By virtue of his training in finance, Sanmi Akindipe, Chief Executive, Set Group, knows the importance of financial discipline not only for an inidividual, by for a nation. And looking into his crystal ball, Akindipe is convinced that only fiscal discipline can lead to good economy. He shares his views on the economy and other national issues with DANIEL ESSIET.
What is your economic outlook for the next two to three years?
The economic outlook as I see it will definitely be affected by the political situation in the next two years. Once we are able to determine where we are politically we will be able to determine our economic future. The politics and the economy are closely intertwined. If a country is not stable politically, the economy cannot prosper, or be competitive, if it cannot stand on its own feet. If the economy is not stable the labour market become stagnant, and it will become a burden for the government. That is why there is no alternative to a stable political situation. We need a stable political situation to deliver economic growth or even price stability. On the whole, political stability works with other measures, such as economic growth, innovation levels, unemployment and government expenditure to deliver good governance. Be that as it may, if we are able to sustain the momentum that we are pushing into the agric sector, we will be able revamp the economy by 2017or 2018. Particularly, since we are expecting increasing investments from people and firms showing interest in investing in our agric sector. As time goes on we are going to see people who are going to embark on agric export ventures. Apart from this, it is on record that, from the GDP of Nigeria, agric gives about 40 per cent, that was when we didn’t pay attention to the sector. Now that we are paying attention, there are positive indications to show the growth prospect fired by activities across the agric sector. I belief that the combination of government reforms in agric will bring back much of the confidence lost. I the government make technical preparations to alter the size, pace and composition of some of the measures taken so far. I belief, however, that it has become necessary to further address risks of a too prolonged period of inflation and high cost of living.
Since the last decade, there has been clamour for economic transformation. What in your view is the paradigm shift needed to ensure the success of current developmental pursuit?
Right now, the naira is becoming weaker and weaker by the day. People want this currency depreciation to continue in order to discourage import and encourage exports. While boosting export is important, I think the exchange rate is important for price stability and growth. Once naira recovery is weaker, the rate of unemployment is going to be higher than what has been the position before our currency was devalued. We have to consider domestic production levels by promoting monetary policy paths that will contribute to a stronger Naira. There is so much concern because the interest rate for bank credit has been so high and has increased in most sectors. Our monetary policy stance should be determined by long term assessment of the real sector capacity to survive. It has to be very accommodative. This also requires pragmatic macro prudential instruments. Of late, the stock prices have not increased considerably. In their search for yield, investors have obviously discovered that equity is not the way out. Investors have lost a lot of money. The ramifications of the state of the economy is still being across with the pressures of the austerity measures, inflation, tax increases failed government policies and economic stimulus programmes. Many companies have been able to increase both their turnover and their profit in real terms. In fact Nigerians are perplexed that many economists and investors in both the government and the private sector have failed to foresee a crisis of a great magnitude following the entry of the United States into the oil market. The fact the US has come to stay in the oil market demands that the government pursue non oil exports and encourage more people to go into agriculture. What I think the government needs is expanding the perimeter of financial sector surveillance to ensure that the systemic risks posed by unregulated or less regulated financial sector segments are addressed. This is important now that the Central Bank of Nigeria is trying to close the gap between the official and parallel markets. The CBN needs also to ensure it improve surveillance in terms of filling the information gaps, especially with regard to lightly regulated financial institutions and ‘off balance sheet’ transactions, ensuring that both supervisors and investors are provided more disclosure and a higher level of regularity in information provided. We need also to resolve the political and legal impediments to the effective regulation of cross-border institutions, develop special insolvency regimes to be used for large cross-border financial firms, and harmonise remedial action frameworks. The CBN and other regulatory agencies should enforce full transparency for financial statements. Nothing should be eliminated. The bank cannot do its job of assessing risk and systemic soundness if large parts of the financial markets are invisible to it. Our economic management programmes should be very pragmatic, taking into consideration both the power and the rich. It is so sad that we are a democracy where political leaders and private interest groups dictate our national economic policies without the interest of the common man on the streets. These groups have become so powerful that influence elections and sponsor groups to fight for the interests in the national assembly. Our policies should not address only the concerns of the few powerful individuals and organisations but all Nigerians.
It appears as if the Nigerian government does not have answers to some of the current economic crisis?
I don’t think so. What we need is to discourage more debt spending because it is a receipt for bankruptcy. What I think government should do is to encourage more public and private sector investments. The government has to reduce massive debt spending as well as control tax increases or currency devaluation to encourage more Nigeria to invest. We cannot experience real economic growth where the GDP recovery numbers are driven primarily by government debt-funded spending rather than by private sector productivity improvements and exports. When the government reduces spending and try to balance the budget, we see a situation where we avoid a currency crisis. We have high Debt-to-GDP ratios and this hurt the economy. As a result, there are concerns about the future growth of the economy. There is a real risk of the economy going into further crisis driven by continued deficit spending .It is worst when we use such monies to fund wrong economic policies. This will result in reduced disposable income and consumer spending. All of these issues pose a real risk for another economic and currency crisis. Our economy is the number one risk centre for Africa. Any setback in its recovery will affect the rest of the sub region and the continent. The current recovery is linked to a host of challenges, including spending for the elections, poor public finances, and the impact of fiscal tightening on growth, wrong tax policies and the negative consequences of violence after the elections. Right now, geopolitical conflicts following the outcome of the elections are the risks to watch. There is the lingering Boko Haram problem. Apart from these ones, I think the government should focus on domestic economic development, national competitiveness, addressing higher energy costs and food inflation. We need to do everything to support exporters. Clearly, we need to have strong pre-crisis macroeconomic metrics, explore our rich natural resources and identify export-based industries which have stronger recovery prospects. We should flow with strong budgets to stimulate the economy with less debt burden.
Let us look at the issue of power supply
One issue that is seen as contributing to a competitive disadvantage for manufacturers and businesses is poor electricity supply. That is why all energies should be channeled to infrastructure development to step up power supply. Today, energy influences production costs and is an increasingly important factor in determining our industries competitiveness. Just improve energy, you will resurrect a lot of dead industries and reduce unemployment. Practically, revamping the energy sector is a potential game changer likely to help manufacturers be more competitive. Right now businesses hold a pessimistic view because of high production costs linked to poor electricity supply. The industry needs certainty as regards power supply and the government and the private sector must be prepared to address the economy’s energy needs and threats.
How is the prospect for agricultural growth?
Nigeria has one of the best agricultural production areas in Africa. Talk about land, an abundance of water, rich soils, stable political and business environment. The prospect for agriculture is positive. Right now, it appears that agriculture has entered a bullish longer term growth phase. Commodity prices have been good and will remain firm going forward. What the government can do to help the situation is to invest in assets, whether in the form of equipment or property. What we need is for the government to support farms to carry out primary and secondary operations differently and better. Our farmers should be provided incentives to adopt technology, mechanization, precision farming, this will go a long way towards making agriculture more efficient and more profitable. This will keep farmers on the land and ensure that farming becomes an attractive proposition. Going by present support from the government, it appears there is a resolve to build a profitable agricultural sector that will create more gainful jobs. The key to achieving this is ensuring the profitability of farming and encouraging higher productivity that can also transform the sector from a labour perspective and provide farm workers and their communities with a better living. What the government needs to do more is improve existing infrastructure such as roads, railways, ports and energy, which are essential to the food production .These will require sizable investment on upgrades and maintenance which farmers cannot afford. Farmers face infrastructure-related challenges such as high economic distances for produce which have to be transported using the least efficient transportation means. Our ports lack sufficient capacity, leading to high freight costs, delays and high port charges, which impact export competitiveness.
Most studies have demonstrated that if governments were able to effectively spend around 20 per cent of their budgets that will probably be the minimum required to leverage agriculture to lift its populations out of poverty. Is that the way you feel about the Nigeria situation?
So far, the situation is the agriculture sector is not uneven because of poor funding. We need to fund agriculture to support economic growth. To observers, we have seen a modest GDP growth. Worldwide, real economic recovery is measured along with a growth of employment. To achieve this we have to support the agric sector to help slow down the rate of unemployment significantly. I will advise the government to make more allocation to agriculture at least 10 percent annually. There seems to be a shift, leading to a possible increase in financing of agricultural and rural development projects. What do you think would be the impact of such a shift on the total food production volume?
We expect first and foremost the business climate to improve with various reforms. But what the agric sector needs are energetic and inventive financial institutions with programmes targeting on the agric sector. Generally, accesses to loans are difficult across the economy for farmers. They struggle to find both short and long-term financing. The potential of agriculture and agribusiness a is immense and is a central to economic development, but only if properly and effectively harnessed.
We need banks to support food and agribusinesses. Compared to many other countries in Africa, we have comparative advantages in terms of land availability, soil fertility, good climatic conditions and water availability. The challenge is funding to make the sector more imperative than ever. Such investments will contribute to job creation, enhancement of food security, income generation, poverty reduction, and skills transfer. The sector is in dire need for fund access. There is a phenomenal growth in the sector and we need funding to open up more opportunities. We have so much unused cropland. Farmers and investors need the support to develop the agricultural sector and reduce unemployment. Improving funding of agriculture will help farmers meet domestic demands and this will have a significant impact on food security as well as reduce our dependence on food imports. What the government needs also to do is to encourage more farmers financially to move from subsistence to commercial farming. This way, they will be able to absorb a large percentage of the unemployed youth. In the past we use to have commodities boards. They act as buyers of last resort, guarantee in farmers that their production will be bought, thus encouraging productivity.
Why do you think the agri-food sector is an important sector for economic and development growth?
Taking the issue of unemployment seriously, I want to say that the sector has the potential to employ a larger percentage of the population, not only in production, but also processing, value addition, and trading due to the different needs in the respective value chains. Our food import bill is still dominated by processed foods. We need to reduce this by providing opportunities for more Nigerians to produce food.
What is your take on small and medium enterprises?
Small business is the life wire of a nation. Everything should be used to encourage more of it. In terms of tax holidays and easy access to raw materials, financial support and regular free international trainings. Assuming we have 50 million small businesses in Nigeria then you will discover that our economy has the capacity to kill unemployment absorb any insecurity and deliver high productivity.
Do you think our small agro businesses are ripe for the export market?
Yes, for instance there is no ofada rice in America in large quantity. We all know that ofada rice is healthier than the other types of rice. Now if our God showcase for instance this product to the America government and secure relevant support to export the product, this one area an average Nigeria farmer cannot handle all by himself .There is a place in Ogun State called ofada and you have all kinds of ofada rice there. Let’s do this on a large scale; we have a lot of opportunities.
How do you view the current commercial real estate market, and where do you see it trending?
The equity market is set to recover from all loses and give return that has never been seen before in the market.
