“Nigeria is a huge market and the opportunities for investors are humongous”….. DR. OBADIAH MAILAFIA
Dr. Obadiah O. Mailafia serves as the Chief of Staff of the 80-member African, Caribbean and Pacific (ACP) Group of States based in Brussels, Belgium. Dr. Mailafia is a Career Economist, Banker and International Development Specialist with over 25 years’ experience. He has served the Federal Government of Nigeria in different capacities, he served as a Deputy Governor of the Central Bank of Nigeria, and he was a Special Adviser to the President on Economic and Policy Matters and was a Member of the Economic Management Team headed by the President of the Federal Republic of Nigeria. In this Interview with Iyanuoluwa Ajayi of FINMAGAZINE, Dr. Mailafia speaks on the Macro Economic Performance of the Nigerian Economy.
While we are slowly exiting recession, how do you assess the macro-economic performance of the Nigerian economy?
The Nigerian growth story has been a rather topsy-turvy one. From impressive growth rates averaging 7% for a decade (2004-2014), growth has slowed down since the recession of 2015-2017. It event descended to an alarming low of -2.34% in 2016 before getting back to the marginally positive figure of 1.17% in 2017. The general outlook for this year was that growth might reach 2.3%, but international financial institutions such as the IMF and the World Bank have had to revise downwards their outlook for year’s end 2018.
Nigeria current growth is actually languishing at negative level, if you consider the fact that our annual population growth rate averages 3.1% when our annual growth is less than 2 percent. We need our economy to grow at no less than 5% for us to make a meaningful impact on poverty. At the same time, the fundamentals are far from being inspiring. Inflation is still well above the single digit target; interest rates remain prohibitive while the national debt is ballooning out of control. Government revenues are dwindling, in a situation where 60 out of every 100 naira is going to servicing the national debt. In the current atmosphere of uncertainty and geopolitical tension and grossly uninspiring leadership, the prospects for growth have never been dimmer. Having said all this, I must also say that the long-term prospects are good. Nigeria is a huge market and the opportunities for investors are humongous. Those who pitch our tent with us for the long haul are bound to yield a bountiful harvest.
The monetary policy stance has been tight for a number of years now, is this not doing more harm than good to the economy from the investment perspective, given also that the inflation rate is double-digit?
I wish I had something positive to say about CBN monetary policy in recent times. Unfortunately, I do not. The current monetary policy stance, although well-intentioned, has had pernicious effects on the economy. In maintaining an MPR at 14 percent for more than a year while keeping other pillars rather tight, the monetary policy stance has dampened local investments. The commercial banks are no longer in the business of issuing loans. They are busy doing round-tripping and trading in securities. What we have today is a casino economy operated by bankers in the interest of other bankers. The argument that you need to keep the MPR high in order to attract foreign capital is based on dubious logic. You do not pitch the fundamentals of an entire economy on the need to attract foreign investors. What is happening is that the high MPR is attracting mostly portfolio investors. I call them fair-weather friends. When the going seems good they come in droves. When there is a bit of turbulence, they scamper off like a pack of hounds.
At the end of the day, it is imperative that we tailor the economy and the monetary policy stance to meet the fundamental needs of our economy. In any case, the regime of low interest rates in the OECD countries is gradually coming to an end. The other dimension of the problem is the maintenance of multiple exchange rates by CBN. It is creating opportunities for rent-seeking behaviour. I also have reason to believe that the monetary authority is losing its autonomy. There has been some political interference by shadowy creatures, some of them with no real position in government. It is a shame that the CBN Governor has to kow-tow to such shadowy interests at the expense of the national interest and the common good of all our people.
According to the National Bureau of Statistics report on capital importation, capital importation increased from US$1.8 billion in the second quarter of 2017 to over US$6 billion in the second quarter of 2018. What, in your opinion, could have driven this increase?
Well, the reasons are not too difficult to decipher. In our circumstances portfolio investments will always be more attracted because the yield is considerable. With an artificially high MPR being maintained precisely in order to attract foreign portfolio investors, such investors will always jump at the opportunity. There are few jurisdictions that will offer an impressive 14 percent in terms of return on Eurobond investments, for example.
Further in the NBS report, FDI declined from US$274 million in the second quarter of 2017 to US$261.4 million in the second quarter of 2018. Why is Nigeria finding it difficult to attract FDI while attracting huge portfolio investments?
As I explained earlier, high aggregate interest rates mean that investors will be attracted to government securities in Nigeria. There are also a few companies that are thriving in the stock market. They provide attractive investment options. By contrast, our complex political economy of violence and instability makes FDI a tough order. Much of the FDI over the years has been attracted to sectors such as oil, telecoms, and, to a lesser extent, power. For us to redress the situation, we must set our home in order. We must create the right enabling environment. We should also deliberately aim to provide conditions that are attractive for FDI. I have an innate preference for FDI over portfolio, if I have to be transparently honest with you. Portfolio investors are fair-weather friends who remain only when the times are good. When the first dark clouds appear they would tend to flee. The real investors we need are those who see the positive long-term prospects and are ready to pitch their tents with us for the long haul.
External reserves have been declining from a peak value in June which the CBN attributed to its drive at maintaining stability in the foreign exchange market. In as much as investors are interested in maintaining stability they also want a country with sufficient reserves so as to aid easy recovery of funds, do you think the CBN can balance these seemingly contradictory targets?
You are indeed right. As at 11 December, total external reserves stood at US$42.8 billion. In January they had gone down as low as US$37.9 billion. In June/July they had peaked at US$47.3 billion. During the last three months there was a precipitate decline to about US$42 billion. The way we are managing the foreign reserves is like the proverbial situation where we are robbing Peter to pay Paul. We are dipping into the external reserves in order to intervene in the foreign exchange market so as to stabilise the naira. At the same time, we know that we can only do so much. Beyond a certain threshold we will not be able to sustain the level of forex interventions without rapidly depleting the reserves. And depleting the reserves will quickly expose our vulnerability while undermining confidence in the exchange rate. I am afraid there is a great deal of opacity in the way the whole business is being managed. The CBN is maintaining multiple exchange rates in order to pander to certain iniquitous private interests. It amounts to an insidious form of state capture. Nigerians are paying a heavy price for this gross incompetence and lack of patriotism. We need a monetary policy that is transparent and anchored on solid economic objectives. I do not think we can achieve this with the current administration and the current leadership at the apex bank.
In 2018 Nigeria dropped by one spot in the Ease of Doing Business ranking, from 145th to 146th. What do you think can be done to aid Ease of Doing Business in Nigeria?
It’s indeed unfortunate that we seem to be taking two steps forwards and three steps backwards. It is regrettable that we are losing ground after some of the progress we’ve made even from last year. The biggest challenge to the Ease of Doing Business in Nigeria is violence and conflict. Few investors would venture into a terrain where violence and chaos appear to be the norm. We need to build a more enabling environment for FDI. We also need to deepen the institutional reforms to remove some of the key bottlenecks by way of red-tape and bureaucracy. We also need a justice system that is efficient, predictable and impartial. And of course, there is the problem of corruption. The current admiration has achieved nothing in its jaundiced and highly partisan approach in its so-called War Against Corruption. The real work is yet to begin.
In the build-up to the 2015 elections capital reversals were quite pronounced, thereby compounding foreign exchange market stability. Another election year is around the corner, what do you think can be done to minimise the impact of the election year on investment dynamics?
The 2015 electoral-political cycle was a disaster, as far as the economy was concerned. Utterances by politicians contributed to massive capital flight. The omens were very bad. Nigerians with money offloaded naira and ran into the security of dollars. Foreign investors fled in droves. That scenario contributed to the ensuing recession in 2015, in addition to global oil prices that had collapsed during the period. Things were worsened by the procrastination and prevarication on the part of people that came totally ill-prepared to govern. They had come prepared for, not to govern. And so they were taken aback when Goodluck Jonathan threw in the towel and solemnly declared that his personal ambition was not worth the single drop of blood of any Nigerian. For that singular act alone, he will go down in history as an illustrious statesman.
How can we avoid a repeat of this grim scenario in 2019? I am a presidential candidate of the African Democratic Congress (ADC). We are in the so-called CUPP alliance with a few dozen other political parties. We are committed to democracy and the rule of law. We are democrats. We believe in peace. I do not know of anyone in the opposition who believes in violence. We recently signed a peace accord with the Peace Committee brokered by former President Abulsalam Abubakar and Matthew Hassan Bishop Kukah. Everybody has signed up to it. So we are optimistic that peace will prevail. To consolidate that accord, we need all of us to be sober and decorous in our language. We should speak the idiom of peace and democracy, not the idiom of violence and hate. At the same time, we appeal to the government in power to exercise restraint and abide by the rules of engagement. If the elections that we saw in Ekiti and Osun are any guide, we are fearful that the government in power will use money, intimidation and overbearing force on its opponents.
At the same time, INEC must give us reason to trust them. It is not right that the INEC Chairman should come from the same region as the incumbent president. Such has never been the norm in our political culture. This is why former Goodluck Jonathan had the initiative to appoint Professor Jega from Kebbi State as INEC Chairman. People are not comfortable that President Muhammad Buhari chose to replace Jega with another Fulani kinsman. It is patently bad sport that he did that. We can only hope that, as a good intellectual, Professor Yakubu Mahmud will act with decorum and impartiality, otherwise we are doomed.
Sadly, there are strong rumours going the rounds that the incumbent government are preparing to massively rig the elections. The story recently came that they are opening voting centres in neighbouring countries ostensibly for Nigerians in IDP camps. Such a turn of events would be patently illegal.
We are also not comforted by the fact that during the registration of voters exercise, a considerable number of Nigerians were disenfranchised in zones that did not appear favourable to the ruling party. In zones that they considered favourable, the PVC machines were taken right to people’s homes to enable them register. This perhaps explains why the North West has a strong showing in terms of registered voters, compared, for example, to the Middle Belt. I personally witnessed scenes where expectant mothers were queuing up from as early as dawn to get themselves registered, without success. Some resorted to buying the forms with as much as N15,000. They would bring only two machines for thousands of people, with nowhere to sit. And when people are hungry and tired and start complaining, they bring in the police and declare that they have to stop the registration “because of security problems”.
I am worried that millions of Nigerians have technically been disenfranchised already. INEC has a humongous amount of work to do to convince Nigerians that they will be impartial and patriotic in the coming elections. Nigerians are wiser and will take bold steps to protect and defend their democratic rights.