The way out of Nigeria’s socio-economic woes by DG, MAN, ex-LCCI boss

The Director-General (DG), Manufacturers Association of Nigeria, (MAN), Mr. Segun Ajayi- Kadir and the immediate past DG, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf on Thursday reviewed the numerous challenges confronting the nation’s economy and proffered far reaching recommendations on the way out of the quagmire. The duo featured on Fact File, a phone- in programme of Raypower Radio. THOMAS IMONIKHE monitored the explosive encounter from Lagos and brings this excerpts:

 

On the state of Nigeria’s economy

 

The whole world suffered the pandemic in 2020 and there was general lock down so the manufacturing sector was adversely affected, so the recovering and consolidation of the gains we have been able to make in the year 2021.

But 2022 in the first quarter, came with a lot of challenges for the manufacturing sector. In the sense that in the first instance power which is critical to the manufacturing sector became negatively impacted, that is the supply side of it and we have a situation where we had two system collapse in one week and then the price of diesel which  we use as the alternative source of energy to industries doubling within a space of two months.

 

So this led to the escalation of our production costs, I mean you could see that power is 40 percent of our production costs, you will see that we have  more than 100 percent increase on that item alone, it throws your cost projections and calculations out of board.

We also have the issue at the ports where it is becoming particularly difficult and quite expensive for you to clear your goods. Sometimes it takes two weeks after you notified of the arrival of your cargo before you are able to access the ports and take them out, no thanks to the gridlock around the entrance to the ports and even the inadequacy of the infrastructure  that is required to evacuate your cargo from the ports.

Also, there is the issue of increase in excise and the reintroduction of excise on previously non-excisable goods. Now this one particularly affects our bottom line because it reduces our gains, but it also directly affects the disposable income of the Nigerians, not minding the fact that already they is depleted in the sense that they don’t have much in their pockets.

There is also the issue of insecurity and the one that does not allow you to effectively distribute your produce neither does it allow you to get raw materials.

Then there is the big one, the forex challenge. We are not able to get foreign exchange that we want and when you go to the black market or the bureau de change, you get it at quite exorbitant rate that not allow you to produce and be competitive and when you view this with the advent of African Continental Free Trade Area (AfCFTA) where we have to be competitive, where we need to compete with our counterparts across Africa, you will see that it places us at a disadvantage.

But the manufacturing sector in Nigeria is resilient and in spite of all of these, we are struggling on, the only thing is that it reduces our competitiveness, it limits our capacity to create jobs, it even limits the income that government expects to generate from what we pay.

 

 

 

Considering all the challenges that you have highlighted, will it be okay to say that presently manufacturers are producing at a loss?

 

In most cases we have to produce and wherever we make profit, it is very slim and it is not able to replenish our stocks. So you can effectively say that most of us are barely surviving. Either we have very slim profit margin or we are producing at a loss because the thing about this is that you also compete with similar products that are imported from low costs economies. So when it gets to the market our own products remain on the shelf while those imported alternatives are preferred.

 

 

You also talked about access to forex, how has the CBN been able to assist to make that easy for manufacturers?

 

 

We continue to engage the Central Bank of Nigeria (CBN), so that they can prioritize allocation to the manufacturing sector because it is only in the manufacturing sector that you are able to have what you call multiplier effects which means that if you give us forex, we are able to import our raw materials, machines and spare parts that we can’t get in the country, we are able to produce so we are able to pay more taxes to government, we are able to employ more persons, we are able to bring down the cost of our products and the average Nigerian can benefit from it. So when it is not available it becomes a problem.

We have been engaging the CBN and some of the actions that have been taken by the CBN unfortunately they have not addressed the issue. One of these and the most recent is the non-supply of forex to the BDCs with the assumption that if it is given to the banks, we will be able to easily get it. But it has not changed the situation.We still go to these same BDCs with all the attendant costs that it brings.

 

So we must continue to call on the CBN to prioritize allocation of forex to this sector because it is far more important than other sectors and it is the one that needs to be protected so that the average Nigerian can have goods at lower costs, so that we can create more jobs, so that we can reduce unemployment that all of us have agreed is an incentive for violence, insurgency and for insecurity.

 

 

What is your call to the government to make life easier for you and your members?

 

We have been engaging government, as a matter of fact, we engage them virtually on daily basis and will continue to work on the solutions that we can provide. We will want for instance all the recommendations that we have made especially in terms of supply of electricity, we have said that government should allow eligible customers, manufacturers that have maximum demand to take electricity directly from Transmission Company of Nigeria (TCN), we’ve also said that the tariff that keeps us more to pay and yet  we consume more should be reviewed.Again, in terms of this diesel which is a major issue, we are calling on government to allow the marketers to bring it in from neighboring countries where we can get it at lower cost and also to ensure a situation where our refineries are made to work because in the first instance we have no business importing diesel. So we should be able to refine for local consumption.

Then the situation at the ports. Government should improve the ports infrastructure and remove the traffic gridlock which has been there for ages and then those government agencies that are engaging in multiplicity of taxes should be streamlined. There is a law that has specified exactly what each tier of government is supposed to collect, government should enforce it and make sure that it works.

 

Government should stop the implementation of the reintroduction of excise duty  on products that are demanded by the average Nigerians. They should reverse it because this is not the time to introduce excise, this is not the time to increase taxes when the situation is bad and the average disposable income of the Nigerian  is low. There are several other recommendations that we have made, it is just for government to prioritize its implementation. The manufacturing sector is one important factor that can help to immediately take us out of the economic situation that we found ourselves.

 

 

Second interview:

 

Foreign exchange market, a major distortion on the economy, says Dr. Yusuf

 

.’We need to decentralize electricity generation and distribution

. ‘Govt must put in place sustainable reforms’

 

The Former Director-General of the Lagos Chamber of Commerce and Industries, (LCCI), Dr. Muda Yusuf and the Chief Executive Officer (CEO) Promotion of Private Enterprise also spoke extensively on the major challenges and the way forward. Excerpts:

 

We are looking at how Nigeria can possibly take advantage of the current situation around the world, the war between Russia and Ukraine, how we can ensure that this does not affect our economy negatively. What are your thoughts?

 

Well unfortunately, we are not in a position to take advantage because we have not managed our oil and gas sector properly both from the policy perspective, regulatory perspective and security perspective. I think of all the members of the Organization of Petroleum Exporting Countries (OPEC), Nigeria is perhaps the worst performing, perhaps the only OPEC country that imports too much petroleum products and perhaps the only OPEC country that doesn’t have functioning refinery.

 

In fact rather than even take advantage I think the situation is even penalizing us because we are spending a lot more now on importation of petroleum products which has very significant effects on the finances of government and also has significant effects on our reserves and foreign exchange, having serious implications on fuel subsidy and of course we have the effects on many other sectors including energy costs. So really the situation is not such that we can benefit from and is an irony.

Because ideally, as an oil producing country, we should be celebrating when oil prices are up, we should be  building our foreign reserves, we should be strengthening our currency but here we are, we having the exact opposite. So these are reflections of the mismanagement of the economy and particularly the oil and gas sector and it is very sad situation.

How can we after almost 60 years as oil producing country don’t have private investment that you can boast of in the downstream sector, particularly the refining? And all of these are consequences of bad policies, bad regulation and all manner of selfish interests at the level of those who are our leaders though not only about this administration. Some of these things are legacy problems. So really it is not a good story for us as far as the current situation is concerned and the evidence is all around us.

Look at what is happening to energy, you just spoke to the DG of MAN, look at the lamentations. Energy costs, the cost of diesel, the cost of aviation fuel, and all of that and look at some of these things are also cascading into macro economic issues like the exchange rate, like inflation.

So from all angles, things are looking so gloomy and is really sad. Really there is nothing much to celebrate and even  the oil producing areas, look at the insecurity, the oil theft, the place is almost like an ungoverned space, complete anarchy. How do you attract investors to that place? Many of the major investors have divested. Some of them have shifted to deep off shore because they can no longer operate on land. I mean how do you run a country like that ?

 

Clearly, your frustrations are valid. Now, given the description of what you have said, what  we are suffering today is a result of the mismanagement of the economy for several decades. If we are to start to correct these issues to the point where when other countries sneeze it doesn’t have much of an effect on us, what are the steps that need to be taken by government at all levels?

 

What needs to happen is to ensure that we put in place reforms that are sustainable. We have been talking about reforming the oil and gas sector for how many years? We were on conversation on Petroleum Industry Bill for almost two decades; only recently we managed to get the Petroleum Industry Act, and even after that because of some vested interests and all sorts of intrigues, there is some reluctance in even implementing the Act.

There has been a lot of pushback because of vested interests, so what needs to happen is for us to reform the sector to ensure that we create an environment in that sector to be able to attract  investment because we are suffering all of these things because there is no investment.

So to attract investment, we need to fix the regulatory regime in the oil and gas sector, we need to fix the policy regime, we need to address the issue of insecurity because no investment can thrive when there is total collapse of law and order; when there is almost something similar to anarchy. You can see some of the theft on television where people just vandalize oil pipelines and do all sort of things.  So those are the issues around oil and gas.

If we are able to produce more domestically, we will not have this kind of issues, we will not be spending so much to import petroleum products, the shock would not be hitting  us this much if we were producing our diesel, our aviation fuel and of course we have some gas again. We are not taking full advantage of investing a lot more in gas, we have one of the largest gas reserves in the world but we are not making enough investment in those places. I am not talking of even government investments, I am talking of encouraging more private sector investment, so these are the issues.

On the macro economic front, we need to manage our foreign exchange market better. The current way in which we are managing the foreign exchange market is compounding the problem. How can you have a foreign exchange market with an Official Widow of N416 to the dollar and you have a Parallel Market of almost N580 to a dollar. It’s a major distortion on the economy and some people are just making money because of this distortions in the economy, they are not sustainable. So these are some of the things we need to do.

Of course the DG of MAN has talked about some structural issues around electricity, around the ports, around transportation, of course those issues are there but the low hanging ones are the policy ones. What does it cost for you to put in place a good policy if I may ask? It doesn’t cost money, it just cost political will to ensure that you package the right policy together, get the right people to implement the policy, that is what is needed.

 

Recently the Monetary Policy Committee of the CBN retained benchmark interest rate at 11.5 percent. There were other indices that were retained. What do these figures mean to the lay man and how will they affect the economy holistically?

 

You see the monetary issues are essentially targeted at controlling money supply, to be able to target inflation. Basically that is what it is.

When you are tampering with Monetary Policy Rate (MPR), liquidity ratio and all of that, it is all about managing money supply. But the challenges we are confronted with today is not essentially a monetary problem, is not a money supply problem as such. It is a question of all of these issues coming from energy problem from diesel, distortion in the foreign exchange market and you cannot deploy a monetary solution to solve it.

So whether you are tinkering with MPR, liquidity ratio, Asymmetric Corridor, it will not change anything and in any case you can see the CBN has left all the variables unchanged and it has been like that for close to a year. That is not where the problem is, as far as the monetary aspect is concerned. The major one that one should worry about is what you call Fiscal Policy Monetization, that is the rate at which the CBN is financing federal budget deficit. It is almost equivalent to printing money and it is highly inflationary. That is the question we need to put on the table, as far as the monetary side is concerned. I want to strongly advise that the CBN financing of deficits be restricted or limited to what is provided for in the CBN Act which says CBN can only support government only to the tune of five percent of the previous year’s budget. But if you check the figures now, you will be shocked how much money the CBN is using to finance deficit. It is very  inflationary and once you have inflation, it destabilizes everybody and it has a greater effects on the people, it makes them poorer because the little money they have, the purchasing power is eroded. That is why everybody is crying all over the place.

 

The issue of power generation and supply remains a big clog in terms of virtually everything that we do as a nation. How important and how urgent it is we begin to address the issues around power in relation to the economy?

 

It is extremely urgent but for power, there is no quick fix because we are dealing with major structural issues, we are dealing with a long chain and the chain can only be as strong as its weakest link. You start from the gas to the generating companies, come to transmission, the Distribution Companies (DisCos), there several issues that need to be addressed. The complain about liquidity, complain about energy theft, and unfortunately some of the privatization we did. I am not sure that we actually handed over some aspects of electricity sector to the right people with the right capacity to deal with them. You can see that some of the contracts are being revoked, some of those who won the privatization bids have had them reversed because they don’t have the financial capacity and technical capacity. There is a whole lot of work to be done to strengthen the entire value chain in the power sector delivering.

We need to move away from over concentration on the national grid. When you have over concentration you have a whole lot of problems, let us decentralize electricity generation and distribution so that states are able to generate their own power and get on with their lives. We should also be looking on the area of renewable, we should reduce the import duty on solar panels, batteries so that these things can be more affordable. When we do this, many people (consumers) can cut off from the national grid and move on with their lives, we should remove taxes on diesel, aviation fuel, we should suspend taxes on them so that the pressure on the people, the pressure on businesses is reduced.