WILLY IYIEGBUNIWE is professor of Finance and former Head of Dept of Finance, University of Lagos. Professor IYIEGBUNIWE talks extensively on some of the issues stalling national development and suggestions on how to mitigate them in this interview with EMEKA OKAFOR and OLUBUNMI MARTINS.
The global financial integrity group ranks nigeria as one of 10 largest countries for illicit financial flows, estimated at 15.7 Billion dollars, do you think that inadequate punitive measures are responsible for this?
I will start by saying that it is too early to assess the current administration. Of course the only thing we can assess at this stage is the take off. The economic blueprint of the Buhari administration is yet to become manifest and you cannot analyze what you have not seen or perceived. However one can say that the most important thing that has happened to us which perhaps is not something new has to do with the oil price. The shale oil which became prominent and countries are rich in it , the U.S.A in particular, are producing quite a bit of it , that has dampened the international oil price basically because you have excess supply . I will say that this is something we saw coming but never prepared for it and past administrations all share the blame. Diversifying the economy has always been talked about but typical of Nigeria it has been too much talk and little action. We have real potentials in agriculture but since the emergence of oil as the prime revenue earner, agriculture has been put on a lower level. I think this government to succeed in terms of economic management needs to take agriculture serious. The last administration talked so much about it to the extent that there were celebrations in some quarters about agriculture but we are now getting to know that some of the celebrations may not have been real taking the case of rice. So I think there’s need to diversify the economy in the area of agriculture, improve on non-oil export (still agriculture) and perhaps it’s time we moved to the intermediate stage of trade. A lot of our exports are in raw form, for instance oil and cocoa. There’s need to at least move on to intermediate processing. We have oil refineries that are not working – why are they not working? That then takes you to the illicit thing. The problem of lack of accountability, corruption has been an endemic problem in Nigeria and there’s so much expectation that this administration will improve on that. You talk about illegal oil lifting or oil theft and you hear things like men of timber and caliber are behind it .In other words they are people who have been above the law. Nigerians are so expectant that in this administration perhaps there should be a level play field for law such that the low and mighty can be equally held accountable. A man steals ordinary phone and he’s sent to jail but men who are powerful lift a whole big oil ship and nothing is done. So discipline and accountability can make things work. Why would people work hard if they can get away with 419, kidnapping and child theft. So you have all these kinds of illicit easy money activities. I think the economy needs to be refocused. As the economy policy of the new government becomes manifest we possibly will see in what direction it’s going to go.
But you can’t hazard a guess as to what direction it might go?
I can’t because one I am not a politician and I don’t circulate in their inner circle to know what their thinking would be. Well, I am disappointed that it is taking too long for one to see that. I hope and would say that in future we expect that we have governments change hands and while you are preparing to take power you should also be preparing with what you will do. The problem is that party political activities are not policy focused. If they were, it would have been obvious to know what this government’s economic policy is. Much of the talk was just that power should change hand, and so power changed hands and we are still waiting which is not good for international investors. So you can see that the season is very bad for the naira. We have problem with oil price and we’ve seen some actions taken by the CBN in terms of the Forex management even though it’s not yet clear if that is going to be effective.
Talking about devaluation of the naira and why is our naira so weak?
It’s simple demand and supply. The problem with the naira dates back with the past governments and not just Jonathan’s administration. With the liberalization of the economy, we began to behave like a developed economy and foreign currencies became easy to be accessed and with that the demand shot up. While the oil revenue was strong that didn’t become a problem. When you travel abroad and have a debit card; you can spend money and didn’t have to apply for foreign exchange. With the liberalization of the economy, imports were liberalized and the foreign exchange inflow became tough again because of a mono-product economy and CBN has to manage the demand in the face of dwindling supply of foreign exchange. First they said importers of prohibited goods would no longer be allowed to purchase foreign exchange at the official market. There’s no other source but to go to the parallel market to buy. Immediately that announcement was made the foreign exchange rate shot up. To tighten the noose further, the CBN then said people can no longer put foreign currencies into their domiciliary account in the bank. The risk with that is that it now makes it difficult for those importers to buy from the parallel market, deposit in their account and use the money to settle their payment obligations. So these are what I can call panic demand management efforts.
What should CBN have done in the circumstance?
It’s not just the CBN. If you also look at it there’s so much leakage in the system. It was easy for people to move money out of the country. It’s so much in the news about stolen public monies deposited abroad and effort of this government to trace those monies and recover them. It is laudable but in my own opinion, let’s have a Corruption Truth Commission whereby government provides the forum for people who have stolen money to come forward and declare willingly. But if they don’t then you go after them legally.
Prof… you are asking that amnesty should be granted to thieves?
South Africa did the Truth Commission and they wouldn’t have been where they are today if they had not offered past leaders the opportunity to come clean with their bad past. It will sound unpopular and you have just reacted if we should forgive thieves. Remember the case of the woman accused of having committed adultery in the Bible. The accusers one by one went away and the Lord Jesus Christ charged the woman to go and sin no more. I am drawing my inspiration from South African experience. Why does the world hold Mandela so high even in death? It’s because of the way they went about it. Mandela never took revenge against those who oppressed him. It was even said that he invited the head of the jail where he was kept to a dinner. Some people had been governor or president in Nigeria and had stolen government money. The true test of somebody’s character is not verified until the person is exposed to a powerful position. I don’t want people to be self righteous, if that’s the case, then give an opportunity to those who know they have been in power and in the process have enriched themselves the opportunity to come clean. If after the grace period of voluntary declaration and surrender of stolen funds, government may then begin to grab them. I am not in any way trying to influence government policy and would never want it to be a quagmire for the government because that could derail effective policy making in other areas. This is something that could be running while the government can just take off from where it met it. Appoint credible people into that commission and see that their findings are implemented. Corruption though was campaign agenda but it shouldn’t be the overriding thing managing this economy. Unfortunately for this administration, it is coming in at a time when foreign exchange is a major crisis because if you know that a lot of our machineries are imported, technologies, we should be thinking of how to diversify the economy and put people back to work and very important to see that the foreign exchange is kept at a reasonable level that can support businesses, if not the economy will go into crisis.
Can you elaborate on that … you are asking that government should regulate the exchange rate?
When you talk about free market, it is assumed that all other things are equal but if other things are not equal you regulate. There’s this invisible hand that assumes that every other thing is equal but if not, you guide the hands, and that’s the essence of market regulation. If the CBN does not regulate, some people have predicted that the naira could hit N300 and above to a dollar. Interest rate is high even as it is now. There’s need to do something on the critical elements of the economy, for instance, power supply – most of the components of the power supply are technology import and at outrageous foreign exchange rate that could be a problem.
CBN Governor advised the present government that they should sell off JV assets in some oil companies ….
I don’t have full information on what he said about that but then it’s more like saying that somebody should sell his assets to shore up his liquidity . I think that it hasn’t come to that. That’s why I agree with the present government –pluck the leakages first and bring sanity to the market because the issue is that in the foreign exchange area the demand is so high since it has become a free market thing. That’s the spirit of deregulation but the question is, can we really deregulate this economy fully at this time? That is what we are getting back to. It’s that argument of whether to deregulate and to what extent should we deregulate, perhaps the deregulation went too far. When the developed economies argued through the powerful institutions like IMF, World Bank, UNCTAD and said open up your market (deregulate), the question is that we are so much import dependent. Our export is mainly oil and the only way we can keep up is to diversify the economy so that we have more exports than import. We can also move from primary production to intermediate so that some of the things are processed either halfway here. For example, we have raw material for petroleum and if our refineries are working fully we don’t need to import refined products. So much foreign exchange is going out on petroleum products.
Should we back the decision to ban the importation of rice?
Government should encourage the local production of rice first before you can ban it. I won’t support an outright ban but that they put an appropriate duty on it. If the price of imported rice goes up and there’s the local one which is cheaper, the people who cannot afford the imported rice will buy the local one. The issue is not to say ban it outright but to regulate.
What kind of agenda do you see unfolding with Nigeria’s presidency of ADB?
I can’t really say. The fact that a Nigerian is the president doesn’t necessarily mean that that’s going to be of benefit to Nigeria. It’s an institution and it has its policies. The only thing I can say is that ADB can fund projects in Nigeria and in the face of lean foreign exchange such capital inflow could be very crucial. But I don’t think that because Dr. Akinwunmi is the president that that means it will be of immense benefit to Nigeria but in terms of profile in Africa that is good for us.
How do we get the teaming youth population employed?
This is the issue of diversifying the economy and a reorientation of Nigerians. If everybody wants to work in an oil company and air-conditioned offices, what do you expect? The orientation of every Nigerian youth is to go to school especially the university, get a degree and work in an office. At a point the government said those who don’t want to go to the university can go to colleges of technology so that they can get skills but eventually everybody still wants to go to the university. I think the point is that areas like agriculture, small scale enterprises that the conventional educational system cannot handle it but post-graduation training should be encouraged. This where state governments can come in and help to establish farm settlements where graduates are given orientation and training in modern farming. It doesn’t stop there, they could also be assisted to access capital at reasonable interest rate and be encouraged to form agricultural cooperative so they can do cooperative farming.
They shouldn’t be hysteria. There’s hope for this country. Nigeria is rich in resources; the most critical is human resources. Nigerians are very talented and hard working but who will work hard when he can easily steal, who will work hard if there’s an illegal easy way to make money? And this is where the fight against corruption and issue of probity are all coming. Included in it is the fact that right people should be put in the right place, appointments should not be based purely on political leaning. I will tell you that a lot of good Nigerians- intelligent and hard working, people with integrity are not in any political party. There are appointments that government should do based on political consideration, as politicians would say, job for the boys. However, there are critical positions that are essential. Managing the economy and security for instance, should not be used to play politics; if not we will all perish.
If you were appointed a minister for finance what are the basic things you will immediately do?
If you talk about banking, we have a major problem there. Nigerian banks are not financing the growth of this economy, they are financing mainly trade. If you look at the loan portfolio, the maturity of most banks’ loan portfolio is very short. I like the idea of the banks publishing the big delinquent debtors, let’s know those who are killing this economy, because people take money from the bank and they don’t use it well, even when they don’t pay back nothing happens. The truth is that the banks were helpless.
What do you mean that they were helpless?
When you talk about corruption, there’s corruption also in the banking sector. Some loans went bad at the time they were made because the managers or directors who were giving out the loans know that the loan would not be paid back because they are involved. It will be interesting to know that in some of these delinquent loans, many former directors and bank managers were involved. So the issue is that you really cannot force banks to lend. We have moved away from that regulation that so much should be lent to agriculture. In the case of agriculture, the banks prefer to pay the penalty than to lend. That is why we cannot do away with specialized banks such as Bank of Agriculture or Bank for Commerce and Industry because the commercial banks cannot give out the money those companies need to set up long term gestation projects. Basically what would it take to give orientation to Nigerian banks to encourage lending to growth areas? Specialized banks are one way to do it because with those specialized banks grants /loans from international agencies are channeled through them. But then it is important that the right people man those banks because if you put people that don’t have what it takes or people that are corrupt it will end up subverting the purpose of the loan. I wouldn’t support going back to regulating the banks to force them to loan to certain sectors so called the essential sectors including manufacturing and agriculture. They should do it on their own.
But why not, that’s part of the regulation…
No, I just told you that banks prefer not to lend but to pay the penalty, than lend when they feel they are going to lose the money. I think the issue about policy that can encourage growth is moral suasion, dialogue with the banks and possibly providing guarantee. Government can guarantee loans and I think what is being done now is very important that bad bank borrowers should be made accountable because these same people would take loans from one bank to the other and squander the money. So I would say that setting up specialized banks particularly for small and medium scale enterprises, agriculture, and manufacturing is a good one. And that’s why I will never support the privatization of bank for commerce and industry, but will rather say we need more of such specialized banks. State governments can set up agencies that can liaise with Bank for Commerce and Industry, Bank of Agriculture and I would also ask that we have in the area of construction, a specialized bank that can make credit available at reasonable interest rate. These are the things that can grow this economy. A young graduate who comes up with a brilliant idea will not succeed if he doesn’t have money to establish his business. And more importantly the foreign exchange market should be closely monitored. You can’t get foreign exchange from the banks but can get it from the parallel market, who is funding the parallel market? So I would say that accountability and regulation are important. You cannot at this stage just allow the free market to operate the way it will like to but I won’t go as far as suggesting that we go back to credit regulation. The banks want to make money, so they will. The banks were making cheap money from foreign exchange and some of them grew on illegal foreign exchange trading they became big.