Agwu: Build more assets, rather than sell old ones
For Nigeria to experience sustainable economic stability, government must think alongside developing the industrial sector. This is the position of Dr. Chukwuma Agwu, a Research Fellow at the Institute for Development Studies, University of Nigeria and African Heritage Institution, Enugu. He told BRIDGET CHIEDU ONOCHIE, in a telephone chat, that Nigeria should rather build more assets than sell off existing ones.
What is your view about the call by Aliko Dangote, others to sell off national assets
The question we should ask is if it is a useful idea. While I commend the idea and the fact that it helped point to an area Nigerians may not have been thinking about, it is important to examine the premises and implications of the suggestion to sell assets. First, in understanding the limitations of the idea, we must understand that we are not dealing with ‘Nigeria Incorporated’. Nigeria is not a limited liability company and its problems cannot be treated the same way as that of a limited liability company that has problems.
In this regard, the analogy to sell assets in a company during recession does not hold water at all. I give immense credit to Mr. Dangote for all he has achieved, but running a company is not exactly the same thing as running an economy – and that is where some of the analogies and comparisons he made in the interview may break down. There are social and political issues associated with running an economy that do not exist in running a company. Good ideas are good ideas, whether they pertain to economy or they pertain to a company but then, there is also a limit you can push ideas that will work in a private company unto a nation and that is where I have an issue with that idea of selling off national assets.
Now, when you want to sell a country’s assets under pressure of recession, one of the first concerns is that whether you will get fair value for the assets. This is not because there would not be any buyers – in this particular case there will be – but because given the pressure to generate quick funds, the sale process is not assured to generate fair value for the assets being sold. And I know you understand what I mean.
But let us assume you will get proper value for the assets, I also have issues with the sector the assets are in – the oil sector.
Already, as we speak, the oil sector is foreign-dominated. Historically, the oil sector in Nigeria attracts the highest share of foreign direct investment; it has been like that for many years. Over 80 per cent of all foreign direct investments coming to Nigeria go straight into the oil sector because the oil sector is an easy cash cow for foreigners. Because of that, if you put up the LNG today, an investment that yields up to $1.5b per annum, you are going to have investors falling over themselves to buy it, but ultimately, you are just increasing flow into the oil sector and not the sectors of the Nigerian economy where we need the investments. It therefore means that if you are going to give away these assets, the challenge you will have is the efficiency with which you convert what has been oil assets over the years into assets in other productive sectors, and so far in Nigeria, we have not demonstrated competence, nor do we seem to have institutions that have the capacity for that kind of efficiency.
So, it sounds easy to say, ‘sell these assets and use it to transform the economy’ but it is not as easy when you get into the nitty-gritty of implementing it. It may be easy to sell them off but I can tell you what I know about Nigeria that it is not going to be easy to translate the proceeds to the real sector where it should be, unless of course, we are merely going to use the proceeds to shore up reserves as Dangote has suggested, which itself is very problematic, because, again, that is not guaranteed to change confidence significantly. So, I have issue with the sector that the asset is being sold from and the sector in which it would be ploughed into. The much we know, the oil sector in Nigeria is not well linked to other segments of the real sector in terms of employment, in terms of productive value chain or even in terms of providing support funding. That link is still extremely weak.
Another issue, which I am worried about is, who buys the assets. Whom are we transferring the assets to? Right now, the Nigerian economy is going down and has officially been declared as being in recession. By implication, the Nigerian private sector is also de-investing. So, if you want to create a syndicate to buy the LNG, the most probable people able to purchase that are foreigners.
Unfortunately, foreigners don’t have lasting interest in Nigerian economy and when we sell this easy and ready-made national wealth to foreigners who are private entities without lasting interest in the economy, you create another problem. Already, as it were, there are four shareholders, and three of these are foreigners. Without very strong regulation that ensures the terms of the sales are such that they will be able to create the kind of support economic and social infrastructure that the NLNG has been creating for Nigerians, Nigeria will lose out on every side in such sale. Nigeria will lose a whole lot more than just the financial resources the LNG gets in if it sells unadvisedly. So, it is important to worry about who is buying it, important to be concerned about the fact that we are selling more assets to foreigners in a sector we prefer to have less of foreign participation and more Nigerian participation than we currently have.
So, if you really want to sell it, it means you will get some foreigners and maybe, a few very rich Nigerians and I don’t think that such is what we need now. If anything, we need more LNGs. We need to encourage other big time investors to build more LNGs because a whole lot of gas is still being flared in Nigeria. A whole lot of Nigeria’s gas deposits are not even being harnessed by LNG. As at 2013, up to 15 percent of Nigeria’s gas is still being flared and when you relate that to the volume of deposits, you have a sense of the gap that could be created by building more, and not selling off current assets. You can still build more LNGs.
The suggestion is also for Nigeria to sell off some of its shares at the African Finance Cooperation (AFC). Again, that is very unnecessary because AFC started operations barely seven years ago, with Nigeria spearheading the operations. Nigeria has about 42 per cent of shareholding. I am not sure that the concern at this point should be about whether or not to sell off the assets. What we need to worry about is whether the proportion of the AFC funds provided by Nigeria actually translates to the proportion of long-term infrastructural investments AFC makes in Nigeria. I think the challenge we have is Nigeria’s approach to economic diplomacy. We have a history of a country that thinks Africa, which thinks abroad and always playing the big brother without thinking of its own interests in exercising that big brother role. When other countries provide funds for international activities of any kind, they also ensure they get value in return. The U.S. funded wars in Iraq and Afghanistan.
Who did the reconstruction in those places? They are naturally American firms. Meanwhile, Nigeria funded ECOMOG that stopped wars in Liberia and Sierra Leone, but Nigerian firms took little or no part in rebuilding those countries. That same attitude may be there in AFC where the country provides the bulk of funding, but is probably not central in investments being made. So the issue is, how can a significant share of AFC funds be ploughed back into Nigeria? Also, at a time like this, we should be thinking of leveraging on AFC funds and Nigerian shareholding there to obtain additional financing from other institutions. Those shares are indicators of the country’s health and could be used in discussions with potential financiers. And that goes for the LNG as well. Nigeria did not go into recession because we suddenly didn’t have assets. We went into recession for other reasons and we need to look in those directions to get out of the recession. And worse, if we sell the assets and do not utilise the resources very well, we would be losing on both sides. Or maybe, whenever we are able to get over the recession, it would be discovered that it was not the resources from the assets that brought us out and we would have lost the assets permanently.
What are the Options to get out of Recession
I am happy that these ideas are coming up so that we can debate options emanating from them. An option open to Nigeria, which is not only more sustainable but more rewarding, is to use the assets as collateral for obtaining extra and immediate funding. Instead of selling them outright, they should tell multilateral finance institutions that they want to use the proceeds from the assets as collateral over the next 10 to 15 years to collect certain amount as loan. It makes sense, in the fact that, it will no longer be flowing into the Federation Account as money that Governments in Nigeria will share and eat up on recurrent consumption. Rather, the money would be used specifically to fund investments, either in infrastructure or other segments of the real sector. But for that to work, the Federal Government needs to clearly show that it has a clear economic direction. If you are selling assets with the existing sets of policies and programmes of the Federal Government, then, I am afraid you will lose the assets and you will not get out of the recession.
There is no short-cut route out of the recession. While public funds are useful to get the country out, it is private funds that would sustain our remaining out. And that is where a whole lot more is needed from the Federal Government than currently obtains. Even if government sells assets, but is unable to get the private sector to also bring funds back into the economy, we will achieve very little. And I seriously doubt that marginally shoring up reserves will work the magic. The Federal Government has to put its acts together in terms of who and who run the economy.
All Nigerians have a stake in this. Finance is very shy and, unfortunately, in dealing with the economy, perceptions are quite important, sometimes more important than action. Part of the challenge in the foreign exchange market is speculation, arising from perception and a reading of economic knowledge map of the government by the private sector. So, just putting together a team of knowledgeable men who come with clear policy statement and a plan may be all we need to give confidence to Nigerian and foreign investors and that alone can change things significantly. We have had capital emigrating because no one is sure of where the administration is headed with the economy.
Everybody is reading the government’s body language and is worried because the cost of having ill-equipped persons take charge of the economy is very high. Policy mistakes translate to, often avoidable but irreversible, business losses – and no investor wants to be caught up in that situation. There is recession mainly because many feel that we don’t seem to have very capable hands managing the economy and with clear direction on where they are going to. We are not in recession because suddenly, there is no money in the world; there is recession because investors are sensitive and are moving their resources elsewhere.
And we have seen a number of summersaults in policy statements. Those conflicting signals only serve to put investors on edge and give them the impression that the men in charge do not understand the issues at stake. The level of unpredictability government policies are creating for investors is one of the factors shaking the business community in Nigeria and capital moving in as we saw in years back, it is moving out of Nigeria.
So, just handling that alone would go a long way in restoring investment into the country. This is not to belittle the issue of getting quick resources to fix the economy in the immediate, which is what Dangote suggestion is mostly about. That is important, but there are many ways of going about that, and as suggested here, using the assets as collateral to access credit is just one other way. But even the person that would give the credit considers stability and policy direction as being very important and may be reluctant to act if these are not clear. The policy direction may be clear to those within the government, but unfortunately, those in government are not the consumers (the ultimate users) of their own policy products; the rest of us are.