Aisen: Why Nigeria Must Build Fiscal Buffers
The International Monetary Fund’s Resident Representative for Nigeria, Mr. Ari Aisen, in this interview with journalists, shed more light on the Fund’s recently released Article IV on Nigeria. He also stressed the need for the country to diversify its eco
We learnt recently that the IMF has deployed advisors to support the Nigeria Customs Service and the Federal Inland Revenue Service, can you explain how this arrangement works; also considering that crude oil price is now above $60 per barrel, don’t you think the Nigerian economy will recover faster?
We would do quite a bit of technical assistance not only in Customs, but in other areas such as in taxation and financial management in other government agencies. We have a centre that is based in Accra, from where we send experts in Customs and other areas to Abuja, to meet and to train Nigerian officials and provide them with technical assistance in Abuja. We also send experts from the International Monetary Fund’s (IMF) headquarters from Washington to Abuja. Of course, due to the pandemic a lot of these engagements have been holding virtually. But we take capacity development very seriously. It is one of the major pillars of our interactions with our member countries, and we are very glad to be able to support Nigeria in its fiscal reforms in general and particularly in tax reforms, including Customs which is a very important area. In terms of the question on crude oil prices, it would be difficult to say what level of prices would be enough to allow Nigeria stay afloat. That is simply because oil prices are very volatile; hence, it rises and drops unpredictably sometimes. Thus, we typically advise our authorities to be conservative in terms of oil prices because of this volatility. So, when the budget is being put in place alongside other policies, it is best to consider oil prices at a reasonable low level, based on the short-term variation in oil prices. Having said that, it is undoubtedly very positive for the Nigerian economy that oil prices are on the rise after reaching less than $20 last year, due to the pandemic. Now, it is above $60 and it helps with the Balance of Payment, with some proceeds, it helps with some tax revenue.
What are the risks for Nigerian businesses and opportunities as they battle this pandemic?
Market policies should be supportive of market stability which is the basic element for business activities to thrive. Regarding the private sector, asides market stability there would be the need for conducive infrastructure in the environment that enable them to operate more effectively, hence inflation rate should be low, government policies should support economic growth so that business owners can operate and plan in a more stable economy. The availability of foreign exchange is also very important for businesses to grow and predict market activities in the local environment. The availability of credit from the financial sector, labour market flexibility, efficient judicial system, structural reforms are also crucial towards development and sustainability of businesses.
What level of devaluation does the International Monetary Fund wants to see in Nigeria and how can Nigeria achieve rapid economic recovery?
As we stated in the report, the unification would provide more transparency to the allocation of foreign exchange among potential demanders of foreign exchange in Nigeria. The fact that you observe a parallel market premium over the official exchange rate means some level of shortage of foreign exchange is out there. So what we have been suggesting in our reports and in our conversations with the government is that it would be useful to unify the rates in a one market-driven rate, which would be allowed to fluctuate; so that those who demand foreign exchange would be able to find supply of foreign exchange in that particular market. This is what we have been saying. Of course, the transition to that idea might not be very simple. There are concerns
that the exchange rate may behave in a volatile way by its own nature. It may become a little bit wild in the beginning, which is a natural concern not only to the authorities, but also to the IMF. However, going by the steps the Central Bank of Nigeria has taken in recent depreciation of the naira that we saw in the investors and exporters’ window, which is the most market-oriented window we see a clear understanding of our recommendation and hopefully that can continue so that we can move to the unification of the market pricing for all. Regarding your other question, of course, building strong fundamentals can be very helpful to stimulate growth and investments. We believe that macro policies can actually play an important role and create space by mobilising more revenues would be important for the fiscal authorities to contribute towards promoting infrastructure spending and then produce a conducive economic environment. All these measures can actually enhance the prospect of growth. And oil prices are a very important indicator for Nigeria if they remain supportive. However, I would state that it is very crucial to promote diversification because as we have been observing the volatility in oil prices creates low productivity. So, for Nigeria to be able to move away from this paradigm of high volatility, it is important to stimulate economic diversification to other sectors of the economy. And for that, you need a conducive environment particularly for the private sector to operate in.
Is Nigeria’s debt ratio portfolio versus its GDP rate sustainable and also what is your take on the recent ban of cryptocurrency transaction in the country?
Speaking on the GDP ratio it has increased quite a bit. I would say the GDP rate at this level is sustainable despite the risks we observed in the last few years. Due to this increase, it is important to pay attention so that the Gross Domestic Products (GDP) doesn’t become too high. Two important aspects I want to discuss are: It is important to make sure whatever proceeds are generated should be allocated and spent appropriately. Another thing that is as important as this is ensuring that the fruits of those spending are going to increase the economic growth of the country. Another aspect that needs to be looked at is access to revenue because it is not high enough. Majority of the nation’s revenue proceeds are used to service debts, and leaving very little space for important social economic and infrastructure spending. To resolve this issue would be to increase revenue which is one of the lowest in the world in terms of GDP, at about six percent precisely. You can do that by creating a fiscal environment where there is more spending. Regarding the crypto currency ban; the issues with some of these crypto currencies is the monitoring of the activities and transactions that take place. Sometimes, illegal activities such as, money laundering, terrorism, drugs deals are carried out through these platforms. Thus, it is natural for the authorities to be concerned of how best to supervise and strengthen its oversight regarding the use of crypto currencies. I think the central bank is trying to generate the best policies to address these problems and the sustainability of the financial sector.
How is the International Monetary Funds (IMF) going to ensure the judicious utilisation of the $3.4 billion support funds given to Nigeria in order to boost the nation’s economy, and what is your take on some reports stating that the economic recovery of Nigeria depends on oil?
Concerning the transparent and effective use of the funds, there has been commitment on the part of the government regarding this. Specifically, the projects would be adequately developed, supervised and reported. Also, there would be audits of the disbursement and spending of the funds. For us, it is important that those funds impact the millions of lives in the country positively. Also, we have been raising issues regarding access to adequate information on the activities of the projects on publicly accessible platforms. These are work in progress and we understand that the government is also putting in effort to ensure everything goes according to plan. Speaking on the reports, no one is immune to the growth of oil prices in the international market. Other countries in the world are also affected by the price of oil in the international market. However, the important question is what countries can do to become more resilient towards its impact. In my opinion there are two important factors to tackling this: Firstly, do not depend entirely on one sector so as to increase the options for revenue. It is very important to put in place measures that enable economic diversification, especially looking into Small and Medium Enterprises. We are also hoping there would be more industrial policies that would be more export oriented policies rather than import oriented policies so that Nigeria can compete with other parts of the world based on local content development policies. Secondly, factors such as government deposit, building international reserves, can enhance economic resilience and enable it stay afloat. There is also need to create buffers so that in good times, savings can be made; so that I bad times, those savings can be deployed to help. Many countries have put together Sovereign Wealth Funds which accumulates in good times, so that when the bad times come, that can actually be deployed to help the economy stay afloat. So, I would say that building buffers and having a more diversified economy can help Nigeria overcome some of the volatilities and macro-issues it is facing.
Is cost reflective tariff the most efficient solution to the challenges facing the power sector?
Cost reflective is an important aspect to it. But, of course, it is important to reduce the leakages in the system so that costs can be brought down. The second point is that when you subsidise power, it doesn’t always get to those that really. So, instead of that, it is better to target social assistance to those in need rather than general subsidies that are costly to the budget and inefficiently targeted.
Do you see the mutation of the coronavirus affecting the economic recovery of the country?
Everyone is concerned with the impact of the coronavirus and the second wave this virus seems to be mutating to. So the health policies and economic policies need to work together. The most important economic policy at the moment is to be able to find appropriate financing and mechanism to provide vaccination for the people in order to generate confidence towards the resumption and sustainability of economic activities. Of course, if there are lockdowns, it would have strong repercussions on the economic recovery and growth. Enforcing social policies such as social distancing, the use of masks in public places and hygiene remain extremely important before vaccination can take place. We believe that the economy would recover steadily if all these are effectively implemented.
So, I would say that building buffers and having a more diversified economy can help Nigeria overcome some of the volatilities and macro-issues it is facing
With the outbreak of Ebola in some countries, coupled with Covid-19 in some African countries, is there a plan to make sure the IMF intervention funds go to SMEs that are also affected?
When we provided those funds to the authorities the commitment was pandemic related. So providing health facilities would qualify and transfer to households going through difficult times, including SMEs.
Rcently, I read a post forwarded about a news conference by some group claiming to be activists campaigning against the appointment of Mr. Ebenezer Onyeagwu as the Managing-Director of Zenith Bank Plc by the board of the bank. As a Nigerian with more than a passing interest in the banking industry particularly in Zenith Bank, I took my time to read through the post.
The main grouse of the group against the appointment of Ebenezer appeared to be his relationship with Jim Ovia the chairman and to put it bluntly the founder of the bank.
Nowhere in the write-up did I see or notice any objection to the qualification, competence and merit of Onyeagwu as the new MD of the bank, so I ignored the post as did most members of the group.
I later noticed that the post was on other platforms as well and I read a report somewhere that some group was taking the bank to court over the appointment.
I don’t know if this reports are credible but they are being circulated and read.
I have therefore decided to lend my voice to the debate as members of the public are easily deceived by unrebutted social media posts.
First, Zenith Bank is not a government corporation and therefore has no federal character requirement. The bank is only subject to the legal limitations and regulations of the law as it relates to a public quoted company. However, the ultimate power in the bank lies with the majority of the shareholders and this is always reflected in the appointment
of the board.
Jim Ovia’s position as chairman is a reflection of the fact that he enjoys the confidence of the majority of the shareholders.
That said, it is amazing how people who do not know your story can defame you, belittle you, reduce you and attempt to destroy you for no visible or viable reason. If people had other candidates for the position of Managing-Director and for some reason their candidate did not make it, if no rules or laws were tilted against their preferred candidate and someone else has emerged from the same process which they trusted to produce their preferred candidate, why can’t they accept the result in good faith?
I think it is important that someone should speak up for Onyeagwu. I met Ebenezer almost 20 years ago, he was already an accountant in the banking industry and was posted to Port Harcourt as the branch accountant for then Citizens bank.
As a young lawyer hustling for briefs from the banks, I got to know most bank managers, accountants and officers in the banking industry in Port Harcourt at that time. It is to the credit of Port Harcourt that the banks sent only their best hands to lead their operations in the Rivers State capital, which was then emerging as the undisputed hub of the oil industry in the Niger Delta. Most of the top players in the banking industry today were in Port Harcourt at that time.
Almost all the branch managers, accountants and even officers that were in in Port Harcourt at that time became executive directors, managing directors and owners of banks and today that elite cadre of bankers to which Ebenezer belongs are the movers and shakers of the banking industry. We all know them.
Onyeagwu was one of the most humble, hard-working, honest and committed of the lot. No one needed a soothsayer sayer to predict that his future in the industry will be bright.
I lost touch with Onyeagwu, when I left my law firm and got deeply involved in politics but I do remember that many years later when some people (including a mutual friend ) were trying to set up a bank, they reached me while in search of Ebenezer and we located him in Warri, he was then with Zenith bank, he was offered the position of an Executive Director and he turned it down for Zenith Bank.
Through these years of sacrifice, hard work and growth I was not aware of his relationship with Ovia, because it was not an issue until he was named the Managing-Director of Zenith Bank, then his relationship with the chairman of the board becomes an issue.
Should he be denied only because his uncle or cousin is the chairman? In any other bank in this country Onyeagwu’s appointment will be hailed as that of a square peg in a square hole that will enhance value, and promote the interest of depositors and shareholders, because he is eminently qualified, experienced, honest and capable, the bank will actually do better under him.
If he has a good relationship with the chairman that should be a plus for the company but that cannot be the only reason he was appointed.
I believe the insinuation is demeaning of his personal accomplishments, achievements and his enviable track record in the industry.
I congratulate Onyeagwu. This appointment is actually coming a bit late in the day for this patient, hard-working and humble banker but God’s time is always best.
If Onyeagwu gets to read this he should focus on his job and ignore the naysayers and pull him down specialists on social media that is now part of the new normal. He should strive to deliver above expectations. As a company chief executive in a public quoted company it is for the shareholders to say who is doing well.
Shareholders will react to the share value and the dividends, every other noise is a distraction. I sincerely congratulate him and Zenith bank Plc.