NIGERIA RUNS THE RISK OF ENTERING ANOTHER DEBT TRAP IF IT KEEPS BORROWING - PROF. PAT UTOMI

one of the primary responsibilities of the central bank of nigeria is external reserves management aimed at safeguarding the international value of the naira in furtherance of this mandate the cbn in the last six years has introduced a plethora of foreign exchange controls and intervened in several economic sectors in order to improve productivity and wean the country off its over-reliance on imports in addition the central bank has continued to fund the federal government's rising budget deficit through ways and means all these occurred at a time when nigeria's crude oil production and all export earnings experience a precipitous decline rendering it almost impossible for the central bank to meet pent-up demand for foreign exchange expectedly the dollar scarcity and decline in capital importation brought on by the foreign exchange controls has resulted in a forex crisis and debilitating erosion of the value of the naira while joining us now to discuss the bleak situation in which nigeria finds itself is professor pat otomi a political economist academician and former presidential candidate will also be talking to us about structural adjustments nigeria's fiscal and monetary authorities will have to make to revive the economy and address the foreign exchange crisis welcome to the morning show professor otomi good morning good good morning glad to be able to join you well uh you know to uh tono in the introduction to this conversation i talked about the fortunes of the naira uh fiscal and monetary policies in nigeria and what we need to do but i guess all of that are symptoms of something bigger which is uh you know the future of nigeria itself and yesterday you were at an event in abuja where a new political group was said to have emerged rescue nigeria project the papers are reporting that today that your good self and others have come up with a new political party so is the rescue nigeria project a political party and what are the key issues uh that uh you know you think because you made a presentation there uh key issues that you think we need to focus on as nigeria moves towards 2023. maybe we'll start with that as a framework for this conversation okay all right well thank you very much reuben um you know part of my challenge with nigeria as we're trying to build it up is that there's too much focus on power rather than purpose purpose of building a strong nation viable sustainable economy is for me the primary thing before this business of power but we seem to be obsessed with power rather than purpose so anytime there's a grouping that's designed to advance purpose the question is how are they going to get power i think that what happened in abuja yesterday was accumulation of conversations between people who were thoughtful and focused on some problems this particular group has been focused and i remember being part of conversations in this group in fact in june while i was in the u.s i was involved in virtual meetings with the group uh that wanted to focus on the fact that nigeria's major problem was quality of leadership how do you ensure a process of selecting people for leadership positions in public life and yesterday was accumulation of conversations around that and launching out of this initiative of let's find people of competence and capacity to deal with different aspects of our national life and i was asked to speak to the challenge of the real issues in the economy so that we look at the quality of people who can respond to those real issues and begin to build from there i think that people are rushing to because nigerians are desperate for something different understandably they're rushing to a conclusion anytime a group gets together to say we want to save our country i expect about three or four more of these groups that i know of to imagine the next couple of weeks and i think many of them will focus on specific areas this particular group is looking at the issue of quality leadership competence and courage not the usual issues of where you come from and that that kind of stuff another group that i'm associated with has been focusing on constitutional reform electoral process reform there's going to be a major um well coming out for that group offering nigeria a draft new constitution offering nigeria a movement that says unless electronic transmission of election results are going to define how we go forward then let's not have elections because what we've had is a complete fast we don't have elections in nigeria and there are people who are relying on state capture for abusing the electoral process and announcing that they have won elections and that group will be so insistent with its work that it too will be seen oh this is one more movement then there will be another group which i'm also um familiar with and have participated in their work that is going to focus on responsible economic management i keep saying that we don't have a national strategy how do we grow this economy we keep throwing out numbers so focusing growth this is that that and that's as far as i'm concerned all hogwash nonsense we need to know how we create this look we're talking about borrowing borrowing the last couple of days leave when you get pressing down the real performance of the singapore economy in the early days so that he could borrow liberally from either international development association funds would be a very very low interest long term but here we're borrowing from all kinds of places with no clear strategy for how we're going to amortize those commitments how these barriers will lead to real growth in the economy provide the millions of desperately needed jobs what this country needs is a demographic dividend we need to tap into this youth bulge by investing appropriately in our young people and make it the basis for the new growth and the expansion that this economy needs i think that unless we see these things in this context focusing on purpose the obsession with power this party that party would just make us poorer more miserable create more insecurity and all the kinds of problems that we're dealing with today so this is really the clear starting point purpose not power and also service one would hope but my question for you is that are you going to contest on this platform of the rnp or on any other platform that i have to get that out of the way first and also another pressing issue for me which i've been wanting you to answer how do we get nigeria producing again yeah that is the important question what i do do not do those are three realities any good person who fits all of these things can come forward and i'd be very happy if it turns out to be me hey it's a sacrifice that we have to make for the future of the children but i'm not fixated on stuff like that i am more on the purpose of how we get nigeria to work again um i i i see ironically uh uh president babangida was trending after his comments about the kind of person that nigerian needs i thought it was a fitting point to bring in president babangida into conversation especially as we were dealing with issues of foreign exchange management in the remarks i made yesterday in abuja uh i had said that president babangida you know you know um sometimes uh is the single issue narrative about people present blanket is often defined by one or two things either the fact of the annoyment of the election or the challenge with the laser first style that seems to have increased corruption and that's fair but i think that people forget the kind of political sagacity it took president babangida to work our country out of a foreign exchange market nightmare our economy was in such a horrible state because of a delicious tradition in economic management which left us without a market in foreign exchange was allocated and so it went to six chiefs six allergies and stuff like that manufacturers didn't get it treated as property as didn't get it and they had to add all the rent that they could extract these people who had access and when president babangida came of course everybody went oh my academic friends from the left came at him and all of that but he managed to dramatically play around all of this bring us into what was called a structural adjustment program a two-tier foreign exchange markets fame was introduced as a first step and then we achieved a market now markets are built around the institutions and the institutions put the boundaries that make markets possible and we've lived for many years in this easy flow exchange market but we refused to let the institutions work and the last couple of years we fractured those institutions and suddenly the market is wobbling the exchange rate is collapsing and we begin to blame everybody i think that it is that legacy of work that it took to build a foreign exchange market under general babangida that we have to understand study and bring back on board in trying to blink bring new discipline into how we create markets and what we need is creating new markets where they didn't exist this prosperity of this country in recent years were created by a market that index exists in telecommunications look how many hundreds of thousands of millions of jobs have been created by this new market in telecommunications that followed the institution building of the ncc the auction of gsm licenses and that process we need to understand that we can do it in several sectors and expand this economy and create the growth that we require come to your specific point about production my my point of joy to grow this economy we need to look at our factory endowments you know under the input substitution industrialization logic the proud royal probation species uh we just took our import list and deleted or what can we produce and so at the point in time what isi produced for nigeria was a brewery in every village in eastern nigeria that's my joke but breweries were driving you know but billion because we could just substitute that from our import list very easily delete and and move uh forward however it was not sustainable what our asian friends did when we all started out with the same privilege thesis was quickly moved to export-led industrialization and used industrial policy to support that okay broad industrial policy which um chang uh the south korean economist at cambridge would typically argue for in his uh uh bad samaritan's writings is what for south korea at a period in history right now is not the best way to go we have to be very selective take care of factory endowments what are we endowed with as a country okay it's not central sesame seeds northwest is gum arabic is this uh south south hydrocarbons value chains uh southwest is cocoa is this take those endowments literally build economies around those environments that includes education there are education you give somebody who lives in north central should be such that by the time he's in from i don't know just three ss3 he knows everything about sesame seeds he can run a small business that can add value to his sesame seeds a production refining process and they're people whose only skill is identifying the use of sesame seeds in europe north america and aggregating what is produced across north central so that they can access international markets i have said for example that we need if you look at what japanese ascendance it took the marubenis of this world that essentially became aggregating companies that enabled them to considerably play in international trade look if we want to export and there's a clear example of of some indian firm in nigeria that tried to produce garments it didn't work they spent so much money wasting pounding the tables in abuja after a while they created their stuff moved it to kenya today they're supplying uh walmart more than 10 000 blue jeans a day but that is even not nothing for what mo walmart needs so you got india the aggregators who will get 20 30 40 of those people even if it's across borders pull them together and sign a proper contract with walmart for one million pieces of blue jeans delivered in delaware or whatever it is every monday morning at 7 00 am and it works that's what the marubinis did for japan and some of the tables in in south korea managed to do we must move ourselves towards these kinds of organizational structures for light manufacturing and we can break the country up into different regions what kind of light manufacturing i would focus on leather goods in a bath for example and up rails i would focus like i said you know in different parts of the country with based on their local endowments and then support those who produce not those who extract rent you know we talk so much about what has been given so much money by cbn so much money by that and you don't see the effect okay okay so see part of the way that uh okay all right okay i mean great point you've been making sir but i mean the big argument here will be yes it's good to be pioneers i i think it was uh what's his name harry ford i wrote a book in 1923 called it today and tomorrow and talked about how he was a pioneer in the auto sector because prior to that time it was only carnival producing steel so but how can you be a pioneer in a country where the government is too big and the government in the bid of regulation stifles everything i mean a clear instance is this final resort to digital naira i remember a couple of years back how every digital currency was frowned on by the government in fact it was said we should not give it publicity or air at all but finally we are coming to the digital naira now so i mean how do you break because that's the problem with a lot of people they're complaining that we want to be pioneers and innovate but the government is too big and it's stopping everything i you know i i don't know where to enter this your question a great great question but if i had died from i can talk for two hours you know should i come from a fourth angle should i come for the naira anyway let me start somewhere you know one of the things i've said frequently and i say it in complete good faith is that the biggest risk of doing business in nigeria is regulatory risk the regulator is dangerous in nigeria this is because there's a cultural problem if you are given a uniform in nigeria you are defined as a bully so you are asthma so you harass a group you are police uniform yeah how can we change mindsets of authority to realize that their business is to facilitate not to bully the nigerian government is the reason business feels in nigeria look the forbes uh uh article i think 28 may 2019 nigeria africa's money losing machine essentially it's making the point that if you want to lose money go into nigeria okay fine let's leave foreign direct investment for now because part of what i've argued and it goes back in the 50s there was this economist in colombia called ragnar noxi and his thesis was capital is made at home foreign direct investment can stimulate things it's very important it's very useful but let's make capital at home but you know what government is preventing capital from being made at home and i i don't think it's because they're wicked it's because they're ignorant so we have a joint lesson to educate each other on how we can build an economy innovate innovate innovate we cannot make progress without innovation and innovation is going to be difficult and those who innovate are usually 10 steps ahead of those who regulate they know so much better than those who regulate and those who regulate see their position as stopping these rascals and in the end we lose out we don't make the progress look at ford that you mentioned you know um people give for credit for many things the moving assembly line is the ultimate credit he gets for revolutionarizing manufacturing in fact changing you know the the industrial revolution but you know folks greater success was as a hr genius fought in wages went for doubled wages and created the minimum wage of five dollars in 1914 i think um people were even worse to jonah i should show you how this can be for innovators wall street journal wrote an editorial accusing ford of creating problems for other manufacturers other producers and all of that but that action by ford actually created the middle class as we know it in america today and some people argue that the reason he did it was because he said who those who produce this car should be able to afford to buy them uh others argue i mean i mean there's a ted low at harvard who wrote the giants of industry who spoke different perspective uh his his colleague denied cleating christians in the prosperity paradox takes a different perspective on the same uh the choices but the prop the issue was that henry ford was a bloody good innovator and his major innovations that changed america when the in the in the human rights relations labor management uh uh area even though he's giving more credit for the technology area of the model t ford and the moving assembly line i think that what we must do in this country is facilitate innovators because innovators are going into areas that have not been tried and tested nigerian banks i disaster if i have my way i will shut down the nigerian banking system as they exist today they will not lead us to progress and then the development banks are making things worse oh passing the risk to commercial banks so who is going to grow the economy because those who have the ideas who will innovate are ahead of them and the the things that they are doing you know the banks don't understand or don't want to be involved in because it's not easy sit down in the office with your fancy tie drive bmw things no these are not things that create wealth these are rent that they are extracting from the system uh in some ways well it was progress i feel personally paid for the fight that we create we from our first fought in the eighties pushing the general bankers of this world to open up that space uh because the bankers that came out of it are all just big men now extracting rent the whole idea of the fighters my first fought and were called names in the in the in the 80s essentially to be able to create a financial system that will drive growth and help this economy really come out of the situation it was in with an illegal ballistic banking system that did not really finance growth but we did we had our sports we had the push but they became too used to easy money and this is what nigeria is struggling with now you need innovators in banking and i'm glad what the fintech caps are doing because we shake up that industry and help us begin to truly truly create opportunities for people who are non-consumers as clinton christensen will call them so my challenge now is how do we get people who are politicians to understand these things um you know somebody said to me look i've lost my job i don't have anything to do i can go into politics now politics is not for people who don't have anything to do it's for people who want to change the world who have ideas about where the world is going and how they can apply you know the delivers of power to facilitate that happening and i think you all have a duty you refine ruby and all of you because you are communicating to people you can make people better understand these things and facilitate uh where this country can be because the potential of nigeria remains tremendous in spite of what we see however limited capacity on the part of people in public life has uh have been fairly hazardous for the possibilities of nigeria where prof one of the major news items in the last week has been nigeria trying to raise 4 billion dollars through eurobond and today there is some excitement in the papers about how this has been oversubscribed nigeria has come up with an exceptional outcome and all of what that we do to fund a budget deficit of 5.6 trillion build investor confidence increase the value of the nara but a big elephant in the room is uh the rising debt profile of nigeria and all those concerns that have been expressed by do you salami doctor doing salami of the economic advisory committee by dr bonifice isaiah who is asking for um you know limits to be defined in terms of how much we continue to borrow and also uh uh bismarck or financial derivatives who says you know we really need to worry about the rising that profile what's your position uh in all of this uh do you think that uh you know uh this is the best way to address foreign exchange problem and to save the naira well i think that you know first of all you have to take away this single issue perspective that to borrow is necessarily dangerous it's not necessarily dangerous what is dangerous is to borrow without a clear plan and clear plan includes the targeting what the money is going to be deployed for and the multipliers that will come from the deployment of that borrowed money now i want to go back to the story and and uh i mentioned that somewhere a few days ago and i'm not so sure what i whether it's i mentioned the federal commissioner for finance under general bassanjo uh back in the uh i think i think anyway uh he uh been in finance at the time that nigeria began to earn lots of money uh western banks where their vaults were overflowing with petrol dollars and oil prices spiked i following the young people arab israeli war in 1973 and they obviously all the monies they were earning that were way about outside of what it used to end but deposited in western banks western banks wanted to recycle these petrol dollars and they began to urge poor countries to borrow they turned to a country like nigerian said you are under borrowed for what the possibilities are technically speaking that was true if we were smart enough to deploy those massively into infrastructure that will open up the country do many things that will lead to more growth pay off those debts but we didn't you know we have an absorptive capacity problem i mean let's just think what happened to the pots the ports we started building uh tinker island port we remember when president jimmy carter came here in 1977 and were struggling with the team cam sports projects everything very cemented matter so it was an absorptive capacity problem anyway we borrowed the monies and suddenly oil prices went block and we were in a challenge with that but what did general bassinger do which is the point i really want to make for our friends in power today you know passenger realized where we were the first thing to do was cut spending he trimmed government remarkably and symbolically went to things like low profile biggest guy anybody head of state could drive in government was if you're 504. um that is the first thing you do when you are owing money as a family because there's no difference between running a family and running a country it's just that the other one is bigger um you then haven't trimmed your costs and i don't see anybody trimming any costs right now i've talked about your onsite report and what we have or have not done with it people still think that governors must fly around in private jets and that all kinds of things of those natures should happen now if we could then after trimming course say to ourselves what do we want to stimulate i talked earlier about latent comparative advantage and value chains you know in targeted industrial policy development we say okay this money that is coming who use it to drive the value chain of um sesame seeds until we become globally dominant in this play and will be earning these kinds of returns in five years in 10 years then please borrow borrow and borrow if that's what you'll do but don't borrow to give security votes to a governor please don't do that it will be criminal second thing there's also a moral problem about borrowing to leave trouble for your successors and i'm i'm glad general obasanjo picked up on this in one of his comments we need to be careful this is a lame duck government already they have to be careful in fact in the american system once there's a president elect for example you couldn't make any major decision without consulting him that is a way to ensure that you don't dump on your successors as something that does not fit into how he will manage after so this is a lindor government let us be careful about how we use public resources because of its consequence for those who will succeed the incumbents now if we were to take these things into consideration um we have to then bear in mind okay oh yes the bonds have been oversubscribed and all of that of course they will be they are sovereign debt we will pay them back you know that we are so many million people here we can be taxed we can be sold as leaves whatever they know they can get their money back and that goes to the second very important point about borrowing you know one of the things that jose stiglitz argued which i agree with so completely in globalization and his discontents is that western banks did not have the moral temerity to press down on countries like nigeria that got into a debt problem because they give irresponsible loans but they use the imf as a policeman to pressure those countries to pay back debts that were not reasonable to have been extended as commercial activities those debts should fail because the banks that give they are irresponsible we want to talk with bankers we're always facing one of one side of this information as asymmetry uh um frame which is a moral hazard the people who take monies from banks and their intentions are not properly disclosed but there is also the adverse selection when a bank knows that this money is going to lend to this person will do it damage and lends it because it wants to keep and it's easier to do now in nigeria because efcc and everybody who chased after the borrower without asking the question was the bank's lending responsible so banking has stopped being a commercial transaction it has fallen into the trap of the imf helping poor countries in getting back this loan that joseph stieglitz uh the amiable nobel prize laureate argued in globalization and his discontents so we need to be careful and doing is right we need to be careful but if do he and his team can think at the clear part and the guys in government can be honest that they will implement then by golly borrow well thank you very much professor parchitoni for joining us on the morning show today thank you very much indeed

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Length: 31min 41sec (1901 seconds)

Published: Wed Sep 22 2021