Nigeria’s economic problems are policy-induced — LCCI deputy president

Dr Gabriel Idahosa is the Deputy President of the Lagos Chamber of Commerce and Industry. In this interview with EDIDIONG IKPOTO, he discusses how Nigeria’s current economic realities are affecting the productive sector

Nigeria’s economy has struggled with rising inflation for much of the year. How would you say the inflationary pressure has affected small and large-scale industries?

The impact has not changed, but there has been an exacerbation of existing impacts. That is, the continuous reduction in profit margins has affected a lot of SMEs, some to the point of closing down. Quite a number of SMEs have had to give up. Some SMEs have gone out of business, back to unemployment, to part-time employment. So, that’s the most profound impact. The inflation has eroded whatever profit they made.

Once it crosses 20 per cent, it can quickly become a runaway inflation, and you cannot control it by the CBN rate increase because the inflation is caused by cost, not by excess money in the economy. Until the Ukraine war is over and diesel starts to come down, or we start producing, there is nothing significant we can do to bring down inflation.

We are going to see a lot more SMEs going down, either joining the unemployment market or going part-time or joining other businesses that are still viable. We have a lot of people gravitating towards food, some going into transport. Some have begun to use their cars for Uber. They’re no longer running their businesses because those businesses are not making enough profits to sustain them. That is continuing with the census of SMEs today.

Would you say this rising inflation has been a consequence of nature, or is there something we could have done to prevent it?

Essentially, our economic problems are policy-influenced. We have the Ukraine war, but Saudi, Kuwait and other OPEC countries are making a lot of money.

So, there are two major issues that we have. One is the uncontrolled crude oil theft, which means that we are losing almost 50 per cent of the foreign exchange we should earn from crude oil, which could have brought down the exchange rate, because the two factors driving the inflation are the rise in crude oil and the rise in the exchange rate.

If we had been selling our full 1.9m barrels per day at the current price of between $90 and $100, our exchange rate would have improved from where it is because we have enough oil to meet our demands. So, those two things are self-inflicted. Until we reduce crude oil theft significantly, we cannot remove the inflation that is coming from the exchange rate.

Again, we have to reduce our refined products. Thirty per cent of our import bills are for refined petroleum products. If we were to do that, you would find a significant reduction in inflation, because if we were to buy the diesel in Nigeria even for N700 or N800, there would be a significant reduction in prices – even if our local refineries are still buying the crude oil in dollars. The different costs involved in shipping the crude oil to Europe or wherever and shipping it back to Nigeria are really very high.

Do we have the capacity in terms of financial resources, technology and expertise to refine petroleum products locally?

Once you can import the refined products, you can pay for local refining. This is because what you need to build a local refinery is far less than what you need to import. When you are refining locally, you don’t need to pay for the crude oil to go anywhere, you just need to take it out of the ground and put it in your refinery. You don’t have to pay for shipping and insurance to take the crude oil to Europe. All the clearing charges and handling, those costs will be taken away. So, we definitely have more than enough capacity to refine locally.

You mentioned foreign exchange earlier on, and economists have urged the CBN to jettison the multiple-window exchange rate policy it currently operates. Do you share this sentiment?

That is one of the problems that are policy related. The reason the exchange rate is as high as it is now is that a very significant amount of the buying of dollars by Nigerians is purely for speculation. They are buying the dollar and keeping it, expecting it to rise because some people can get at the official rate of N410. The rest of us can only get it at the black market.

So, there will always be a gap between the two rates. Once we wipe out the two rates, there will be no need to buy dollars and keep. This is because there will be no reason to speculate. We are not going to say the official rate is N400, and that if we buy at N400 we will still make a profit some other day when we want to sell it.

So, the first thing we’ll take away is speculation of currency. It has to be one rate. We need to get rid of the two windows and create a proper structure for our foreign exchange market. Our foreign exchange market now is an aberration. It’s like you have two shops in Oshodi. If you enter one shop, you buy dollars at N410, the next shop down the road will sell the same dollar for N700. We are talking about the same dollar. It doesn’t make sense in any way.

No major economy in the world runs this kind of market. But, somehow in Nigeria, we have found a way of doing certain things and trying to justify them. Just like the fuel subsidy, until we address these major policy inconsistencies that have plagued, those contractions in the economy will continue, because it’s like smuggling that is fueled by subsidy now.

The price of fuel in Nigeria is N165 per litre. Once you cross the border, it is about three times that. So, it is a no brainer that we will continue to have smuggling of products. In the way, as long as there are two rates, we will continue to have speculation.

Lack of productivity has been identified as one of the biggest challenges to Nigeria’s economy. Why has this problem constituted an albatross for so long?

The only thing stopping us from being productive is a force of habit. I think we should just accept that human factor of habit. Since the oil boom, we have become lazy. We got used to wearing imported clothes because we destroyed our textile mills. Our politicians have got used to sending their children abroad for education because our universities collapsed. If you look at every sector where we consume foreign products, they’re driven by habits.

A lot of adults, people above 50 in Nigeria, did not grow up eating rice every day. They didn’t. Now, there is hardly any child you can tell that they can only eat rice on Sunday. Most adults above 50 in Nigeria will tell you.

These are the habits that were created as a result of the oil boom. We have to now redefine ourselves and consume what we produce and produce what we consume. The exchange rate is forcing us to gradually do that, but it would have been much better if we did it on our own, as a matter of national discipline. Let us eat what we produce. If it is yam and cocoyam and plantain that we produce, let everybody eat that, rather than rice from India and Thailand.

It is on record that the naira was, at some point, stronger than the US dollar. Where did it all go wrong?

As late as 1975/76, the naira was about one pound, and it was one dollar, thirty cents. We used to go to London. As a student, my “pocket money” was about N475. So, with N1000, you buy your ticket, you get enough foreign exchange, and the naira was accepted in the UK. This was because it was just as strong as the pound. When Babangida started the Structural Adjustment Programme (SAP) in 1986, it just came crashing down.

The LCCI released a statement recently in which it urged the National Assembly to not accept hook, line and sinker, the proposed 2023 budget as was presented by the president. Are you asking the NASS to reject the proposed budget?

The National Assembly does not need to reject the budget. They can amend it. That’s why it is a draft. They can say, rather than borrow, reduce your expenditure, because right now we are borrowing about N8tn. We are using N6tn to pay debts. So, they are just borrowing the money, not to do anything but to pay debt.

If you add the debt servicing and the fuel subsidy, all the money that they collected as debt is finished. They are borrowing to pay our debts and to subsidise petrol. You can’t be serious. You’re borrowing from Peter to pay Paul. You are not paying from your work. As a country, you are working, you are collecting taxes, and you are collecting import duties. You are not paying any of your debts from there. You are just borrowing money to pay your creditors. After that, the money that you are supposed to use for the country, most of it is going for salaries and travels and recurrent expenses. Very little is going for the capital expenditure. That’s why everybody is looking at that budget somehow. It’s up to the National Assembly to work on it.