The Vice Chairman, Alpha African Advisory and former Chief Executive Officer of the Asset Management Corporation of Nigeria, Mr. Mustafa Chike-Obi, in this interview monitored on on Arise Television, spoke on the effects of the coronavirus pandemic on the economy as well as the response by the federal government so far.
Recently, the Central Bank of Nigeria (CBN) reopened forex sales for some invincibles, is that a welcomed development and what else would you prescribe to the CBN in the context of trying to respond to the new normal that is emerging from the COVID-19 and economic shocks?
I think the impact of COVID-19 on Nigerian is going to be in two dimensions. One dimension is the health dimension as you have had doctors talk about it, and the second is the economic dimension. I think that in the long run, if these two things are not handled properly, economic problems might lead to more problems down the road; in terms of livelihood, security, health, and happiness. The health area which is being handled by the doctors and scientists, and the economic areas should be both handled delicately. Taking a step back, instead of dealing with specific things that the CBN has or hasn’t done, I think we need to take a holistic look at what the economy is today; what it should look like, and the things we should be doing to make sure we come out of the economic side, in a manner that Nigerians have a healthy and happy life. Life must go on, depending on the magnitude of what CBN has done with the SMEs, with the BDCs, it’s okay. That doesn’t address the larger issue that we have to face, going forward. And I think it is those larger issues we should be discussing.
Speaking on the $3.4 billion loan by the International Monetary fund (IMF), do you think there are any risk with the funds that we should be beware of?
First of all, we need to compliment the Minister of Finance and her team for arranging what I call a lifeline. You are quite correct it is a loan and it is supposed to be repaid between three and five years. That is the range of time for repayments. While it doesn’t come with strings or conditionalities, it does come with strong suggestions as to what should be done with the money, and how the money should be spent. And $3.4 billion sounds like a large amount of money, but it is roughly one to two per cent of our Gross Domestic Product (GDP). It is just a lifeline; it is not enough to solve our economic problems. Hence, depending on how we use the money and how transparent and forward looking, we are going to need much more money. I think we are going to need upward of $20 billion from various world agencies. And they are watching what we do with this $3.4 billion, and I think if this money is spent properly, I suspect that we would be able to attract more money down the road. But it is one per cent of our GDP and not enough to solve all our problems. But it is a welcome lifeline and minister should be commended for being able to get this lifeline at this time.
How significant is the N850 billion local loan request the Senate approved recently?
I have always been against foreign loans or borrowing in dollars because, like everybody knows, every five years, our naira exchange rate devalues by about 30 to 50 per cent. Then borrowing in foreign currencies ends up being more expensive to borrowing domestically. Hence, if this was a loan that was approved previously and now, they are changing it from dollars to naira, then I think it is a very smart thing to do and I welcome it. Even if there is an additional loan, I also think that this is the time that the Nigerian government should be borrowing money. I think the purposes is what matters and what you do with the money. There are some things we should not do with the N850 billion and even with the $3.4 billion. We should not use it to support our foreign exchange. We should not be sharing this money with the states. This is a federal government loan that has to be repaid between three and five years, and it must be used for solving things that would solve our immediate problems and then build for the future. The third thing it should not be used for is for subsidies. As long as it is not being used for those three things, I think that we would do well. We would borrow more money and use it for the proper things.
You said we need over $20 billion to fill the country’s financing gap, do you think we would have to go back to the IMF for a proper conditional loan?
I think we would have to go back to the IMF for a proper loan and I think we would have to go to the World Bank for loans and other agencies in the world that are set up. Even under the IMF guidelines, if your GDP is affected by 20 per cent or more, there is a new facility that you can access. So, we would need upward of $20 billion and I think that is a test case. If the government manages this money very responsibly, very transparently, it would open the doors for more monies down the lane. But if we use this money the way we used money in the past, I think we would find it more difficult to source the rest of the money we need in the future.
The IMF gave some suggestions to Nigeria, what in specific terms do you think should be our priorities?
In my opinion, there are four things I think we should do with the money. First is health. We need to start building our health infrastructure. This is a good opportunity to do so as too many Nigerians die from all sorts of diseases, with malaria being number one, then Lassa fever and all sorts of things. I think this is a time for us to start building our health infrastructure. The second thing is education. We have to start looking at digital learning. We have to start building infrastructure for people to learn remotely and from home. We are also going to look at security, and finally we need to look for support for industries that are critical. Manufacturing industries, power, and a lot of things that can give us productivity down the road. This shock would happen again, and this is the chance for us to start being prepared for the long term. I am not a big fan of school fees abroad, so the CBN opening up a window for school fees abroad doesn’t strike me as a priority at this time, but in their wisdom, that is what they have chosen to do. But I think we should start investing for the future and we should start now.
It is said that indigenous oil companies have lost about $12 billion to the volatility of the market. To what extents are local banks exposed to these companies and what does this mean for the financial system in Nigeria?
Well I think the banks are exposed to a lot more than the indigenous oil companies. I think we should look at the loans the banks have with the state governments. I think that is a significant number. Also, with this new oil price, apart from this extraordinary Federal Account Allocation Committee (FAAC) sharing of last month, I think FAAC is probably going to drop to the N400 billion range, which would put a lot of states into monetary pressure. So, I believe that loans outstanding to the states should be looked at. Banks need to watch very careful. I think this is not a time for over-regulation by CBN. I read that they had to sterilise some money recently from the banks – over a trillion was taken from the banks. I think this is not a time to over-regulate but the time to work with the banks, and find a path. All banks need is time, if you give banks time, they would make money in the long run. So, we need to find a way for the CBN and the banks to work together. Look at all these loans, restructure them in a sustainable way, so that the banks survive and the financial system doesn’t collapse. But there is a real risk of financial system collapsing if care is not taken at this point.
Some weeks ago, the Chairman of the Federal Internal Revenue Service issued a statement advising corporate bodies to pay taxes early and as due to help Nigeria address its revenue squeeze which you reacted to on twitter, can you elaborate on that?
When a government is certain and can demonstrate they are expecting some tax revenues at a certain time based on audited financials and based on number of things and corporations cannot pay taxes willingly without knowing what their financials are at the end of the year. So what people do all over the world is for them to anticipate those revenues, issue bonds if they have immediate cash needs, and issue bonds which are repaid when the taxes come by. Obviously, your ability to anticipate your taxes and your honesty about it matters. But if the chairman of the FIRS believes that he is going to have additional tax revenues at the end of the year, the best thing for him to do is to issue a one-year tax anticipation bond, which would be subscribed to by the Pension Fund Administrators I am sure. And when the taxes come, pay off the bond, instead of asking companies to do something that they are not equipped to do. It was an ill-advised statement and I think we should just forgive him for it.
What would a Post COVID-19 Nigeria look to you?
I think that before COVID-19, Nigeria has been doing many things wrong. I think our governors have been doing things wrong. There is no reason on earth for any governor in Nigeria, who depends on the people for a living, would be going around with 10 to 20 convoys and all the extravaganza that we see associated with governance. I think this is a time for us to take a huge cut at the cost of governance. The President of Nigeria, when he is traveling, if you are in Abuja, there are policemen lining the streets for four hours before he even leaves the Villa, and the Inspector General of Police goes with him, and the Minister, all of that should stop. We should have a very lean government. If the president is going to the airport, he should go with five cars, and get on his plane and go to where he is going to. And if he does that, the governors would follow suit. But this waste in government, and governors having 200 Special Advisers, all of that has to stop. We need to take a serious look at the cost of governance in Nigeria, and we must all make sacrifices from the top to the bottom. We are in for two or three years of very tough economic condition. The oil market would not improve significantly next year or in two years. Nigeria would have to go through very lean times, and all of us have to sacrifice, and face the fact that we must sacrifice to build a new and stronger Nigeria. And we can, and we have the potentials to do so.