The Director- General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Olusola Obadimu, says cash is just six per cent of the total money in circulation, based on available data.
Therefore, it is gross fallacy for the Central Bank of Nigeria (CBN) to think of its new policy on cash withdrawal limit as tool to curb inflation or strengthen the crashing value of the naira.
He also said it is still deficient for Nigeria’s electronic payment infrastructure to support the policy, as such the move will create more problems than it sets out to solve, including further discouraging enterprise. In this interview with NACCIMA was in full support of the Central Bank of Nigeria (CBN’s) naira redesign policy, but the latest policy on cash withdrawal limits appears not to have gone down well with the Chamber, what is the problem?
For Obadimu, It isn’t as if the endorsement of the naira redesign policy was absolute in that sense. It is cautious at best. You know, sometimes, the association tries as much as possible to support the government also because it doesn’t want to see itself essentially as an ‘opposition party.’ We give the government the benefit of doubt except where there are clear issues. Even at that time, there were reservations on the non-disclosure of the funding capability of the government or the CBN to prosecute this assignment.
Maybe the NACCIMA National President did not put it in many words or he didn’t talk about it all, but there were concerns such as, where will the money come from. If this government is complaining about lack of funds, where will this money come from? And then the discordant tune by the Minister of Finance, claiming that she didn’t know anything about it. So, there were clear questions around it. And you see, that sort of has a connecting line to the situation we have at hand now. If the CBN is trying to ration currency notes, are they telling us they don’t have enough money to print enough, because that’s what is happening? And if you don’t have enough money to print enough, why did you embark on that policy?
The statement of the CBN Governor that then did not go into details to say the affordability and so on, but it’s now coming to the fore. And also as I told you yesterday, what are the objectives of rationing currencies? Your money is your money; my money is my money.
The currency in circulation, from the data we have, is about six (6) per cent of total money available. The way we talk about it in economics is that most of the money is stored up in banks and electronically or in electronic value. Cash is just six per cent of the total money in circulation. The cash with me is not the total money with me. So, the percentage of the cash in relation to the money that is available in the system is just about six per cent.
And if you are saying that by rationing currencies that is what you want to use to curb inflation or to strengthen the naira that is a fallacy. Dollar currencies are everywhere in the world. Has it made inflation high in the US? Has it weakened the dollar? So, there is no connection between the strength of the currency and its availability.
So, rationing it is not going to solve any problem; neither is it going to curb inflation. You are just going to create more problems. That’s one. Two, the infrastructure that we have is still deficient, it cannot sustain the policy, even me, I had about four transactions that I got debited on, if you add the figures together, it’s about N50, 000 and the banks are telling me it will take two to three weeks to be reversed.
What if I don’t have any other money? Some Small and Medium Enterprises (SMEs), some small people cannot absorb such delays in getting refunds when they get debited and transactions declined. They cannot wait for two to three weeks. What if the whole value of his market is about N200, 000 and he does a transaction of N150, 000 and this thing happens? It’s going to throw the man off-balance.
So, the system hasn’t been perfected yet for this kind of development, and even in climes like the US where this thing has been perfected and there is no problem about light going off and the Internet connectivity is strong, they still have cash transactions. The CBN has no right to tell you to deal exclusively electronically. It’s an infringement on human rights. You may choose to be donating your money every day to beggars, are you going to be transferring every money you want to give to beggars through your phone?
Has every Nigerian got a smart phone, to start with? Some Nigerians don’t even have any phone at all. So, why are you trying to create problem where there is none? There are enough issues for the government or the CBN to worry about. They should worry about rising interest rate, rising inflation, the issue of the weakening of the naira, this stagflation that we have currently going on (that’s when you have persistent rising inflation coupled with high unemployment rate.
Meanwhile, wages are static. In fact, wages are declining, because in dollar terms, the value of whatever you are payed as wage has decreased in the last one or two years) So, I think that government and the CBN should worry more about these issues, making things easier for people, particularly small businesses.
Let them not discourage enterprise further, because we are discouraging enterprise. As it is, people are trying to cope despite all these challenges. Why give them more problems?
If, like you said, the policy can’t curb inflation or strengthen the naira, how do you propose we rein in inflation and also firm up the naira?
My brother, that’s a long story. That’s the answer they don’t want to hear. And the problem starts with this four-year tenure thing that politicians get when they get into power. When they get into power, they see those four years, and that is what they see; the long-term interest of Nigeria pales into the background.
Most politicians when they get into power will try and see how they can benefit as much as possible within those four years and get out, because they are not automatically sure of re-election. So, nobody is thinking long term for Nigeria. The solution to strengthen the naira lies in leadership that thinks for the long term for Nigeria. Your currency cannot get stronger with a weak infrastructure. Everything is inter-linked.
Your currency cannot get stronger when you are not exporting. Your currency cannot get stronger when everything you are consuming is imported. Your currency cannot get stronger when your industries are either closing down or relocating. It’s a matter of productivity and export. It is only when you export that you can earn foreign exchange. The Japanese yen was so useless in those days, I remember in the 80s, but because of what happened in the Japanese economy, there is nowhere you go in the world that you don’t see Toyota cars. There is nowhere you go in the world that you don’t see Honda cars. There is nowhere you go in the world that you don’t see Hyundai and other Japanese products.
So, it’s a function of exportability. If your productive capability is low or you are not exporting anything, your currency cannot be strong. Even the one we are exporting, we are exporting raw. Crude oil is being exported raw. The few agricultural items are being exported raw. There is no beneficiation, there is no value addition.
In fact, on the reverse side, we are depleting our foreign exchange because our foreign reserve is declining fast because the CBN was making so much effort to prop up the naira. Crude oil is being stolen; that is our main source of earning foreign exchange.
Instead of 1.8 million barrels that we are supposed to be exporting under OPEC quota, at a point we were doing 800, 000 barrels.
On what his take is on Nigeria’s borrowing binge, Obadimu said,
“Our revenue is now under-performing and that’s why the loan component of our budget is going higher. You cannot be sustaining your economy by taking loans and expect your currency to be firmer and stronger.
You can’t eat your cake and still have it. Even on the household note, you cannot be borrowing to feed your family and expect to prosper within the community. Is it possible? Your currency is like a stock value for you; it’s a mark of respectability. So, where you are borrowing to fend for your family, your family stock goes down, your family rating goes down, because people will know that you are borrowing to feed your family. Out of N18.5 trillion budgeted, you are thinking of borrowing N10 trillion. Who does that? So, the solution is not just to resort to taking loans. Is that our plan forever? That okay, people can be stealing oil and then we will be taking loans.
Won’t we get to a point where all our budgets we will be thinking of financing them with loans? Already, N6.7 trillion has been allocated to servicing debts; it is not total payout, just to service debts. So, you are now borrowing more than what you have budgeted to service debts. The N5.3 trillion provided for infrastructure is just a provision, because it is based on whether you are able to get these loans you said you will get, because you cannot guarantee that you will get the loans. There is no guarantee that whoever you are asking for loan will give. So, we are in a black hole.”
When he was asked: To what extent have NACCIMA and other OPS members pushed some of these issues and arguments to policymakers for possible solution and what has been the response?
His response: We are continually meeting and pushing out our thoughts, we have been issuing out statements that are publicised, with copies dropped at the presidency and so on. But unfortunately, we have created a culture where leadership listens to what it wants to listen to.
In fact, for you to have access to a governor, not even a president, the governor will ask them to allow you to come in if he believes you are going to say good things to him, what he believes to be good things. If he suspects that you are coming to tell him that the roads are bad and that he is wasting too much resources or he is not taking care of schools, is he likely to tell them to allow you in? What I am saying is that there are a lot of correspondences and exchanges, but maybe our priorities are not in sync sometimes, and maybe government sometimes thinks that we are being too critical.
Meanwhile, that is not the issue, and that’s why I said sometimes we deliberately want to encourage government, hoping that, well, they know what they are doing. Ordinarily, the private sector should be the engine of growth; the private sector should be the one creating jobs because government is not creating jobs anymore. Very soon now, by the time naira is further devalued, the cries for wage increase will increase. With each phase of wage increase, there are usually retrenchments; that’s the way government is. So, if government cannot give people employment, at least, create an enabling environment so that private employers can employ more people. If the business people are doing well, they will employ people now. If you are a businessman and your business is growing, you will need more hands. And you will be able to realise more taxes when businesses are growing. That’s what we are telling them. When you put people in employment, you keep crime rate low and they will be able to give you more taxes. But they don’t seem to get that point.
They think we are just agitating for agitation sake. We are not unreasonable activists. We are not civil society organisations. We are not even moralists. Business people are capitalists. Let me tell you, facts are facts. People in government know, too because some of them have done businesses before. Some of them run businesses. They fly abroad; they see how the roads are well paved and constantly maintained. So, we are not saying anything out of the blues. What we are saying is let each party, whether public or private sector, be alive to its responsibilities.
Again he was asked: What are the most critical issues confronting private operators that you want the in-coming president to immediately tackle as soon as he hits the ground running?
He responded: Number one is infrastructure; two is security. You know this current government came on the promises of improving security, reducing corruption, among others, but those issues still persist. But as it is today, infrastructure and security are top on the list. Without security, what can you do? You produce in Ilorin and you want to go and sell in Lagos you don’t know whether your driver will be kidnapped on the way and they will be asking for N100 million ransom. Maybe the total turnover of your company is not up to N100 million, where are you going to get the money from? If you close down the company, some people are working there.
So, security is a critical issue. I don’t know how you are comfortable travelling by road these days because some people are scared. Can everybody afford plane travels? I am not sure. Has every village got an airport? I am not sure. That means you still have to land somewhere and go the rest of your journey by road. So, these are the critical issues. Of course, if infrastructure is not good, you spend more. And that’s why we have this cost-push inflation.
The costs of inputs are rising. If you produce your power, diesel is now expensive, your roads are not good, you have to spend more money to maintain your vehicles etc.
All these costs will be built into your cost of production and nobody will sell below his production cost. The third one, which we have been talking about, is the need to reduce recurrent expenditure, the need to exercise more fiscal discipline by government at federal, state and local government level.
The flamboyance at the political level is too much. Nigerian political officers cannot be living in higher opulence than politicians in the US, for instance. What’s our Gross Domestic Product (GDP) compared to that of the US that our politicians will now be leaving larger than politicians in the US? So, the need for discipline to shut down the leakages so that we can re-allocate resources to areas where there are needs is also key. Then, of course, something has to be done about closing interest rate gaps.
For you to get a loan now, optimistically maybe like 25 per cent interest rate for productive purposes. If you put money in banks, you get two per cent interest, and saving is supposed to be an investment itself, in basic economics. You can’t be lending to people at 25 per cent and be paying interest on deposit at two per cent. The same thing relates to the disparity in the Foreign Exchange (forex) rates. This government window that is not even available to manufacturers with export potential, meanwhile it is available for people going on pilgrimages; people that are not paying taxes, people that are not employing anybody, they are getting this preferential rate and the productive sector cannot get enough and they are now sourcing part of their forex needs from the parallel market at N770/$ to N780/$. Most of these things are common sense; you don’t need to be a professor to know them.
The deficit in the proposed 2023 budget is huge and government is considering increasing taxes or introducing new taxes to fund the deficit. How will the OPS react if the option is adopted next year?
The government needs to be more creative. This age-long habit of trying to raise money by taxes alone is not even sustainable. Who are you taxing, when people are out of employment? Is it the remaining people in employment you want to tax? Some businesses are closing and you now want to raise taxes for those that are managing to operate despite the difficult conditions. It’s a difficult thing and I think the government itself knows that the expectation of realizing money from taxes may not be feasible and that’s why it’s thinking of the loan option. But like I said, the loan is in growing proportion. When we started to borrow money, it was in relatively smaller quantities.
Every year, the quantum is increasing. Are we going to a point where we will now be financing our national budgets with loans? So, we need to be more fundamental in our thinking. The OPS has spoken strongly against it. Stop giving extra taxes to businesses. Those that are managing to survive, let them survive for the sake of those that are working there. If you kill them or you cripple them or they are forced to relocate to other countries, the other countries they relocate to will benefit from their employment opportunities. And like I said, this is a country that has a high taste for consuming foreign goods. We have to cut that appetite.
So, we have to think out of the box. We have made several representations. Time was, I could recall, in this same country, when before every budget, the private sector will be adequately consulted. Private sector contributions mattered a lot and we were having better budgets, both in preparation and implementation. I think when the federal capital was still in Lagos, but after it was moved to Abuja, the private sector started to have less and less influence in government budgeting. We need to re-continue the habit of putting the private sector first, putting the people first.
Another question was: The way things currently are, is Nigeria ready for the African Continental Free Trade Area (AfCFTA)?
He said : It’s a complex question. If you look at the European market, it is one where there is free flow of goods and services.
They even have a common currency, the Euro. Every country decided to forgo its own currency and embrace the Euro.
So, within the European zone, if you are a national of any country, you move freely inside that zone. That’s why even when you are traveling, once you get the Shenzhen visa, you can move within the zone. That’s a perfect example of a common market. In Africa, we tried it with the Economic Community of West African States (ECOWAS), there were talks that we were going to have a common currency, but it hasn’t worked. Free movement of goods and services, we don’t have it.Nigerian products are consumed along the West African coast.
You see products from Liver Brothers, PZ; Nigerian made goods are popular along the West African coast. If you go to Sierra Leone, Liberia, you see a lot of Nigerian goods. But in transporting them, the feedback we are getting from our members is that there are issues along the borders. Togo and Ivory Coast, to mention just a few.
That means the ECOWAS is not yet a common market. Now, we are talking about the African market. Regional markets are not yet working well. I know there was a time somebody joked that he needed 57 visas to traverse the African continental. Meanwhile to visit all the countries within the Euro common zone, you only needed a Shenzhen visa. You see where the disparity comes from. I want to go to Uganda, I have to get a visa, I want to go to Kenya, I have to get a visa; South Africa, I have to get a visa. How can we be a common market? So, the inability for free movement of people is a problem.
Then two, for you to benefit from the AfCFTA, you must be competitive. Your goods must be competitive in quality and price. Now, when your infrastructure is weak and your cost of doing business is high, the security is bad, how can you manufacture competitively? So, if you are not competitive with your goods and services, there will be more inflows than outflows and you will lose, because more goods and services will be coming in than we have going out because we are not competitive.
So, the only way to be competitive and gain from the agreement is to be able to compete and get your goods or whatever you are producing in good quality and less price. That’s how you can have more outflows than inflows.