Former Minister of Finance and National Planning, Dr Kalu Idika Kalu, speaks with Kate Ani on sundry national issues, including the state of the economy and the government’s crackdown on corruption. Excerpts:
The naira has continued to fall against the US dollar, foreign reserves are going down and oil prices are nose-diving. What do you think are the implications of these situations for the average Nigerian?
Clearly, we need to really and fully understand the structure of prices. We have, for a very long time, been a mainly trading nation; we are not an island. Essentially, whether you trade or not, all economic activities have a bearing on the pricing of foreign exchange, the foreign exchange conversion into national currencies. The entire economy is linked up through the complex structures of the economy, production, pricing, labour, transportation, name it. They are all indirectly linked to the foreign exchange market, which is why foreign exchange affects everything ultimately. In effect, we have spent too much time being very anxious about the foreign exchange rate. What we should really be spending more time on, and in a timely fashion, are the things that contribute to determining the price. The demand and supply structures, the inputs into production, infrastructure, power, water, name it, have to be improved in order for us to stabilise the exchange rate. But, of course, these things are not instantaneous or short term; they are medium and long term, so, the whole planning process should be focusing on how to increase our ability to earn foreign exchange, how to reduce our demand for foreign exchange by import substituting and export promotion. Import substitution would mean that we are not demanding more foreign exchange over time to import, an export promotion means that we are changing our domestic structure in order to earn more foreign exchange. Those are the things we should be doing: focusing on the factors in the short-medium and long term that affect the economy and the value of the naira.
Then what does the country have to do?
Of course, in a more practical sense, say, on the 2016 budget, I don’t exactly recall the percentage of borrowing to the total budget, but all we know is that it is very high. I understand there are changes being made but it should be something in the neighbourhood of 50 percent, which is way too high.
Do you consider the 2016 budget as realistic and in line with the fiscal discipline promised by the government?
We are dealing with a very dynamic context now and in that dynamic context, the best way to move towards stability is to be as prudent and conservative as possible and fashion our projections on the basis of more realistic expectations, starting with the overall size of the budget. In other words, you can manage inflation and other pressures better where the borrowing element is drastically reduced. At the maximum, we should be talking about 20 to 25 percent, certainly not 50 percent. So, clearly, you need to take a deep breath and reverse things quickly. I believe that is what the government is probably trying to do now. To do that, it means that Nigerians have to know that we are paying a very high price for what we did not do in the past. What we did not do was to save our funds from the terms of trade gains of the past, expand the structure of the economy to be more stable and diversified and that will give us a more robust borrowing stand such that we can leverage on borrowing so that they don’t start cutting foods and cutting employments because oil prices have dropped. If you have the right reserve level and the potentials are clear, we should be able to bridge the gap between what we are expecting and what we really get. When that is done, it limits the rate of depreciation of the currency. The currency might depreciate but it would not be in such magnitude as we have seen for several months.
What are the implications of the improved relations between the United States and Iran on the global economy, in terms of US lifting its sanction on Iran’s oil export?
The direct impact is that it is going to make it more difficult for Nigeria to sustain its share of the market, because those new additional productions would be coming in from Saudi Arabia, Iran and, possibly later, Libya, in larger quantities and that will turn to saturate global supplies and put downward pressure on the oil price. Their target is to make sure that Shale oil producers that were really encroaching on the hydro-carbon market would not be so encouraged because of the lower price of oil. So, if the price remains low, Shale oil investors will find it difficult to break even by directing investment to the Shale oil industry in the United States. So, the impact of Iran coming on stream is to make things more difficult and as if that is not enough, we are having so many domestic problems, including – even maintaining our reserves, maintaining our level of production, sustaining our oil facilities, as you can see from the headlines. All kinds of political factors are impeding Nigeria’s ability to even produce before we now talk about being able to market profitably. So, we are really facing multiple problems right now. You cannot envy the government. Nigerians have to be fully aware of what is happening and how they can assist the government to mitigate the impacts of these processes.
The International Monetary Fund (IMF) president, Christine Lagarde, during her visit to Nigeria recently predicted that the country’s economy would recover marginally this year. Do you share her prediction, despite the economy being on the brink?
I share her prediction but, you know, at times, we surprise ourselves. If other sectors of the Nigerian economy are gingered by appropriate credits and improved management, they can reduce the impacts of the drop in the oil sector. We would produce more food, improve storage and create a higher level of economic activity. Other than that, there is no question that all the indicators are somewhat negative in relation to our relative position over the past few years. As Nigerians, I will use some strong words here, we have to grow up and mature. You see, institutions like the African Development Bank, World Bank and IMF have been set up to assist countries like Nigeria. They were set up to help mitigate the kinds of things we are now experiencing. Where we have projects that could give you production, employment, goods and services but all of a sudden, a major source of revenue drops, there are facilities within these institutions to help you recover as quickly as possible. But then we, over the last 20 to 30 years, seem unwilling to address the situation analytically, rather than emotionally. We talk of how we don’t want this loan or that loan. Outside there, it sounds uninformed. Whereas we are members of these institutions, we subscribe to their administrative costs and we pay for the visits of people like Lagarde. Indirectly, we are subscribed to the funds that have been put up to assist other countries. And here we are, in our relative ignorance, relishing the fact that we do not want to access those relatively cheaper funds. If your resources are down, you reduce your expenditure. If we re-examine our budget, tighten our administration and improve our efficiency, these institutions will assist us by providing additional resources to complement what we have. These are the conditions or conditionalities which they ask us to put in place in order for them to assist us. And these are the requirements for the economy to recover; we ourselves on our own are already undertaking those refunds as Mr. President has said. But over the last 25 years, we just had seemed unwilling to do what others do. It is simply amazing. One of the things that we need to understand in our present predicament is that we must overcome our fears. If we do that, we can recover quickly, provided we know what we are putting the additional funds into. It is a task that leadership at all levels has to accomplish. If we are able to do this properly, it may be a watershed that can make us get away from all these misinformation and misconception of so many years and now get to understand what we need to do in order to overcome our short-term difficulties.
The Nigerian Stock Exchange is also facing serious challenges, what advice do you have for investors?
When the economy is in turmoil, you don’t expect anything else, so it is not surprising. Resource mobilisation through the stock exchange is the function of prices, returns on capital, interest rates, terms of funding, cash flows, organisations, leadership, security, management and infrastructure. Stock markets, therefore, reflect the state of the economy. Those indicators are very useful because they tell you, more or less, the sum total of the atomistic units within the economy. The decision points in various sectors, small, medium and large scale across all sectors, across all administrative decision-making processes at the state, local and federal levels are the things that are reflected in the so-called speculations in the stock exchange. They reflect the tendency, what people are expecting and the overall socio-political climate. Therefore, we have to go back to correct all those underlining factors that influence these realities and perceptions.
If you were the finance minister, what specific policy decision would you take to rescue the economy?
I don’t address questions like this. I don’t want to second guess anybody. You can infer from what I have said, the kinds of emphasis we should be placing on various areas. When you are short of funds, for instance, one of the things I really think should be uppermost is that we should be looking at the suffering segments — the disadvantaged people in the society. Pensioners are not being paid, people need money for education, health, people can barely survive and those are the things that should be uppermost in our budget. We shouldn’t owe people pensions, gratuity and basic salaries. Then we should look at our processes and cut down on all kinds of allowances which are way and above the basic salaries of those within the system that are really needed for their job. This is the essence of this zero budgeting; zero budgeting means that you don’t just project from the previous year but you take a stock and re-justify every single item that you put in the new budget. This is what the finance and the budget planning people should be doing. This is how they should tone down so that they can reduce this 40 or 50 percent debt expectation which can get worse, if the oil price goes down further. Before you know it, you will find that the borrowing rate has gone over 60 percent of your budget which would be very bad. Bad in the sense that it makes it more difficult to have a handle on inflation and when you have inflation, then you would ruin everything else and of course, it would affect the living standards of the people in the country, particularly the lower income groups.
There have been mind-blowing revelations in the ongoing fight against corruption by President Muhammadu Buhari, would you say the fight is impressive or vindictive?
I don’t think it is vindictive. As a matter of fact, I am impressed and fully in support. There is no way that we can back down from this fight against corruption. We have to change this country for it to grow to become perhaps, one of the best economies in 35 years, as it has been projected and perhaps, the third largest nation by population size. If we are going to get there, we have to cut out all these inefficiencies and corrupt practices that have held the country down and prevented it from attaining its potential. I am a hundred percent in support of cleaning out the system.
Now, in terms of restitution and punishment, of course, there can be ways of handling this to reduce the disruptive effect. There is no question that the society must recover ill-gotten wealth and use those recovered funds to address the needs of the poor and build our infrastructure. We should recover everything and put it into the most needed areas. We must also set up structures to prevent a recurrence of this shameful level of corruption that we have seen over the years.
Should those arrested for stealing public funds be made to go free after returning their ‘loot’ or face jail time after having returned the money?
We cannot take a blanket view. I think this is where the EFCC, ICPC and the judiciary should be given the discretion to make recommendations based on their findings. But in general, I think those found guilty should pay. Look at the one that concerns funds that were meant for procuring arms. What do you tell families who have lost people? Of course, people die in wars but maybe much less would have died if we had procured arms within our financial capacity, which is quite considerable because Nigeria can raise revenues, use credit to make sure we are able to protect our borders, sovereignty and integrity. But look at how people have lost their lives. When we look at it, it is very hard to say that people should just return and go. It should not be just return-and-go but there may be cases where inadvertently, people were given money that they didn’t earn and they couldn’t quite ascertain where it came from, depending on the amount involved. It would be sufficient to make sure such monies are returned and as much as possible with interest. It is not in every case that those found guilty should go to jail.
Militancy is rearing its head once again in the Niger Delta with the reported cases of pipeline bombings, aren’t you scared for Nigeria?
I am not scared. I am angry about it. You know, I played a major part in the Niger Delta technical study. We recommended all kinds of measures for rebuilding the region. Part of our failure was that we did not follow through with the recommendations beyond the amnesty programme. I particularly designed a system whereby we should have had a pledging conference in which regions and companies that have a part in exploitation of our oil and gas would be made to pledge sizeable funding that could transform the Niger Delta to what we see in Dubai, somewhat similar to what is happening in the Eko Atlantic City project, for example. Really fantastic modern structure should be in the Niger Delta – school, hospitals, rails, agriculture and all kinds of industrial and employment facilities. The government didn’t quite follow through but that is not to say that I support people allowing themselves to be used for political reasons, which I think is part of what is going on in the Niger Delta right now. We can’t deny that there are political factors behind the current militancy. They don’t have fresh water. They don’t have enough fresh water, housing, hospitals, schools and so on but we should not rationalise the new militancy, when we are facing so many other national problems. I think all those concerned should be brought to book but it is not enough to rationalise the new militancy when we are facing other problems. Boko Haram has not been resolved. Perhaps, it has been reduced to a manageable level, but there is still a lot of restitution to be done. The Internally Displaced Persons (IDPs) are still there floating with so many needing to be resettled. We have too many problems in the country right now for people to start bombing pipelines and creating havoc and thereby reducing further, the resources available for addressing these mega problems.
Nigerians have accused the APC government of spending a considerable amount of time playing the blame game with the past administration, what is your opinion on this?
This is what politicians do. Whether they are APC or PDP, this is what they do. We should be urging everybody to get on with the job and not be distracted. They should come up with new ideas to help the personnel that will get the work done. But I think we should not join the chorus that what they are doing is playing the blame game. I think they are trying to do more than that, subject to the constraints of the quality of the personnel that have been deployed here and there. As I just said, the militancy in the north has declined a bit, there are efforts to create a cleaner and leaner government and there are efforts to recover stolen funds and a few other areas. It was a slow start because of all the things that had to be done.
What is your take on former CBN governor, Professor Charles Soludo’s recent comment that former President Goodluck Jonathan ran the economy like the late dictator, Idi-Amin?
Although I haven’t read the comment, we are all certainly appalled by the amount of leakage and wastage. We are appalled by the amount of talk in relation to action. There were too many slogans and when you look at the structures, you didn’t see the semblance of those things. I wouldn’t go as far as comparing former president Jonathan to Idi-Amin. I don’t think that is a fair comparison. But considering the sheer enormity of the resources that we have had, and the potential for leveraging, we expected our roads to be in better shape than they are. Certain structures like the second Niger Bridge should have been completed already or about to be completed. We expected improvement in power. The privatisation process as I have stated in the past wasn’t properly done. We didn’t allocate these things to people who had the capacity to pay, who understand the technology, who have the requite business experience and those who came up with the best business plan. But having said that, I think we should just focus on how we can correct these problems.
First published on tribuneonlineng.com website