-searching that needs to go on and it goes beyond restructuring. There is a collective responsibility that we all have to take that we have not put this country or the economy of this country where it should be because the people that we are well ahead of at independence have gotten way ahead of us and I think it is a very important comparison.
But despite all these shortcomings that we are talking about, the Nigerian economy still remains the top economy in Africa and globally is ranked 23. So, there is a powerful resource base we have in this country that we have mismanaged. But despite this mismanagement, we are still a top economy in Africa. You imagine if we are able to put our economy in order and generate 10,000MW of electricity, there is no reason why Nigeria should not be closing in on G-10 economy. So, clearly, we are not where we are supposed to be.
What have we done with our resources. That for me is the question that we need to ask and after 57 years of independence, we need to ask this question but if you look at the numbers, we are still number one in Africa, we are still 23 in the world. So the underlying problem is that the way our population had grown, we have not been able to cater for the growth of our population.
According to the data from N BS, the economy recorded 0.55 percent growth in the second quarter of this year, which indicated that Nigeria had technically exited recession. What do you think the economic managers could do to increase the growth, recover and stab ilise?
Whatever it is you say, you have to go back to history. I look at the 10 years growth pattern of inflation and GDP growth. Obviously, you know that there is a correlation between the low levels of inflation and high levels of growth and also correlation between inflation, which means that your growth will be quite low. I looked at Nigerian economy over a period of 10 years, which is from 2007 to 2017, and at each point in time, the highest we have ever got is 8.5 percent GDP. When we had 8.5 percent GDP, the rate of inflation was about 12, 13 percent. Historically, what it shows is that, in Nigeria, in order for us to have high growth rate in Nigeria, inflation rate must be relatively lower and the highest inflation rate that we achieved about this time was 13 per cent or so and we brought inflation down to single digit. But unfortunately, after the new government was elected in 2015, we saw a massive decline in GDP. Some policies came in and spike the inflation. So, unfortunately, this whole recession was self-inflicted in my own opinion. The monetary authority and fiscal authorities did not respond properly and the gap in-between when the president came in and appointing the ministers, there was no signal to the marketers as to the direction of the economy. That was a highly devastating period. Having said that, I think that clearly took the economy into recession. And the fact that they took out the subsidy, inflation spiked; it was not managed properly- for it to get to a situation whereby the effect was lingering over a period of time. It was just now, two years later, that we got it. That was a long lag. Two years for cost push inflation, which is an increase in the factors of production to take two years to go through the economic cycle is a management problem. You can feel the impact. It should be only one surge, then you control because it is only once you increase the price. But then, it starts to filter towards the cost of food, cost of transport. It goes through the economy because that is something that is very powerful. But you should expect a surge and be able to control it.
Earlier in the year, the government came up with a brilliant document Economic Recovery Growth Plan, ERGP, and we all agreed that that was the document which stated clearly that the government understood what was going on, understood the situation and understood what we needed to do to stimulate the economy and get the economy out of recession. I don’t have any problem with that document. I think it is well put together, well researched, understands the issue and properly document a roadmap to be able to come out of that.
In addition, I think credit has to go to the vice president on the directives of his boss. He went to the Niger Delta and he pacified and won their confidence. He negotiated a peace settlement with them and he kept to that and oil production was flowing. That abated the foreign exchange situation whereby foreign exchange went from N500/$ to N360/$. If the monetary authority then had listened to the JP Morgan advice as to what they should have done with currency, we wouldn’t have seen naira at N360/$ now. Naira then was about N190/$ or thereabout, we probably would have seen naira between N250/$ and N280/$. It did not need to come to N360/$. It is too much. That was also mismanaged. It wasn’t only the fact that the oil price was low, we were not also meeting our production target. That action by the vice president is what has stabilised the economy today. The income from oil production was steady and money was coming even at $50 per barrel. By the time production dropped to under 1,000,000 barrels, they you are in trouble. That is what has stabilised the economy. That was a brilliant move and that is why it is a political economy.
The move by the vice president was also a fantastic move and it won the confidence of the international community. The so-called windows that the Central Bank introduced NAFEX, bid and offer rate, open market system. All of a sudden, these portfolio investors started coming back into the market. So you are restoring confidence gradually, but the investors we need are the foreign direct investors.
The key limitation to all those people is that our ease of doing business in Nigeria was very low. So, nobody wants to come and get stuck with a governor in a court and get their money stuck because that kind of money coming in, you expect it to stay here for 10 years. That kind of money doesn’t come easily, it comes with confidence. So, those are the two possible steps taking by government and you have seen the results. FX has come down and all of a sudden, you are beginning to tighten and inflation also is beginning to drop. The tightening we are seeing now, we are controlling inflation and we are now coming out of recession.
But having said that, my own analogy is the fact is that Nigeria was in intensive care and in a comma. Now with this growth, the eyes have opened, but still in intensive care. You cannot discharge Nigerian economy from intensive care to recovery room until we have at least 3 per cent growth in the economy and 3 per cent is the growth rate of the economy, which is what we talked about. The responsibility of every government is to make sure that its economy is growing faster than the rate of its population growth because if the economy is not growing faster, which is what has happened to us, you cannot sustain your population growth. There are not enough schools, hospitals, social infrastructure for everybody. JAMB cannot take everybody in the University. So what has happened? Population has grown, but you have not put the infrastructure around it. So those are the two positive things that the government has done that you can see to begin to move this county into positive territory. But in order for them to sustain it, they still have the problem in financing the deficits because what they told us was that they wanted to spend their way out of recession and they wanted to fund it by going to raise money, which mean the economy went into deficits because they did not have enough revenue, they wanted to borrow and spend, increase capital expenditure, but unfortunately for the government, their current plan has not been on track and that is one of the key limitations.
And as you can see from the IMF Article IV Report that came out in March, government was not spending close to 66 percent of its revenue to service debt, clearly that is unsustainable. So, government needs to sort that out. I think finance minister is working on that. They are going on road shows to move some debts from naira to dollar to reduce some cost of interests they are paying on them. So, they have a programme in place, but in the interim the lack of stimulus from government spending into the economy would affect recovery. What that means is that our recovery is going to be slower over a period of time. So, you don’t expect recovery this year because we can’t grow at 3 per cent. It is after we start growing at 4 or 5 percent, then you can discharge, the economy is out of the wood.
So, it is when we start reaching 4, 5 per cent growth, then you can now say the economy is no longer in the hospital- that it has now fully recovered and can be discharged to go. That is where we are. So, they are on course to do it, but unfortunately, they only have one year to do it because the election is near.
Do you think the policies government has churned out, aimed at taking the economy out of its challenges are sufficient? If not, whatisamiss?
What I see amiss is the commitment and the will to get things done. I also take a look at all the infrastructure we have had in this country- the National Stadium in Abuja and in Lagos, look at the Ibadan-Lagos Expressway. When that expressway was opened, it was tolled and it took us less than an hour to drive from Lagos to Ibadan. Now, what have we done with that road after about 40 years? It is not that we are trying to expand that road but the population is growing, the economy is growing, but we are not putting up the infrastructure base to support this and benefit from it. What we have not done is that government has not privatised and let proper private sector take care of that and because right now, it is clear that the government does not have the money but you also need outside investment to develop your economy.