‘How to stabilise Nigeria’s economic environment’
What are the biggest take aways from this plan?
Firstly for businesses, the things I feel one should be looking out for in this ERGP are the 5 or 6 principles that were highlighted. If you permit me I’ll quickly go through those. One, focus on tackling constraints to growth and that means the ease of doing business. Two, leverage the power of the power sector. For the first time this government is now saying the private sector needs to be driving things that have to do with the markets and the economy. Previously some analysts have said that this government is cynical about the private sector. Promote national cohesion and social inclusion, that means inclusive growth etcetera etcetera, and allow markets to function.
This where I say, “This is great.” It’s someone talking to the central bank. Because if you say that the government recognises the power of markets to drive optimal market ecosystems then you cannot jump in to control that market and so the currency market hopefully with this sort of document coming from the government we will see a relaxation of the managed float or a true free float, down the road. Of course the last one is upholding core values. etc. etc.
Would you say this does enough to catalyse fresh investment into areas like agriculture? I get the sense that there is a lot of money on the sidelines, but if we do not crack that monetary policy, do you think that we can still move forward given what is going on right now?
I believe that this document is being studied around the world. What we have is that even the $1 billion that was loaned to Nigeria by the ADB, they only gave $600 million because they said Nigeria doesn’t plan. The difference is being kept. Now here is a plan. Now for the plan to become convincing for someone to respond, they have to look at it and then they have to ask questions, and those questions would be answered. And that is where some of these principles would help guide the conversation on is this the right kind of plan or not. And then of course implementation. Because the key to any plan document is how you follow up and follow through. As a nation we have had situations where we had excellent plans but failed to materialise them into impacts on people’s lives. Hopefully this is not going to be one of such.
Moving away from the plan for a brief moment, can you reflect on some the changes we’ve seen in how the central bank is working out this forex policy. Some people are saying we’re seeing a little bit more supply, does it go far enough for you?
For me, what has happened, is that when they injected $360 million or so you saw the strengthening of the naira in the parallel market meaning that if the central bank chooses to play in the parallel market which is basically the free floating of the naira, the naira would strengthen for a sustainable period because it would also encourage others t bring in their dollars. Right now it is not happening. On one side, that experiment made a lot of sense if the central bank were to begin to relax or float the currency in some meaningful way, the market would respond positively. My only concern is that it was only the BTAs and PTAs and School fees and Medical expenses. Those are all consumption products. If it were for buying spare parts and machinery so that it is the manufacturing sector and businesses then we would be encouraging production. Because there is a choice of whether I want to travel on vacation outside the country or go to Calabar or Plateau, or Yankari Game Reserve, or even Sambisa these days. Coming from Borno State, I have to pitch for them. But the thing is that these are still consumptive things. Are we encouraging consumption or are we encouraging production.
There has also been some supply to the broader market. What many people are concerned about is how sustainable the supply is. Because it will be a drain on the foreign reserves especially if oil production doesn’t stay up, or if the oil price falls.
My position hasn’t changed. Three or four weeks ago I mentioned my prescription for the quagmire that we’re in with the foreign exchange market and it’s the Egyptian solution. That is you reach out to the IMF and you get $20 or $30 billion without necessarily touching it because that would be the arsenal for us to fight this battle.
With that you would actually see the strengthening of the naira. The Egyptians floated their currency in November. I was in Egypt at the time, today the Egyptian pound has strengthened by over 15 per cent from November till today. It means that once there is confidence, money starts flowing in. I know a person who had a PE outfit that was raising $40 million or $45 million and he was going from pillar to post not getting anything and the week after the announcement he got commitments of over $80 million from foreign investors, and that’s in Egypt. We can do something similar, and I would bet you that the naira would only strengthen on the parallel market.
In terms of solutions, incidentally this Economic Recovery and Growth Plan speaks to that: Asset sales. Some have suggested that apart from going to the IMF, the federal government can sell some assets and lift the dollar supply as a result of that.
That could be one of the solutions, and I know that it has also been mentioned. The funny one was investing the refineries. I wish they’d just be sold as is to anyone who would come in and fix it over a certain period of time. There has to be some sort of service level agreement between the buyer and the nation so that that contract obligates them to fix the refinery and produce. The other thing is that they may be shy of coming in if they are not sure of how they will repatriate their profits and so on. So we are in a situation where every aspect of our economic future, development or life, is linked to this monetary policy.