Adesina: Nigeria needs access, not prescriptions, to transform its economy

Often described as the optimist general of Africa, the President of the African Development Bank (AfDB), Dr Akinwumi Adesina, holds a strong view on the prospect of the continent breaking into the global frontier to drive the next phase of growth. In an interview with GEOFF IYATSE and IJEOMA THOMAS-ODIA in Lagos where he was honoured with the prestigious Obafemi Awolowo Prize for Leadership Award, he spoke on the structural economic challenge Nigeria must undergo to emerge as a global economic powerhouse, why the country needs long-term concessional funding among other issues, warning, reference to economic reforms, that no doctor cuts the artery just to perform a surgery

• We need to turn rural economies to zones of prosperities
• Nigerians can still afford bread because of cassava bread policy
• Increasing nominal wages in high inflationary environment is self-defeating

In the face of the current crises, what is your recommendation on how to reset the Nigerian economy?
It is not easy to tackle some of the challenges that Nigeria is facing, and this is not unique to Nigeria, especially with rising global interest rates and debt levels as well as rising debt service levels that have been going up because of the rise in global interest rate. Secondly, because of the depreciation of many currencies including the naira, it means that the net debt exposure that you have and the cost of servicing it has gone up significantly, at a time in which concessional financing has been going down. Therefore, the only way in which countries like Nigeria and others can get more access to capital is to go to the Eurobond market, the global capital market, which again has become more expensive because the yield curves are very different.

So, there are probably three or four things that I will say that one needs to pay attention to. One, of course, is to expand the access or the availability of forex because when currencies weaken, essentially what you have is that you don’t have enough forex to back your currency and therefore your currency depreciates. So, when you look at it, the approach that Nigeria has been following for decades has been allocating forex. It is an allocative approach in terms of a very restricted supply of forex and that is because we run an import substitution strategy, which we have constantly been doing for a very long time. Nobody wins by playing defence, you score on the other side and the way to score is for Nigeria to have, in my view, an export-oriented industrial manufacturing stance.

Export-oriented industrial manufacturing stance is like a funnel, in which you bring in more forex because you are developing your value chains that are export-oriented and earning a lot of foreign exchange, as opposed to a redistributive model of a small amount of forex. That is a fundamental structural change. That means that the country has to build industrial value chains in which it has a huge competitive advantage. It can be in agriculture or oil; it can be in gas, creative industry, digital industry or any kind of industry that allows you to have the platforms to be a manufacturing powerhouse. That is a long-term solution to the problem that you have today.

As a doctor, if you have a problem, and they say, go change your lifestyle. If you maintain the same lifestyle, you’ll be back at the doctor’s table. Secondly, there is a need to be a lot of support around Nigeria given the tight fiscal space and the lack of forex to make available a lot more concessional financing to the Nigerian economy. That is what we are doing at the African Development Bank (AfDB). This year, we have gone to our board of directors for approval; we plan to be able to do $1.76 billion of financing to Nigeria in different sectors, including considering a potential policy-based operation of budget support to Nigeria. We are discussing with the Minister of Finance and that is part of a $1 billion budget support operation that will go into two tranches. Again, I will say it has to be approved by the Board, but these are all the things that we are hoping to be able to do.

Now, the other challenge, of course, that you have is very high inflation. Inflation is almost 30 per cent. As a result of that, you will find that the purchasing power has been eroded significantly in Nigeria. But tackling inflation requires looking at some of the structural drivers. A big part of that inflation is food price inflation. If you look at the Consumer Price Index (CPI), probably 65 per cent of it, if not even 75 per cent, is the price of food. You don’t necessarily deal with food price inflation through your standard macroeconomic policy of tightening monetary supply. You deal with it by producing the food because that is the thing that needs to be done. So, I think it is very important to be able to deal with that.

The third part of it, a lot of it is cost-push factors that are driving many of these things. If you look at structural challenges in terms of poor infrastructure, lack of electricity and, of course, insecurity, in many of the places that make it difficult for people to also produce food and transport. All those things add to it. So, I think it needs to be a structural solution.

We have seen people looting warehouses and food in recent weeks, meaning there is hunger. As a former minister of agriculture, what can be done to tackle the crisis?
I am not used to complaining; I’m used to finding solutions. As I speak to you, we have approved $134 million for Nigeria to implement an emergency food production plan. And that is not something we are planning to do, it is what we are already doing. Already, we have supported the cultivation of 118,000 hectares of wheat in Nigeria this season. We will do 150,000 hectares of maize production this month. By the rainy season in May and June, we will support Nigeria with 300,000 hectares of rice. We will also do 300,000 hectares of maize, 150,000 hectares of cassava and 50,000 hectares of soybeans. That means just in basic terms, that by the end of this March, Nigeria would get an additional one million metric tons of wheat. By November, we will have an additional four million metric tons of rice, cassava, maize and soybeans. I am saying that because we have to continue to push for more food supply.

But one thing that I would say is that the government needs to go back to the policy of the electronic wallet system. Remember that when I was a minister, we designed a programme to get seeds and fertilizers to farmers directly via their mobile phones with electronic vouchers. We were able to reach 15 million farmers in four years. The whole place was booming with food. So, it is like a patient that is sick, that you prescribe a drug for. But the pharmacy doesn’t have the medicine; the person will always be sick or probably even die. So, at the end of the day, it is not your prescription, it is the access to what they need.

Access to high-performing yields, high-performing seeds, fertilizers and farm inputs is very critical otherwise you will not be able to do it. So, those are the things that we are doing in Nigeria. In addition to that, we have a programme that we have already implemented called the special agro-industrial processing zones. These are new economic zones we are supporting Nigeria to develop that are dedicated completely to food and agriculture so that they have power, water, roads, infrastructure and food processing facilities. We provided $520 million – AfDB, the Islamic Development Bank and the International Fund for Agricultural Development. It is currently working in eight states and we expect that those things will start hitting the ground by June.

What they will do is they will change the entire rural economies from what I can call economic misery right now, to new zones of economic prosperity because you turn agriculture into a real business with value chains that can work and add value and create massive amounts of jobs. We are already planning to launch this year in 28 states a program for $1 billion, ourselves and partners that will build 28 more special agro-industrial processing zones in 28 States.

The cost of bread has significantly risen. In the past, you advocated the adoption of cassava bread. Do you believe revisiting this option could contribute to curbing the current price surge?
You are already eating cassava bread; you just didn’t know. If not because of the policy we did, and the fact that at the industry level, they have been incorporating cassava flour into bread, you will not be able to afford bread today in Nigeria. Buy any flour, and look at it, you have wheat flour and white flour and what is white flour?
It brought the weighted price of bread down. You are getting blended flour that is blending wheat and cassava flour. Today, that is a national policy in Cote d’Ivoire and many African countries. Look at the price of wheat because of the war between Russia and Ukraine. Look at what has happened to the price of wheat. Every nation must develop not with what it does not have but with what it has. Check your flour bag and see the composition, but it is a very good composite of flour and we have to continue to do more with that.

Considering the recent market-oriented reforms, particularly the petrol subsidy removal and the forex reforms, both of which profoundly affect every citizen, what measures could be implemented to alleviate the economic hardship?
When you look at the oil sector, there is no doubt that people are hurt in terms of the impact of the removal of the fuel subsidy. But at the same time, it was largely an inefficient subsidy. You may want to do surgery but don’t cut the artery because there would be too much blood even though you needed to do the surgery. So, I think that everybody has to just support the government to make sure that the transition to that change is done in such a way as to reduce or minimise the negative consequences or the externalities of that decision. Because we are an import-dependent economy, the price of everything just shot up, even the price of transport went up, and the people that are collecting rent, everything has gone up.

You know, prices once they have gone up, they become sticky downwards. They don’t come down again and just stay there. I think that managing that transition is the biggest issue. But you cannot manage that transition without addressing the forex question. There must be a way in which we get more forex into the country. That is why I will say that it is important that multilateral financial institutions like us and others can provide access to concessional financing, which is long-term money at a very low-interest rate. When we give loans, we talk about one to 1.5 per cent for 40 years. A 10-year moratorium is the kind of loan we are talking about. It allows you to be able to invest properly without indebting yourself quite a lot more.

On concessional financing, how much do you think is needed for Nigeria to address the forex crisis? Should there be collaboration with other multilateral institutions to give long-term loans to Nigeria?
If you look at the current situation, you can borrow your way, but you have to be careful what you are borrowing. How are you borrowing and at what cost? It is like getting fat, that fat adds up all the time. So, the kind of debt and the pricing of the debt are very important as you deal with this kind of situation. We can work with other multilateral financial institutions to make available long-term, low-interest concessionary financing that brings down the cost of financing for the government at this time. And I will certainly help talk to others and convince something around that for Nigeria because that matters a lot in quickly dealing with this issue.

How much would we need?
I wouldn’t know what that amount is. I think it is up to the Central Bank of Nigeria (CBN) to determine what level of liquidity they need. But all I can say is strong support from us at the AfDB, I just mentioned that we expect to do $1.76 billion this year. I think that if we can agree with the government on macroeconomic policy issues and fiscal management issues and all of that, there is no reason why a few multilateral financial institutions that give low-interest long-term finance cannot rise to the occasion. I keep making that point, it is very important to rally around Nigeria. Certainly, from my side, we would be keen to see what we can help to make that happen.

Considering the current challenges, do you believe that our current economic position is sustainable?
No, because the slide of the naira that you see, is because people are losing confidence in the economy. That is what it is. That is why I was saying that the way to deal with that is to make sure that we can expand inflows of forex into the country. A few days ago, the Monetary Policy Committee (MPC) in terms of raising the interest rate. I guess that would work probably for the portfolio investors, but again, there are other consequences you will have in terms of investment in the critical sectors that you need to grow to be able to produce more and have the kind of export-oriented industrial manufacturing stance that I said. So, it is a balance between short-term solutions and long-term structural things that need to be done. I do believe that we need to try and find a way to deal with the short-term, but keep our eyes on the long-term structural things that must be done.

So, I think that we need to take a very serious look at that question. Take the case of places like South Korea and the Netherlands. The Netherlands added a year or two ago, over $90 billion a year from just the export of agricultural produce. How much land do they have? It is sitting on water and is a very small country. You take a look at South Korea, with earnings in exports of $230 billion from machinery and electronics. We have top brains in this country and being competitive in the IT industry, and digital industry, of course, we are doing well in the creative industry and others. We need to build those platforms that allow us to have that export-oriented industrial manufacturing stance.

In the ongoing discussions regarding the potential review of public sector wages, there is a concern that the private sector, facing certain limitations, might not be able to adjust. That means the public sector wage increase could cause a price spiral and strain on private sector workers. What strategies or measures do you propose for addressing wage negotiations in light of this disparity?
As President of AfDB, I try not to get involved in domestic government policies because those are domestic things that governments have to worry about. But I can only say in general that simply increasing nominal wages in a high inflationary environment is self-defeating. That is because at the end of the day, what matters is the purchasing power, effective purchasing power. And so, you gotta keep your eye on keeping inflation down. And so, there are monetary policy issues that have to be taken, there are also a lot of other fiscal areas in terms of expanding access to forex, and getting the mix of financial instruments available to the government in terms of expensive commercial loans, which will also add to the problem versus quite a lot lower interest, long term concessionary financing, which I think is probably what Nigeria should be looking at. At the end of the day, nominal wage prices or wage increases in a high inflationary environment are just going to run away from you on all sides. You have to keep your eyes on just making sure inflation goes down. And for inflation to go down, a big part of what consumers are spending if you look at the consumer price index is just the price of food. So, produce a lot of it.

In expanding the productive base, there is the issue of power. What can be done to address this?
There is no reason why Nigeria has no power or why it has epileptic power because it simply adds to the cost of doing business. Even for domestic, if you’re not able to produce enough domestically, you’re not able to be competitive in the regional or global markets, because the cost of doing business goes up. Nigeria has a huge amount of potential for hydro and a huge amount of potential for solar all across the country.

In some areas, maybe even the Mambilla Plateau area you even have quite a lot of potential for wind power. The way I look at it is that we ought to be talking as a country of maybe 60,000 to 70,000 megawatts capacity, not 4,800. Remember that supply generates its demand and if Nigeria is to develop fast growth in double-digit, it must solve this power problem, but more than solve it, it must accelerate it in a quantum way to allow Nigeria to be a place where low-cost power is available, industries want to move to for Nigeria, but also for the other regional markets. So, I can’t emphasise enough that if you don’t have electricity, the economy can’t grow. Simply running diesel is not a way to run an economy. I know the government is putting priority on that, but a lot more priority needs to be put on power. And it’s not rocket science. At the African Development Bank, today, we are supporting 11 countries in the Sahel zone of Africa which includes all of Northern Nigeria, to develop 10,000 megawatts of solar power. It is called ‘Desert to Power’ and is a $20 billion investment we are making. And that will provide electricity for 250 million people and so all I’m trying to say is there has to be a real combination of thermal power, hydropower, solar power, wind power, use everything you’ve got because a nation can’t develop in darkness.

The IMF said Nigeria has re-introduced subsidies through indirect means. The World Bank shares a similar belief. In light of the apparent challenges and criticisms, some argue for a policy reversal if the reform is ineffective. What is your take on this?
I am not going to comment on the efficacy or otherwise of any domestic policy. I don’t in any country, and I won’t do it here. But the only thing that I can say is that you cannot have surgery without anesthesia. You cannot have a tooth extraction without anesthesia. At the end of the day, the impact of policies is on the livelihoods of people and I’m sure that every government will want to look at the maybe desired and undesirable impact of any policy. And then to be able to have an adaptive way in which you adjust yourself based on the realities that you face. I think at the end of the day, regardless of the country, if you are a pilot, or you’re going right through a headwind you can either continue to do that or you find a different direction to be able to do that. So, adaptive public policies are always very important in the face of realities that exist and I’m sure the government must be thinking about that.

You are the recipient of several national and international honors. On a scale of 1 to 10, where does the Obafemi Awolowo Leadership Award stand?
I have gotten quite a lot of global awards, but this is the first award I am getting that makes me emotional. It makes me emotional because it is about somebody that I revere because of his welfarist policies and without whose welfare policies, I might not have gone to school and maybe you will not be interviewing me today. For me, it is very special. And I think that places it not in my head, it places it in my heart. It is a treasured award. Secondly, whenever you get awards, at least for me I don’t believe awards are things you hang up on, so you can say you got a trophy or recognised by a trophy. I think awards are supposed to make you even change to have a sense of greater accountability to do more. That’s what I believe. The Obafemi Awolowo prize leadership further resonates with what I already do, which is I am 100 per cent into welfarist policies, and people-centric policies because I think development should be about people and that leaders should lead with their hearts, not with their heads. You need your head to think but you must rule with your heart. I pattern myself after that welfarist policy. Therefore, it is probably the most significant award that I have received.