The outbreak of COVID-19 has, in its entirety, disrupted the 2020 economic projection, not just in Nigeria and other African countries, but also the world over. Specifically, international financial institutions, especially International Monetary Fund, have been coming up with conflicting reports on what will be the impact of the pandemic-induced lockdown on Nigeria. But with the historic crash of crude oil prices, undoubtedly, Nigeria faces uncertain future. In this interview with Gboyega Akinsanmi, Prof. Pat Utomi, founder of Centre for Value in Leadership (CVL) and Chief Operating Officer, Volkswagen of Nigeria, substantiated the forecasts of the IFIs with a deduction that statutory allocations would not be sufficient for the sub-national governments to pay salaries possibly from June 2020. As a whole, also, Utomi warned that Nigeria might witness what he described as the rage of the poor, a similitude of Arab Spring that led to the sudden change of government in the Middle East and North Africa (MENA) between 2011 and 2012. But he recommended that the principle of subsidiarity be applied to redirect how the Nigerian economy and government are run and salvage the economy from the imminent collapse
With the outbreak of COVID-19 and its subsequent lockdown, were we surprised and what should we expect?
If you join the Boys Scout, one of the things you are taught is to be prepared. The motto of the Scouts is Be Prepared. I discovered that when I was seven years old. I was a Scout at that age. The pandemic is not a complete surprise. If you are not prepared and something comes, you are then shut completely out of your wits. Let me give you illustration of why there was notice of the pandemic. It all started before the general global recession in 2008. Former President George Bush delivered a speech in which he talked about the possibility of this pandemic and how the US should be preparing. He created a whole agency to prepare for this pandemic; when it will come. After him, former President Barack Obama delivered another speech on this same subject and how the US should prepare. Bush’s speech was centred on America and the US should prepare. Obama’s speech focused on how the world should prepare. Unfortunately, for the world, when President Donald Trump came with his ideological leanings, he began to dismantle the global preparation, even the American preparation. About two years ago I was in Sacramento, California to deliver a lecture. Scientists from the universities around the area had a meeting and demonstrated against President Trump saying he was a science doubter who was pupuing Climate Change and evidence from scientific research. Anyway, what Bush and Obama predicted has happened. Now, at our local level, we saw what happened with Ebola and we got lucky. Any society that recognises the interest of its people when it comes to issues like that should begin to plan immediately. But We did not prepare for anything. We did not plan.
What are the factors responsible for the lack of planning for the unforeseen circumstances?
Very simple! It is leadership. Nigeria does not have the leadership. We do have the kind of leadership that both Bush and Obama showed by seeing the future and planning towards it. The problem is simple. Our politics is not yet primed towards solving problems. Our politics is the politics of plunder. People go to public offices to take care of themselves. They are always thinking of what is in this for me. They are not thinking what is in the best interest of society or what are the problems we must deal with to avoid the problem for the society. Understandably, they cannot focus on the big issue coming. Because the mundane of instant gratification and consolidating power take most of their time so that even when they are smart they are too distracted to see the important and get swamped by the urgent.
They just view the crisis of the moment on the plate. if our political process were serious, ideally, these will constitute issues that political parties will create committees on to develop the party’s plan and plank. In South Africa, Africa National Congress (ANC) has regular meetings of its members all the way to the grassroots to discuss issues, policies and possibilities. I am not talking about the American democracy. I am talking about the ANC in South Africa. Which political parties in Nigeria have regular meetings on Government policies and social problems and trends. Our political parties do not have regular meeting.
This is because our political parties only have one objective. They are tools of procuring power. Once they procure power, that is all. We do not have a strong party system. We play machine politics where the Party is just a chime for winning elections by hook or crook with little thought about what to do with the power when acquired. So, those kinds of political parties cant deal with issues that affect the well being of the people in a thoughtful way. Everything comes to them by surprise. We cannot blame COVID-19 for everything. Nigerian economy was on the verge of free fall before the COVID-19 came. We should not deceive ourselves. Before the pandemic came, 2020 budget had become unrealistic. Oil prices have dropped below what the federal government used to project the budget. The economy was in a triple shock challenge from loss of confidence that resulted in the Forbes write up that Nigeria was a money losing machine for investors; Imploding Oil Prices and signals from Wuhan.
The International Monetary Fund (IMF) has predicted Nigerian economy will recede by 3.4 percent. Is COVID-19 the only factor that will make the economy regress?
There are three major alarm triggers that precipitated Nigeria towards economic crisis. About one year, a study of the Brookings Institution suggested that Nigeria, a tiny fraction of Indian population, has managed to exceed India in terms of the number of the absolute poor, making us the poverty capital of the world. We saw another study of the Bill and Melinda Gates Foundation, which suggested that Nigeria and DR Congo will jointly contribute as much as 40 percent of the absolute poor in the world in a few years. Toward the end of 2019, we saw a report that described us as a money-losing machine. It sounded warning to any person that wanted to invest.
The report claimed that Nigeria was one of the most challenging places to invest in worldwide. It is a money-losing place. If you are a leader in a country that gets this kind of report, what will you do? Our leaders are planning to buy more cars, fancy cars for the members of the National Assembly. They spend money on protocols and all these things that we waste money on. In a country with this evidence of the poverty level such thrust of leadership choices suggest there is a clear disconnect between the leadership, the state of the country and the people. That was already clear as a problem. Now, the budget is based on this projection. That is why I do not discuss budgets in Nigeria. For as long as I can remember, I gave up discussing Nigerian budgets 20 or 25 years ago because Nigeria was not been serious.
Even now, the cost of producing a barrel of crude oil is far higher than its current value per barrel. What does the future of Nigeria look like?
In two months’ time, they will go to the meeting of Federation Allocation Account Committee (FAAC). What they will share will not probably be enough to pay salaries and not to talk of anything else. We will see chaos in the system. We do not have enough discipline to do what President Olusegun Obasanjo tried to do in 1970s when oil prices suddenly declined. Obasanjo then said: “We must cut our coat according to our cloth and not according to our size.” But what will we see in July? The powerful people will keep their security votes and all these kinds of things. And then, they will see something. The masses will march to their houses and Nigeria will see revolution. Certainly, Nigeria will see something similar to Arab spring because there are so many hungry people and angry people. I was in Cairo when Arab Spring broke. I went for a programme at African Export–Import Bank. I clearly saw the rage of the angry poor when the Arab Spring broke out. I have clear memory of that. With this current trend, Nigeria is not too far from the Arab Spring.
With this scenario, what are the options before Nigeria?
In the medium term, oil should become irrelevant to our budgeting. We should begin to diversify in reality our economy and focus on production and other things that help us generate more revenues and create wealth. We should begin to focus on how we leverage on our assets to bring in more investments into our country. I have been trying to discuss two men who have written about the subject of capital lately. I am working on something, a book on the origins of inequality in the world. I just finished the chapter on competition. It is really a book on competition. The next chapter is on capital. And that chapter focuses on two men and their works. One of the economists is called Thomas Piketty, a Frenchman who has written books on Capital and capital and inequality.
To some people, Piketty is the new Karl Marx. I am not a Marxist because I do not agree with some of the values that underpin his assumptions. But his analysis is very useful to me. Piketty is of such interest to me. He has told us clearly that there is more capital available in the world today than at any other period in human history. The problem is that the capital is in few hands. As a result of globalisation, there was a huge build-up of capital in the world. My approach to it is this: look at where capitals is built up; look at few hands with the capital; look at the things those few hands are comfortable with doing with the capital and tune the environment to attract the capitals here. That is my own thinking. The other person is a Peruvian economist called Hernando de Soto. Even though I disagree with de Soto on the place of culture in economic performance but totally agree with the fundamental thesis of the Mystery of Capital. The issue is that in very poor countries people have huge assets, but the assets are not fungible to become capital because we lack representational systems where there is value to each asset. For instance, if your grand father gave you 10 acres in England, you can go to the land registry. It has a value. You can leverage that value to obtain facility from a bank.
But if my grand father left me the entire Edo State, even when I have certificate of occupancy, Nigerian banks have no regard for anything except house in Ikoyi, Victoria Island or Abuja. You cannot leverage your assets to create capital. Because of it, we cannot raise capital to invest and create new growth. The tragedy of development is the failure to develop representational system. It then gets worse for countries like Nigeria that earn revenues from oil, trying to invest in infrastructure, oil pipeline and roads. These projects have already begun to decay. We cannot manage them well. If it is possible to sell part of the infrastructure, lease them or whatever, there are people around the world, who have capital, who will bring additional capital to improve them, invest in the economy and create new growth. We have seen India do that effectively. Dr Ayo Teriba is ever trying to make that point and I agree with him.
But in Nigeria, politicians only think of what their friends can get out of it. We have spent billions and billions of dollars trying to build power sector. And we have not been able to improve the power we generate or distribute after two decades of pouring money into the sector. We have people in this country, who can invest in this sector and create new growth. I was in Rome in October 2019. From Rome, I went by train to Milan, Torino and other places. When I was at the station, somebody said a Nigerian owned that train company whose fast train ticket I was buying, without even knowing me to be a Nigerian. Our man, Adebayo Ogunlesi owned the train company. He brought capital into Italy and it is working for Italy. Why can Nigeria not sell this railway system to him? Yet, they went to borrow money from China. Our politicians cant think through these things either because they do not have the understanding of issues or they are so focussed on what they can get or what their friends can scam out of the opportunity. But the development of the country is not influencing how they are thinking. So, we have real problems. That is Chapter 3 in my new work. Trade is actually the Chapter after Competition.
About three weeks, NNPC announced an end to fuel subsidy or under-recovery regime while the price modulation mechanism is in force. Is that not contradictory?
Well, I have not seen the pronouncement of the NNPC. But I have never been a supporter of fuel subsidy. I also recognised that I was a big part of Occupy Nigeria or subsidy protest in 2012. I do not believe that what we call subsidy in Nigeria is really a subsidy. It is just a game between the corrupt powerful groups and their friends who sell petrol. When crude oil prices are very high, pump prices become expensive because we have neglected to maintain our investments in refineries. With the high crude prices, we export crude oil from here to Rotterdam; refine it in Rotterdam and ship back to the country with all additional shipping costs. We have to refine competitively locally not in a monopoly like with NNPC. With the right incentives and freeing of prices several people will refine here for export and the local market. But with high crude prices in a PMS importation regime prices ratchet up.
Politically, that does not look good. So, we say we have to subsidise it. We then say to our friends who have set up petroleum marketing companies to tell us how much you bought the products and how much we would pay you. With that arrangement, one ship will bring one load. It will go back and bring the same load. As a result, they become very rich. And we are talking about subsidy. There are several issues involved in the so-called subsidy. I do not support subsidy because it encourages corruption to start with. Now is the easiest time to remove subsidy because crude prices are low and true market prices should be lower than the government decreed Corona virus palliative price. So, the federal government should extricate itself from that business. When the price of crude oil is up, government will not be involved again. However, the problem is the infrastructure within the sector, which government still controls and which is subject to inefficiency.
When they then bring in petrol today with crude oil prices at sub-normal level, we can still bring it in, distribute and sell for N120. If the crude oil prices go to $100 and they are still importing it and they are using NNPC’s inefficient pipeline, there will be issue between them and NNPC on how much they should pay for Atlas Cove, for this and for that. And the quarrel will now begin on the need for subsidy because what they are paying for this and for that for. Then, we get into a new competition. What we need to do is to sell Atlas Cove to any business interest that can run it efficiently. Therefore, the price of getting petrol to customers will be low. The competition will force it down further. Then, the removal of subsidy will make logical sense in terms of pricing.
Despite the pronouncement of the NNPC, the price modulation mechanism is in force
If the subsidy is removed completely, the pump price should not be more than N25 with the current price of crude oil. They should remove it completely and not use language that is confusing. Why are crude oil producing companies traditionally involved in petroleum marketing? It is because when crude oil prices are high, crude oil producing companies make a lot of money. The refineries and petroleum marketing companies make less money. When crude oil prices go down, crude oil producing companies do not make much money, but the retailing companies make more money. They profit from the lag in transmission of prices. Generally, it got to a certain point, where the margin in this commodity business of petrol was so tiny that ExxonMobil commissioned a study many years ago. It was found that the real value that Mobil stations had was in generating traffic because a lot of people were coming to the station to fill up. So they introduced the mini mart supermarkets. Total and others followed with Bonjour etc. from which they earned more than the margins from PMS
With centralised federal structure, do you see Nigerian economy perform optimally?
In the 1960s, Nigerian economy was an economy that was run from sub-national level. The Government of Western Region built up competitiveness in cocoa. It also built up huge reserves in the Western Nigeria Government Corporation Account in London. Likewise, the Government of Northern Region built groundnut pyramid and all of that. It maintained a significant account in London, very awash in black. In the case of Eastern Nigeria, it is the same thing. If you read Pius Okigbo in Nigerian Public Accounts, you would see that there was huge surplus in the accounts of these corporations in 1957. I do not want to continue the discussion into what happened between 1957 and 1960, especially how the focus moved to urbanisation and industrialisation. The rush of the new governments to Industrialise Nigeria, noble as it was led to neglect of the rural areas and reinvestment in agriculture. We paid for it when oil came.
Politics, military rule in the face of easy money from oil, and state capture intentions led to centralisation of authority and the economy. As a result, we saw the death of groundnut pyramids. We saw the demise of cocoa. We saw the complete wipeout of palm produce business. We are now importing palm oil from Malaysia. We can go on and on about this story. To revamp Nigeria’s domestic economy again, we have to apply the principle of subsidiarity in decentralising how our government is run and the engagement of the sub-national governments in wealth creation partnership. Unfortunately, we will not go that way because the politicians want to corner the country at the centre.
Source: THISDAY
