This economy is in a bubble, and the bubble will burst if… —Chike-Obi

At this point sir, is Nigeria good for investment and which areas should local and foreign investors be looking towards?

I think we must first address the issue of exchange rate.

 

How else can we address this issue especially now that Nigeria has achieved some level of stability in exchange rate?

Let me put it to you this way. Our currency has been appreciating in real terms over the last few years. The Naira has been stronger than the dollar by about 40 per cent. So, it has to be addressed.

 

If naira has been appreciating against the dollar in real terms, what are the drivers?

Let me explain something to you. It is technical and you need to understand it. If you go to America today and borrow $100. Let us say I pay two per cent for one year. At the end of the year I owe the bank $102. If however, I change that $100 to Naira, I will get N36, 000. I use that N36, 000 to buy treasury bills in Nigeria at 10 per cent.  At the end of the year I will have N39, 600. If I convert it back to dollars, I will have $110.

So it will pay back the $102 and I will keep $8. I have just made $8 profit for doing nothing right? That is an appreciation.

But for me to get the same $102 value, what should the Naira be? It has to go to a level where at the end of the year, it is still $102 so that I don’t make any profit from doing nothing. And that rate is N396 to a dollar. At the end of the year the Naira should go to N396 per $1 so as to remove that differential and stop that arbitrage. But instead of that, Nigeria continuous to defend  it to remain at N360 to the dollar. That is an appreciation. So, the Naira is appreciating every year.

 

What exactly is the difference between this adjustment and depreciation of the naira?

In economics there is something called ‘nominal terms’ and ‘real terms.’ In real terms the naira is appreciating and in nominal terms the naira is the same. But in real terms we refer to what you can buy with the same amount of money.

Let me explain further so that you can understand this concept because many people don’t.

Take a man that is baking bread in Nigeria. If he sells his bread at N360 (one loaf of bread at N360) he is happy, and let us say bread from America cost $1, right? On the one hand is American bread and on the other is Nigerian bread. They are both happy. What happens next year?

The bread in America is now costing $1 and two cents, that is what two per cent inflation means. The bread in Nigeria with 10 percent inflation is now costing N396 (0.1x 360+36). Another year from now, this American bread is now $1.04 cents.

In Nigeria, with another 10 percent inflation, this Nigerian bread is now costing N432 (20 per cent =72+360) but American bread at $1.04 cents is now worth N374.4 ($1.04×360). That is what inflation means.

At this point, everybody will start importing this bread because American bread at $1.04 is now worth N374 . So, you will import American bread, and if you are a greedy business man, you will sell it at N400. But a Nigerian bread manufacturer has to sell it at  N432.

You can see that he cannot compete, so by year five he closes his factory and starts importing bread as well. That is what happens with all our industries. You can calculate by year five our industries close down and the company goes into importing, that is what I mean.

So, to counteract this, your currency cannot be N360; your currency has to be such that this $1.04 is equal to N 432. This is real. If you keep your currency at N 360, the American bread is now costing N374 and your bread is costing N432.  You have to make your currency go to a level where this $1.04 is equal to N432. And that means your currency should be around N425. So, if that your currency is at N425, American bread would be at N432 (remember we import American bread), but if you do keep that N 360 to a dollar, everybody that has N360 will  use that to buy American   bread. That is the problem.

That is why you can’t keep the currency in nominal term.

 

But it is difficult to do that

It’s very easy to do.

 

That is if the CBN stopped supporting  the naira

That is what I’m saying. They can make it N400 if they want. If CBN says our target is N400 tomorrow they will do it. It’s a matter of monetary policy and if  they say tomorrow we want it to be N500 they can make it N500, they have the dollars.

 

And if they do that, it is still not market forces?

How can it be market forces? If CBN says we are happy with N500 they can make it N500, and we will sacrifice . We will sacrifice for a while.  But our industries will eventually be more competitive.

 

So what about  all these talk about what is killing our industries like electricity, good roads, security and the rest?

They are part of it but you have to start somewhere. If you have things ailing you, you have to address all of them at the same time. So yes,  foreign exchange is not the only thing, you have to deal with. That is why you need a holistic plan. Yes if you allow foreign exchange to float tomorrow it won’t solve all the problems.

 

To what extent in terms of percentage can we expect foreign exchange to solve the problems?

It will solve some, but if you do it in conjunction with reducing expenditure, you do it in conjunction with a better budgeting plan; you do it in conjunction with infrastructural plan, encouraging investment and ease of doing business, you will have better result.

For example, this finance Act as I said is an excellent document but in isolation, It won’t make meaningful impact. People will then say this Act didn’t help. No! The Act won’t help if it is not supported by other things like addressing subsidies, addressing foreign exchange policy; it has to address everything at once in a coherent manner, and that is what we are lacking.

 

You have once talked about something like double whammy where we have rising exchange rate, rising interest rate and inflation. What do we have now?

There are a lot of pressures in the economy that have to be addressed, but are being ignored. I will leave it like that. This economy is clearly in a bubble and the bubble will burst.

 

The bubble will burst?

Yes, we just need to make sure that we are addressing those things. The finance bill is a good first step, but other things have to be done, and they have to be done together.

 

What is your view on the increase in electricity  tariff. Are you happy about it?

Yes, again, like I said before, when you want

to cut down an Iroko tree you don’t use a penknife. Otherwise people will see you doing a lot of efforts but you’ll not accomplish anything. Then you’ll say it didn’t work. But it didn’t work because you are using a penknife. If you want to cut any Iroko tree you go and get an electric saw or whatever it is that can cut it.

So, in many places we are using a penknife to cut down our Iroko tree of economic problems, and this should stop.  We should get the proper equipment and tackle it.

 

Why do you talk so authoritatively and with an air of finality?

You know the greatest artist Nigeria has produced to date? His name is Ben Enwonwu.

Can you ask him how he does it? He cannot tell you. There was a famous story, when Picasso was old. He was sitting in a cafe and was drawing on a piece of Napkin at a table just entertaining himself, and an American woman was watching him.

So, when he finished, she said can I pay you for that Napkin? Picasso said okay, give me $5million  (some very high amount), and the woman said but you just did those things for 10-15minutes. He said no I have spent all my life time doing this.

You have just seen 20mins but you didn’t see everything I’ve been doing to get to this point. It takes a lifetime. So, these things I say are a lifetime experience. I cannot tell you more than that.

But I know I am right, and I hate it when people make it partisan just because I worked during the tenure of the former government. I am not partisan at all. I have said the same thing for 10 years and I will say it to whoever is in government because it is right and is the best thing for Nigeria.

I care for Nigeria and I will say the same thing again and again. If the next president comes, I will still say the same thing.

 

If you know that what you will say will be opposite to that president’s belief and political interest, will you still say it?

I do not care. That is why I am not political, I am a policy guy. The policies I advocate have nothing to do with politics and anybody that doesn’t agree with what I am saying economically is wrong.

 

You were once a top executive at globally recognised US-based Goldman Sachs company, judging from your experience, has Nigeria exceeded her borrowing limit or should we borrow more?

Nigeria’s debt to revenue ratio is not sustainable at this point. As you can see, the government is making a lot of effort to raise revenue. There are two ways to this issue: you either raise revenue or you reduce debt. The government is focusing on raising revenue and the best way to raise revenue is to grow the Gross Domestic Product. That is why I keep repeating, that growing the GDP should be the economic priority of every government. If we don’t grow our GDP by double digit over the sustained future, we will not be able to service our debts because reducing it is very difficult.

Raising revenues aside from growing GDP is also very difficult. So, the best thing for us to do is to focus on how we can grow the GDP of this country. I have been shouting for double digit growth for close to ten years now. It is not partisan. It is not based on APC or PDP as political parties. It is an economic imperative for Nigeria. We have people who can create policies to accomplish it. Let us go and find those people and let us give them a chance to do it. Anybody who is in the economic management of Nigeria today should realize that growing our GDP is not an option; it is a necessity.

 

And if you have been saying this for over 10 years, does it mean it is rocket science to achieve double digit growth in Nigeria at this point?

It is not rocket science. It is doable but requires sacrifice. Everybody from the top to the bottom, and the people at the bottom will be very reluctant if they are not seeing people at the top making sacrifices. The top has to make serious sacrifices and be committed to the goal of growing the GDP. The Nigerian upper class and middle class live very well.

 

When you say the top making sacrifices, I imagine what kind of sacrifice will they make? Is it by reducing their earnings or what they get from government, or what kinds of sacrifices can they make?

There are very many sacrifices. The Nigeria upper and middle classes live very well. I will give a personal example, I live here and I live in the United States. Over there (in the US), I do my laundry, iron my clothes and I drive myself everywhere. There are very many things I do in the US as a matter of fact. But in Nigeria I have a cook, steward, driver; I live better here than I live in the US even though US is a richer country. So, there are sacrifices that can be made by the top class. The GDP of California is much larger than that of Nigeria. The GDP of Los Angeles is larger than GDP of Nigeria; that of California is many times larger than that of Nigeria, but if you see the governor of California, he doesn’t have the entourage and the fanfare that even the deputy governor in Nigeria has. He does not have the standard of living that the president of Nigeria has, and Nigeria has a much smaller GDP, a fraction smaller than California.

New York’s GDP is larger than that of Nigeria, but if you see the Mayor of New York City, he has very few people around him, maybe one or two security people. We are larger than life in Nigeria. So, there are sacrifices that can be made. There’s no reason on earth that a president of Nigeria can’t fly within Nigeria with domestic airlines for example.

 

Wont they kill him?

Who will kill him? There’s no reason why governors can’t fly commercial aircraft within Nigeria. A few do and they are not killing them. I have seen some governors like Obaseki on board such flight. So, I just think that there are sacrifices they can make even if it’s small that will encourage the middle class and then the less fortunate to make sacrifices too, because all of us have to make sacrifices.

 

Are you also saying that they should cut down some of those things they budget for like the governor’s entertainment of visitors, make enough budget for food, they make budget for everything?

I WIll just say that Nigeria as a country is living way beyond its means. All of us have sacrifices to make if we want to reach the goal of economically viable country. We are consuming the assets of future generation. That is what we  are consuming today.