29 August 2021
A former Deputy Governor of the Central Bank of Nigeria and ex-presidential candidate, Kingsley Moghalu, in this interview with TOBI AWORINDE, speaks on the economy and the incessant borrowing by the current regime, among other issues
The economy is in a dire state with a troubling poverty rate of 40 per cent as of 2020. Do you see a way out of this gloomy situation?
Not in the short term. For Nigeria’s economy to improve, the entire framework for leading and managing it must be overhauled. This will require a change in political leadership in our country, not to the usual politicians, but to one that really understands what leadership means; has a clear vision for the economy and has technocratic competence to begin a turnaround; and establishes a proper philosophical foundation for the Nigerian economy and its management. Improving the economy towards wealth creation, which is the only way to reduce poverty, also requires important changes to the Nigerian constitution. The present constitution creates incentives for poverty and disincentives for wealth creation by Nigerians because it creates a Federal Government that is too strong. This in turn creates a crony capitalist economy where those with access to politicians and public officials that take centralised economic decisions to acquire advantages for themselves, but many citizens get poorer because they are not empowered by a level playing field. Our reliance on oil for revenues creates structural imbalances that actually drive poverty.
Who, in your view, is to blame for the 33.3 per cent unemployment rate?
The Federal Government of Nigeria, of course. It has failed to create an enabling environment for job creation by the private sector. The Nigerian government is too interventionist and statist in its approach to the economy. It’s the private sector that creates jobs, not the government, but the government must create appropriate conditions for a robust economy in which the market creates opportunities. This includes the need for a reform of the education system so that it creates skilled graduates who can be more easily self-employed, instead of our universities and other tertiary institutions being simply a pipeline into unemployment. It also requires solid access to finance for entrepreneurship through private sector venture capital beyond reliance on CBN-led credit (development finance) and bank credit with very expensive interest rates.
Do you think the social intervention programmes of the regime of the President, Major General Muhammadu Buhari (retd.), are helping to alleviate unemployment and poverty?
I don’t think so. If it was helping, why have the unemployment and poverty numbers kept rising in the past few years? In 2016, there were about 70 million Nigerians living in extreme poverty. Today, the figure is about 100 million, earning us the dubious distinction of ‘poverty capital of the world.’ So, this means that poverty has risen in geometric progression under the Buhari government. I know the government and its apologists hate to hear these statistics, but they are simple and straightforward facts, and you cannot argue with facts.
Several Nigerian technology companies managed to break new grounds in the midst of the global economic downturn occasioned by the COVID-19 pandemic. What does this translate to for Nigerians?
Broadly, all over the world, tech companies made big breakthroughs in innovation that adapted to the pandemic, including the need for working from home, increased use of tech platforms for commerce and payments, and so on. Nigerian companies are innovative too, and the country has a large young population that is quite comfortable with tech platforms. So, I think it means the future in our country, including in the business sphere, will be more and more technology and digitally driven.
Is the Federal Government deserving of some credit for these tech companies’ success?
I think the credit for this success and adaptation goes more to the Nigerian companies. The government does not run those companies. In fact, Nigerian entrepreneurs, to the extent they are successful, succeed not because of the government but in spite of the government. The Central Bank of Nigeria, during my tenure as a Deputy Governor of the bank, introduced policies and innovations that opened up the space for the massive use of technology in the banking and payments system and I myself oversaw several of these policies and innovations, including the introduction of the Bank Verification Number, when I was Deputy Governor for Operations. To the extent that the CBN is an arm of the government, of course, you can give the government some credit, but there is a difference between an independent central bank and the more political arm of the government, which is what people think about when we say ‘the government.’
The naira is now over 500 against the dollar. Is this indicative of the policies put in place by the Buhari regime?
Of course. It’s an open secret that the management of the foreign exchange regime in Nigeria by the CBN in recent years fell under the political influence of the government, specifically the Buhari presidency, and that the forex policy has been a failure. In my time at the CBN, the naira was about 160 to one dollar. Today, it is over N500 in the marketplace. The use of a fixed exchange regime for nearly two years by the CBN after the collapse of the oil price in 2015 and 2016 led us to where we are now.
Economic fundamentals don’t respond to economic nationalism. The laws of demand and supply tend to hold constant. If there is a scarcity of the supply of dollars into the economy because oil prices are low in an oil-dependent economy, the price of forex will rise, and no amount of subsidy by the CBN on that dollar price will make a difference. In fact, the subsidy and differential exchange rates for different things only makes the matter worse because it leads to arbitrage, corruption and crony capitalism, where connected persons are getting the dollar at a subsidised rate, while the masses bear the brunt of the increased price of forex.
Forex policy in Nigeria must change to create an incentive for a productive export economy, instead of an import-dependent economy. The current approach encourages imports by subsidising the forex, but allowing the price of forex to be determined by market forces will encourage exports to earn forex, and if we do the latter at a scale that gradually becomes dominant in the economy, the value of the naira will stabilise and improve. For this to happen, though, we need more robust trade policy that encourages exports, and we need those exports to be exports of diversified, complex goods that are value-added, not exports of primary commodities.
In 2021, Nigeria has recorded its highest import bill in 12 years with a 54 per cent increase in imports to N6.85tn in the first quarter, so we have recorded our highest trade deficit ever. These trends speak to the need for a very different approach to managing our economy.
The prices of foodstuffs have skyrocketed such that people are rationing meals or cutting down on indulgences. What is the way forward for the average Nigerian?
I weep for the common man and the average household in our country. Even the so-called middle class can no longer afford the same level of expenditure for foodstuff. The price of a tuber of yam has skyrocketed from N500 to around N2,000. A professional woman who is a public relations consultant told me that, before now, she would shop for foodstuffs for her family weekly, but now, she has to shop less frequently and also has to ‘ration’ how much yam she buys because the price has gone through the roof.
Again, I am sorry to say political pressure has distorted the CBN’s ability to manage inflation. We are now reading shocking reports that the apex bank has lent N15tn to the government in deficit financing since the Buhari government came into office. This is what we call ‘ways and means’ lending. Such lending can happen occasionally, since the CBN is the banker of last resort to the government and the banking system. (I remember that in one year, the bank had to lend the Goodluck Jonathan government about N100bn, if my memory serves me well.) But compare that to N15tn within six years! This scale of lending, which of course does not include our reckless foreign borrowing that has ballooned to $33bn, tells me that Nigeria is a fiscally failed state in reality. It violates, to an outrageous degree, the limits to such lending set in the Central Bank Act. So, there are also issues about respect for the rule of law. Now, why is all this relevant to the question you asked? Because this kind of lending fuels inflation, which is now above 17 per cent. In our time at the CBN, we brought inflation down to single-digit eight per cent.
The Rainoil GMD recently said petrol subsidy may gulp N2tn this year, while the refineries suffered a 13-month loss of N104.3bn, despite refining nothing at all. What are the implications of this?
If that is the case, then that’s N2tn that could have been invested in the health care and education of Nigerians, but it is not. A lot of fuel subsidy money goes to pay fraudulent claims by fraudulent interests on how much fuel is actually consumed in Nigeria. To that extent, fuel subsidy is a ‘scam,’ as President Buhari described it, when he was an opposition politician. But the scam has continued in his tenure and he has not stopped it. Fuel subsidy is bad economics. It is an unsustainable bleeding of the Nigerian economy. The greatest beneficiaries of subsidy are the elite, but we have confused ourselves into believing it is necessary for the masses. I’m glad the government and labour are discussing how and when to end it, but that discussion needs to come out with a clear road map, including strategies to mitigate the impact of its removal on the poor and vulnerable. It should not be an endless process of waffling and shuffling.
Nigeria’s loans from the World Bank and African Development Bank have risen to $14.35bn under Buhari. What does this mean for the average Nigerian?
That depends on how efficiently and effectively the loans are used, but generally speaking, Nigeria is borrowing too much because we are unable to generate revenues domestically. We must get back to that. Ending fuel subsidy is part of that, but expanding the tax net by tripling the numbers of Nigerians who pay taxes (not increasing taxes on the few that actually pay their taxes) is also another part of what is needed. There are 70 million Nigerians who should be paying taxes but only about 10 million do. If we can get another 30-40 million into the tax net, and we can see the impact in investments in health, education sector and social security, we would have a better country.
Fiscal management in Nigeria, as I said earlier, is a disaster. We can’t borrow our way out of all our challenges, as seems to be the current thinking. The future of our youth is being mortgaged, and future administrations will face a crisis. This is part of why the next political leadership in our country must be versed in economic management. That is the country’s number one priority. You may say it is security, but the security problems have their roots in economic myopia and leadership failure.
The CBN is planning to launch a national digital currency in October though the International Monetary Fund has advised against it. Is this a good move?
Several central banks have moved in that direction, in order to limit exposures to the risks of unregulated cryptocurrency. It is an understandable move, but the problem is that the naira as an underlying currency is weak, so the move will not solve the problem of confidence that has led thousands of Nigerians to speculate and invest in cryptocurrency as a hedge against inflation and devaluations.
The Presidency has often justified Buhari’s frequent travels, saying he is bringing in foreign direct investment to the country. What is your assessment of this strategy?
It’s a failure. It has yielded no significant result we can see. Foreign investment in Nigeria has slumped to its lowest level in years, with a relatively minuscule amount of $2.8bn in the first half of 2021. Many investors are staying away from Nigeria and others are leaving for many reasons: insecurity, unease of doing business, corruption, rule of law issues, and so on. Meanwhile, under better political and economic leadership, our country should be a natural magnet for productive foreign investment.
Bureaux de change have been banned from trading in forex. What does this mean for businesses and travellers?
As the CBN says, they should go to the banks. The whole idea of a central bank funding BDCs was bound to come to an end one day because the whole thing eventually became a huge racket that was draining our foreign reserves. Let’s see if the apex bank will maintain its stance or cave in to vested interests.
You received support for your presidential bid in 2019, though some might argue that you didn’t do enough to reach a consensus with the likes of Fela Durotoye, Omoyele Sowore and Dr Oby Ezekwesili, in a bid to create a formidable third force. What lessons did you garner from the election experience?
A consensus is something to be reached by the willing. It should never be forced because that is undemocratic. The outcome of the 2019 elections held many lessons. One, it reflected that Nigerians were not yet ready for real change away from the failed political elite. So, we have been willing slaves to the manipulations of the politicians in the two big political parties, the All Progressives Congress and the Peoples Democratic Party. It’s a good thing the number of political parties has been reduced to 18. I predict that, with the crisis of failed leadership and bad governance in which our country finds itself and which has got worse since the 2019 election, and with the internal crisis in the APC/PDP, 2023 will be more competitive. The biggest problem of our democracy, as I have seen, is us the citizens. Our people are poor and hungry, and the collapse of values has twisted the minds of millions to sell their birthright to incompetent politicians. Many citizens also are not educated enough to make informed voting decisions. But my candidacy in 2019 had a great impact because it was different from the norm and changed the political narrative in Nigeria towards political reform. That is a huge achievement.
Are you running for president again in 2023?
Yes, and I formally announced my intention with a statement on June 1. I will run again because the people matter. I am in this for the people and for our country, not for myself. But this time, we will have the benefit of many lessons from the last outing in 2019. I am in consultations to decide on a political party platform, since I resigned from the Young Progressives Party in October 2019. We will have a strong ground operation in all voting wards in the country this time around, and are working on having sufficient funding for a strong campaign. We have a strategy to win in 2023. If we have funding support from Nigerians, the chances of victory in 2023 are far better than they were in 2019. The political dynamics in the country are changing in our favour.
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