West African Institute for Financial and Economic Management (WAIFEM) is an institute owned by Central Banks of five West African countries (the Gambia, Ghana, Liberia, Nigeria, Sierra Leone, and the Republic of Guinea occupying an observer position). Our correspondent, Theresa Igata, recently encountered its Director-General, Professor Akpan Ekpo,  who bared his mind on the political economy of Nigeria. Excerpts.

Rebasing the country’s GDP

Rebasing is not something new; technically speaking you should rebase your economy every five years. If we think back, the rebase in Nigeria was in 1980, 1985 and 1990 and this is the most current one which makes us 24 years late.

What this simply means is just where the real value of your economy stands. Technically there’s  nothing wrong with it. The NBS have done a good job and I was one of the consultants we looked at the figures, checked what they did, the formula for arriving at such figures, the components and others; and it was consistent because when you rebase you’re rebasing the national account and there’re about three ways to doing it (expenditure, income and value added approaches). The technocrats used the expenditure and value added approach and they were consistent.

What it says is let us look at the Nigerian economy using 2010 as the base year and of course not having done that in the last 24 years, the market price will change and that is why we have moved to about $510 billion economy. Maybe if we have been doing it every 5 years it will not be that spectacular. And of course they used a base year that is consistent because if you recall the global financial crisis of 2007/ 2008 and then the sluggish recovery of 2009/ 2010, so 2010 is a good year to use as a fixed point of reference.

Implications of rebasing

People should not be excited, but there are several implications; Nigeria is now a middle income country meaning that we’re no longer entitled to International Development Association, IDA loans/ facilities, and no longer qualified for their soft terms because we’re no longer low income. If you’re low income you concession terms for a long period of time but you can get a grace period of about three months or thereabout that you can still borrow. I suspect that while we were borrowing some months back we were front loading trying to anticipate what will happen.

It also implies that the income per capita of Nigerians has risen; the population is still the same but the numerator has increased. Again people should not be excited because income per capita is an average measure, it says much and says nothing; it doesn’t mean that if you have N50 in your pocket today, tomorrow you now have more. There are some other indices (poverty incidence, rate of unemployment, enrolment into primary and secondary schools, completion rate, infant mortality rate, access to drinking water, access to sanitation etc.) that should be looked at to decide whether the economy is doing well or not; these things are very important. You put all these vis-a-vis the GDP per capita to say you’re doing well.

People are worried because if you say the economy is so large and the largest in Africa and 26th in the world, how come we still have high unemployment, infrastructure dearth etc. That is why I say it doesn’t really change anything as such but it allows government to say that they can put up policies to address some of the problems of the economy, having seen the rebasing and in our own case, in fairness it has revealed certain things that the economy is changing; not drastically as in moving from primary to tertiary but in terms of what contributes more to the GDP.

This is the first time we’re seeing that the entertainment industry is now playing its role in GDP, and also that services have increased, but not services in the area of Nigeria being a service-oriented economy. Services in the sense that retail services have increased, now also, the industry contribution to GDP can be misleading because it says that the contribution is almost 30 per cent which is not correct because within the industry you look at manufacturing and that still contributes very low; if I can recollect, about 6-7 per cent of GDP meaning that we’re not making progress, because for you to make progress manufacturing must contribute at least 25 per cent to GDP on a consistent basis for 5-10 years. Even the Vision 20: 2020 document said so. If you start looking at the components of that rebased GDP not much has changed in terms of the structure of the economy.

Agriculture is still the major driver, contributes more to employment, it hasn’t changed much and still depends on nature. That’s why I said we should not be excited but we should not allow it to happen again in another 24 years.

Household expenditure approach 

They carry out household survey to see what they’ve spent in terms of consumption and also a survey on companies to see what they’ve spent. This approach is for the total consumption of households that are families, companies and governments.

Rising unemployment and 2015 MDGs  

If I were the Nigerian President I will have sleepless night with regard to this issue, because apart from it rising the component is disturbing (mostly youths who at least have certificates). Government statistics says it’s about 27 per cent which is very high because in economics if you have 5 per cent unemployment rate you’re doing well and ours is about 27 per cent and rising, meaning that the output loss to the economy is large, it also means that we’re producing below our potential.

The solution to me for now is not the private sector because it’s a crisis. The private sector cannot employ anybody who cannot produce his/her pay. Even if you give them tax incentives, they’ll employ a few and we have about 15-20 million who are unemployed, as at the last count.

When there’s a crisis in any system that I have studied only the government provides a solution in the short and medium term. You can do this by creating stop gap measures; I’m now referring to all levels of governments. You look around your infrastructure or what I call maintenance culture and then engage people to do maintenance work.

Nigeria is one of the de-policed in the world. If you want to employ those from the tertiary institutions to join the police force, army, immigration, Navy etc. you have solved part of the problem. And the money being stolen in terms of corruption could be diverted to paying these people; it will serve as subsidy. In Cairo where we have about 12 million people, there are about 1.4 million police men and women.

Government and unemployment problem

There’s the SURE-P, and unless it is integrated into national planning it is not sustainable. We have roads, parks and the rest; we should be able to maintain them by using those who are unemployed. If government at all levels can embark on housing projects for all levels of income you’ll see the magic this can solve because all these appeal to the private sectors; they don’t take appeal, they look at profits that’s why banks are making profits and workers are being retrenched. They tell you it’s technology but it’s not true; it is the profit they target and if they don’t make that they chase the workers. I don’t believe that at this moment private sector is the solution to the unemployment problem in the country.

Private sector involvement

My thinking is that if you want to train people to be entrepreneurs then you should empower them and do a mechanism where if you empower them, you guide and see them through until they can stand on their own.

Another way of solving this through the private sector is to revamp the real sector; this sector is dead. A small or medium scale industrialist already existing or those having potentials with ideas cannot borrow at the current rate of 15 per cent, make profit and pay back, it’s not possible. Lending rate must be single digit; they say it’s not possible but I say it is possible in the sense that you force it down and the banks will adjust.

We’ve seen examples of the CBN raising the Cash Reserve Ratio, CRR, and the banks complained but they adjusted. For me as an economist, if you claim that your inflation rate is now single digit it means you’re no longer fighting inflation and it will remain so for a long time which means that you’ll now need to bring down your monetary policy rate and add +4 to that to give us the lending rate.

Effects of fallen lending rates on the banks

The banks are declaring huge profits. Let’s say the monetary policy rate is let’s say 10 per cent and then add +4, we then say the lending rate is to begin with 14 per cent, that’s a big difference from 25 per cent. The banks won’t close shops rather the monetary policy rates have impact on interbank rates but it has no impact on the lending rate which must go down for people to borrow and invest and insure the real sector.

For me this is what I’ll worry about if I were a policy-maker in the system. If you allow banks themselves to do it they will never do it and for several reasons; the Nigerian banking system is not competitive, it is oligopolistic, there are a few banks and that very few control the industry; either they lead or they collude. So the only way out as government is to force them to force the rate down and then they’ll readjust. Sometimes I’m amused when I see these our banks advertise abroad on CNN and some other places. It costs money but I realised that why they’re doing this is because nobody will come and borrow in Nigeria so they want to attract those funds so the foreigners bring the funds here; they borrow from abroad which is cheap especially those of them who are dual citizens (Lebanese, Indians etc.) take their money from abroad put it in our banks and get high return and ship it back, attracting liquidity.

If the real sector is revamped, it becomes active and helps to resolve the problem of unemployment. For the Apex bank the FOREX we have from oil is mostly used to back up the naira, it is not put in any productive venture, even the FOREX that is being saved abroad, it is managed by some foreign fund managers; they manage it, make profit from it and lend it back to us. I’d rather as government put it into productive use by telling some Nigerians who are interested in small scale refinery (10,000 barrels) to come and have a subsidy loan for a long period of time to build refineries and create jobs and then later they pay back, rather than using the money to finance conspicuous consumption and you say you have $39 billion of FOREX abroad being managed by these guys and they give us these funny ratings of BB+, A- and the rest. But you have to get an economist to think the way I see it because if you’re in the classical training you won’t see it this way, you think that everything is fine.

What about the Nigerian economy?

The Nigerian economy is the way it is because of the framework we are using. We’re using a neo-liberal framework which allows for marginalism. In other words we’re thinking that we can be a market capitalist economy and do it successfully and I say we cannot, others have tried it; if you look at India, Malaysia, Singapore and China; they’re doing what you call modified developmental state philosophy; they’re having strong state sectors.

Capitalism is a system where only a few gain from it in the long term so you mix it in such a way that the few becomes a tiny mix of it but we’re thinking that we can go neo-liberal all the way. A few people will move out of poverty but not millions as was done in those countries.

 Nigeria’s healthy growth rate and jobless growth

If an economy is growing at 7 per cent, you’ll expect that it is creating jobs; it cannot be growing at 7 per cent and unemployment at 27 per cent it’s a mismatch and definitely it’s a jobless growth. So we want to know what is driving the growth. If you look at other emerging economies like ours, the unemployment figures make sense and you can compare. If you take Malaysia, Indonesia and Singapore what you hear is we’re growing at 5 per cent and unemployment is 6 per cent. The output loss from unemployment for us is what makes you doubt the growth rate. Two things may happen; it is either the oil sector is driving it or there is problem with the data. I cautioned them not to do the growth rate of the rebasing without looking at the real GDP, if you do the growth rate using the nominal rebase GDP it will make unserious because the growth will be about more than 40 per cent, but with the real GDP it will by about 14 per cent which doesn’t really make sense if we double the 7 per cent growth rate which is why I said if we’re growing at 7 per cent we should see the impact on the job market.

Nigeria and data management

I think, the World Bank, Nigeria and the Finance minister are having quarrels over the poverty rate in the country; whether 77, 68 or 58 per cent. Data is a problem but again there are different ways of calculating poverty index. If you go to the NBS website, they use what we call perception index where they ask Nigerians if they feel they’re poor and almost 90 per cent say they feel they’re poor, which to me is an exaggeration but I don’t think we need a rocket science to know that there’s poverty in Nigeria.

Financing education

I was the Vice- Chancellor of the Federal University of Uyo for 5 years, between 2000/2005. During my time at the university what amazed me was that there was no money coming in. The other interesting part is that once you gain admission into a Federal University you’re automatically on scholarship and your tuition is free. University education in the first place should be more qualitative than quantitative. If you’re an average student who gains admission, that student should be charged a tuition fee but a brilliant student from a poor home should go to school free. There should be basis for people paying for higher education.

New CBN governor and investment flow

If the new CBN governor assumes office he just takes his place and a lot of things are in place which he has to follow. He may have some new insights but it won’t drastically affect investment; investment in Nigeria is affected by so many other things like epileptic power supply, cost of doing business is very high, security problems are real; when you’re outside Nigeria they don’t care whether it’s North East, they say it’s Nigeria. I don’t see the coming in of the new CBN boss affecting investment but rather for me we should resolve problem of infrastructure, security challenges and the likes; that is what will attract investors. He may have his own policies but he has to show knowledge of the economy by influencing the debate in the monetary policy committee of the CBN of which I was a member for four years and also on the board of the CBN for five years so I’m talking from experience.

He has to exert himself. The monetary policy came about through the Monetary Policy Committee, MPC, so he has to go there and exert himself. I don’t see any major policy shift because of the coming in of the new CBN governor. His style could be different; I don’t know until he goes in there. I don’t see any major policy issue; he will defend the naira, keep government money and keep track of the economy. A typical CBN governor is to be seen not heard. The technocrats and the minister of finance should be the ones making noise about the economy.

Effects of Policies on  Nigeria

What I’ve seen so far that to me if it is sustained would have a positive effect, is the unbundling of PHCN. It is a major development. They say there’s a road map now in the power sector but I hope with that now we can start thinking of constant power supply. I hope the process is not slowed down and I hope that the mafias (those in the generator business) in that sector have not started infiltrating government’s good intention because power is very epileptic and then they’re telling us it’s improving. When the unbundling of PHCN is sustained there’s a danger in allowing only the private sector to take over because prices will go up as we the consumers will be paying unnecessary high prices for power. You need a good regulatory framework to regulate the power sector, it has become untold hardship so I’ve not seen that regulatory framework put in place but because of the way we’ve suffered over the years, people are saying even if we can get it for 12 hours we don’t mind paying for it. For me we have to worry about the cost. This is one policy I see with a positive effect in terms of the first stage.

Another issue is the housing subsector; if you look at our GDP this subsector does not contribute much to the GDP and yet it is the most vibrant potent sector within investment. They announced a Mortgage Finance Company in Nigeria; positive development but let’s see it through, let it not just be hanging because if the housing sector develops it has a positive multiplier effect on the economy.

The pronouncement by the Minister of Agriculture to modernise agriculture to make it a business is a step in the right direction. That is one area that I think there is progress. Nigerians are in a hurry to make progress because we’ve suffered. Agriculture has a gestation period so they should allow the minister to put his policies through. I think in the long term it is better because agriculture can do a lot to the economy. It contributes less to the GDP but it hires more people when it is modernised.