High interest rate is common in developing economies, given the unavailability of long-term funds. For Nigeria, the interest and inflation rates are very high, making it difficult for the economy to experience the desired growth. In this interview with COLLINS NWEZE, Chartered Institute of Bankers of Nigeria (CIBN) President Uche Olowu speaks on the state of the economy, the tax system and policy direction of the institute on the sidelines of the 2019 International Monetary Fund/ World Bank Spring Meetings in Washington D.C., United States .
Why did you attend the 2019 World Bank/IMF Spring Meetings in Washington DC?
We are here because of the invitation extended to the Chartered institute of Bankers of Nigeria (CIBN) by the IMF, as a professional body building capacity, skills and competencies of our members. So, it is to form some strategic relationships with some institutions that will further the objectives of our institute.
Give us the breakdown of some of the meetings you have had so far?
Well, we have had meetings on the ongoing disruptions in the technological space. The Financial Technology (FinTech) revolution, and all that. People are looking at the upsides of those disruptions, but the downside is about the cybersecurity risk, which was also given a lot of prominence in the World Economic Outlook. So, how we collaborate with institutions that will help advance our defense mechanisms for cybersecurity task is very important to us. So, we had partners that we have identified, and there strongholds in homeland security here and we met with them on how to forge relationship and put things in place, so that we can begin to see how we can collaborate effectively well in the overall benefits of the industry. Then, we also had to attend the various presentations, especially the global uncertainty, digital payment space and we learnt a lot there because CIBN is also involved in the FinTech space. We need to understand how this affects our members in terms of the disruptions in that space. You know the brick and mortal are giving way to digital services, so how do we look at it? So, it was quite an interesting time getting international speakers, and knowledge in the market space and the mood that the revolution is having in different industries.
How would you apply the knowledge to the banking sector?
The next stage is that we will put al that we have learnt together and draw up a framework on how to equip our members and intervention better in terms of our advocacy role, and perhaps hold conference around it, especially when you look at the IMF report presented. You will discover that there are lots of global uncertainties. How do these affect our members and the banking system. So, we need to look at it because there are lots of uncertainties in the short-term. The World Bank is saying that the first half of this year, there would not be much growth. Recovering starts in the second half of this year. So, how do all those affect what we do and the skills that we need? Those are the very important things that we need to consider. How do we take adequate step to boost output? How do we advance advocacy in terms of improving financial inclusivity and strengthening the economy’s resilience and bridge the gap of inequality that is widening everyday?
When you talk about inequality gap, what exactly do you mean?
It is the gap between the rich and the poor, which is widening. In short, it is being expressed in what we are seeing in the security problems that we have in the country today. So, those are some of the manifestations of these inequalities. How to advocate for the government to bridge this inequality gap is very critical? Take example what we are doing in the inclusion space. We know that if the unbanked is brought into the financial system, we will be able to lift them out of poverty. The thing is can we take advantage of the strategic initiatives that we have put in place like the Shared Agent Network Expansion Facility (SANEF)? We want to monitor, review and see how it is working because it is a very audible initiative and objectively designed to ensure that it helps to deepen financial inclusion.
How do we replicate the bank-led financial inclusion plan, as it is practiced in Kenya? We will want to support those initiatives. And by extension, we will also like to advice the government to improve on household and business confidence because that is very important so that people can be motivated to raise their game. So, output increase and overall welfare of the citizenry will be improved.
Did you discuss financial stability in the local and global banking system given the IMF report advising Nigerian banks to recapitalise. There are worries over the level of bad loans in the sector and other issues. Are you also looking at the issues?
We have listened to those reports and generally, there is worrisome outlook in the financial system. Yes, because of certain policy uncertainty that affected some of those assets. For instance, I understand the vulnerability the banking sector faces because of loans to the power sector and the oil and gas industry. Yes, you can see that banks are raising Tier-2 capital to shore up their capital base to effectively address the problem. But we should not be so worried because I am an advocate of home-grown specific attack on our specific issues.
The IMF report is basically putting up things together. We have to separate the bucket and look at our roles specifically. The problem is that we need to fortify the economy, which is being done to broaden the base of the economy. It is very critical. The intervention in the very critical sector like the creative industry, which we should harness the potentials there.
We should also look at the agricultural space and carry out interventions there. The agriculture space presents a lot of opportunities because first, we need to feed ourselves and secondly, create a lot of jobs.
One should be looking at the various value-chains, so that instead of exporting the raw materials and crops, we should go for processing of agro-value chain. We must strengthen our research institutes, so that they can come out with credible solutions. There are so many voids that need to be filled with research.
Corruption and governance should be tackled headlong, not necessarily the way we are doing it. I think it should be tackled with technology. We need to give incentives to people for using technology and prevent them from having that space to commit corruption. TSA is very good and we should also get more of cash-less and KYC programme should be given some serious bite. And when all these are put in place, we should be able to create a transparent system that investors can trust and come and invest. And also, policy consistency is another area that is key. And those long term horizon, how do we see Nigeria? And it is not only left for government, but all the professionals. Every stakeholder in the economy should be patriotic enough to give their best shot, so that Nigeria will occupy its pride of place. It is an amazing country, but processes are our problems.
They also talked about tax reforms, insisting that Nigeria needs to drive revenue through taxation. Do you think that government is doing enough?
If you ask me those that are not in the tax net should be brought in. But clearly, we are beginning to see in our neighboring Ghana, where policy creates freedom that boosts productivity and when these people are productive, we can now tax them. That’s another approach. The people are overburdened, and many of them are jobless. I believe that the corporates should be taxed. But there should be enabling environment, whereby productivity will take place. Then, you will reap the fruits that tax will bring. We have not done that. That is to ensure there is virile environment for businesses to thrive and when businesses thrive, you will be able to tax them.
Our peculiarities are that environment does not yet allow businesses to thrive. How many of the SMEs fail? The infrastructure is key, and you have to spell these things out. But the government should also create enabling environment for businesses to thrive so that it will have the moral right to tax the people. We have the payee, but there is need to capture the SMEs. There are some tax leakages, no doubt about that, but this can be driven by technology. Today, we talked about China having about $18 trillion in mobile payment services. The issue is that they do not have legacy issues. They just leap-frogged to mobile payment, using technology. We also need to use technology to drive our tax payment. We need to create solutions that will help in taxation.
We have companies like google, Facebook and others that operate digitally, sometimes without physical presence, making it difficult to tax them. What do you think the government should do to bring such firms into the tax net?
There should be regulation that will enable governments track the firms. But you cannot put up such regulation without understanding how that business is done. You need to have the understanding of the business so as to do the necessary regulation that will check such leakages.
But the country is losing billions of dollars to such companies?
If a bank does business with such firms, then the bank should report such transactions to the taxman. Like I said, if there are enabling laws affecting such transactions, those can be checked.
It is important that we track such business. It is grand plan to dehumanise Africa. You do business in Africa and you do not want to pay tax. That is the reality of our time. We need to understand how these flows happen and track them.
The IMF is also advising Nigeria against borrowing from China. Do you think the West should decide where we should borrow?
That is coming to the international politics arena. It is a political game. You know, nature abhors vacuum. Where there is vacuum, someone needs to fill it. The West did not take their right of place and China is playing her game to the door. They are trying to make themselves relevant.
Another issue is that the rate at which loans are obtained, even in the local environment is very high. What do you think is keeping Nigeria’s interest rate very high? What do you think should be done to bring down interest rate?
High interest rate is common feature in developing economies. One, the market is shallow; it is not deep enough. We do not have long-term funds in the system, and because of our sole reliance on commodities. So, our economy is vulnerable. We import everything. The inflation rate is high. So far, the inflation rate is not in single digit. There is no way you can lend in single digit. Because if you do that, you are creating a subsidy, who is going to pay for that subsidy? To whom is this subsidy allocated is another question? It is going to trend down over time. Other economies had regime of high interest rate, but as the economies became productive, the various initiatives and policies that come together to addressing a particular imbalance in the system, boosting output. You will begin to see that productivity goes up, and interest rate will begin to come down. But it takes some time. Our problem has been policy inconsistency. The policy of defending naira has been clear enough, and that has brough about some level of stability. So, should we also begin to create confidence in the system, and from there you will see that overtime, interest rate will trend down? Yes, we are in a hurry to develop, but we need interventions in critical areas.