The central bank plays a vital role in a country’s economy. It shapes the direction to go and so, some believe, it must dictate the economic pace. To the Director-General/Chief Executive Officer, West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, all the Central Bank of Nigeria (CBN) needs to do is to ‘force’ down interest rate and banks will follow suit. In this interview with DANIEL ESSIET, he says if the CBN makes that move it will aid the growth of small and medium enterprises (SMEs).
what kind of policy will you recommend for Nigeria to boost industrial growth?
Our share of global trade is very meagre; it is about 0.5 per cent of world trade. It is an unequal trading phenomenon despite the several global policies to boost trade among nations. Nigeria must be strategic on how she wants to benefit from world trade. China closed its borders for a considerable period of time and had selective engagement with some countries while she was developing her domestic economy. When she opened up, the world was amazed. It is unstrategic to completely liberalise. What Nigeria needs is guided trade liberalisation. There is a robust industrial policy for the country, the problem is its implementation. In fact, every regime comes up with an industrial policy but implementation remains a challenge.
Imported goods are far more cheaper than their locally produced counterparts. This is obviously a great challenge; what kind of balance can be struck in this instance?
It is important to encourage local producers; the cheap imported goods are of inferior quality because generally, imported goods of high quality will be more expensive due to the associated costs. We need to create incentive to local producers; we need to support innovations and empower those with ideas to transform such into products.
Sustained growth will not happen without structural transformation which entails broadening of the production base from primary commodities focus to manufacturing and knowledge based services. What is the place of agriculture in this?
Structural transformation implies movement from primary commodity production to industrial/manufacturing and then to services culminating in a knowledge-based economy. The process does not mean that agriculture will be neglected; rather, agriculture would be modernised to play the role of not only feeding Nigerians but producing goods for exports. Few people will be engaged in agriculture but with scaled up production. Agriculture will utilise modern technology rather than depend solely on nature and increased acreage. Agriculture will become a business and run as such.
How best can policy makers’ attention be drawn to economic transformation?
The Nigerian project is for everyone and not only for policy-makers though they are at the point of conceptualisation and formulation. It is crucial to drive into the heads of policy-makers and the leadership that if this nation remains backward, we will all suffer the consequences. Therefore, it is our interest to make it work. Having said so, I am aware that we do not need a crowd for a change; but a committed few determined to make a difference even if they have to die in the process. How committed are the policy-makers? How many of them understand the Transformation Agenda of Mr President?
Many Nigerians are rooting for the implementation of quantitative easing by the central bank. How effective is this measure?
I have always argued that lending rates are too high; no one can borrow at 25 per cent to invest and pay back; the cost of fund is just too high. At some point, the apex bank was concerned about inflation hence the need to sustain or even raise the Monetary Policy Rate (MPR) which is now 12 per cent. The prevailing lending rates seem not to respond to the MPR; however, they seem to respond to a negligible extent to interbank rates. Now, we are told that inflation is now single digit (about eight per cent) and it may remain so for a while. Consequently, one problem is solved so why not direct attention towards lowering the interest rate. I do not buy the foreign exchange argument in the sense that external reserves come mainly from exporting crude oil; its price and output are exogenously determined. We cannot rely on the market because the banking sub-sector is oligopolistic – few banks control the sector; sets the cost of funds and others follow or they collude. How come in spite of all the reforms, there are not that many new banks. In a market economy, the government can force competition by breaking monopolies and oligopolies either through the price angle or the quantity angle or both. It is high time the Central Bank of Nigeria (CBN) ‘forced’ down lending rates and the banks will adjust. It is only low lending rates that will stimulate the real sector thus grow the economy and generate the much needed jobs. Remember, teasing the banks will not help; afterall, prices (lending rates) are always sticky downwards. The shock therapy was given to banks concerning public deposits and they adjusted.
I am always in support of cutting interest rates. Negative real interest rates would imply that the system is awash with liquidity. However, in reality negative interest rates suggest that there is inconsistency between savings and investment and it is not healthy for the economy. It is always better to have positive interest rates.
Can austerity measures be the panacea to current imbalances in the economy?
Why do you need austerity measures when there is an Excess Crude Account and the Sovereign Wealth Fund? Better still, why not borrow in the domestic market if it is for financing capital projects? A fiscal deficit/GDP ratio of four per cent is generally acceptable. My take is that exceeding the threshold to finance capital projects which are crucial for development is in order.
On several occasions, you have mentioned the need to provide more credit to small and medium enterprises (SMEs). What is the situation report now?
SMEs are growth drivers; unfortunately they do not have access to credit despite the various policies and programmes enunciated by government. This is an area government should tackle with all seriousness; let us ascertain why SMEs are not having access to credit.
Unemployment continues to ravage the country while the alleged economic growth has failed to lift the ordinary man on the streets. What is your take on this?
The unemployment situation can be called a national crisis; the official rate is about 24 per cent and higher among youths; moreover, it is projected to keep increasing. When unemployment becomes a crisis, only government can provide stop gap measures and not the private sector. Programmes like SURE-P and YOU WIN are stop-gap measures and may not be sustainable if they are not incorporated into a national plan. The revitalisation of the housing sub-sector would generate a lot of jobs. Fortunately, this year’s budget is on job creation, so let us see how it goes but my worry is that the inclusive growth model which government is implementing would not generate the needed jobs because it is a modified form of the trickle-down effect. This approach takes too long and in the long-run, we are all dead. It is perhaps good for economies that have structured welfare programmes.
People say economic development is hyped up. How can inclusive economic growth be achieved?
The government should stress inclusive development; growth is only a necessary but not a sufficient condition for development. A country may grow and yet not develop. To develop, a country must be doing well in terms of employment, quality of education, the provision of health services, provision of food and accommodation, human rights, gender equality and tendency towards structural transformation of the economy. Unfortunately, our policies and programmes are stressing growth and thus indirectly downplaying the role of the state in the development process. All countries that have leapfrogged from underdevelopment to modern societies have had and utilised optimally the state sector, including the United States of America (USA). Hence, fast-tracking development must include government’s intervention in a qualitative sense in the areas of knowledge building, education, technology, access to credits markets and security.
According to official figures, the inflation level in the economy isn’t too crushing but the reality on ground is that people are not living well. What is wrong?
Yes, the official data is that inflation is single digit, that is, about eight per cent. This should translate into citizens being able to buy more goods and services. However, the facts on the ground do not support this situation either partly due to the lag structure in the economy or the quality of the data. Yes, Nigeria is a consuming economy, consuming what she does not produce; about 85 per cent of our goods and services are imported from Europe and America while our exports, mainly crude oil goes to the same sources. There is of course a mismatch. We should be producing for exports while having enough to consume domestically. Part of the problem is the incentive structure, policy inconsistency and reversals. Thus, potential investors are unwilling to take risk.
In the light of this, should the CBN ease monetary policy?
It is about time to lower the Monetary Policy Rate (MPR) and see the impact on lending rates; the mopping exercise is always on-going to address inflationary pressures. Let me state that though it is not within the mandate of the CBN, the fiscal side of the economy is also very critical. While it is assumed that monetary and fiscal policy coordination is important, an uncontrollable fiscal expansion would render ineffective monetary policy. Hence, for monetary policy to be effective, fiscal prudence on the part of the government authorities is essential.
Could the rise in bond yields and longer-term interest rates affect economic outlook?
The rise in bond yields shows that there is confidence in the economy; it suggests that investors perceive that present government policies and programmes particularly those targeted at creating an enabling environment for investors are sustainable.
The CBN has done quite a bit regarding its oversight functions. It is better to over-regulate than to be sluggish in regulating. One good plus for the apex bank is the determination to ensure that the principles of corporate governance are strictly adhered to by banks. Its tight monetary stance has helped to cushion the effect of large spending and dampen inflationary pressures on the economy.
Do you see another round of banks’ recapitalisation soon?
I do not think it is necessary for now to have another recapitalisation. After all, the CBN has allowed three categories of banks: global, regional and national banks. In addition, there are microfinance banks. The main issue is to create incentives for banks to decide whether they want to be global, regional and national. We need new banks hence raising the capital now may discourage potential investors.
Should the CBN reconsider its choice when strong public opinion comes to its attention?
There is nothing wrong in the CBN weighing in and considering public opinion on certain matters. However, it has to do so in the best interest of the overall economy. For example, during the cash-less policy debate, the CBN took into account public opinion by commencing the exercise in Lagos as opposed to its earlier decision of covering most of the country.
What is your take on cross-border banking supervision?
Banking supervision is very important; in fact, there is cross border banking supervision that was initiated by the Governor of the CBN and it is working well. There is a plan to have a West African Central Bank. But I cannot say when it would be realised. Governments in the region are working very hard towards a monetary union.
What can the government do to win back the confidence of Nigerians?
There seems to be apathy by citizens about the government. It has arisen out of several years of neglect and oppression of the Nigerian people by various governments. The people are tired of promises. Hence, the people no longer trust or have confidence in anything government. The present administration can select and implement two or three things to regain the confidence and trust from the people. First, is to restore the quality of the public school system at all levels. No serious government allows the public school system particularly the primary and secondary levels to deteriorate. The critical mass of citizens that would proceed to acquire various skills and those that would progress to various tertiary institutions are groomed at this level. Quality public schools would not negate the existence of private schools; they would complement and compete among themselves. I always tease some of my friends to visit the primary and secondary schools they attended and see the extent of decay. Restoring the public school system would make Nigerians feel that the government is ready to deliver. I will not even talk about public universities, starting from the first generation to the fifth generation – the recent strike by the Academic Staff Union of Universities (ASUU) exposed once again the emptiness and shallowness of our universities in terms of facilities, quality of staff and so on.
Second, it would be necessary to revamp the health care delivery system in the country. A situation where the very rich go to India, Egypt, Tunisia, USA etc for medical check-ups and treatment is unacceptable. There was a time in this country when medical centres were as good as most hospitals abroad. We call education and health human capital formation. Therefore, ensuring the qualitative growth of human capital formation would restore confidence and trust in government. Third is addressing the epileptic power supply in the country. Fortunately, the administration of President Goodluck Jonathan seems to be on top of the situation. He must be given credit for unbundling the Power Holding Company of Nigeria (PHCN) as well as making progress towards the privatisation of the sub-sector. I am sure it was not easy given the vested interests particularly from those who trade in generators. Our economy is generator-driven and no economy develops under such scenario. Once Nigerians begin to experience uninterrupted power supply, they will have trust and confidence in government. Hence, tackling the public school system, provision of health and power will signal the seriousness of government.
What is your assessment of the Transformation Agenda?
As you know the Transformation Agenda was partly derived from the Vision 20: 2020 economic blue-print which in itself is a kind of perspective plan. The agenda contains all the elements that could transform the economy if properly implemented. The agenda stresses growth and not development. It is anticipated that once you grow then development will follow. This is neo-liberal and neo-classical thinking and it would take us nowhere. In the agenda, the economy was to grow double-digit to get to the Promise Land but that is not the case. The contribution of manufacturing to GDP is at five per cent; no economy gets transformed with such a figure; in terms of targets that were set, the economy is far from achieving most of them. But the point is: Are we making efforts at achieving those targets? Most government officials particularly ministers would say yes. My position is that the people in the final analysis would determine if the agenda is working or not. However, the performance of the economy when compared to 2012 has been marginal; poverty incidence has increased while the rate of unemployment remains very high (24 per cent) and is increasing.
Are we going to be one of the largest 20 economies in the world by 2020?
There is nothing wrong in dreaming. The vision is like a dream; where the nation would like to be by 2020. But you can work towards it. The blue-print has conditions; it was conditional. For example, the country must grow at double-digit for 10 years or so; manufacturing must contribute about 25 per cent to GDP as a start; there would be industrial clusters all over the country; power supply would be constant and uninterrupted and so on. I hope the vision and the inherent planning of the economy has not been abandoned. I say so because last year’s budget 2012 and 2013 made no reference to the plan or the vision document. Are they still following the plan? If they are, then I hope the capital component of the 2014 budget is derived from the plan, that is, it is rolled over.
What are your views on the 2014 budget?
Normally, I like to comment on budgets when they are formally presented and examined by parliament. I do not have the details. However, based on what I have read so far, I do not like the title and thrust of the budget which is Job Creation and Inclusive Growth. The inclusive growth model will not generate the number of jobs we are looking for. This model reduces drastically the role of the state (government); unemployment has reached a crisis situation and only government can make an impact. The private sector cannot. It should have been captioned: Job Creation and Inclusive Development. The macroeconomic fundamentals are within acceptable range especially the deficit/GDP ratio; it seems to stress infrastructural development. I will examine the budget fully at some point. I hope Parliament would carry out its oversight functions during and after the appropriation bill is passed into law.
Outlook for the year
The outlook for the year would be better if the privatisation of the power sector is completed so that the economy can have a near constant power supply. This would allow potential industries to locate in the country and create jobs. It would reduce the cost of doing business in the country. In addition, the on-going efforts at revamping the rail system should continue unabated. The slogan for 2014 should be jobs, jobs, jobs.
