Government should have an anchor person for the economy this time —Yusuf, DG, LCCI
The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, in this chat with Akin Adewakun gives his assessment of the performance of the nation’s economy in the last four years, what the government should do to put the economy back on track, in the next four years and the nation’s continued shunning of the African Continental Free Trade Area (AfCTA) agreement, among other sundry issues. Excerpts
WHAT is your assessment of the performance of the nation’s economy in the past four years?
Generally, I will say the performance was average. If we want to look at the economy between 2015 and now, we need to see that from different perspectives. We look at the macro-economic perspective, the macro-economic fundamentals and the GDP growth. When this administration came in, we really had a major crisis with the economy.
For instance, shortly after its resumption of office, there was a slump in oil price and that affected a lot of our macro-economic variables. Oil price came down drastically, and that led to the recession that we had in 2016. So it is difficult to blame the administration for the recession. Again, the economy is driven largely by external factors, particularly, our macro economy, namely the oil and gas development. In 2017, we were able to get out of recession.
We experienced a resumption of growth, and at the close of this administration, at the first quarter of this year, we experienced a growth rate of 2 per cent. Therefore, to the extent that the growth rate is still in positive territory, I think we can say that on the score of the GDP performance, we haven’t done too badly. Of course, we can do a lot better than that. Again, one has to recognize that we have to do a lot more to get the non -oil sector of the economy contribute more to the performance of the economy. And, so far, the oil and gas still remain a major pillar of the economy, which is not a good thing, because it’s an external variable that we don’t have control over. So if anything happens in that space, it would create a lot of disruptions for the economy. That, therefore, underscores the need for proper diversification from oil. Though the non-oil sector’s contribution to the GDP has also been significant, but the productivity in that sector is still not good enough. The sector itself, is still not as competitive as it should be. On the score of the business environment, when you talk about the economy, it’s not enough to just talk about the GDP. We should also look at the business environment and how private sector is faring. As a private sector group, we are normally concerned about the business environment, we’ll like to see how well businesses are faring, what is happening to the regulatory environment, what is happening to the infrastructure environment, what is happening to the ease of doing business, what is happening to operating cost and others. Those things also matter more to the average business persons. Sometimes, even, more than the GDP numbers. So on the business environment, infrastructure situation is still very challenging for many businesses, and this is making it difficult for many of them to thrive, especially those of them at the medium to small and micro levels, because their capacity to absorb the shock of all these costs of power, logistics and others, is very limited and very weak. For the big companies, quiet a lot of them can still cope, although it’s not as if it’s also that easy for them. But because of their scale of production, it is easier to absorb some of those costs, and spread it over a very large volume of production than a small enterprise. So infrastructure situation is a major problem for many businesses. Then the regulatory environment is also not too good. Many of the regulatory agencies still have not fully appreciated the need to support the private sector to grow.
Many of them still see themselves as revenue-generating institutions. Many of them have a ‘policing’ disposition. That’s why they act like the police, harass businesses and harass investors. Besides, many of them have the erroneous notion that people who are in business are just there because they want to make money. They don’t see the role of business beyond the profit that the business is making. They don’t see the role of business within the context of what such businesses are contributing to job creation, contributing to the revenue of government, contributing to economic inclusion, contributing to social stability and others. If you don’t create the jobs, how would the youths be employed? And if they are not employed, you know the consequences of not being employed. Some of the security problems we are having today are as a result of joblessness and unemployment. That is why it’s important for regulatory institutions to look at what businesses are doing within that context. Then looking at the performance of the economy from the point of view of the welfare of the people, is also very important. The perception of the average person about the economy is how it affects his or her welfare. How is it easy for the person to have access to food to eat? How easy is it for the person to pay the school fees for his children or to access healthcare? Those are the things that matter to every person. Your son or your daughter is out of school, how easy can he or she get job?
Then if you look at the financial market, the credit situation, there has been a lot of intervention funds, especially from CBN, BOI and some other development institutions which is good. We have seen a lot of beneficiaries of these funds. But, generally, the interest rate is still a very big issue for so many businesses. Interestingly, the intervention fund can not be a substitute or good interface between the financial system and those who are investors in the economy because you can not give intervention funds to every body. So there is still a major disconnect between the banking system and investors or the enterpreneurs in the economy, particularly those who are in the real sector of the economy. And, for those sectors to attract funding directly from the commercial bank, this is very difficult, because of the risk and the risk perception. Of course, one can see the perception of the reality of the risk. The credit risk of lending to some of these operators in the economy is very high. The credit risk is high because the environment is not very supportive of investments.
So the risk of business failure is very high. That is why, most times, the financial institutions are also very reluctant to release money to this sector. Therefore, there is still a major issue to deal with as far as the relationship between the financial system and the investors in the economy is concerned. The good thing is that the CBN, since its last monetary policy meeting, indicated that some steps are being taken now to look at the possibility of limiting assets of financial or banking system to government securities, that is treasury bills and federal government bonds. Over time, a lot of the funds in the financial system, a lot of the savings even in the economy, had been going into investments in treasury bills and even in federal government bonds, which is also not a good thing for the economy. If you really want to create jobs, funds should be moving from the financial system to investors, to enterpreneurs, so that they can invest and create jobs. But if you have a situation where almost 70 percent of the funds are going to the purchase of treasury bills, it means that these funds are going from savings to government, which is not too good for the economy. Apart from depriving the private sector of funds to create jobs, it also has an effect on the private sector credit. It is good that the CBN is saying now that it has put a policy in place to limit the access of the banks to investments in treasury bills and federal the government bonds, so that the bank will be forced, now, to be creative in supporting the enterpreneurs in this economy. So on the financing side, I think that is the big issue. We need to get better financial intermediation in the economy. By that, I mean a critical role that banks play in chanelling funds from the surplus end of the economy to the deficit end of the economy. And in this case, there is huge deficit in terms of financing investments.
But in order to make that happen, we also have to reduce the risk to investors in the economy. Our trade policy has been a bit challenging.
I mean the policy of the government in the past four years, in trying to define or shape the nature of import and exports. So we’ll be looking at import prohibition, we’ll be looking at tariff, we’ll be looking at the ban on the 41 items and others. How have they been affecting the economy? The perception of government or the disposition of government is that the way to industrialise is to protect the domestic industry from import, which is a protectionist policy.
Sometimes it works, sometimes it doesn’t. It works if we have the domestic capacity to substitute for those imports, particularly for industries that have great opportunity for backward integration. That is the capacity to source your raw materials locally. So that has been more evident in food and beverage sector, they have been able to source their raw materials locally, but for many of the components of the manufacturing sector, the dependence on import is still very high. So that poses a problem for industrialization. The emphasis of trade policy is protectionist, that is why we have seen high tariff, we have seen import prohibition, we have seen 41 items by CBN. That has helped some industries, it has also penalized some. Some that need to import their intermediate products, they are finding it difficult, and that is affecting their ability to produce, and their ability to remain in business. For those of them that can backward integrate and get raw material locally, at least substantially, I think it’s good for them. But the message in all of this is that if you want to drive industrialization, you should focus on issues affecting competitiveness, rather than relying too heavily on the issue of protectionism. If industries are competitive, the chances that foreign import will be able to compete with them will be much lower, and you will not have a big gap between the price of import and the price of what is produced locally. Therefore the emphasis should be on how to identify the variables impacting on competitiveness of domestically produced items, just like the power, for instance, the infrastructure, the logistics and even the patronage of goods produced locally.
Nigeria has been dropping on the ease of doing business table. Last year it was 146 in the position? Do we attribute some of these challenges that you’ve enumerated to this continued drop?
Let us acknowledge that we were around 169 at a point. But, as a result of some of the initiatives of this administration we moved up to about 140 or thereabout. There is a sharp improvement in ranking about two years ago. But last year, there was a slight drop. But all of these things have to do more with basically the issue of infrastructure, because if you talk to average business person today, the biggest headache they face is infrastructure, especially the issue of power supply and transportation. Now we’ve added insecurity, which is not captured under the ease of doing business parameters. You know it’s a parameter of the World Bank where security is taken for granted. But in the Nigerian environment, it has become an important variable, which we have to reckon with. The major problem has been more in terms of infrastructure and trading across borders.
In this context, we will be looking at the situation, for instance with the Apapa Port, ability to move in and out of the port, ability to take out your import, ability to export, then corruption, relating with these government agencies at the port or at the borders and issue of dispute resolution. Those are major factors that have been dragging down the ease of doing business in Nigeria. But we acknowledge the initial improvement because I know that the Presidential Enabling Business Environment Council (PEBEC) has been doing quite a lot. You know the Council is chaired by the Vice President, and a lot of work is going on.
But with insecurity taking its toll on businesses, would that not further put Nigeria down the Ease of Doing Business Table?
We might drop further. But the thing about the parameters for ranking is that security is not part of those things taken into consideration before such ranking is done. So that is why sometimes we need to localize some of these things to enable us face the reality and the challenges, confronting us, besides relying on foreign agencies coming up with parameters for the Ease of Doing Business.
How would you react to the CBN’s governor’s Tough–time-lies-ahead comment?
For me institutions like the CBN and other agencies of government should be telling us what solution they are providing, not to be reminding us about the problem. Such comment sometimes could also scare investors. We all know that we have problems, we all know that we have challenges with economic diversification, we know that we are too dependent on oil. The reason we have a government and economic managers in place is to solve these problems. So what we want to be hearing from them is the strategies they’ve put in place in solving the problem, rather than joining the rest of us to escalate the alarm about the problem that we have with the economy. I think that is what should happen. And I believe CBN should also be looking at how it can work in collaboration with other economic ministries to deal with the problem of over-dependence on oil, because the biggest risk that we run in this economy is the risk of too much dependence on oil and gas sector. All our macro-economic fundamentals are almost entirely dependent on the oil sector, and this is not good. You can see what is happening in Venezuala, if there is a major shock in that sector, it’s going to shake this economy to its very foundation, which is not good.
And once you have a situation where the confidence of the investors, either domestic or foreign, begin to wane, it can cause a major disruption to the economy. So the emphasis is to ensure economic diversification and come up with strategies that are sustainable, a systemic approach in dealing with our economic problem, so that this economy can run on its own, with minimum government intervention. That is what we should be aiming at, because the CBN can not solve the problem alone, throwing money at a problem alone can not solve the problem. If you are talking of the agricultural sector, for instance, we need somebody to provide the road, for farmers to be able to move their products. We need another agency to provide electricity so that once they produce, somebody can process. The agencies of government should also work more in unison, rather working in silos, because monetary policy again can not solve the problem, fiscal policy alone can not solve the problem, all the regulatory agencies have to work together. And going into the next dispensation, the government should have an anchor person for the economy, so that we don’t have different people doing different things. There must be a rallying point. It could be Vice President, it could be the Special Economic Adviser.
There should be a rallying point on economic issues that all the agencies of government will respect, so that there will be a common direction and proper co-ordination. Those things are important. But for the economic managers, what we want to be hearing from them are things that can inspire confidence. We know we have problems, that is why we put them there. They should be telling us how they are fixing the economy.
What do you think is still holding us back from signing the African Continental Free Trade Agreement (AfCFTA)?
It’s the protectionist orientation that is holding us back. We are also not confident enough to step out for competition, because we feel that our environment is so difficult, it’s so tough, our cost of production is so high such that if we expose, particularly our manufacturing sector to competition they will not be able to compete.
But I believe we are actually overstating or exaggerating our weakness in this area. I don’t think the situation is as bad as that.
If you go across the West African sub-region, a lot of Nigerian products are there. If you go to Oke Aarin or Balogun, every night you will see goods that are being loaded by all these people in the informal sector heading to the different parts of the West African sub-region and even up to North Africa. I think we should not allow the thing to degenerate to the level of phobia, because the economy, whether we like it or not, has to be globally competitive. If you say products should not come in legally, because of the porous border, they come in illegally. So it boils down to the issue of building a competitive economy. So the AfCFTA, I think is a thing we have to do.
We should not be too afraid to face competition and in any case, even within the provision of AfCFTA, there are some provisions there that protect some sectors. So it’s not as if everything will be open. And in any case it’s a negotiation process. But, to be able to negotiate, you have to sign in first. How can you negotiate without signing in into the agreement? If you are not on the table, how can you put your input into the agreement? So that is the logic of signing on to the protocol. But if you are outside the negotiation table, how can you bring your own input to bear? It’s something I think it’s desirable.
Of course, some of these fears are legitimate, there are fears about issues of place of origin of some of the products, which is a legitimate thing because it is possible that products that are not from Africa can be brought in to some other countries and be used to destabilize their economy. But these are issues that can be dealt with. So I don’t think it is nice for us as a country to shy away from AfCFTA.
The LCCI is planning another fair, ICTEL Expo in a few weeks’ time, in Lagos. Don’t you think the Chamber is creating an unnecessary competition for its flagship fair, the Lagos International Trade Fair, with this fair?
ICTEL Expo is a specialized fair, and the way fairs are organized these days is that apart from having a general fair, like the one we normally have in November, every year, the Lagos International Trade Fair, we also have specialized trade fair. This one is purely on ICT.
ICT is one of the fastest growing sectors in Nigeria, and it is good to have a fair, specializing on ICT. As we go forward, we should be looking at more specialized exhibitions, for agriculture, for housing, for automobile, for financial services and others.