With increased allocations to states, there have been calls for them to do more; however, the former Deputy Governor of the Central Bank of Nigeria, Tunde Lemo, in this interview with a panel of journalists speaks on what he termed ‘money illusion’ and calls for sub-nationals to embark on projects that would have a greater impact on the citizens, among other issues. Oluwakemi Abimbola brings excerpts
How would you assess the government’s economic reforms over the years?
The Nigerian economy has, in the last two and a half years, made significant progress. You will recall that before the present president came into power, we had several issues with the economy, mainly because the exchange rates then were dual: one for the privileged and one for the unprivileged. We had elements of subsidy, both in the foreign exchange rate and for petroleum. The petroleum subsidy meant that there was no serious development in the downstream, and that meant that we were wasting a lot of our foreign imports of white products, so the economy was prostrated. Then, there was the fiscal imbalance. We had a lot of foreign debt. Yet, government revenue was dwindling, and everything you know was within cracks. But what the government did right was the courage that the present president had. You see, sometimes, it’s important for you to do things for the public good, not looking at the mood of the public. He said the oil subsidy was gone from the start; that’s courageous.
What people didn’t realise was that it wasn’t just the oil subsidy; the bigger subsidy, more than the oil subsidy, was the forex subsidy. What that meant was that everybody who had thought that the official rate was N400 to the dollar, which only two per cent of people had access to, but then the other one was N1,400 to N1,700 to the dollar; the two were matched, and, of course, it was as if the world was collapsing, but that was the right thing to do. What have we seen today? A relatively stable foreign exchange system, which was a result of price discovery. Yes, it was a little bit difficult for so many of us because prices had to adjust, but today, what have you seen? You’ve seen that resources now are allocated optimally, and then, of course, the foreign exchange scarcity is no longer there.
The first Christmas I spent without having to queue up or get my driver to fill all the cars in the approach to Christmas was last year.
We’ve also seen the foreign reserves ramping up; as at the last count, they were $50 bn in gross reserves level. We knew where it was even though we didn’t even know the actual fact until the then-acting governor of the Central Bank of Nigeria had to tell the truth. But now we’ve seen it’s gone to a level that it wasn’t in the last five to six years. So, I think the government should be commended for that. And then, we also see a trade surplus because we don’t need to import petroleum products anymore, and we are steadily seeing favourable prices. Inflation has been trending downward.
When this administration began, Ways and Means advances had significantly increased, driving up price levels. Now, headline inflation has fallen to around 15 per cent, and food inflation is near eight per cent. Last year, people were surprised that they bought rice at N60,000 to N70,000 when they had bought it the previous year at N100,000, and it was for so many other things. So, we are beginning to see respite at the end of the day. Yes, we still have challenges in the area of the energy sector that have to be looked into. There’s still a need to ensure that the DisCos and the Gencos are doing enough because I think this economy should not have anything less than 25,000 to 30,000 megawatts before we begin to see the stability that we expect. Given our resources, Nigeria actually should be the production base of not just Africa but all of Europe, and we need adequate power to do that. I’ll give you a simple example. Bangladesh is actually making so much money from garment-making. Who do they make it for? Europe and America. The distance from the capital of Bangladesh to London is about 8,000 kilometres. Lagos to London is just above 4,000 kilometres, which means a shorter distance. We can be doing exactly what they are doing here, and yet what is it that they have there that we don’t have here? Is it cotton and so on and so forth? These are low-hanging fruits that we can begin to take advantage of.
I think the challenge now for the government is, while we are beginning to see the margins of relative stability in the macros, how do they then cascade down to people? We see how poor a segment of our people is. I am in favour of conditional cash transfers for the extremely poor and vulnerable. You cannot remove poverty today if you do not deal decisively with the issue of security of lives and property, because to remove poverty, you need to create economic activities within a one- or two-kilometre radius of where people live. Most people who should be very busy now producing food are not there; they are not on their farms, and this is increasing the poverty level. So, I think we must really sit down and ensure that we deal with the security of life and property. That is how to remove poverty, and we must be very, very deliberate about it. Of course, agriculture is one key area where poverty can be taken away. Then, most of the raw materials being used in the industrial sector can still be produced locally. Let me just give a simple example. Today, several companies use starch to produce. What produces starch? Cassava. But you will be surprised that many of them import their starch. Why? Why not invest in a conversion mechanism that ensures that the cassava that we have in abundance in Nigeria can become starch instead of importing it? When you do the research, you will find so many examples of this.
And then, let’s go back even to things we were doing before that we have to go and redo. For instance, textile companies. When I became a banker in the mid-80s, in the late 80s, we used to learn credit writing through the textile companies that were in Lagos. The entire country then had more than 127 textile companies. All of them are moribund today. How do we bring them back? And the reasons are quite obvious because most of them were Chinese and Indian companies. They came here because we had superior infrastructure. Today, their home countries have superior infrastructure. So, they closed down the factories and went over there. If we can bring this infrastructure back, it then means that we can actually revive the textile industry. There are things we have done before which we can begin to do again. And we then go into so many other areas. I think we need to look into that.
I’m not a fan of saying that unemployment has gone down to five per cent because we changed the basis of computation of unemployment figures. We’ll be deceiving ourselves. Unemployment is very high in Nigeria. Let’s deal with that. But as we do it, some people are extremely vulnerable and close to the lowest rung; conditional cash transfers are for them. As you are doing that, you also integrate them into the normal economy through financial inclusion through banks. Let’s extend that frontier.
With states now receiving more funds and facing pressure to deliver growth, what quick wins would you prioritise as governor to ensure citizens feel the impact of an improved macroeconomy?
Let me remove the myth from the reality. Yes, states are getting more money, but the gap is not as wide as you think. That’s what we call in economics ‘money illusion’. Money is what money can buy. In those days, if they could buy three things, they could barely buy four or five now, let alone ten. But your point is still valid; they have much more funding than before.
I think our government at the subnational level is really not looking at pro-people activities. I don’t want to say a few things so some of my friends in government will not think I’m getting personal. I don’t like white elephant projects. I like projects that influence the people directly. Now, as a governor, why do I have to do N10 to N15 bn worth of things when I can do N3 to N4 bn that will impact the lives of much more people?
On the scale of preference, if I become a governor, I will say, ‘Now, what are the most important things for people in my state to do?’ A lot of them are in rural areas; they are producing food. Food is still expensive, but their problem is how to take the food to the market. So, while I do those bridges and so on and so forth, I want to connect the remotest villages to the state capital and the market. Once I have done that, I’ve taken so much away.
Many of the schools in those villages are now moribund. Good schools are now found in urban and semi-urban areas. How do we revive those schools? Those things look ordinary, but these are things that keep people in the villages, that keep them engaged and so on and so forth.
Teaching hospitals are good; there is a need for cancer diagnostic centres and so on and so forth, but what about those in the villages who have health challenges? Primary health care so that you don’t have to go more than half a kilometre to have health intervention, and there will be drugs there; there will be things like that. I don’t see many of our governors talking more about that, but they are talking about esoteric things that do not impact the lives of ordinary people. I think when I have done all of those things, I can do the other things. It is when I have lifted people above poverty that I can face other grandiose projects, not when they don’t have access to good education, good water, or all those things. When you list out those things, and you begin to rank many of our governors, you find out that the gap is still very wide. For me, I’d like to start with those low-hanging fruits. I’m an economist; I know what to do with industrialisation, and I know what to do with nice and fanciful things, but when millions of my people are down there, how do I ensure that their lives are better will be my priority.
Comparing the current banking recapitalisation with your time in the industry, what key changes stand out?
The French people will say the more it changes, the more it stays the same. I want to commend the governor of the Central Bank for the recapitalisation initiative. It’s a very good and smart thing to do. It’s like restoring those banks to the level that they were before. It is the right thing to do, because over time, inflation has meant that the capital in real and effective terms has become very small, and many of them are big and wide now.
I also like what they have now done, that it is no longer one-size-fits-all, which was the inadequacy of what we did then. I have to be very frank.
Now, if you are an international bank, your minimum capital should be N500 bn; if you are national, N200 bn; if you are regional, it can be lower, and then, if you are a one-product institution, maybe a non-interest bank, it can be smaller. So, when you see that cascade, you then realise that the capital is in relation to the risk that you are undertaking and it is the right thing to do, and that’s one of the things that can help to power the $1tn economy that we are envisaging in the foreseeable future.
Given Ogun State’s industrial clusters, how can the state better leverage them, and what role should the private sector play in reducing poverty alongside government efforts?
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