Why Nigeria is in economic MESS —Peter Obi

Mr Peter Obi is the immediate past governor of Anambra State and vice-presidential candidate of the Peoples Democratic Party (PDP) in the 2019 presidential election. In this interaction monitored by Head of Northern Operations, SANYA ADEJOKUN, the acclaimed shrewd businessman and administrator insists that the current economic woes are a result of wrong choices over the years.

 

Could Nigeria have avoided the current recession?

I agree that this second recession in five years is as a result of COVID-19. We have 40 countries today that are in recession. All the G-7 countries are in recession. All the G-20 countries are in recession except China and Saudi Arabia and of all the 10 most populous countries in the world, only China and Bangladesh are not in recession. However, we have to look at it with our own peculiarities. COVID-19 pandemic affects those with underlining sickness and problems. In the same vein, the recession we will go through have a lot of implications because we have an underlining situation. Before COVID-19, we had the worst unemployment rate globally; we are the capital of poverty in the world; we are the capital of out of school children and we hit two additional records this year: we emerged the capital of infant mortality, having overtaken India earlier in the year; and we are now the capital of illicit drug prevalence at 14.3 per cent against the global average of 5.3 per cent. So you can see that our situation is worse with the COVID-19 situation.

A lot of Micro, Small and Medium Enterprises (MSME) have collapsed so that pack of people living in extreme poverty would have worsened. So this recession is going to be a U-curve. People can say that we will come out of it in the first quarter of 2021. If you are in negative and you move from negative to one per cent growth, you will be said to be out of recession but in reality, you are not out of it because that growth does not guarantee putting food on the table of Nigerians or creating jobs. We have been growing before at between one and two per cent but it wasn’t helping the unemployment rate, it wasn’t helping the SMEs; so we need to do something more radical. If you look at what is happening now, there is a discordant tune between the fiscal and monetary authorities. They need to do more especially on the fiscal side. We are talking about issue of COVID-19 now and comparing ourselves with other countries, but even the stimulus needed to exit the recession is both low and not getting to the appropriate quarters. If I use people in the transport sector that parked their vehicles for six months as example most of whom had borrowed money to buy those vehicles or even airlines, none of them as of today have received anything despite all the promises that have been made to them. Every day, we hear them say we are supporting small business: none of those businesses at the grassroots have seen anything. They only hear it on television. So, we need to do more.

 

What should we do to exit this recession?

Out exiting recession in 2017 was based more on reckless borrowing. I remember arguing with the Minister of Finance then when she said she would borrow to stimulate consumption. We are now faced with where we cannot borrow as we did then. What we need to do now is rein in on fiscal discipline. It is critical because today we still have huge cost of governance. We have to ensure that their policies and measures get to where they are directed. So, if you say you are spending X amount to support SMEs, it must get there, but right now, it is not getting there. You only just hear that this number of things have been provided for SMEs but when you go down, even if you go to your village or local government, you will see that people are not getting them. Also, the quantum is not enough. If you compare our country with other like countries, you will see that we are not providing enough stimulus to be able to take people out of recession.

 

What can we do to improve our tax collection system?

The more robust your economy is, the more employment you will generate and the more you can earn from tax. You cannot tax unemployed people. You have 98 million people living in poverty before COVID-19 pandemic. Now, there will be over 100 million people living under poverty and you are not going to tax them. Tax is like a bank account: if you want to withdraw more, you put in more. So if the government had done the right things, the more people you pull out of poverty, the more you will get out of tax. China today finances their annual budget of about $3.8 trillion from tax of 80 per cent. Of that 80 per cent tax, micro, small businesses contribute over 50 per cent totaling about $1.6 trillion because they have a thriving robust SMEs. If you look at our tax net today, the people that are employed in Nigeria is about 50 per cent of those that are supposed to be working. So if you pull the other 50 per cent into the net, you increase your tax overnight.

So anybody who says that tax to GDP ratio is small is saying nonsense. If you want more tax, you give people job. In fact, people are being overtaxed in Nigeria and that is why MSMEs are collapsing because what you need to do is create environment where there will be so many businesses employing people.

 

The Minister of Finance recently said despite COVID-19 induced recession, Nigeria’s economy was doing much better than other countries because of the efforts put in place to contain the impact of the pandemic. What if your take on this?

Government officials say these things because they know that most Nigerians are not listening to them because there is no basis for comparison. You cannot talk about UK having 20 per cent negative growth against Nigeria of about 3 per cent. UK is an economy with $40,000 per capita income. Japan is over $50,000, US is $48,000 per capita income while we are under $2,000. Look at what UK is doing: paying people for siting down at home without going to work, paying people’s rent. US is doing the same thing. It is a robust economy and you cannot compare Nigeria with the UK. How can you compare us with Japan? Let’s even go to India with which we have a similar per capita income. In 2014/15, India was the capital of poverty in the world. By 2017’18, they handed it over to Nigeria by pulling over 200 million people out of poverty within three years. This year, they handed over the baton for infant mortality capital to us. And to show that they are committed in recession, India is spending $300 billion or 10 per cent of their GDP as stimulus. Of the $300 billion, $60 billion is going to micro, small and medium businesses.

With our population being one seventh of India that means our own stimulus should be at least $42 billion, but our entire package is $5 billion which is too low. Although India has the worst recession, they are trying to pull themselves out by doing the right things. Don’t even compare us with the other countries. Of all the 40 countries in recession, only about eight can you say have per capita that is below $10,000. We are not even getting near 50 per cent of the South African stimulus package and many of those countries have smaller populations.

 

Why do you say that the current recession will be worse than that of 2016?

The money we borrowed in 2016/2017 was not properly invested and that is why we are near where we are using about 90 per cent of our revenue to service debts. There is no country I know that uses this percentage of its revenue to service debt. If you have one million naira today and you borrow another one million naira, your assets are supposed to be valued at two million naira. And if you’ve invested the additional one million naira, that means you are going to have a productivity of two million naira. It then becomes easier for you to be able to service the debt component of the two million naira. But when you borrow N1 million to add to your one million naira and you are now valued at 900,000 naira then you have wasted the one million naira that you borrowed and that is what happened to us. Our GDP was over 400 billion naira as of 2010. We have borrowed nearly 100 billion naira and we are still at over 300 billion naira. That means that the money we borrowed was thrown away. You cannot borrow for consumption. You borrow for productivity and not consumption. We borrowed for consumption and that is why we are where we are. We wasted the money. Can we audit these borrowings; juxtapose it with the capital projects? What happens in this country is that when we ask people to account for something, it becomes difficult.

 

But we hear every day that our debt to GDP ratio is low?

Again, such sayings are nonsensical. Debt is not a problem. The problem is what you used the debt for. We keep hearing of debt to GDP ratio of Japan or the United States or Singapore. Japan’s debt to GDP ratio is over 200 per cent but today, the highest holder of US treasuries is Japan and go and look at Japan’s GDP. The money was mainly borrowed to stimulate the economy and keep it going. Even the holder of their bonds and debts are mainly Japanese people so you cannot compare Nigeria and Japan. It is like saying the debt to GDP ratio of Singapore which is over 100 per cent, but I can tell you that they have a law that says specifically that you cannot borrow unless you are investing it. So, those debts that you see are invested. Singapore used to have the biggest and busiest port which has now been taken over, but today, it is building about the world’s biggest port under the sea. By 2050 they will have a big port that is not on the surface of the ground but under the sea. You can then see where the debt went to. I am not talking about borrowing but what you used the money for.

So, debt to GDP is not an issue but debt to revenue, because the one you borrowed was thrown away and that is why servicing it becomes difficult. If what you borrowed had been invested, your per capita in 2010 was $2,300 by 2015 it was $2,500 today, it is $1,980 or so. Meanwhile if you invested what you borrowed, you would have by now been able to pull yourself up. I can cite examples of at least 18 countries that were below in terms of GDP, including India. At that time, India was just above $1,000, but in Nigeria, even with borrowing, the economy nosedived so forget about debt to GDP. There is nothing wrong with debt but the country must have fiscal disciple to ensure that all our borrowings have to be made known to everybody as well as what we are going to invest them in.

 

What is your attitude to the recent defection of Ebonyi State governor, Dave Umahi, from PDP to the APC?

In July, Nigeria was in the thick of COVID-19 pandemic and people were preoccupied with how they will meet their livelihood. It was also when the country was busy with the Edo State governorship election, suspension of Ibrahim Magu from the EFCC. Now in December, we are in recession and our country is becoming physically unviable and becoming unsafe for everybody. We just buried over 70 hardworking farmers in Zabarmari, Borno State at a time we need to use agriculture to replace oil, as source of revenue. We should not be talking about 2023 elections. Are we sure that we will get there? We should rather concentrate on how the average Nigerian can put food on his table.

I live in Onitsha. I am in my village every day and I know that so many people don’t have food to eat. For me, the discussion to be having now is on the economy. How do we put food on people’s tables? That is the critical thing. How do we keep people safe? What do we do so that people can earn an income? We are not discussing that,, but we are concentrating on people’s individual’s political ambition. For example, in agriculture that they are killing, our farmers can save us from a wrecked economy. Netherlands with a land space of 41.2 square metres, which is just like half of Niger State in 2019 exported $110 billion worth of agricultural products, including $10 billion flowers and almost $8 billion vegetable. What we earned from oil is about $12 billion when we have enough land to also practise successful commercial agriculture. So, I will rather concentrate on discussing the economy. No matter how we look at it, politics drives the economy and so, if we do not get our politics right, we may never put our economy on the right footing…

How many people were pulled out of poverty because Dave Umahi left PDP? How many people got employment because of that? Every other country I know is discussing issues that are critical to them. How many people we save because he left PDP? Of course, we lost somebody who left us, but some other people are coming in. As the election gets nearer, the parties have to decide on which way to go, but I think that for now, the preoccupation and discussion should be how do we get things working? How do we reduce the cost of governance; how do we reduce waste? There are so many people now in this country who don’t know where the next meal will come from.

 

So can you give us a hint on how to reduce the cost of governance?

That is what government should be discussing on a daily basis. The cost of governance in Nigeria is unacceptably high. I have operated it and so I know that the cost is too much. There is no country that uses 30 per cent of revenue as cost of governance. People cannot put food on their table, but our leaders are still drinking champagne. These are things we should be bothered about. We should be concerned about the type of convoys on the entourage of officials: how do we reduce it and not about somebody defecting from one political party to another. Anybody can do whatever, but we need to talk about cost of governance. We need to reduce it drastically to be able to have money for critical areas like education. What happened with COVID-19 has showed us our several years of bad leadership have not invested in education or health. We can see countries spending billions on education when we are spending nothing. Indonesia that is 250 million populations almost like us invests about $50 million on education annually but we at 200 million populations are not even spending $2 million when in comparison we should be spending between $35 million to $40 million. How do we support local manufacturers who are employers of labour to be able to do something? How do we turn our SMEs around? We need to make the economy productive and all we need to do is divert debt to private sector. South Africa’s debt is $490 billion in private sector compared to less than half of that for the public sector. That shows an economy that is working. In our own case, it is the reverse. The public sector that doesn’t know how to manage is the one owing more. So, let us support the engine of growth: small businesses.

 

How can we properly develop our road and rail infrastructure?

What we need to develop the sectors is not to increase budgetary allocation to the ministries but bring the private sector to drive the process, be able to go to capital market raise necessary funding, do the construction and do what is happening in every other country. We celebrate Dubai every day, but every road in Dubai is tolled. You might not see the toll gates but they are all tolled and Nigerians are willing to drive around on good roads. If you go to India and other countries that are like us, roads are built and tolled, but it must be private sector led so as to reduce the transaction side of it and make it more effective. Government gets involved in those things because of the transaction whereas it is just to support and make sure that things go right.

What we need is to have people who are competent and wealth creators to be able to drive the process. Everything here is difficult. Look at the power sector too. Providing power is not difficult. Let us just do what every other country is doing and get the economy productive. We have people making money without producing anything.

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