Former Managing Director of defunct Manny Bank PLC, Dr. Jona Ezikpe, has said that President Muhammadu Buhari’s inability to tackle the economy with the military precision he showed in the fight against Boko Haram, is the reason for the widespread hunger and hardship in the country. The lecturer-turned banker also warned against further devaluation of the naira. Ezikpe, who is chief executive of Nemaco Farms, a leading commercial farm in Nigeria, equally pointed out massive investments in agriculture and other non-oil sector, as the way forward for Nigeria.
By Vincent Kalu
How can you describe the state of the economy?
The economy is not doing so well, which the president has also said. He told the world recently that we were broke. He may be telling the world the truth because when an economy is projected to grow about six per cent on annual basis and you still have about one per cent for a quarter, it is not good indication. You can see poverty and hunger everywhere. Nothing is working because the government has not yet set up an agenda to tell us where it is going, except the one it recently published.
When the president came in, he tackled the issue of insecurity with military precision based on his background and also trying to tackle the issue of corruption but that of the economy, he wasn’t too aggressive the way we expected him to hit the ground. For the issue of insecurity, he went to neighbouring countries, America and G8. That is what we expected him to do in the economy. The economy is not doing very well, now that he has appointed his ministers we expect them to hit the ground running.
What does the continuous slide of the Naira portend and why is it so?
It is obvious. Central Bank of Nigeria does not mint dollars or foreign currency. It is the foreign currency you need to buy goods abroad, especially when you cannot produce these goods here. On top of it, the price of oil is also sliding, the bulk of our earnings comes from oil export. Again, the output of the oil was going down because of oil theft, so both on output side and price side, it affected our foreign exchange earnings.
At the same time, we have not reduced our imports, as our foreign exchange revenue is going down, while our expenditure in export is going up. What happens is price mechanism – when the demand is greater that the supply, the price goes up, which is the depreciation.
They have been saying in the papers that international financial institutions like the International Monetary Fund and World Bank are suggesting that we should continue to devalue the currency, which the former CBN governor and the Emir also canvassed. Devaluing currency is okay because it is supposed to make your goods cheaper so that people can buy from you and make your imports expensive, which will reduce the amount you should consume. Ideally, that is what it is supposed to be. But since Emefiele came in the naira has been devalued about twice.
When you want to devalue, you devalue simply because you expect it to stimulate export, especially in the non-oil sector of the economy, but what are the non-oil exports we are talking about?
Commodities – cocoa, timber, rice, solid minerals and manufacturing. If you look at those produce, you ask yourself can this depreciation or devaluation stimulate those sectors; are the necessary conditions, operating or enabling environment there for them to work? The answer is no. You are talking of manufacturing, do you have regular power? Are you talking of agricultural output? Even the roads to the farm areas are not there; logistics issues. So, what we end up having is a situation where you devalue but you will not get the effect of the devaluation whereby your currency is cheaper. If you use to send school fees to your children abroad or medical bills or import goods at ₦150 per dollar and now it’s ₦200, it is going to be more expensive for you. For those in commerce, what happens is that they bring those goods and increase price. Domestic price level increases and inflation then goes up. The desired effect of devaluation is to stimulate export, but because the necessary conditions are not there, it cannot work. That is why I’m not so much against Emefiele or the government saying we cannot devalue now.
Also you do not benchmark your currency with what happens in the illegal segment of the foreign exchange market. In other words, you don’t benchmark unnecessarily what should be your exchange rate of your currency with what happens in what we called the parallel market because what happens in the parallel market is supposed to be unprofessional or unscrupulous. So, you cannot benchmark it to say that anytime the parallel market goes up, then you devalue. Look at those legitimate transactions; those that are doing things legitimately, how much are they willing to pay for the dollar using the naira to pay for it. This is how you measure what should be your exchange rate, not necessarily parallel market.
In effect, since Nigeria is not export-oriented, so when you devalue the currency, it affects the economy the more?
Yes. It is going to reflect on inflation because if you devalue and you are not exporting to generate enough foreign exchange to pay for your import, and you still maintain the same level of import; you still maintain the same volume of tonnage of rice; the same level of tonnage of wheat you bring. All these at higher exchange rate; that cost would be passed over to the consumers in the form of higher prices.
For you to generate export, you have to create enabling environment domestically, addressing issue of power, etc. and other factors that make some of the EU countries reject your goods, especially the quality. These are issues to tackle so that when you now devalue, your goods are cheaper that as they buy from you and you generate enough foreign exchange to pay for your import. Then if the foreign exchange generated is more than import, then it is favourable, but now it is not going to work like that.
Is the Treasury Single Account (TSA) a good idea? Various sectors are kicking against it, how is it affecting the economy?
The way I understand it, it’s a consolidation of government agencies, parastatals, ministries accounts in the Central Bank. I think we had it before. You can look at it from the pros and cons. One side, because of the abuse of that system whereby these agencies are allowed to place funds with commercial banks, so they can do some unscrupulous things given the government’s poor accounting system. Some of those funds may not be easy to trace. So, by consolidating them now in CBN, it will give a broad overview of what is available. Once the revenue goes in there, and if it goes out everybody would know. So, it helps in tracking the flow of funds for government.
On the other hand, it may impede the velocity or speed at which transactions are concluded, especially those agencies that are more or less profit-oriented in their operations because they have to incur cost in order to generate income. So, when you now limit the speed at which they carry out operation then the other parties they are dealing with may have questions to ask.
However, with the advances in information communication technology and cashless payment in Nigeria, it is going to reduce some of the drawbacks. So, let’s run it for some time, then see the hitches and improve on it, but if some banks can hide billions of government funds (some of them were penalised the other day), that would tell you what has been happening in the past.
Would it not affect the commercial banks?
Yes, it would affect their liquidity somehow and that is why CBN did a little bit of adjustments, they did a quantitative easing, and also reduced cash reserve requirement to provide more liquidity in the system. Again, these banks should not depend on the public sector to survive. We need to grow the private sector because this is the mechanism of what happens there – you go and collect deposit from government and use the same money to buy government instruments like treasury bill and bonds, and at the end of the year you return billions of profits, when the real sector is seriously looking for funds. That is the area they need to address; how to fund the real sector of the economy so that you can grow it. It is only when you grow agriculture and the other non-oil sectors that you become less dependent on the vagaries of crude oil prices.
What is the implication of the bailout for states, it is like the states were not given the challenge to think of survival?
The bailout is to help the citizens in those states, not the governments, because those governments ought to have made their obligations to their people. States derive the bulk of their income from the federation allocation, so distortion or shock at the federal level because of the slide in oil price and also mismanagement in those states brought about this situation of bailout. Now, the government is talking of corruption, they should look at what happened in all the states. The bailout is good, as it is more like public oriented policy, because if you don’t bailout those states, teachers and other civil servants are suffering and if you don’t bailout, it could lead to breakdown of law and order, which may lead to anarchy.
While you do the bailout, look at the funds made available to the state and ask yourself where did the funds go to?
If you take the intervention funds made available by the CBN for agriculture for medium and small scale industry, some states went and collected the funds from CBN. Have you really measured in terms of input, output analysis – the funds collected by the state government for agriculture viz-a-viz agricultural output for that period and who are the actual beneficiaries of those funds? There should be efficiency in the utilisation of funds. The bailout is good, at least, for those workers who, for no fault of theirs, were not paid salaries, but it should not be a continuous thing. This boils down to diversification of the economy. I don’t think there is any state that can even stand on its own without depending on the centre, except may be Lagos, due to its high IGR.
How do we overcome the economic woes that the country is facing?
As the president has appointed his ministers and let it be that he doesn’t mean what he was quoted to have said, that the ministers were noisemakers. If he said that, he should withdraw that and state his vision and the direction this country should go because as I said earlier, the precision he gave in handling security has not been seen in the economy. I know his background is not economics but he should be flexible and allow input from people. Firstly, he has to have a strong economic management team; sound technocrats that would be able to make input and he should also be flexible to allow people to debate issues at executive council meeting and implement immediately. You cannot just be crying that things are bad, that was the reason they picked you. When I took over a distressed bank, it was down but I didn’t need to keep shouting to my directors. I started asking what to do to turn this place around. I took decision and hit the ground and asked God to help me, and the fortune of the bank changed. That is what he should do. He should not run the country like a headmaster, who would tie his money somewhere and ask his wife for food, the wife tells him there is no food, then he would say okay, today we can starve. The question of we don’t have much money shouldn’t arise. He should find a way of providing food for the people.
Emphasis should be on agriculture, which is the area I have been in. I saw this ahead of time. I knew that for us to have a sustainable economy and move forward, we need to de-emphasise our dependence on crude oil. The type of agriculture we should practise this time should be less theoretical and more of practical. The banks should be made to do lending to the real sector by reviewing the tariffs, and block all those abuses they impose on the consumers; limit their investments in government instruments. The banks should start taking a long term view of things; CBN should find a way of reducing interest rates. If the interest rate is not reduced, it would be difficult to do real sector business.
The president should plug the loopholes. You cannot make a policy this side and upset it the other side; you cannot say you are stopping rice importation and at the same time people are bringing rice through the border or given waivers.
There is prospect, and he still has the political capital now. He needs to remove subsidy on petrol. There is nothing like saying you don’t want to hurt the masses when you are hurting them. If some of those refineries are not good, scrap them. One columnist wrote that India built the biggest refinery with six billion dollars while we paid 13 billion dollars as subsidy. As far as there is subsidy, there will be rent seeking, corruption, even though the magnitude will not be much, but it would still be there.
Above all, he should inspire us; a leader is supposed to inspire. As a general, he doesn’t go to war front and tell his soldiers that many of their colleagues have been shot; rather he should tell them where the enemies are and encourage his men to get at them. He should not be telling us how broke this economy is, he should not be telling us how many corrupt people he has captured. He can do that privately, but he needs to give us hope and draw up a plan because business is built on expectations.
You are one of the biggest farmers in Nigeria, what is the state of your farm?
Former Abia State governor wanted to do the road to my farm, at a time he was using SURE-P funds, he didn’t do up to two kilometres and he stopped. So, we still have the problem of evacuating our produce. Our processing plants are not being fully utilised. I expect this government to identify the genuine and big commercial farmers. I’m a member of Nigeria Agric Business Group. Our cooperative is a member, and I’m the president of the cooperative. They should identify big commercial farmers; you can discuss and tell them what you want and they would also tell you what they want to produce. I have talked about what needs to be done on agriculture, including guarantee pricing and that some of the rails they are proposing should pass through the agricultural belt.
A bank like BOA cannot give loan and ask you to bring your house in Victoria Island as collateral. There is problem with the system. A development bank that is specialised to lend to a particular sector would ask an investor, who already has a plant and needed some funds to put things together to bring a house in Ikoyi as collateral and they would be charging you at 13 per cent interest.
What should the CBN governor be doing?
As governor of CBN, Emefiele is supposed to conduct monetary policy of the economy, but you cannot do something when the other leg, which is the physical policy is not there, which is government income and expenditure decisions. He is just to use the instrument of monetary policy to guide the economy by offsetting, boosting or augmenting policies emanating from the fiscal sector. Based on the objectives of Minister of Finance, he would do his monetary management, especially as the situation remains, where the foreign exchange revenue from oil is low viz-a-viz our reserve that is highly depleted. In addition to monetary policy, there should be fiscal policy to reduce our dependence on those imported goods, which he has done somehow by denying about 41 items from assessing foreign exchange.
I give him kudos for the introduction of Bank Verification Number (BVN) for utilisation of foreign exchange, which the bureau de change operators are kicking against. They just recycle the documents, which they use to back BTA. The BVN will track it down if they are serious. Those assessing the CBN window will be reduced. So, the quantum of dollars the CBN pumps into that market will be made available for those who want to import genuinely.
What happened to the high quality cassava floor project started by former Agriculture minister?
It was being financed, according to them, by Exim Bank of China. It was together with rice. The Federal Government approved ₦13.1 billion. The fund is in BOI. They were to do 18 units of rice plants and six units of 18 metric tons of high quality cassava flour. They selected Nasarawa, Cross River, Delta, Ondo, Ogun and Abiriba in Abia. They called for expression of interest both for the cassava and rice. BOI advertised. Our company, Nemaco Farms, tendered. We heard that they accepted our expression of interest. Contract was awarded to clear the farm and where the factory would be sited; we have to cultivate the cassava that would serve as input to the plants.
Before the minister left, the exchange rate depreciated and we were told that they had reduced the number of the cassava plant to five and that of Abia, according to what the then minister said in a seminar, has been dropped and put in the second phase where they are still negotiating for another fund with the Exim Bank.
It would be unfortunate if they drop the only plant for the Southeast. If there is exchange rate depreciation that affects the projects, they should reduce the size of the projects across board but not single one out and say, we are shifting it. This is a new government, when would they negotiate with the Exim Bank for the second phase? He didn’t consider removing one from Southwest that has two. That is Nigeria for you.
Source: The Sun