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Nigeria Must Build Economic Confidence Before Investors Can Bring in Their Money, Says LCCI DG Yussuf

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The Director-General of the Lagos Chambers of Commerce and Industry (LCCI) Mr. Muda Yussuf, is an accomplished economist and private sector advocate. But not a few know he can be very blunt when it comes to Nigeria’s economic issues. Yussuf speaks in an extensive interview with WESTERN POST Business Editor, Akin Akinremi, on the economy, CBN policies and the visit of the Vice President Yemi Osinbajo to LCCI Presidential Dialogue Session with Organised OPS. He also talks on the way forward for the country’s economy which has been in recession since early 2016. Excerpts. 
Muda-Yusuf
How do you assess the economy as a whole?
The economy has been very challenging, challenging principally because of the structure. The economy is structured in a way that it is highly import dependent and because of that it makes the economy very vulnerable to developments in external sector that has to do with international prices of the crude oil. Essentially, we are commodity dependent and that is crude oil.  Now, if you have a situation where an economy is about 85 per cent dependent on crude oil for its foreign exchange and about 80 per cent dependent on the same product for your revenue, if there is a crash in the price of that product, you can imagine what will happen to the entire system. That is the biggest shock that we are facing. That has affected the capacity to fund the foreign exchange market and that is why the foreign exchange has gone so high. Because if your demand is more or less constant and your supply  draws back by 70 per cent, that is a problem ad that is where we are now and there is nothing anybody can do about it. Then, on the revenue side, we have a situation where 80 per cent of our revenue sources crashed by about 70 per cent. Therefore, it affects the capacity of the government and all other institutions or stakeholders that are dependent on government to meet their obligations. That is why we see failure in payment to contractors, failure in payment of salaries, failure in all sorts of things.
So, all these things have led to serious contractions in economic activities and that is why we had the experience of negative growth in the first quarter and it is almost likely we have similar contractions in the second quarter. This has technically put us in recession. Unfortunately for us, the economy also has structural problem that has made it difficult to respond to these challenges and when I say structural problems I mean problems that are inhibiting the capacity of the economy to be productive and this has to do largely with the infrastructure.
We don’t have energy and there is no way you can run or develop an industrial economy or there is no way you can promote industrialisation if you don’t have energy and the energy must be cheap. That is a basic condition.  All our production activities are facing that challenge. And to make matter worst the cost of energy has gone up because most of what are used to get the energy are imported.  The exchange rate is high and most of the manufacturers are depending on imported raw materials the cost is a problem because the dollar that was exchanged for around N150 three years ago is now about N300, you can imagine the shock they cause.
Then, because of the contraction in the economy, purchasing power too has dropped. Your cost is going up and those who are supposed to buy don’t have the capacity that is a serious problem, double jeopardy. And if you are faced with such a situation as a producer you cannot easily transfer additional cost to the consumer because we are in a high consumer market. So, all those shocks are being absorbed by manufacturers.  Absorbing the cost means erosion of your own margin and that’s why many are operating at a loss just to keep the system going and just to have some liquidity.  Businesses are not really sustainable these days. These are some of the issues we are facing.
The exchange rate thing has a lot of transmission effects. Not just for production but for those doing buying and selling too, because most of those things that are traded are imported items so all those costs have gone up tremendously and the response of government to some of these issues has also not helped matters. Initially, the government decided that okay, there is foreign exchange crisis, what we need to do is to fix the exchange rate so that the thing will not depreciate. That was the original model and when you have a crash in your supply and still want to maintain your price, then you don’t have any option rather than allocating administratively and when you begin administrative allocation, it creates all sorts of problems. You remember the days of import license?  That is what we had. The exchange rate was subsidised   so there has to be an allocation system and it came with a lot of corruptions. So, what we had in the first nine months until the time flexible exchange rate was introduced was more or less an administrative allocation mechanism. The supply was so low and the demand was so high and that led to a lot of defaults especially international trade transactions and that affects credibility. Many industries before now were servicing their systems from offshore credit lines they got. As a producer for instance, your customers can give you raw materials and ask you to pay in 90 days so that you don’t have to look for dollars immediately. You import the raw materials and produced and sold the goods and when it was time to send the money back to your benefactors, CBN said there was no foreign exchange. That led to the closure of many of those lines. That facility is no longer there and everybody now has to depend on CBN and CBN surely cannot cope.
Again, because the exchange rate at that time, inflows from other sources are not coming because if you know as foreign investors  or  Diaspora Nigerians that the parallel market exchange rate is about N300 and government is saying  that official rate is N200 or N197 that is if you are bringing any money officially to this economy you have to exchange it at N197, nobody will  look at government side when you know it is about N300 outside and that shut out many people who   would have come in to augment CBN’s funds either from Diaspora remittance, export proceeds or capital importation to invest  because if you are bringing money to invest in this economy you have to convert it officially at official rate but there is a big gap between government rate and market rate. So, all those inflows also dried up and that is what led us to the crisis. At that time Buhari was saying that no, no, they should not devalue the currency that in 1986 it was devalued what was the outcome, we became poorer and all that. They call all sorts of people like Oshiomole to be supporting the position of course; the Lagos Chamber was consistent that you can’t give what you don’t have. You don’t have foeign exchange and if there is a shortage the best way to handle is not to allocate administratively because there will be corruption, there would be favouritism there would not be level playing field that is why we said let the market do the allocation which flexible exchange rate is all about. They resisted that view until we got to the tipping point before they now said okay let us do it and all of that.
Would you say it is too late before the government agreed because the effect has not been much since the system was changed to what we have now?
The thing is this. It is confidence issue. For somebody to bring money to your system, first and foremost, there must be confidence. Now CBN is still trying to clear the arrears because they did forward payment, they spread it over a period and many of these arrears are offshore payment and as an adage says ‘once beaten, twice shy’. All those people that had that experience once they get their money, they will think twice before coming back especially when you have other off shores where you can take your money to. So, first CBN has to clear this arrears, because CBN is also clearing the arrears, it does not have much money to also now fund the market. It is also affecting the market and that is why the rate is still going up because the clearing of the arrears is of higher priority because they had made commitment by the time they were transiting from the fixed exchange rate regime to the flexible exchange rate regime. So, it is not easy to be dealing with the backlog and at the same time servicing the market when confidence has not fully returned for all these inflows to come and that is why we are not seeing the result as quickly as we envisaged. Because confidence in inter personal relationship is very easy to lose. In seconds I can do something that will make you to lose confidence in me and before I can convince you to now restore that confidence it could take a year. That is the way it is. So, for an investor who gets out of this and thanking God for delivering him, it will take some time to look back. That is why it is till slow. I believe it still better than where we were because at that time, it you were asking for $100,000 for raw materials or whatever, you will be lucky to get $10,000. It was that bad across all sectors.  Even for the one you get the bank will tell you the rate is N197 go and pay, may be, on each dollar N50 to a separate account before you can get the allocation. All these were going on and that is what you get when you fix your price below the equilibrium price. There were all sorts of abuses and people were making money in the banking system. That, in my view is why there hasn’t been much improvement. One, the confidence issue; two the CBN was dealing with two issues- clearing the arrears and funding the market, these are the things.
There is no doubt; we need to diversify the economy to move out of the mess we are in as a nation. Where do you think we can focus with optimum advantage?
This economy is blessed in many ways. Look at all sectors. We have agric, solid minerals, creative industry, service industry, ICT. We have all sorts, even exports but the issue is that for you to diversify an economy you must have an infrastructure otherwise you will just be talking stories. You must have infrastructure, if you go abroad the first thing they focused is infrastructure. China recently spent billion of dollar in high speed train as advanced as it is. If you say we are doing this in agriculture, we are doing this in solid minerals, how would you move the products if there are no good roads? How would you process it? We just talked about the cost of diesel now. They say there is a lot of rice in Kebbi, yes if you grow rice in Kebbi how will you process it, is it not diesel you will use since there is no electricity and by the time you finished processing it and by the time you move the rice of Kebbi to Lagos how much is it going to land? Is that diversification? That is why it is easy for you to go and smuggle rice from Benin Republic rather than waiting for the rice that will come from kebbi and in any case, people from Niger will rather go to Kebbi and take it out. Even the Kebbi farmers will prefer taking it to Niger, very close than worrying himself about coming to Lagos that will take days. Why would he be worrying of bringing it to Lagos on this terrible road? It has to be a holistic thing, the value chain thing. You will be talking of value chain in agriculture. It is not about merely growing the thing in the farm. It is about processing it, it is about marketing it, it is about transporting it and unless you have it all together even the agric itself will not have any impact. There was a time in this country when they encouraged people to go and plant cassava. People rushed and planted cassava for cassava bread blab la bla! By the time it was harvesting season, they didn’t know what to do with it, and there was no off takers. Do you expect these people to go back to the farm and continue planting cassava? They will rather go and be riding okada than go back. The thing has to be more strategic. The present government is talking about solid minerals and agriculture. First for solid minerals you must have geological information that will tell you exactly what kind of solid minerals is available where. That king of information is not available and even if you get it how are you going to process it? How many processing facilities do we have? Then, how are you going to even fund the project? Because it is high risk area, banks don’t even have ideas, any competence to even analysing the risk of lending to the sector and once they face such situation they just write the place off, they don’t want trouble. It is true, they don’t want trouble. They would rather go and buy treasury bills than worrying about whether you find the right kind of minerals or not. And that is why if you look at that sector there are no serious players there. What you find there are artisan miners.  People are into granite, quarry, limestone and they will say they into mining. That’s not core mining. Core mining is about the precious stones and all that and we are not there at all. So, the fundamental issues have not even been addressed. But, what I know about the economy is that once you create the environment, people will find their ways. Our people are very innovative. You don’t even need to tell them what to do. The entertainment industry, who put them together and say go and do this? Nobody, those guys just developed by themselves and that is possible because that sector is a service sector. They don’t need a 100kva generator to be a comedian or an actor. It is easy for people to go there and try themselves out.
There is even a constitutional issue there. If you discovered a mineral in your own state, the state government does not have any power over it, it is a federal asset. It is on the exclusive list. The mining license has to come from Abuja, ground rent you have to pay, royalty; you have to pay to Abuja. Where is the incentive for state government to begin to worry about it? There is no incentive. We had some situation when some people complained that they got licence from Abuja and the state government was not cooperating with them. The constitution issue is there and when you say states should go and generate idea, where will the idea come from when you have solid minerals in your state and you don’t have power over it?  You said go and bring investor and they are here and 80 per cent of what they make will go to the central, where is the incentive? If you have a manufacturing company in your state the company tax, education tax,VAT is federal, import duty is federal, the only thing the state gets in the payee of the workers and you know a typical manufacturing firm, most of them are low level and how much do you get from factory workers as payee unless you are in a state like Lagos and Ogun where you have some companies.   So, that is why people are talking about fiscal federalism and all of that. These things are necessary. We should even go further and incentivise the state to make them aggressive in bringing in investors.
With what the nation is witnessing with PHCN can we say private sector partnership with government in the provision of critical infrastructure can work effectively here?
The thing is that the time we had the opportunity to do get right we didn’t do it when we were so rich. If people like Awolowo could see far ahead and build Cocoa House at that time when even country like Dubai and all of them were nowhere, then we can conclude that our problem is leadership. It is a leadership thing. By the time we built Murtala Muhammed Airport about forty years, many countries in Africa didn’t have any airport and since then we have not moved from that point in spite of all the resources that we’ve got. By the time we constructed Lagos-Ibadan Express Way, how many countries in Africa had that kind of road?  We missed it at so many points, specifically that we didn’t have leaders who believe that we need infrastructure to power the economy. But now that we find ourselves where we are, the only solution is to encourage the private sector to come on board, but to get them to come on board they must have confidence in the economy, they must have confidence in the leadership, in the policies that is the issue. Because, of thee liquidity problem we had in the foreign exchange market that created a lot of credibility crisis for the country as a whole. When you are in an economy, you did business and you cannot repatriate your fund it sends a terrible signal. They will look at the country and say it is going bankrupt. That is the way it looked and that is the way it looks.
Are we not?
I won’t say we are bankrupt. What we are suffering from is the problem of management.  If you have a company and it is not that the company is not generating money but you have the issue of sustaining the structure that you have, there is a way you can redesign your structure so that you can remain in business. But what is happening here is that the structure that we had when oil was N140 and now oil price has crashed about 70 per cent and you are still maintaining the same structure. How are you going to cope?
Which areas are we talking about here as a nation?
Structure of personnel, the work force in the bureaucracy, political personnel and the way people spend money in public sector, all those things have not changed significantly. They have not changed and revenue has crashed. Some people are saying government is not going to reduce the workforce, but is it not better to deal with workforce you can pay regularly than people that will be owed for months? Some of them have come with a model and say go and work for three days and use two days to farm.
So, it is important to get private sector to come on board. If we remain consistent with the policies that we have, they will come.  Even as we speak, there are some investors who have high appetite for risk, they can still come and invest. All these roads like Lagos- Abeokuta Express Way, if we give it to investors to fix and collect toll because of the traffic there, it is a gold mine, but nobody has come out with expression of interest, they have not invited any investor. Look at Lagos-Ibadan Express Way, it is one of the most lucrative roads in the country, if you invite investors to come and construct ten lanes there, they will jump at it and they will make their money. Look at Benin-Ore Road; these are ways private capital can come in easily because they are bankable. I go to Ilorin often. Ibadan to Oyo, they have done it and it was fantastic two years ago, it is already deteriorating. When the construction was completed, I thought they would have called somebody; even if it was done by Julius Berger, that take over this road put a toll gate and be maintaining it so that nothing goes wrong with it. But, they will leave it until the thing deteriorates and begging to reconstruct. People using the road will not mind paying N100 to ensure that the road is maintained.  Each time  I passed there I will say what kind of thing is this? Don’t you see our airports? You travel and come back you will feel sorry, quite frankly. Recently, I went to Tanzania, we went through Nairobi, these are African countries, you need to see them. When we constructed MMA those countries didn’t have anything. You need to see their airports.  Many things that are taken for granted there are not working here. The toilet will be smelling and you just wonder, and that is your gateway. If you give that to any investor and you gave them the standard that you want it to be, they will do it. There was a time I travelled and the conveyor belt was not working. You need to come and see how they were throwing our bags those who were loading it as they were angry with us.
Recently your Chamber held a Presidential Policy Dialogue session with the Vice President in attendance. What was it all about?
Well, the whole idea of Presidential Policy Dialogue session is to deepen engagement between the private sector and the government. If there is anytime the government needs the private sector it is now because the government hasn’t got all the resources. There is a lot of resource gap and we need the private sector to fill it. We need the private sector to create the job, to generate revenue and if the investment environment is not good enough, there is no way the private sector can do this and if government at the highest doesn’t have good understanding of what the issues are, their policies would not be appropriate to solve the problems. There is what we call policy fit; the policy must fit the problem for there to be progress. So, we feel there is a need for dialogue between the government at the highest level and the private sector. Of course, it is not something we can finish in one day, but it was a good start. We had the Vice President who is the Chairman of National Economic Council, is the head of economic team. We can’t have anybody better to engage with than himself. That was the idea, because for good economic policy there are two major components that are critical. You must have sound economic theoretical basis. You must also have empirical basis for the policy. Theoretical ones you can get from experts who are economists or consultants, the empirical ones you will get from practitioners. You need the blend of the two for a good policy because you need to listen to the practitioners to know what the issues are and you need to be advised as to what can work and what cannot work because the effectiveness of a policy is about the content on which you want to implement the policy. The policy that is working in USA may not work here and it would take interaction between the policy makers and practitioners to know whether this policy is appropriate for this content or not. That was what was missing in the early days of this administration. There was no proper consultation, but that has begun to change. We a lashing on the fact that the disposition is changing, let’s have more dialogue and the VP was very happy about it. He got some very useful feedback directly from the operators and we also had a better understanding of government perspective of issues and it is very good for mutual understanding and mutual trust.
We agree that it is something we should be doing often. In fact, he said quarterly there should be the dialogue between the private sector and government. And one of the key aspects of it he mentioned was the famous 41 items on forex prohibition list. He said they are going to move if from monetary policy space to fiscal policy space.  What it was meant was that if your raw materials or your product is on that list, you cannot source foreign exchange for it through interbank market. That was what the CBN said. But if it is moved from monetary policy space to fiscal policy space, that means you can have access to forex at interbank market, that may bring more pressure though in the interbank market, but it will also bring in more forex or business because there are some people who are ready to come and invest if you remove that kind of policy. They are ready to bring in their investment. If you want to invest in a sector and the raw materials which you will use is already under prohibition list, you cannot come in to invest, but if the thing has now removed you can bring your money to invest there. Some manufacturers’ raw material are on the list, but if it has been removed, you can go to the interbank market and bid for forex. So, in the fiscal space, they will now determine whether they want to do import prohibition or they want to increase the tariff or whatever, that has not been determined, but the issue of the CBN saying you cannot access foreign exchange market will no more be there. We were not given a day it would be effected, but he said that was what they were thinking.
These 41 items on forex prohibition list some people argued that it has helped the economy in a way as people are now producing these items locally and making good profit. Now that you are calling for it reversal are we not going to reverse its gains?
You see, for any policy there are costs and there are benefits, there are winners, there are losers. That is the way it is. For some people, the best policy of this administration is the prohibition of that 41 items from forex at interbank market and they are praying that it just remain because they are making good business. If you are a player in particular product area and they said importation of that product should be banned, that’s a good business for you. Some of them have been declaring good profit on the Nigerian Stock Exchange, like Okomu and the rest of them but what about the welfare of the people on the street? One thing about policy is that most times, the policy makers most often talk to many of us who either are producers, business people, consultant, nobody talks to the man on the street and the man on the street does not even understand how the policies either affecting him, penalising or benefiting him, he does not know how it is affecting him because they don’t understand transition mechanism. People are really suffering.
Will the reversal remove their suffering?
The thing is that any time there is two-point gap between capacity to produce domestically and your demand; it is the consumers that will pay for it. Somebody was telling me about the experience with common nylon they use and people in the market were shouting common nylon. The experience of sachet water producers is one example that will come handy here. According to some producers a kilogram of nylon they were buying about N600 last year is about N1,200 now. How much of that cost can be passed to those who buy water. To move the water from N5 to N10, it was not easy.  You see common nylon and what happened to nylon is that the propylene used for the production of nylon they put it under the 41 items. They said Indorama in Port Harcourt can produce what the nation needs. This is the problem. So, there is a big gap between the domestic capacity and the need. Mainwhile, Indorama and the rest of them are celebrating that this is a good policy. That is what the CBN is referring to that the policy is working without looking at what is the implication for you the producer of pure water and the implication on the people buying the product. Nobody is looking at that. So, that is what I am saying that there will be losers, there will be gainers
There is this allegation against your chamber, LCCI that you only focus on commerce related issues with little or no attention to the industry aspect of the chamber. Why is this?
That is not true. What many do not understand is that there are quite a number of issues we talk about that and when we talk about them, people don’t appreciate that it cuts across all sectors. We talk about multiple taxation, it is not just about commerce, is about everybody. We talk about issues at ports, it is not about commerce, it is about everybody, whether you are in service, commerce on manufacturing. We talk about interest rate, it affects everybody. We talk about foreign exchange in which we are one of the loudest, it affects everybody. We talk about things that affect everybody. Lagos Chamber of Commerce and Industry has about 21 sectoral groups ranging from industry to ICT, Pharmacy hospitality etc, we have all of them here. But what we worry about is issues that affect everybody. Occasionally, we take sector-specific issues, but what we talk about most of the times are cut across, but may be because people don’t hear us talk about raw materials may be that is why they think these people are for commerce only. Even, we get report from Manufactures Association of Nigeria, (MAN) that even the chamber is fighting their cause more than themselves. Again, it depends on theoretical understanding of some of these things. When some of these policies were unveiled; we were the first set of people to criticise it, because if you are a good economist, you are not God, but you easily predict the end from the beginning. Once a policy is announced, you can easily guess, may not be with absolute certainty, but there is high probability that you may know the outcome or the consequences of the policy is. When Emefiele announced the foreign exchange policy, we were the first to criticise it by that time many people didn’t understand what we were saying. We said this policy will lead to loss of jobs, it would affect raw materials, people didn’t understand, even the MAN, it took some of them until when they exhausted their imported raw materials and they wanted to import fresh one, to understood and they had to join us.
Are you okay now with flexible exchange rate now introduced by the CBN?
I’m fairly okay, although it came late and that is what  I am saying about confidence. When you lose credibility, it is not easy to regain it. That is what has happened. I think we are on course. If we are able to clear those arrears, stabilise the foreign exchange market at whatever rate it is and the people see that the system is stable and they don’t see conflicting signals as conflicting signals could confuse the investors, especially those who want to come for long time. We need to create environment that will inspire confidence. The environment is not conducive yet, buy if we get it right by the way we manage the foreign exchange market and there is liquidity in foreign exchange market, at least some of the foreign funds will begin to come in because we need it to argument what we get because it is not easy to borrow, debt service of about N1.5 trillion. We should find the way of attracting investors to bring their money, not that we should be borrowing. We can say we have this road, do you want to invest in it, bring your money, not to be thinking of increasing our stock of debt.
The Chinese swop thing, how do you see it in the light of our current situation?
It was just unnecessary hype. Have you heard anything about it since? People are now saying you can take naira to China and blab la bla. Some so called economist were offering some analysis of China will now take Naira and I said what it means? The only thing Swop can do for you is to make international trade process to be smoother. Rather than be converting dollar to yuan, you convert directly to yuan because you have reserve in that currency, that’s all. Also, they will be tracking the strength of your currency. As your currency weakens against the dollar, it will weaken against the yuan. Now, nobody is talking about the swop again.
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