Kingsley Moghalu, former Deputy Governor, Central Bank of Nigeria, CBN, the Founder and President, Institute for Governance and Economic Transformation, in our Executive Platform interview with Prince Okafor, harps on the sustainability of the nation’s debt and continuous borrowing. He also made recommendations on how to improve the country’s attractiveness to Foreign Direct Investments, and a fundamental proposals to fast forward the country’s economy.
What are the fundamental challenges that have hampered economic growth in Nigeria?
We need to understand and recognized the severity and depth of the challenge we face as a country. We are not dealing with economic recession; we are not dealing with some economic problems. We have a fundamental existential economic crisis in Nigeria. This is so when you actually consider the population growth rate. By 2050 there will be 400 million Nigerians and we will be the third most populous country in the world, what will the future look like?
Second, I believe that we don’t have a vision and an economic philosophy that drives our economic management. This is a problem.
Third, and I think the most fundamental, the political leadership class in Nigeria today is not equipped to handle Nigeria’s economic problems, and unless we get the right kind of leadership with the skill, with the vision, and with the world view to take Nigeria into the 21st century global economy, a competitive economy, we will have problem growing.
Therefore, my fundamental proposal is a political proposal and that is, Nigeria’s citizens need to exercise their democratic right, they need to vote for leaders who can solve their practical problems of jobs, there are 30 million jobless Nigerians who can solve those problems.
For those problems to be solve, you need leaders who have the knowledge, you need leaders who have the intellect and leaders who have the world view to be able to address these challenges.
My recommendation is that, citizens of Nigeria need to take political actions to solve the challenges of economic growth. 57 years after independence, and we still have a very high poverty rate, we still have 30 million people who don’t have jobs, we have one of the worst health care systems in the world, what else is the discussion if not how to solve these problems, who will solve these problems?
That’s the work of the leadership, who will elect these leaders? It’s the citizens. So citizens should take their destiny into their own hands, that’s my position, other things else are technical details. We need fundamentally in this country to re-examine the role of the states and of governments in economic management, we need to get the balance right.
How sustainable is Nigeria’s debt and continuous borrowing?
It’s not sustainable in my view. With a revenue to debt servicing ratio of about 60 percent it’s not sustainable in my view.
I have seen some of the steps that the government have taken, including going more for foreign debt rather than local debt. That’s fine, but remember that you are running the currency exchange risk.
You don’t know what will happen to the price of oil tomorrow and how that will affect the value of the naira and how that affects your dollar loan repayment.
My approach is a fundamentally different one, that the government should undertake very comprehensive tax reform by going into the informal economy bring people into the Nigeria taxation system, but in return the government must promise and execute and be held accountable for the delivery of certain basic items like: health care, infrastructure and educational system reform.
What do you suggest to make interest rate affordable to businesses?
Interest rate cannot be affordable for businesses if there is a lot of inflation. So, the government must avoid excessive spending on salary and recurrent expenditures. They should spend more on capital projects. That is what creates economic growth, and hopefully that will bring down inflation, and also interest rate can also come down.
What are the challenges that makes banks shy away from lending to Small and Medium Scales Enterprises, SMEs?
Let me tell you, we have a fundamental misconception in this country, banks in most countries of the world have short term lending and risk arising. Most private capital that comes in to fund SMEs is venture capital or private equity, those are ‘patient’ capital. They wait for some times, but they will have equity in the business.
I have recommended that we should establish a public-private partnership private equity and venture capital fund to support job creation through access to entrepreneurship capital. This fund should be established with not less than N500 billion, with contributions from the federal government and private sectors funders, and be run on a for-profit basis as a private company by private sector managers. Mutual accountabilities must be established between the government and private sector partners, and for the operating entity.
Why are most banks still making so much profit even when the economy was in recession?
Well, I think you can ask the banks themselves, I’m not a spokesman for the banks, or do you want the banks to go belly up? That could also create problems on its own. Maybe there are excessive bank charges, that needs to be looked at but, we don’t want the banks to fail too.
What do you recommend to improve Nigeria’s attractiveness to Foreign Direct Investments, FDIs?
If you look at FDI in Nigeria, you will find that, FDI in Nigeria has decreased by 75 percent between 2014 and now. What determines FDI is the perception of the business community, both domestic and global. International investor’s perception of governance and economic policy matters.
If the foreign investors feel that the Central Bank of Nigeria is not independent, is being controlled by the government, it will not give them confidence, if the foreign investors feel that the policies that are being made, are realistic in terms of their ability to create an enabling environment for them, they will not bring their money.
There is need to really overhaul economic policies in Nigeria. It’s too short-term. We should think a little bit long term and put in place the necessary policies manned by competent people, people that the foreign investors can look at and say yes we have confidence in these people. These are the things that attract foreign investment into developing countries.
What other recommendation do you think the federal government needs to put in place to ensure sound economic management?
Nigeria’s economic management should be overhauled. The president should establish a full time council of economic advisers, headed by a chairman that will serve as Chief Economic Adviser, that researches and monitors the economy 24/7 and advises the president on actions to take to enhance economic growth.
This council, composed of five or six members, should be Nigeria’s economic team. Minister holding economic portfolios should not be members of this team; rather they should focus on execution and the achievement of target set by the president, as advised by the Council of Economic Advisers.
The council’s members should have expertise in the main areas of economic growth targets or policies such as fiscal policy, industrial policy, trade policy, energy economics, and economic history, economic philosophy and political economy.