₦airaland Forum

Imagine old men . . .

Dr. Ayodele Olalekan Teriba is the CEO of Economic Associates, a firm of business consultants. In this interview, he speaks on the genesis of Nigeria’s economic problems and the way to go

Q: There is economic hardship in Nigeria at the moment. What would you say is responsible for it?

The oil price slump since July 2014 has meant two years of sharp declines in foreign exchange supply that has precipitated a large devaluation and a recession. attempts to restrict demand for imports in the face of reduced supply of foreign exchange from exports had largely been responsible for the recession, and floating the currency without first creating foreign exchange supply buffers led to the large devaluation. Government is now trying to articulate measures that would help the country to fix the foreign exchange supply shortage, restore confidence, and turn the economy around. Up till now Nigeria has relied almost exclusively on volatile export earnings for foreign resource inflows. The collapse in our export earnings mean that we now have to look for more stable foreign resource inflows.

Foreign direct investment is a less volatile way of getting foreign exchange than export earnings. Nigeria funded the successful telecommunications reforms and the LNG project with foreign direct investment. To resolve the forex shortage and end the recession, Nigeria now needs to open up as other infrastructure sectors to the inflow of foreign direct investment, including rail, power transmission, gas pipelines, and perhaps education and health.

But when there was high output of supply and the price was high the common man didn’t fare better. How will you explain that?

Recession and large devaluation is not just about the common man, it is about the ship sinking, and everybody is sinking with it. It is also not true that the common man didn’t fare better during the boom, because 16 years ago, the common man had to go to NITEL and queue to make phone calls. Now the common man has many phones; the common man now has a bank account that he can operate from his phone at home or at work. Telecoms created employment for the common man. The economy boomed, trade boomed, jobs became more available to the common man.

To say that the common man didn’t fare better in the last decade and a half, nothing can be farther from the truth. The gains of the common man during the that boom is now threatened by devaluation, threatened by inflation, threatened by recession. We now need to save the common man. It is not just the common man, whether common man or rich man, when the heavens are falling, it is not a single person’s problem, it is about saving the system from recession, from devaluation, and inflation. The issue is not at all about the past, it is about the future.

At a point, the FG said it would not devalue the Naira, the naira is now devalued. What actually happened?

Bygones are bygones! FG said this, FG said that, we are dealing with a global shock, that is out of control of the Federal Government; it is not about wishes, it is about reality; at a point the government was denying the reality, hoping, trying to wish away the reality. That is not the issue now. Recession is a reality. So rather than say, hey, government wanted to do this, government didn’t want to do that, these are non issues, government had been forced to do what it had to do; the key question now is how do we get out of the mess. The economic crisis we face today is dire, very severe. What can we do to ensure a better tomorrow; that is the issue?

People throw around concepts like backward integration. How can we have backward integration in a recession?

The purpose of the devaluation is to correct the shortage of supply. We have to face the reality that we don’t have enough forex to fund the import requirements of domestic production, that is why the devaluation and recession happened. Then backward integration cannot happen in the face of infrastructure failure; we can’t get manufacturing or mining to boom in the face of high road transportation cost. No country that is integrating backwards relies on road transport for haulage, if you want to integrate backwards, you rely on rail for haulage.

When rail worked, Nigeria integrated forward and backwards; manufacturing boomed, agriculture boomed, Nigeria’s major cities grew around rail termini. The rail is now dead, so is agriculture, as much of our harvests cannot leave the farm because only crops that can afford road transportation can leave the farm and get to the market. If the market price of the crop is not up to the road transport cost, the crop will rot at the farm. Manufacturing plants across the country have closed down because the road transport costs for bringing inputs to the plant and the road transports costs for taking the output to the market are killing. We cannot compete until we fix rail transport. Infrastructure is key for backward integration.

Infrastructure is not just about absence of rail transport, power supply is not adequate, energy supply is not adequate, whether you are talking about electricity, petrol or gas. So stop talking about backward integration, stop talking about diversification, focus on infrastructure, if rail works and there is energy supply, whether it is power, gas or petrol, backward integration will happen without you doing anything extra, diversification will happen. In the absence of rail transport and in the absence of adequate energy supply don’t even say it, don’t talk about diversification.

Some people have even suggested that to boost the real sector government should invite global investors, what is your position on this?

Right! That is the key issue.


Will that not fly against the issue of protectionism?

[b]What are you protecting? You are protecting the failed rail transport system, gas flaring, power outages, and inadequate supply of petroleum products? Is that what you are protecting? We generate power but our capacity to transmit power is lower than the generation capacity. Are you protecting inadequate electricity transmission capacity? Open up to investors as you opened the telecoms, when you had NITEL alone you had 300,000 lines, land lines nationwide, that landlines are dead now. We allowed investors come into telecoms in 2021, and they have among them connected more than 160 million lines. You don’t protect what is failing, you open them up and let investors come in.

They have succeeded in telecoms, they will succeed in rail; they will succeed in power transmission; they will succeed in gas pipelines, and they can even succeed in health, and education. Open all sectors, let foreign investment come in to rescue the system, as foreign investment has rescued telecoms, as foreign investment built the LNG project; let foreign investment come and rescue refineries. That is the message; it is the only way forward. We have a recession, we have inadequate supply of foreign exchange, the global economy does not have a recession, the global economy is awash with foreign exchange, so list the assets that the federal government owns one hundred per cent and they are not working and open them up like LNG project where the Government hold 49 percent, and investors hold 51 percent. Investors run it and it works.

Open all sectors; there is nothing to protect; and it is not about the real sector, it is first and foremost about infrastructure because the best thing you can do to revive the real sector is to provide them with infrastructure. So let investment come in and rebuild infrastructure, if infrastructure works, the costs that the real sector face will go down and there will be growth, backward and forward integration that will bring about diversification. That is the juncture that Nigeria is now.
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What is your position on the move to sell national assets?

Do we want those national assets to die like NITE? In LNG, we don’t own 100 per cent, we own 49 per cent, foreign investors own 51 per cent. In all businesses where foreign investors own 0 per cent and government owns 100 per cent, let us give them a chance to own 51 per cent and run it. That is what we are saying, we are not selling, we are allowing others to come and invest. If foreign investors find money to invest, we won’t pay them interest, once they invest, it is irreversible, that’s the point. It is not about selling the national assets, it is about the government letting the private sector come in and share the burden.

Are you satisfied with the level government has gone trying to unbundle the power companies?

Government still owns 100 per cent of the transmission assets. Government still holds on to its unproductive monopoly like we did over fixed telephone network under NITEL. Government should break its own monopoly, privatize what it already owns, and even liberalize to give new foreign entrants opportunities to create additional assets in transmission, gas, and rail.

What other things do you want government to do to fix this economy?

People in power that we had in the past were the main obstacle to the entry of investment, because they held on to an unproductive monopoly. They couldn’t deliver on infrastructure, and they didn’t allow people who can deliver it to come in; they allowed new investors in telecoms to come in, but failed to allow investors who can deliver rail, power transmission, gas pipelines, education, and health. [b]This government should succeed where past governments failed: break government monopoly as government monopoly has not helped the county in any infrastructure sector. We should kill government monopoly, as we beneficially did in telecoms. We should now do it across the board; encourage private foreign investors to come in and bring new ideas, bring new technology; bring new know-how; bring new money.


When the money arrives it will solve the foreign exchange shortage, close our yawning infrastructure gaps, as our telecoms gap has been closed, and telecoms is no longer an issue. Now let rail line gap be closed, let power transmission gap be closed; let pipelines gap be closed, let gas get to our homes. The new government should break government monopoly. If this is done, Nigeria will get out of recession, Nigeria will have infrastructure, the cost of transportation and energy will fall. Nigeria economy and exports will diversify. Economy will integrate backwards and forwards. Nigeria will become able to produce for exports. That is the way forward, no other way.[/b]

What can individuals do to weather the storm right now?

The problem started in the first half of this year, if government takes necessary steps, we could be out of crisis by the end of this year, so there is no storm to weather, there is only a storm to stop. There are clear ways out of this storm, so let us rally round the government, encourage the government to take needful steps, and we will get back the good life. Nigeria can get out of the mess very easily and quickly, once needful steps are taken.

Industrialist and economist who is passionate about Nigeria adopting economic best practices speaks about what the country fails to do, lamenting that it has been driving the economy in reverse gear

Q: There is hardship in Nigeria, and it affects everybody. Where did it all start

It started from the time the media also became complicit in the culture of reporting government policies which are destructive to the economy with a very bland narrative, despite the fact that as Nigerians, they also suffered the injuries caused by such distortional government policies. In this event, Nigerians have become entrapped by propaganda that ultimately diverts public attention from the actual realities of the adverse impact of government economic policies.

Lately the Finance minister, Adeosun, for example publicly pressurized the Central Bank to bring down interest rates; it is regrettable that the media generally failed to interrogate the true cause of the obvious chasm between the Finance Minister and the Managers of our Monetary Policy.

Many people have been telling the Buhari administration, please stop the blame game, we know you inherited problems from the last administration, please solve the problems you have at hand. I want you to assess how far the economy has fared under the Buhari government and what is he doing that he shouldn’t have done?

The reality that people are suffering is self evident. Although, the blame for the down turn has always been put on low oil prices, and the Niger Delta militants and corruption, but from a historical perspective, you will find that our condition should not be quickly blamed on only these factors.

If you are saying that low oil price and output are responsible for our present economic predicament, then you are also implying that if only we could earn more income, i.e., if price and output of crude oil improve, our economic predicament will be dispelled and Nigerians will be better off when this happens, this is the popular assumption; but if you cast your mind back, when crude oil prices exceeded $120 and output was reasonably consistent above 2 million barrels a day, our dollar reserves expectedly exploded beyond $60bn. The question is, did people’s welfare improve with the bountiful reserves? Did the employment rate in the country increase, did industrial production significantly expand, and did inflation fall to best practice of 2 or 3 per cent? If the answers to all the above questions are No, then you must admit that rising price and increasing crude oil output may not also reverse our current parlous state as presently assumed.

The truth is that we have been operating counterproductive monetary and fiscal strategies all along; we have been driving the economy in reverse gear, with unyielding high rates of inflation above 10 per cent, with high rate of unemployment, low rate of industrial capacity utilization, and a weaker naira. The truth is that the present fall in crude oil price and output only fired the accelerator while the economy remained in reverse gear! That is the reality.

So in order to correct our trajectory, we must shift the gear lever to “drive” so we can move forward and not backwards. What am trying to say is that the forces that support growth and development everywhere are driven by certain indices and if those indices remain inappropriate, the economy will clearly underperform; that is why you find countries that don’t have any resources still performing better than us, despite our bountiful mineral and human resources.

In modern day economies, economic management has become refined to distill certain indices which drive or retard industrial and economic activity; for this reason, Central Banks everywhere are statutorily mandated to manage these indices to achieve meaningful economic goals. For example, we have oil, we have groundnut etc, but we can’t seem to move forward, because inflation rate has never receded to international best practice levels below 3%; investors have to pay over 20% to borrow, while the Naira rate ironically failed to appreciate even when we had best ever dollar reserves.

The first critical index is inflation; unbridled inflation can destroy any economy; I have heard so called experts, intellectuals, and professors who are advocating that CBN should not worry too much about the scourge of inflation, but should concentrate on growth inducing policies by pumping more money into the economy; by making such statements these people expose their ignorance on how a modern day economic system works; the truth of course is that, we can never have meaningful growth when inflation is trending towards 20 per cent.

The right management of inflation is the beginning of economic wisdom; inflation is invariably the starting point; if for example, inflation is at 20 per cent, it means that every year your income must increase by 20 per cent; if not, it means you must cut down on your life style; pensioners will invariably, sadly, lose the total purchasing value of their static incomes in 5 years, with such inflation rate.

Furthermore, if inflation continues to rise, the consumer demand will contract and ultimately negatively impact on domestic production. Why would factory produce more, when there is no consumer demand in the first place.

Secondly, if cost of funds remains high, there is little motivation to invest as it will become difficult to repay your loan and ultimately non performing debts will also increase and may destabilize the banking sector and the economy. From the preceding narrative, you will see that the operation of an economy is an articulated process, inflation affects consumer demand and cost of funds and a combination of both factors adversely affect investment, employment and inclusive economic growth.


Thirdly, the regular auctions of rations of dollars by CBN in a market with too much naira has inadvertently battered and sealed the fate of the Naira exchange rate. Clearly, if the statutory custodian of the Naira is busy auctioning the dollar against the naira, what do they expect? The process of auctioning dollars in a market that is suffocated with naira is clearly a deliberate attempt to weaken the Naira exchange rate. So with inappropriately high inflation and interest rates and an ever sliding Naira, the economy will invariably remain in reverse gear. There is no successful economy that sustains inflation and cost of funds as high as 20%! So, if you ignore or deny the relevance of sustaining these indices at best practice levels, you are only postponing the evil day, and this early realization in 2004 guided the choice of the slogan, ‘SAVE THE NAIRA, SAVE NIGERIANS!’ as the byline for my articles, in the Vanguard Newspapers till date.

Historically, you will find that poverty, industrial collapse, brain drain, youth migration from Nigeria began and gathered momentum as the naira depreciated in value since 1985. The naira at a stage exchanged for N1 to $2, even when crude oil price was $12 per barrel, but this clearly did not induce the kind of calamities we have now.

What do you advise the government to do right in this regard?

Very simple. You see once you have defined the problem, the solution is in progress. Quite clearly, inflation must be kept at between 1-3%, if not, pensioners can’t confidently look forward to life in retirement. It is necessary to interrogate the cause of inflation, you know the factor that drives inflation is too much money, but as a curious professional member of the Media, you should also ask if there is scarcity of loanable funds to SMES, why is it that every week, the CBN keeps mopping up excess money from the system? You must proceed to interrogate the unyielding cause of so much money in the system, because if you can eliminate the cause(s), the price level will stabilize at industrially supportive levels; interest rate will fall, Naira exchange rate will also be stronger.

Why is it that for years there is no money to pay salaries, there is no money for infrastructure, and there is no money to pay our debts and yet CBN continuously mops up excess money that is simply sterilized from use. The troubling question therefore is where all that money leaks from to persistently compel CBN’s need to pay interest to sterilise the reportedly burdensome excess Naira supply. It is evident that the CBN does not distribute the dollars earned from crude export, instead the CBN recreates what it construes as naira equivalent at its own unilaterally determined exchange rate before Naira allocations to the 3 tiers of government. When distributable dollar revenue is substituted with Naira allocations to the three tiers of government, what do you think will happen, the bloated Naira sums expand the liquidity base to sustain an inflationary spiral, and instigate further CBN mop up of excess liquidity.

When CBN constantly mops up money, and it makes it difficult for banks to collect money and make it also difficult for the real sector to borrow money, will it not affect the real sector?

That is what is happening. That’s why the minister of finance says CBN should bring down interest rate, while CBN insists that lower interest rates will fuel spending and drive inflation beyond tolerable or supportive limits. In any case, the CBN must explain why it readily adopts the more expensive and debt inducing option of selling Treasury Bills to mop up surplus liquidity, when less cumbersome results could be achieved with much higher mandatory Cash Reserve Requirement.

How best can the power situation be handled? Are you satisfied with the way…

You see, leave out the issues of privatization and all the rest, you see, as a journalist, you are probably aware that almost all the power firms are hugely indebted to the banks, so it is fair to say that the major problem of power companies is probably inadequate access to cheaper funds. Inflation, cost of funds and exchange rate, huge cash injections into the system is counterproductive as intervention funds, because the actual problem is not that of no money but that of too much money and a threat of inflation. As earlier explained, however, cost of funds cannot be sensibly reduced, if inflation rates remain in double digits, while inflation will also remain unhinged so long as Naira liquidity surplus remains systemic.

Now you have explained what the government ought to do that was not done, what can individuals do to survive hard times?

Simply, cut your coat according to your cloth and don’t buy things that are not essential to the welfare of you and your family.

Are you satisfied with the level of diversification efforts going on?

Diversification will not evolve just because you express the wish; all governments before now promised diversification but since these administrations remained in denial of the need to sustain supportive monetary indices, their promises inevitably have become mere propaganda. We cannot diversify anything without inflation coming to best practice levels, without access to low cost of funds; cost of funds is responsible for power, cost of power is critical component of industrial cost of production. So on what platform are you going to diversify; if government pumps money into the system to diversify, this will further drive inflation.

As I have explained to you six trillion is all your government has been given approval to spend in 2016, this is barely $18bn, which is peanuts compared to the projected $1Trillion economy. The banks are supposed to fill in the funding gap, but the banks instead of filling the gaps directly to the real sector, what are they doing, the CBN’s response to the banks is, “forget about the real sector, we will borrow all the money from you and pay you handsomely, because we are going to conserve the money to avert spending”. So who is killing who?

Dem don dey sell Oshogbo weed for north?

Only hardcore businessmen and industrialists can relate -- most comments will be coming from those who've never invested even a million naira in a business venture before in their lives.