Build the economy, currency will find its value, says Ekpo

Director General, West African Institute for Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo.

The immediate-past Director-General of the West African Institute for Financial and Ecoomic Management, Prof. Akpan Ekpo, is a revered economist, with career that traversed the classroom, research and national economic management. The former Vice Chancellor of University of Uyo, in this interview with select journalists on the sidelines of the , said building a virile economy will tame the unending worries about exchange rate. Assistant Editor, Finance and Economy, CHIJIOKE NELSON, was there.
Is the nation’s economy headed the right direction?

It depends on how you want to look at it. The recent numbers are not that good. The recent numbers just came out of the NBS in terms of the growth trajectory. But again, it is not that bad if you are just coming out of a recession. For the first time, the non-oil exports showed some positive growth. But why I say the economy is not performing satisfactorily is that unemployment is still very high. Inflation, double digits; Lending rates, 25 per cent, poverty is increasing heavily. The human capital index is a very bad. The misery index is still rising. So, we cannot say we are doing well at the macro side, even though we just came out of a recession.
At the sectorial level, there are some challenges. Manufacturing is not doing well, the service sector which they claim is doing well is misleading. Because you look at how an economy performs, you move from primary to secondary industry to services. The index that services contribute five per cent to GDP is not correct because our service sector is very rudimentary. Normally, if the service is doing well like in the US, Germany, Japan, you will say you have arrived. The numbers might probably be so because the new way of calculating the GDP has so many services in each category.
Do you see another recession in the horizon?
Every time I see oil price going up, I get worried, because once it goes up, we just relax. I once said that I wish the oil price was zero, maybe we will be forced to do what we have to do. Now our reserves are rising compared to what it used to be but I hope they stay on course in the reforms. You know in Nigeria, our problem is that it is an election year and politics dominates, they will no longer be concerned with how to build the economy.

Currency or economy, which comes first in order of focus?
If you are building your economy and change the structure of your economy, you don’t worry about the exchange rate, but productivity will determine the value. At a time, the Nigerian naira was very strong, but how come we are not developed? So, the main thing is to develop your economy, industrialise and then, the currency will find its value.
What are your comments on foreign reserve management?
We don’t need the IMF to tell us that we should manage our reserves very well. By the way, what is the source of the reserve? It is an outside source of revenue that we do not have control over. So, when your revenue is increasing from that kind of source, you have to manage it very well because oil revenue is a windfall and we have seen that for many years. Norway used its oil revenue to build infrastructure. Our own foreign reserve is used to intervene every week in the market, yet rate is not changing much. So, we need to use most of it to build infrastructure and reduce our borrowing.
Foreign reserve is money in dollars or pounds sterling or Yuan. So, instead of you going to negotiate debt, you take a part of it and sterilise. In order for you to manage it, you need to know to what proportion you need to finance three months of imports. Now, we have finance of more than 20 months. Is that necessary? Is that something to be proud of? You can have reserves to finance six months of import, then the other months, use it for other things. There are countries, which don’t have reserves to finance one month. I am not saying it is right, but instead of three months, make it six months. Even the three months is provisional because the currency is not yours. Even if you think you have enough, you don’t have enough.
What can be done to slow down the decline in foreign reserves?
You can’t help it. I don’t know what they are using the reserves for domestically. But in terms of the fluctuations, you don’t have a choice, it is based on the global oil prices. That is why we are saying don’t forget to build other sectors of the economy- agriculture, industrialise. When we say diversify our economy, we mean earn foreign exchange from other sources.
Do you not see problems in the prioritisation of infrastructure investment?
Infrastructure is two types- hard and soft. When we talk of hard infrastructure, we are talking of power. Power is infrastructure. If you look at this country, we have so much gas, yet we have power problems. By now, Nigeria should have a mass transit system in the big cities linking up the major towns. I read a story recently that what made the north a little bit mordenised was the railway system. As they build the railway, development started on both sides- what we call the pool effect. That is what I call infrastructure. Not something fanciful. We go to the soft part of it. By the time you build all these things, you also need people to man.
The private sector is the engine of growth, but not engine of development because they invest for a purpose. We need a government that is strategic in thinking. Go to Singapore, they have no oil, but have refineries and call you to come and refine the oil and pay.
These things were built on developmental state philosophy. They were sensible, they didn’t want to call it socialism so they don’t have problem from the West. Development is a struggle. As you are trying to bring people out of poverty, others are saying leave them there, that is how we make our money. We get confused all the time. What we have is state capture. The elites have captured the state for their own interest. So, even if you have individuals who intend development, they are so inconsequential that they can’t make a difference.
I have been advocating developmental state philosophy in the context of market socialism like China. In any country in the world, those that are rich are very few, but a large middleclass like the United States. In U.S., the middleclass determines who governs. If you bribe them, you are wasting your time. They can take your bribe and won’t vote for you because they have all the basics of life. But when you have the rich there and the rest are poor, there is a problem.
Do you think that Nigeria’s relationship with China will suffer in case of a loan repayment default?
Yes, anytime you are dealing with the Chinese, you have to worry because their aid package is always so complicated. They will tell you that there is always a 20% grant element. If you don’t have good negotiators, they can sell your country. So, they are smart. China has, as we speak, over 434 state companies. The people building your road in Nigeria are state companies so they send them to work in Africa. So, with the Chinese, we need very good negotiators. I don’t think Nigeria can go through what Zambia experienced.
What are your comments on debt related issues in the country?
Debt-to-GDP ratio is very good because you elevated your GDP, so the denominator is now large and when you now divide it, of course, you will not get to the benchmark. But that does not give you the licence to keep borrowing. I prefer the debt-to-revenue ratio, because GDP does not pay debt, revenue pays debt. If you watch, they are very silent on that. If they show the debt to revenue ratio, the economy is in trouble.

Let’s take the debt to GDP ratio, even if you have not gotten to the benchmark, it is not a licence to keep borrowing, more so, debt servicing. What are we borrowing for? If we are borrowing to pay Nigeria Airways their salaries, then it is very dangerous. No country does that. You may borrow to finance capital expenditure, which has a positive multiplier effect. My argument has been that why Eurobonds all the time when you have concessionary rates with the AfDB and the World Bank with a long period of payment. There are lots of reasons why you go there because you can put shadow items when it comes to Eurobond. Eurobond will be faster, but with a high interest rate. And if you go to AfDB, Nigeria has a trust fund, which we can leverage with and say look, we want money, we have a trust fund, otherwise we will withdraw the trust fund. Why not go there? Why not go to World Bank where they will give you a lot of time. If you default in those ones, you can renegotiate.
Do you think the federal government can sustain salary payment with the new minimum wage being considered?
They have no choice. The minimum wage increase is long overdue. Minimum wage is even a constitutional requirement. How those who are working survive on N18,000 monthly is only God that knows. The problem with Nigeria is that once they adjust minimum wage, those at the top think they should also adjust theirs at the same rate. Again the entire Nigeria service incentive structure is warped. The structure is very bad in terms of salary- those at the bottom is terrible, those at the top, for example, a Permanent Secretary earns N1.5 million a month and a director earns less than N300,000.
How will he not collect bribe to sustain his livelihood. The graduates, everything put together, maybe N80,000.
The whole thing is crazy and I pity this government. Something has to be done at some point. The MDAs are earning different salaries despite being in the same public sector. So, how do you encourage civil servants to take the work seriously? Even the Nigeria minimum wage, when agreed upon, only government and few companies can pay it. I won’t blame Buhari government, but they should have taken it as a matter of urgency when they came in.