Between the Devil and the Deep Sea
Ngozi Okonjo-Iweala, Nigeria’s co-ordinating minister for the economy and minister of finance, is not an ordinary person by any standard. Everything about her inspires change. She would perhaps have done pretty well at the barricades as an activist throwing stones at government and canvassing social change. But as fate would have it, she is a government minister, a change agent, in a system long bogged down by serial corruption and kleptomania, cutting the picture of a ‘rebel’ dancing on landmines.
President Goodluck Jonathan invited her into his transformation cabinet in July 2011, which some people consider the best appointment he has made so far. Until that time, many critics did not take the President’s promise of transformation seriously as there appeared to be no impetus. The optimism engendered by her appointment was not without reason. Her first appointment as finance minister under the Olusegun Obasanjo administration between July 2003 and June 2006 left clear positive milestones on the nation’s unstable economic clime. Known for prudent debt management and fiscal discipline, she led the negotiations that resulted in the Paris Club cancelling almost two-thirds ($18 billion) of Nigeria’s then $30 billion debt in October 2005. As part of the agreement, Nigeria promptly paid off the balance of $12 billion. It was the second largest debt cancellation in the Club’s 30-year history. The stimulus delivered was equivalent to five per cent GDP during global downturn. It freed the needed funds to finance essential infrastructure and good governance, so the government claimed. Prior to this, the country groaned under the heavy debt burden, spending $1 billion annually to service only interests on debts, excluding the principal sum.
To ensure transparency and checkmate corruption, she introduced the monthly publication of financial allocations to states and local governments so that people could hold their governors and local government chairmen accountable for the allocations received. Prior to this, most states and local governments deceived their people that they were getting ‘zero’ allocation and therefore could not achieve anything. The publication exposed their false claims and, the governors, most of whom were believed to be stealing the local government allocations, did not like this. Under the dispensation of late President Umaru Yar’Adua, they persuaded the federal government to discontinue what they considered an embarrassing publication when she had left office.
Similarly, it was during that first coming that Nigeria got its first-ever credit rating of BB minus from Fitch and Standard and Poors. This, Okonjo-Iweala achieved by standardising the nation’s corporate governance and designing a home-grown solution to its financial challenges with the economic team which she headed. She deployed her vast expertise in world economic circles and keen understanding of economic realities in developing countries to guide the economy out of the woods. Nigeria prospered under Obasanjo because of improvements in macroeconomic management and market reforms that some sectors of the economy such as telecoms were wrested from state control.
Regrettably, by the time she was re-appointed finance minister on July 15, 2011 by President Jonathan, the country had returned fully to her old ways of fiscal indiscipline and accumulation of debt. The progress of the past was undermined by another regime of fiscal mismanagement. Indeed, to confirm this downturn, Fitch downgraded the country’s economic outlook from BB minus to negative. Things were looking down for Nigeria as 74.4 per cent of the national budget was spent on recurrent expenditure, leaving only 24.6 per cent for capital expenditure. This made it impossible to drive the massive infrastructure development which the people desired. In 2011, Nigeria borrowed N850 billion to finance the budget deficit and spent N560 billion in debt servicing alone. This was not the profile of a country that wants to become one of the top 20 economies in the world by 2020.
Her return was therefore a rescue mission. When she was first appointed minister in 2003, she was vice-president and corporate secretary of World Bank. After resigning from Obasanjo’s cabinet due to irreconcilable differences on August 3, 2006, she was reappointed by World Bank as managing director on October 4, 2007, and was considered a possible replacement for former World Bank president, Paul Wolfowitz last year. In 2006, TIME magazine described her as “one of world’s heroes” and Gordon Brown, a former British prime minister, described her as “a brilliant reformer.” In the same year, Forbes magazine rated her 87 in top 100 most powerful women in the world.
Many of her admirers tried to dissuade her from taking the job again as they believe Nigeria was almost irredeemable. Some were even concerned for her safety. Their fears may not be totally unfounded, as some people believed to be agents of the corruption establishment tried to frighten her away from taking the job with repeated threats. Yet she left a well-paid, secure and high profile job to once again serve her fatherland. During her first appointment, the nation could not pay the salary she was earning at the World Bank, an international agency stepped in and paid the balance. This time, Jonathan confirmed during her swearing in that she had accepted to take the same salary as other ministers.
And what’s in it for her? Nothing other than service and patriotism. It is impossible to spend some time with Okonjo-Iweala without feeling the silent radiation of energy, passion and commitment in and around her. She says Nigeria belongs to all of us and cannot be abandoned to the corrupt, but must be rescued for the sake of the youth about whom she is so visibly passionate. Her optimism is infectious: “If we could make the budget right and set it back again on a reasonable path; if we could make the business environment better by cleaning our ports; if we can launch reforms that will give our youths more jobs....” So many ‘ifs’, and they are all dependent on many variables. Administering the reforms that will bail a profligate Nigeria out of the woods, like a troubled ship, is bound in shallows and miseries. And Okonjo-Iweala, like Shakespeare, admonishes that “We must take the current where it serves or lose our ventures.”
That perilous journey started on January 1, when the government quietly removed the subsidy on petrol. Within hours the pump price of premium motor spirit, PMS, popularly known as petrol, skyrocketed from N65 to N138 in NNPC filling stations, and from N141 to N250 in multinational stations and independent marketers. Since then, business and social life have not been the same. The nation approaches the critical point this week as the Nigeria Labour Congress, NLC, and the Trade Union Congress, TUC, begin a nationwide strike to force the federal government to reverse the removal of subsidy.
This puts the government in the position of the proverbial lizard with a sore on its head – “when the sore pores, the lizard will die; if it does not, the lizard will die!” The economic forecast for the country says that without the reforms being implemented, which include the removal of subsidy on petrol, the economy will crumble in two years, but if implemented the country would be out of the woods soon. This would require considerable sacrifice from all parties.
But for a hungry man, two years is a millennium. The streets are reacting violently to the removal of subsidy. It is not as if people are new to making sacrifices; it is that for too many times they have been betrayed by a profligate political class and very corrupt civil service which aids them in the looting of the treasury. There is, therefore, deep distrust of the government that it cannot be trusted with more funds as successive governments have shown great incompetence in the management of resources.
However, Jonathan’s government is saying that it would get it right, that it has a competent economic team headed by him which has designed a blueprint to actualise Nigeria’s Vision 20-2020, and an economic implementing team headed by Okonjo-Iweala with enough will to execute the blueprint. They admit the road will be tough for a while but the destination will be reached. The international community appears to have already endorsed Jonathan’s revised Medium-Term Expenditure Framework, which it sees as very competent. Just three months into it, Fitch upgraded the economic outlook for Nigeria from negative to stable. And with the release of the 2012 budget, which is considered good, it has been further upgraded to positive. Okonjo-Iweala says this will not only make it easier to attract Foreign Direct Investment, it will make it easier for the private sector to access credit facilities for investment in the country.
With the widespread opposition to the removal of the subsidy, greater peril may be looming. If the proposed economic template that has brought back the positive indicators is killed on the platter of emotion and politics, the world might foreclose on Nigeria.
Some people feel the government should be given “a last chance” to redeem its image by accepting the proposal, after which a revolution might follow if it fails. Okonjo-Iweala accepts this challenge. She pleads with Nigerians to give them another chance to turn things around. You could feel her pain as she explains these issues in this interview with Anayochukwu Agbo, senior associate editor, and Tajudeen Suleiman, associate editor. Excerpts:
Why did you stake a high profile global job to return to Nigeria a second time?
(Chuckles) Sometimes I think I’m nuts! Sometimes I think I’m absolutely nuts! The only thing I attribute it to is that deep love for the country and the belief that we can do something different here. I also believe that if your country asks you to do something, you should see it as an honour and a privilege and no matter who you are or where you are you should render that service. So I regard it as an honour and a privilege that President Goodluck Jonathan asked me. It is not every day that your country asks you to serve. So that was also part of it, and the sincerity with which he approached me and said let us try and achieve one or two things. It was that modesty of approach, that humility when he said, “Help me, if we can achieve one or two things. Let’s see if we can get the power situation right at the end of my term. Let’s see what we can do to create more jobs.” He didn’t want to change the world; he said it was a very complex situation. That really attracted me because I also believe in focus, take one or two things. He said, “Set the budget right; I want a budget I can be proud of, a budget that will set us on the right path. Set the power situation right.” It was so disarming! All that, and my underlining belief in this country did it. I’m passionate about Nigeria. That’s why I say I’m nuts; sometimes I wonder why I care so much about Nigeria? But Nigeria is such a wonderful country; I don’t know why people don’t see it! Yes, we have not achieved the country and the leadership and the results that Nigerians wanted; yes, the trust between government and the people has been broken because of repeated broken promises, but we cannot give up hope. We can’t throw up our hands and say things have been bad and let them continue to be bad!
This sense of outrage, this sense of impatience, that you brought into government, do you see it in the President and other members of the cabinet?
The President has a very calm demeanour but I see it. I see a commitment; he is calm but when you talk to him, the way he talks about the country, he has it. It’s just that each one of us has a different way of showing it. And if he didn’t, I wouldn’t have come. If your President says come and let us make things better, would you not be moved? He has it; he wants to do something good in this country. Yes, I see it, and I have some cabinet colleagues and advisers who are passionate about this place too. I see so many good ministers. And the women are trying! Among the cabinet members, I see enough colleagues who have the passion, who encourage me, and we need to find a way to communicate to Nigerians that these are good people trying to deliver on good governance. I think this cabinet is a more quality cabinet than Nigerians give it credit for.
After weighing the situation on the ground when you returned, what was your honest assessment of the economy, looking at all the indicators?
My assessment was that we have a springboard, and that if we work harder we could really take off from that springboard. That was an encouragement to me. On the other hand, I found that there were many things which needed to be put right. Between the time we were in government the other time and now, a lot of things had also crept back, or slipped, which we must set right. For instance, I’ve been very vocal that what we have been off, spending on recurrent expenditure has been too high. When I left, it was like 67 per cent of the budget. So to come back six years later to find that it is now 74 per cent, seven percentage points higher, almost going to 10, was discouraging. That’s not the structure of budget you want in a country; you don’t want government to be eating up the resources! That was not right; several things were not right. But I saw that we could change them. It’s not that everything was rosy; so we need to tighten up. There are too many committees and commissions and agencies! You look at the budget and you look at so many lines. We have to cut down on the number. We have to look at our agencies; are they really delivering on functions that we still need? Are there overlaps? The President has a taskforce looking into that.
After this honest assessment, how have you started to tackle the challenges? Already the 2010 to 2013 Medium-Term Expenditure Framework has been outstripped by all the indicators even before an effective implementation.
They told me I had had experience in the past, so I could hit the ground running. But as soon as I said yes, it took me quite some time, almost a month, to think through it, whether I could do it or if I should do it. When you are doing a job you are having fun, I wasn’t really planning to come back. I thought I’d done my own share of national service. And I was looking forward to continuing my job and finishing. So I had to recalibrate. Once I’d done that the next is to think through; what are the issues? And I found out that the Vision 20-2020 and the Transformation Agenda were good starting points. The issue for me was, how do you then translate these issues into specifics? The way I work is that you cannot have an agenda without having the specifics about how you are going to change things. My starting point was to start thinking of a framework and to involve some of my colleagues, ministers and directors-general. In thinking through, how specifically do we translate these into action? That was the first thing I did, and that was the first presentation I made to the President to show him, this is what we think the macro framework should look like. I also talked to the Central Bank governor, of course, and we have been collaborating very well. Actually, it’s been a very healthy relationship. There will always be tension between fiscal and monetary policies but we have quite a lot of collaboration because of shared objectives. So we put that framework together and once I had that I presented it to the President. But prior to this, first, I listened to him on how he wants to translate this vision into specifics? He articulated the things that he wanted to do, his objectives of job creation, working with the youth and so on. He was very insistent on that agenda, and on power. Taking those things into account is to look at the sources of growth. Where do we create the jobs? How do we stabilise the macro and give him a budget he can be proud of? So the bottom line now is what do we do specifically to change the fiscal framework? And I gave him all the parameters. What do we do to finish ongoing reforms in some sectors? Which are the ones posing serious problems to this economy? Apart from power, there are the ports. When you talk to our business people, they complain so much that our ports are not competitive. And I heard that neighbouring countries are building even better ports. Togo is going to have a deep-sea port, one of the best in the world, supported by World Bank. It’s not just having the physical port; it’s what happens there that makes it either a good place to ship your goods or not a good place. So when all that complaints came, that was another place to act and remove those bottlenecks.
And finally, which sectors are we going to work on to generate those jobs once we have the structural issues and the macro in place? We started talking about agriculture and what we can do there to create jobs. There is housing and construction, which we are going to launch in 2012, God willing. Those are job-creating sectors. Looking even at the creative industry where our young people are doing so well, how do we aid them, not disturb them? Government should not go inside to spoil anything because government did not start it. Then we looked at the issue of coordination. The President said that people were working too much in silos; they are not seeing the connectivity between the sectors. And that was a very profound observation that he made to me. I asked him what he really wants me to do. And he said that, putting that coordination thing into the agenda, bringing the team together. Getting the economic implementation team in place and then getting us to implement that specific agenda that the President had approved.
So how do we place the 2012 budget in this paradigm you have outlined?
The 2012 budget is critical in the sense that it sets the tone and helps to deliver some of those specifics that will provide the basis for the economy to grow and for jobs to be created. Why is that? It begins the checkmating of the wrong things that have been happening on the fiscal side. Too much fiscal expansion, the budget cuts that. Too much domestic borrowing, the budget is cutting that back. These things may sound esoteric but look at Greece, would anybody dream that an OECD country would one day be scrambling and not be able to pay its bills? So we have to rein in the excesses; the budget sets that tone. The budget supports critical sectors to create those jobs. Agriculture is very prominent, power is prominent. It also supports security in the recognition that if we are not secure, we will not be able to develop. And it is not security alone. In this budget, we have coupled it with inclusion. We are working on agriculture where the rural people can be involved. We are doing a budget of inclusion because we want to use it to create jobs. We have even launched programmes directed specifically at the youths, like You Win. It’s a lot of fun and it has enabled me to meet a lot of talented Nigerians. I love the youths in this country because they are so talented; you meet them every day, gifted people. So we must support them; this budget does that. You Win is part of it and we are also going to do a programme for unskilled youths. We are also going to support vocational training. Why should we be going to get carpenters, plumbers and welders from neighbouring countries? So why can’t we train them here and use them? Sometimes when you use a plumber from Nigeria in your house you have to repair the job many times; every other day there is a leak from somewhere!
In the past we have always had good budgets but the issue was always the implementation. As the head of the Economic Implementation Team, do you have a mechanism for tracking the performance of this budget?
Yes! We absolutely do! There’s always this cry that budgets are not implemented in Nigeria. By the way, from 2004 to 2006 we implemented budget up to 70 and 80 per cent but people appear to have forgotten. So we want to get back up there again. (In) this budget, we have first of all the minister of planning, he will develop indicators for every ministry. We also have the Special Adviser on Performance Monitoring. So we have ways of tracking what we are delivering. For budget 2012, three months into it we check where we are; six months into it, we check; nine months into it, we check where we are to see if people are delivering. But let me caution you, people tend to focus on the implementation of the budget. Have they spent the money? This is a country very dependent on government money and government contracts but let’s look beyond that to the quality of the spending. You don’t want people to be just spending! So we intend not just to monitor whether the money is spent on the projects but whether the quality of the spending will also deliver what Nigerians need.
Looking at the 2012 budget and the marginal increase of two per cent of capital budget, from 24 per cent in 2011 to 26 per cent in 2012, upon what is your optimism for transformation predicated?
I don’t understand what you mean by marginal increase. If you are talking about the amount, the 2012 expenditure is six per cent (5.66) higher in nominal terms than 2011 but since inflation is higher than six per cent, it means that in real terms it is a fiscally responsible budget and that is what we are aiming for. We have been having expansionary budgets; our budgets have been increasing at an incredible rate in the past few years but much of the increase has not been going to capital expenditure. It’s more and more recurrent. Salaries were increased by 53 per cent; pensions, emoluments, everything has gone up. That is why the budget is ballooning. This 2012 budget is very different in that it says, we are going to reverse those trends. Instead of increasing spending by huge amounts we, virtually in real terms, may indeed have slightly reduced it. And in nominal terms we have only increased by six per cent. Instead of ballooning recurrent expenditure, we have promised to cut back. And we have already started. Of course you don’t expect a huge cut in the first year. We have started the cut, and you will see that at the end of this administration. We hope to bring it to below 70 per cent, closer to where it was six years ago, the last time we were in government. So this is a very different budget; we are trying to reduce deficit financing. We are trying to borrow less. Last year we borrowed N852 billion to finance the budget; and without this kind of reversal, we would be borrowing about N1.3 trillion in 2012, almost the whole size of our capital budget. But we said no, we are not going to do that. We are going to find every way, increase revenue, and trim expenditure so that we will borrow less. And we are achieving it; we are proposing 794 billion in borrowing less than in 2011. So we are changing; we are using all our means to support the real sector so that they can be productive. Look at the fiscal incentives we are giving. Any machinery and certain equipment for agriculture, including agro-allied industries like baking, because we want to substitute cassava flour for wheat flour, we are giving certain incentives to those who will do that, a 12 per cent rebate on their corporate taxes. We are increasing the tariff on wheat flour and wheat grains to enable them to be able to compete. This is just to give you a few examples.
On the controversial issue of the removal of oil subsidy, what are we to expect next?
Right now a lot of consultations are still going on. When we talked about consultation, it was not a code word for anything. Every night for the past two weeks we have been meeting with different groups – labour unions, youths, religious groups, political parties – we have been briefing them one by one every night to apprise them of the fundamental details of the subsidy, how it works and what impact it is having on the economy preparatory to that so that we can have information that can be shared. When this consultation is done, you often hear very interesting questions and clarifications that people want. Basic facts that they didn’t know before, things that were totally misunderstood. When we make the presentation to show what is actually happening, they are usually very appreciative. Sometimes they change their minds and say, we now understand, we don’t think we should have fuel subsidy. At other times some say, thank you for the facts, we’ll go home and think about it. But at least, whether you support or you don’t support, it is important to get the facts so that you understand what is happening.
Are there no alternatives to the removal of fuel subsidy?
What do you mean? What alternatives do you want to talk about?
Must the government remove the subsidy?
Why must the government not remove the subsidy if the subsidy is relatively speaking not benefiting the majority of Nigerians? One of the questions is, who really benefits the most? Everybody in the population benefits, the poor, rich and middle class but the issue is, who benefits the most? Those who are better off in the society tend to benefit the most by a simple fact, one of the biggest consumers of petrol are cars. If you are poor you walk, use okada (commercial motorcycle), or take bus; you consume less of the product. If you are middle class, you own a car; you take at least 60 litres a week. If you have a motorcycle you take about 20 litres; if you have luxury four-wheel drive you take about 80. All we are saying is that by the sheer arithmetic of it, the better off you are; the more cars you have, the more you benefit from larger quantities of this. It is not that the poor don’t benefit; they do but they don’t benefit as much as well-off people. Smugglers divert the product to neighbouring countries; all the policy makers in neighbouring countries are very happy. They are quite happy with the subsidy; they don’t want Nigeria to phase it out! Then you have to ask yourself, are we here to trans-subsidise neighbouring countries? Are we here to use the resources in a way that doesn’t deliver to the poor in the rural areas? How many of them are enjoying this? Wouldn’t we be better off to look for smarter ways to use these resources to benefit those who are less well off in the society?
Many Nigerians are not seeing it from the point of who benefits. They worry about the effects of the subsidy removal, like increase in transportation cost. Are there palliatives the government will come up with?
I don’t like this word ‘palliatives’! What is palliative? It just has a pejorative ring to it. The issue is, how do you cushion and provide safety nets for the population? People are scared of deregulation and liberalisation of the sector. These are buzz words and slogans, especially of the media. But let us look at the evidence. What happened when you liberalised the telecommunication sector? What happened? Please, let us be truthful to ourselves in this country. Before, in 2000 and 2001, we had a company called NITEL, which still exists, and it provided 450,000 landlines in a country with a population of over 150 million people! And most people didn’t have a telephone. You could not even dream you could stay in Washington or Abuja and call your parents in the village and find out how they are doing. Suddenly, the sector was liberalised and licences were given to companies to come here. Today what do we have? We have 80 million GSM lines – 80 million from 450,000! If we had left NITEL out of the fear that the cost of phone calls would go up, where would we be today? Of course when it was liberalised the cost of telephone call was a little high. The cost of a SIM card was N20,000 when we opened up. Today a SIM card costs N100! Some companies are even giving SIM cards free. That is due to liberalisation. Today you are carrying two or three phones when you never dreamt of having a phone before. So what are people afraid of? It’s the same with aviation.
Before (now), we had a company known as Nigeria Airways (where) you couldn’t even get a seat. You have to queue to get a seat; there was bribery under the table to get a ticket. At times you come to the airport to find that someone else had taken your seat! When plane landed, people ran and some fell down as they scrambled to get on board because they were not assured of seats! This sector was liberalised and today you can walk into the airport and get ticket anytime; it’s almost like boarding a bus! Flying a plane is no longer a special thing; if one is not going, you join another one. That is liberalisation! What else is mystery here? We are saying that this product that occasionally you see people queuing to get when we liberalise, you will allow many people to enter and exit, supply products and build refineries. May be in the beginning the impact may be such that the price of products may be a little bit higher. But it will come down over time, just like it is with telecommunications. We need to give this a chance because if we don’t, first of all, we can’t just afford more and more of our revenues and resources to be going to subsidy. Is all we want to do in this country to pay subsidy and pay salary? You will not repair roads, you will not do anything since people want increasing salaries and to pay subsidy! What is the choice the country wants to make? Then nobody should be surprised when you have no capital investment. Nobody should be surprised when you have to borrow all the money for capital expenditure. You will stack up debts, for whom to pay? Is it nice for you to live comfortably now, on borrowed money, and your children to spend a lifetime servicing debt? Wasn’t that what we were going through the other time before we got debt relief? More and more of our money was going to paying external debts! Do you know how much we are spending to service debt already? It’s N560 billion! And that will continue to escalate. Then your children will have to pay for these debts you are enjoying now, they will suffer in future! These are some of the fundamental issues we are talking about this subsidy.
Subsidy mortgages the future of our children.
What is the difference between deregulation and subsidy?
Let us look at some terms. Liberalisation is when you open up the sector so that people can enter and exit. Economic actors can enter; those who want to supply products, those who want to build refineries. Those who want to participate in that sector can enter freely; that is opening it up to market forces. Within that system you could still have something that you are regulating (such as) some of the prices in the economy. That’s when you have regulation. So when you deregulate, you say you don’t control prices anymore; you get the government out of it. It does not mean that you don’t have a regulatory body watching to see that people are not cheated. You don’t interfere, you don’t set the price; you just make sure, you are still looking out for the interest of the consumers. A regulatory agency will be doing that but you open up the sector to competition. Prices will be determined by supply and demand. When you do that, perforce, you are not providing a subsidy because you are not setting a price. So deregulation and subsidy are linked up in that when you deregulate, you stop interfering and you stop providing a cushion, which is the subsidy, and let the forces of the market decide what the prices should be. Competition among the economic agents in the market will eventually bring the price down and make it affordable.
Some people still argue that subsidy is a grand fraud after all your calculations and internal verifications. Would you confirm that petrol subsidy really exists in Nigeria?
These are fundamental facts. When people ask if subsidy is real, I don’t really get it. When you go to the petrol stations, many of them in the metropolis, in Lagos, Port Harcourt and Abuja, you can drive to NNPC mega stations and buy petrol at N65. The landing cost at the present price of a $113.9 a barrel is N123 a litre. If you now add the distribution and handling costs of about N15.72, you are going to get about N139 a litre now! In 2012, we have projected crude price at $90 per barrel. At that price, the landing cost in Nigeria will be N104 per litre. If you add the same distribution and handling costs of N15.72, you get about N120 a litre. The difference between N139 and N65, which the government is charging, N74 per litre, is the subsidy. That is the cost that government is bearing in order to sell it to you at N65. So subsidy exists! People in the remote areas may not enjoy it; they may not get access to that. We know that in certain parts of the country they don’t buy petrol at N65. If subsidy doesn’t exist, why is everybody fighting for it? I don’t understand the logic; some say, it doesn’t exist, don’t remove it! If it doesn’t exist, great! Why should you fight its removal?
If that is the case, why does the government use the imported refined component to determine the subsidy when some percentage (33 per cent) is being refined in Nigeria? Why is the locally refined component not taken into account in the determination of subsidy?
There are two reasons. First, now, most of the refined products we consume are brought in from abroad because our refineries are not working at enough capacity to produce for us. We are consuming 35 to 40 million litres of PMS per day and that is mostly imported. That is why. But even when you refine at home, the cost of crude makes up about 80 per cent of the cost of petrol. The cost of crude oil, which is sold at the international price, has to be taken into account.
But NNPC is believed to be getting the crude oil at a rebate to refine for domestic use?
No! That has stopped. That no longer obtains because if you start giving people crude at below the price, they will still smuggle it out to neighbouring countries. Instead of refining it here and selling it to you, they will find it more profitable to smuggle it out and sell it at the international price! As long as a commodity has an international price and you try to sell it at below that price, people will simply smuggle somewhere and sell it at the international price, and go laughing to their banks. So you don’t want to do that; they are no longer doing that. Instead of refining it, people just trucked it to neighbouring countries to refine in Côte d’Ivoire and elsewhere! So even if you refine it here, you are still going to charge the international price for crude oil. But now, it could be cheaper because all the distribution and landing cost we incur and some of the inefficiencies in our handling of the product may be removed. But I suspect you can have it at a somewhat cheaper price if we can refine at home. Every Nigerian wants the oil refined here; it makes sense, and that is what we should be aiming to do. If we liberalise the sector and deregulate the prices, those will be incentives to those who want to build refineries. Right now, they cannot make ends meet because you are controlling the price. So they will not be interested, but if you remove that control and allow the deregulated price to obtain, people will now come in and build refineries and eventually the products will come to us cheaper than before.
People are talking about the housing crisis, especially in the cities; does the transformation agenda extend to the housing sector?
In this country we need a system that will allow people access to mortgage finance system that is really comprehensive and works, one that will enable people to borrow to build or buy houses. It is a normal desire for everyone to want to have a house but in this country, most times, you can’t have one; you have to save all your life to be able to own a house! We need to launch a comprehensive mortgage finance system in 2012. And we are going to do that. In 2011, we focused on getting the macro-economic environment right. We focused on agriculture and power. In 2012, we will add housing. We will try and develop a system that people can use at affordable rates. At the present interest rates, nobody can borrow to finance a house. So we need to figure it out, bring inflation rate down, bring interest rates down and develop a system that can give long-term finance because when it is mortgage, we need between 10 to 15 years, if not 20. That system is not yet robust in the country.
We will also look at the cost of building materials, the value chain for construction and use cheaper materials to bring down the cost of a house. And now we have new technologies being developed. There is new cheaper cement that has been made by one of our research institutes. The students of African University of Science and Technology have made a type of brick using local raw materials that will bring the cost of a house down by maybe 50 per cent. If you can multiply those – and of course cement makers in this country keep promising us that the price will come down. So, if you have cheaper cement, cheaper alternative building materials that are beautiful, let’s use them. If you can build a decent bungalow at N5 million, then when you take the mortgage you will be able to repay it but if it now costs you N15 million then you are in a different ball game. We are very keen on this sector because it can create many jobs. And many countries, like Malaysia, have developed on the back of the housing boom. Now we have to be careful not to get into a real estate bubble or overdo it and over-supply the place.
In addition, we also have to look at some of our laws that stand in the way – some of our land tenure laws, foreclosure laws, we have to look at those. In this country, it is almost impossible to foreclose, even though the law allows you. It takes so much time, so we have to review those because no bank is going to loan to you unless they know that if something goes wrong, they can foreclose and get their money back. So we have both policy issues to deal with and financing issues. The minister of lands and housing, the Central Bank governor and myself, Federal Mortgage Bank and many other interested actors, we are going to get together early in 2012 to launch this process of reviewing how we as a government can help launch this sector.
How are some of the specific initiatives already launched like the Sovereign Wealth Fund and You Win shaping up?
The Sovereign Wealth Fund is a key instrument of our macroeconomic management. It helps us manage the volatility of the economy. It helps us also save for the future of our children. And it helps us develop a fund for infrastructure. In the SWF we have three windows. A savings window for the future, stabilisation window to help us manage fluctuations in oil price; when it is low we can draw on that to maintain our expenditures, when it is high we can save. And it has an infrastructure and investment window so that we can provide co-financing to the private sector for infrastructure investment. We have now launched this instrument with a billion dollars equivalent. We have discussed extensively with the state governors to give their support for us to move on this issue. And God willing, they have agreed. And we are now in the process of launching it. As we go on, we will see how we augment the resources. At least, the federal government has the will to put its savings into the fund, and we will be doing more and more of that. And I’m sure many of the states will also want to do the same. So the SWF will be a key instrument of economic management and a key way of saving for our children’s future. Just like a household, you don’t spend everything you earn; you put aside a little something to help you manage the future. A country also needs to do the same.
And how is the You Win programme winning?
The You Win programme is a very exciting programme that was launched by President Goodluck Jonathan about two months ago (October 11, 2011). The idea there is that you find young entrepreneurs who are running a business, or who have very good ideas to start one, and you help them to expand these businesses. We have a panel of independent judges from Pan African Business School, from Plymouth Business School. We have donor supporters, the World Bank and DFID. You run this competition, select the best and you support them to actually implement their ideas.
You have just been on the job for three months and we are getting positive ratings from international agencies that previously downgraded us. How did we get there?
Well, we got there through a lot of hard work. The team, since the past three months that I came on the job, worked really hard as a team – the economic team and the ministry of finance team – to try and put in place all those things that they will be looking for, all the questions that they will be asking for them to see that we are changing. The big part of it was during this budget; they were really looking at the budget and we maintained all the parameters we told them. They wanted to see what prices we put, whether we were going to have expansionary budget or the right type of budget? It’s a fiscally prudent budget; that’s what Mr President wanted. They saw that the budget is a very sensible one, that we are doing some structural reforms. We are doing port reforms, trying to reduce bottlenecks so that business people can go in and come out easily, and you can see the impact. They saw that we meant business there. They’ve seen the efforts we are making in agriculture and power. And they took all of that into account. The budget played a big part in convincing them that we are going in the right direction. So they upgraded us. It is a very big endorsement and I’m proud of that. Our business community was delighted because it makes it easier for them to access resources.
Ngozi Okonjo-Iweala, Nigeria’s co-ordinating minister for the economy and minister of finance, is not an ordinary person by any standard. Everything about her inspires change. She would perhaps have done pretty well at the barricades as an activist throwing stones at government and canvassing social change. But as fate would have it, she is a government minister, a change agent, in a system long bogged down by serial corruption and kleptomania, cutting the picture of a ‘rebel’ dancing on landmines.
President Goodluck Jonathan invited her into his transformation cabinet in July 2011, which some people consider the best appointment he has made so far. Until that time, many critics did not take the President’s promise of transformation seriously as there appeared to be no impetus. The optimism engendered by her appointment was not without reason. Her first appointment as finance minister under the Olusegun Obasanjo administration between July 2003 and June 2006 left clear positive milestones on the nation’s unstable economic clime. Known for prudent debt management and fiscal discipline, she led the negotiations that resulted in the Paris Club cancelling almost two-thirds ($18 billion) of Nigeria’s then $30 billion debt in October 2005. As part of the agreement, Nigeria promptly paid off the balance of $12 billion. It was the second largest debt cancellation in the Club’s 30-year history. The stimulus delivered was equivalent to five per cent GDP during global downturn. It freed the needed funds to finance essential infrastructure and good governance, so the government claimed. Prior to this, the country groaned under the heavy debt burden, spending $1 billion annually to service only interests on debts, excluding the principal sum.
To ensure transparency and checkmate corruption, she introduced the monthly publication of financial allocations to states and local governments so that people could hold their governors and local government chairmen accountable for the allocations received. Prior to this, most states and local governments deceived their people that they were getting ‘zero’ allocation and therefore could not achieve anything. The publication exposed their false claims and, the governors, most of whom were believed to be stealing the local government allocations, did not like this. Under the dispensation of late President Umaru Yar’Adua, they persuaded the federal government to discontinue what they considered an embarrassing publication when she had left office.
Similarly, it was during that first coming that Nigeria got its first-ever credit rating of BB minus from Fitch and Standard and Poors. This, Okonjo-Iweala achieved by standardising the nation’s corporate governance and designing a home-grown solution to its financial challenges with the economic team which she headed. She deployed her vast expertise in world economic circles and keen understanding of economic realities in developing countries to guide the economy out of the woods. Nigeria prospered under Obasanjo because of improvements in macroeconomic management and market reforms that some sectors of the economy such as telecoms were wrested from state control.
Regrettably, by the time she was re-appointed finance minister on July 15, 2011 by President Jonathan, the country had returned fully to her old ways of fiscal indiscipline and accumulation of debt. The progress of the past was undermined by another regime of fiscal mismanagement. Indeed, to confirm this downturn, Fitch downgraded the country’s economic outlook from BB minus to negative. Things were looking down for Nigeria as 74.4 per cent of the national budget was spent on recurrent expenditure, leaving only 24.6 per cent for capital expenditure. This made it impossible to drive the massive infrastructure development which the people desired. In 2011, Nigeria borrowed N850 billion to finance the budget deficit and spent N560 billion in debt servicing alone. This was not the profile of a country that wants to become one of the top 20 economies in the world by 2020.
Her return was therefore a rescue mission. When she was first appointed minister in 2003, she was vice-president and corporate secretary of World Bank. After resigning from Obasanjo’s cabinet due to irreconcilable differences on August 3, 2006, she was reappointed by World Bank as managing director on October 4, 2007, and was considered a possible replacement for former World Bank president, Paul Wolfowitz last year. In 2006, TIME magazine described her as “one of world’s heroes” and Gordon Brown, a former British prime minister, described her as “a brilliant reformer.” In the same year, Forbes magazine rated her 87 in top 100 most powerful women in the world.
Many of her admirers tried to dissuade her from taking the job again as they believe Nigeria was almost irredeemable. Some were even concerned for her safety. Their fears may not be totally unfounded, as some people believed to be agents of the corruption establishment tried to frighten her away from taking the job with repeated threats. Yet she left a well-paid, secure and high profile job to once again serve her fatherland. During her first appointment, the nation could not pay the salary she was earning at the World Bank, an international agency stepped in and paid the balance. This time, Jonathan confirmed during her swearing in that she had accepted to take the same salary as other ministers.
And what’s in it for her? Nothing other than service and patriotism. It is impossible to spend some time with Okonjo-Iweala without feeling the silent radiation of energy, passion and commitment in and around her. She says Nigeria belongs to all of us and cannot be abandoned to the corrupt, but must be rescued for the sake of the youth about whom she is so visibly passionate. Her optimism is infectious: “If we could make the budget right and set it back again on a reasonable path; if we could make the business environment better by cleaning our ports; if we can launch reforms that will give our youths more jobs....” So many ‘ifs’, and they are all dependent on many variables. Administering the reforms that will bail a profligate Nigeria out of the woods, like a troubled ship, is bound in shallows and miseries. And Okonjo-Iweala, like Shakespeare, admonishes that “We must take the current where it serves or lose our ventures.”
That perilous journey started on January 1, when the government quietly removed the subsidy on petrol. Within hours the pump price of premium motor spirit, PMS, popularly known as petrol, skyrocketed from N65 to N138 in NNPC filling stations, and from N141 to N250 in multinational stations and independent marketers. Since then, business and social life have not been the same. The nation approaches the critical point this week as the Nigeria Labour Congress, NLC, and the Trade Union Congress, TUC, begin a nationwide strike to force the federal government to reverse the removal of subsidy.
This puts the government in the position of the proverbial lizard with a sore on its head – “when the sore pores, the lizard will die; if it does not, the lizard will die!” The economic forecast for the country says that without the reforms being implemented, which include the removal of subsidy on petrol, the economy will crumble in two years, but if implemented the country would be out of the woods soon. This would require considerable sacrifice from all parties.
But for a hungry man, two years is a millennium. The streets are reacting violently to the removal of subsidy. It is not as if people are new to making sacrifices; it is that for too many times they have been betrayed by a profligate political class and very corrupt civil service which aids them in the looting of the treasury. There is, therefore, deep distrust of the government that it cannot be trusted with more funds as successive governments have shown great incompetence in the management of resources.
However, Jonathan’s government is saying that it would get it right, that it has a competent economic team headed by him which has designed a blueprint to actualise Nigeria’s Vision 20-2020, and an economic implementing team headed by Okonjo-Iweala with enough will to execute the blueprint. They admit the road will be tough for a while but the destination will be reached. The international community appears to have already endorsed Jonathan’s revised Medium-Term Expenditure Framework, which it sees as very competent. Just three months into it, Fitch upgraded the economic outlook for Nigeria from negative to stable. And with the release of the 2012 budget, which is considered good, it has been further upgraded to positive. Okonjo-Iweala says this will not only make it easier to attract Foreign Direct Investment, it will make it easier for the private sector to access credit facilities for investment in the country.
With the widespread opposition to the removal of the subsidy, greater peril may be looming. If the proposed economic template that has brought back the positive indicators is killed on the platter of emotion and politics, the world might foreclose on Nigeria.
Some people feel the government should be given “a last chance” to redeem its image by accepting the proposal, after which a revolution might follow if it fails. Okonjo-Iweala accepts this challenge. She pleads with Nigerians to give them another chance to turn things around. You could feel her pain as she explains these issues in this interview with Anayochukwu Agbo, senior associate editor, and Tajudeen Suleiman, associate editor. Excerpts:
‘Subsidy Mortgages the Future of Our Children’
Why did you stake a high profile global job to return to Nigeria a second time?
(Chuckles) Sometimes I think I’m nuts! Sometimes I think I’m absolutely nuts! The only thing I attribute it to is that deep love for the country and the belief that we can do something different here. I also believe that if your country asks you to do something, you should see it as an honour and a privilege and no matter who you are or where you are you should render that service. So I regard it as an honour and a privilege that President Goodluck Jonathan asked me. It is not every day that your country asks you to serve. So that was also part of it, and the sincerity with which he approached me and said let us try and achieve one or two things. It was that modesty of approach, that humility when he said, “Help me, if we can achieve one or two things. Let’s see if we can get the power situation right at the end of my term. Let’s see what we can do to create more jobs.” He didn’t want to change the world; he said it was a very complex situation. That really attracted me because I also believe in focus, take one or two things. He said, “Set the budget right; I want a budget I can be proud of, a budget that will set us on the right path. Set the power situation right.” It was so disarming! All that, and my underlining belief in this country did it. I’m passionate about Nigeria. That’s why I say I’m nuts; sometimes I wonder why I care so much about Nigeria? But Nigeria is such a wonderful country; I don’t know why people don’t see it! Yes, we have not achieved the country and the leadership and the results that Nigerians wanted; yes, the trust between government and the people has been broken because of repeated broken promises, but we cannot give up hope. We can’t throw up our hands and say things have been bad and let them continue to be bad!
This sense of outrage, this sense of impatience, that you brought into government, do you see it in the President and other members of the cabinet?
The President has a very calm demeanour but I see it. I see a commitment; he is calm but when you talk to him, the way he talks about the country, he has it. It’s just that each one of us has a different way of showing it. And if he didn’t, I wouldn’t have come. If your President says come and let us make things better, would you not be moved? He has it; he wants to do something good in this country. Yes, I see it, and I have some cabinet colleagues and advisers who are passionate about this place too. I see so many good ministers. And the women are trying! Among the cabinet members, I see enough colleagues who have the passion, who encourage me, and we need to find a way to communicate to Nigerians that these are good people trying to deliver on good governance. I think this cabinet is a more quality cabinet than Nigerians give it credit for.
After weighing the situation on the ground when you returned, what was your honest assessment of the economy, looking at all the indicators?
My assessment was that we have a springboard, and that if we work harder we could really take off from that springboard. That was an encouragement to me. On the other hand, I found that there were many things which needed to be put right. Between the time we were in government the other time and now, a lot of things had also crept back, or slipped, which we must set right. For instance, I’ve been very vocal that what we have been off, spending on recurrent expenditure has been too high. When I left, it was like 67 per cent of the budget. So to come back six years later to find that it is now 74 per cent, seven percentage points higher, almost going to 10, was discouraging. That’s not the structure of budget you want in a country; you don’t want government to be eating up the resources! That was not right; several things were not right. But I saw that we could change them. It’s not that everything was rosy; so we need to tighten up. There are too many committees and commissions and agencies! You look at the budget and you look at so many lines. We have to cut down on the number. We have to look at our agencies; are they really delivering on functions that we still need? Are there overlaps? The President has a taskforce looking into that.
After this honest assessment, how have you started to tackle the challenges? Already the 2010 to 2013 Medium-Term Expenditure Framework has been outstripped by all the indicators even before an effective implementation.
They told me I had had experience in the past, so I could hit the ground running. But as soon as I said yes, it took me quite some time, almost a month, to think through it, whether I could do it or if I should do it. When you are doing a job you are having fun, I wasn’t really planning to come back. I thought I’d done my own share of national service. And I was looking forward to continuing my job and finishing. So I had to recalibrate. Once I’d done that the next is to think through; what are the issues? And I found out that the Vision 20-2020 and the Transformation Agenda were good starting points. The issue for me was, how do you then translate these issues into specifics? The way I work is that you cannot have an agenda without having the specifics about how you are going to change things. My starting point was to start thinking of a framework and to involve some of my colleagues, ministers and directors-general. In thinking through, how specifically do we translate these into action? That was the first thing I did, and that was the first presentation I made to the President to show him, this is what we think the macro framework should look like. I also talked to the Central Bank governor, of course, and we have been collaborating very well. Actually, it’s been a very healthy relationship. There will always be tension between fiscal and monetary policies but we have quite a lot of collaboration because of shared objectives. So we put that framework together and once I had that I presented it to the President. But prior to this, first, I listened to him on how he wants to translate this vision into specifics? He articulated the things that he wanted to do, his objectives of job creation, working with the youth and so on. He was very insistent on that agenda, and on power. Taking those things into account is to look at the sources of growth. Where do we create the jobs? How do we stabilise the macro and give him a budget he can be proud of? So the bottom line now is what do we do specifically to change the fiscal framework? And I gave him all the parameters. What do we do to finish ongoing reforms in some sectors? Which are the ones posing serious problems to this economy? Apart from power, there are the ports. When you talk to our business people, they complain so much that our ports are not competitive. And I heard that neighbouring countries are building even better ports. Togo is going to have a deep-sea port, one of the best in the world, supported by World Bank. It’s not just having the physical port; it’s what happens there that makes it either a good place to ship your goods or not a good place. So when all that complaints came, that was another place to act and remove those bottlenecks.
And finally, which sectors are we going to work on to generate those jobs once we have the structural issues and the macro in place? We started talking about agriculture and what we can do there to create jobs. There is housing and construction, which we are going to launch in 2012, God willing. Those are job-creating sectors. Looking even at the creative industry where our young people are doing so well, how do we aid them, not disturb them? Government should not go inside to spoil anything because government did not start it. Then we looked at the issue of coordination. The President said that people were working too much in silos; they are not seeing the connectivity between the sectors. And that was a very profound observation that he made to me. I asked him what he really wants me to do. And he said that, putting that coordination thing into the agenda, bringing the team together. Getting the economic implementation team in place and then getting us to implement that specific agenda that the President had approved.
So how do we place the 2012 budget in this paradigm you have outlined?
The 2012 budget is critical in the sense that it sets the tone and helps to deliver some of those specifics that will provide the basis for the economy to grow and for jobs to be created. Why is that? It begins the checkmating of the wrong things that have been happening on the fiscal side. Too much fiscal expansion, the budget cuts that. Too much domestic borrowing, the budget is cutting that back. These things may sound esoteric but look at Greece, would anybody dream that an OECD country would one day be scrambling and not be able to pay its bills? So we have to rein in the excesses; the budget sets that tone. The budget supports critical sectors to create those jobs. Agriculture is very prominent, power is prominent. It also supports security in the recognition that if we are not secure, we will not be able to develop. And it is not security alone. In this budget, we have coupled it with inclusion. We are working on agriculture where the rural people can be involved. We are doing a budget of inclusion because we want to use it to create jobs. We have even launched programmes directed specifically at the youths, like You Win. It’s a lot of fun and it has enabled me to meet a lot of talented Nigerians. I love the youths in this country because they are so talented; you meet them every day, gifted people. So we must support them; this budget does that. You Win is part of it and we are also going to do a programme for unskilled youths. We are also going to support vocational training. Why should we be going to get carpenters, plumbers and welders from neighbouring countries? So why can’t we train them here and use them? Sometimes when you use a plumber from Nigeria in your house you have to repair the job many times; every other day there is a leak from somewhere!
In the past we have always had good budgets but the issue was always the implementation. As the head of the Economic Implementation Team, do you have a mechanism for tracking the performance of this budget?
Yes! We absolutely do! There’s always this cry that budgets are not implemented in Nigeria. By the way, from 2004 to 2006 we implemented budget up to 70 and 80 per cent but people appear to have forgotten. So we want to get back up there again. (In) this budget, we have first of all the minister of planning, he will develop indicators for every ministry. We also have the Special Adviser on Performance Monitoring. So we have ways of tracking what we are delivering. For budget 2012, three months into it we check where we are; six months into it, we check; nine months into it, we check where we are to see if people are delivering. But let me caution you, people tend to focus on the implementation of the budget. Have they spent the money? This is a country very dependent on government money and government contracts but let’s look beyond that to the quality of the spending. You don’t want people to be just spending! So we intend not just to monitor whether the money is spent on the projects but whether the quality of the spending will also deliver what Nigerians need.
Looking at the 2012 budget and the marginal increase of two per cent of capital budget, from 24 per cent in 2011 to 26 per cent in 2012, upon what is your optimism for transformation predicated?
I don’t understand what you mean by marginal increase. If you are talking about the amount, the 2012 expenditure is six per cent (5.66) higher in nominal terms than 2011 but since inflation is higher than six per cent, it means that in real terms it is a fiscally responsible budget and that is what we are aiming for. We have been having expansionary budgets; our budgets have been increasing at an incredible rate in the past few years but much of the increase has not been going to capital expenditure. It’s more and more recurrent. Salaries were increased by 53 per cent; pensions, emoluments, everything has gone up. That is why the budget is ballooning. This 2012 budget is very different in that it says, we are going to reverse those trends. Instead of increasing spending by huge amounts we, virtually in real terms, may indeed have slightly reduced it. And in nominal terms we have only increased by six per cent. Instead of ballooning recurrent expenditure, we have promised to cut back. And we have already started. Of course you don’t expect a huge cut in the first year. We have started the cut, and you will see that at the end of this administration. We hope to bring it to below 70 per cent, closer to where it was six years ago, the last time we were in government. So this is a very different budget; we are trying to reduce deficit financing. We are trying to borrow less. Last year we borrowed N852 billion to finance the budget; and without this kind of reversal, we would be borrowing about N1.3 trillion in 2012, almost the whole size of our capital budget. But we said no, we are not going to do that. We are going to find every way, increase revenue, and trim expenditure so that we will borrow less. And we are achieving it; we are proposing 794 billion in borrowing less than in 2011. So we are changing; we are using all our means to support the real sector so that they can be productive. Look at the fiscal incentives we are giving. Any machinery and certain equipment for agriculture, including agro-allied industries like baking, because we want to substitute cassava flour for wheat flour, we are giving certain incentives to those who will do that, a 12 per cent rebate on their corporate taxes. We are increasing the tariff on wheat flour and wheat grains to enable them to be able to compete. This is just to give you a few examples.
On the controversial issue of the removal of oil subsidy, what are we to expect next?
Right now a lot of consultations are still going on. When we talked about consultation, it was not a code word for anything. Every night for the past two weeks we have been meeting with different groups – labour unions, youths, religious groups, political parties – we have been briefing them one by one every night to apprise them of the fundamental details of the subsidy, how it works and what impact it is having on the economy preparatory to that so that we can have information that can be shared. When this consultation is done, you often hear very interesting questions and clarifications that people want. Basic facts that they didn’t know before, things that were totally misunderstood. When we make the presentation to show what is actually happening, they are usually very appreciative. Sometimes they change their minds and say, we now understand, we don’t think we should have fuel subsidy. At other times some say, thank you for the facts, we’ll go home and think about it. But at least, whether you support or you don’t support, it is important to get the facts so that you understand what is happening.
Are there no alternatives to the removal of fuel subsidy?
What do you mean? What alternatives do you want to talk about?
Must the government remove the subsidy?
Why must the government not remove the subsidy if the subsidy is relatively speaking not benefiting the majority of Nigerians? One of the questions is, who really benefits the most? Everybody in the population benefits, the poor, rich and middle class but the issue is, who benefits the most? Those who are better off in the society tend to benefit the most by a simple fact, one of the biggest consumers of petrol are cars. If you are poor you walk, use okada (commercial motorcycle), or take bus; you consume less of the product. If you are middle class, you own a car; you take at least 60 litres a week. If you have a motorcycle you take about 20 litres; if you have luxury four-wheel drive you take about 80. All we are saying is that by the sheer arithmetic of it, the better off you are; the more cars you have, the more you benefit from larger quantities of this. It is not that the poor don’t benefit; they do but they don’t benefit as much as well-off people. Smugglers divert the product to neighbouring countries; all the policy makers in neighbouring countries are very happy. They are quite happy with the subsidy; they don’t want Nigeria to phase it out! Then you have to ask yourself, are we here to trans-subsidise neighbouring countries? Are we here to use the resources in a way that doesn’t deliver to the poor in the rural areas? How many of them are enjoying this? Wouldn’t we be better off to look for smarter ways to use these resources to benefit those who are less well off in the society?
Many Nigerians are not seeing it from the point of who benefits. They worry about the effects of the subsidy removal, like increase in transportation cost. Are there palliatives the government will come up with?
I don’t like this word ‘palliatives’! What is palliative? It just has a pejorative ring to it. The issue is, how do you cushion and provide safety nets for the population? People are scared of deregulation and liberalisation of the sector. These are buzz words and slogans, especially of the media. But let us look at the evidence. What happened when you liberalised the telecommunication sector? What happened? Please, let us be truthful to ourselves in this country. Before, in 2000 and 2001, we had a company called NITEL, which still exists, and it provided 450,000 landlines in a country with a population of over 150 million people! And most people didn’t have a telephone. You could not even dream you could stay in Washington or Abuja and call your parents in the village and find out how they are doing. Suddenly, the sector was liberalised and licences were given to companies to come here. Today what do we have? We have 80 million GSM lines – 80 million from 450,000! If we had left NITEL out of the fear that the cost of phone calls would go up, where would we be today? Of course when it was liberalised the cost of telephone call was a little high. The cost of a SIM card was N20,000 when we opened up. Today a SIM card costs N100! Some companies are even giving SIM cards free. That is due to liberalisation. Today you are carrying two or three phones when you never dreamt of having a phone before. So what are people afraid of? It’s the same with aviation.
Before (now), we had a company known as Nigeria Airways (where) you couldn’t even get a seat. You have to queue to get a seat; there was bribery under the table to get a ticket. At times you come to the airport to find that someone else had taken your seat! When plane landed, people ran and some fell down as they scrambled to get on board because they were not assured of seats! This sector was liberalised and today you can walk into the airport and get ticket anytime; it’s almost like boarding a bus! Flying a plane is no longer a special thing; if one is not going, you join another one. That is liberalisation! What else is mystery here? We are saying that this product that occasionally you see people queuing to get when we liberalise, you will allow many people to enter and exit, supply products and build refineries. May be in the beginning the impact may be such that the price of products may be a little bit higher. But it will come down over time, just like it is with telecommunications. We need to give this a chance because if we don’t, first of all, we can’t just afford more and more of our revenues and resources to be going to subsidy. Is all we want to do in this country to pay subsidy and pay salary? You will not repair roads, you will not do anything since people want increasing salaries and to pay subsidy! What is the choice the country wants to make? Then nobody should be surprised when you have no capital investment. Nobody should be surprised when you have to borrow all the money for capital expenditure. You will stack up debts, for whom to pay? Is it nice for you to live comfortably now, on borrowed money, and your children to spend a lifetime servicing debt? Wasn’t that what we were going through the other time before we got debt relief? More and more of our money was going to paying external debts! Do you know how much we are spending to service debt already? It’s N560 billion! And that will continue to escalate. Then your children will have to pay for these debts you are enjoying now, they will suffer in future! These are some of the fundamental issues we are talking about this subsidy.
Subsidy mortgages the future of our children.
What is the difference between deregulation and subsidy?
Let us look at some terms. Liberalisation is when you open up the sector so that people can enter and exit. Economic actors can enter; those who want to supply products, those who want to build refineries. Those who want to participate in that sector can enter freely; that is opening it up to market forces. Within that system you could still have something that you are regulating (such as) some of the prices in the economy. That’s when you have regulation. So when you deregulate, you say you don’t control prices anymore; you get the government out of it. It does not mean that you don’t have a regulatory body watching to see that people are not cheated. You don’t interfere, you don’t set the price; you just make sure, you are still looking out for the interest of the consumers. A regulatory agency will be doing that but you open up the sector to competition. Prices will be determined by supply and demand. When you do that, perforce, you are not providing a subsidy because you are not setting a price. So deregulation and subsidy are linked up in that when you deregulate, you stop interfering and you stop providing a cushion, which is the subsidy, and let the forces of the market decide what the prices should be. Competition among the economic agents in the market will eventually bring the price down and make it affordable.
Some people still argue that subsidy is a grand fraud after all your calculations and internal verifications. Would you confirm that petrol subsidy really exists in Nigeria?
These are fundamental facts. When people ask if subsidy is real, I don’t really get it. When you go to the petrol stations, many of them in the metropolis, in Lagos, Port Harcourt and Abuja, you can drive to NNPC mega stations and buy petrol at N65. The landing cost at the present price of a $113.9 a barrel is N123 a litre. If you now add the distribution and handling costs of about N15.72, you are going to get about N139 a litre now! In 2012, we have projected crude price at $90 per barrel. At that price, the landing cost in Nigeria will be N104 per litre. If you add the same distribution and handling costs of N15.72, you get about N120 a litre. The difference between N139 and N65, which the government is charging, N74 per litre, is the subsidy. That is the cost that government is bearing in order to sell it to you at N65. So subsidy exists! People in the remote areas may not enjoy it; they may not get access to that. We know that in certain parts of the country they don’t buy petrol at N65. If subsidy doesn’t exist, why is everybody fighting for it? I don’t understand the logic; some say, it doesn’t exist, don’t remove it! If it doesn’t exist, great! Why should you fight its removal?
If that is the case, why does the government use the imported refined component to determine the subsidy when some percentage (33 per cent) is being refined in Nigeria? Why is the locally refined component not taken into account in the determination of subsidy?
There are two reasons. First, now, most of the refined products we consume are brought in from abroad because our refineries are not working at enough capacity to produce for us. We are consuming 35 to 40 million litres of PMS per day and that is mostly imported. That is why. But even when you refine at home, the cost of crude makes up about 80 per cent of the cost of petrol. The cost of crude oil, which is sold at the international price, has to be taken into account.
But NNPC is believed to be getting the crude oil at a rebate to refine for domestic use?
No! That has stopped. That no longer obtains because if you start giving people crude at below the price, they will still smuggle it out to neighbouring countries. Instead of refining it here and selling it to you, they will find it more profitable to smuggle it out and sell it at the international price! As long as a commodity has an international price and you try to sell it at below that price, people will simply smuggle somewhere and sell it at the international price, and go laughing to their banks. So you don’t want to do that; they are no longer doing that. Instead of refining it, people just trucked it to neighbouring countries to refine in Côte d’Ivoire and elsewhere! So even if you refine it here, you are still going to charge the international price for crude oil. But now, it could be cheaper because all the distribution and landing cost we incur and some of the inefficiencies in our handling of the product may be removed. But I suspect you can have it at a somewhat cheaper price if we can refine at home. Every Nigerian wants the oil refined here; it makes sense, and that is what we should be aiming to do. If we liberalise the sector and deregulate the prices, those will be incentives to those who want to build refineries. Right now, they cannot make ends meet because you are controlling the price. So they will not be interested, but if you remove that control and allow the deregulated price to obtain, people will now come in and build refineries and eventually the products will come to us cheaper than before.
People are talking about the housing crisis, especially in the cities; does the transformation agenda extend to the housing sector?
In this country we need a system that will allow people access to mortgage finance system that is really comprehensive and works, one that will enable people to borrow to build or buy houses. It is a normal desire for everyone to want to have a house but in this country, most times, you can’t have one; you have to save all your life to be able to own a house! We need to launch a comprehensive mortgage finance system in 2012. And we are going to do that. In 2011, we focused on getting the macro-economic environment right. We focused on agriculture and power. In 2012, we will add housing. We will try and develop a system that people can use at affordable rates. At the present interest rates, nobody can borrow to finance a house. So we need to figure it out, bring inflation rate down, bring interest rates down and develop a system that can give long-term finance because when it is mortgage, we need between 10 to 15 years, if not 20. That system is not yet robust in the country.
We will also look at the cost of building materials, the value chain for construction and use cheaper materials to bring down the cost of a house. And now we have new technologies being developed. There is new cheaper cement that has been made by one of our research institutes. The students of African University of Science and Technology have made a type of brick using local raw materials that will bring the cost of a house down by maybe 50 per cent. If you can multiply those – and of course cement makers in this country keep promising us that the price will come down. So, if you have cheaper cement, cheaper alternative building materials that are beautiful, let’s use them. If you can build a decent bungalow at N5 million, then when you take the mortgage you will be able to repay it but if it now costs you N15 million then you are in a different ball game. We are very keen on this sector because it can create many jobs. And many countries, like Malaysia, have developed on the back of the housing boom. Now we have to be careful not to get into a real estate bubble or overdo it and over-supply the place.
In addition, we also have to look at some of our laws that stand in the way – some of our land tenure laws, foreclosure laws, we have to look at those. In this country, it is almost impossible to foreclose, even though the law allows you. It takes so much time, so we have to review those because no bank is going to loan to you unless they know that if something goes wrong, they can foreclose and get their money back. So we have both policy issues to deal with and financing issues. The minister of lands and housing, the Central Bank governor and myself, Federal Mortgage Bank and many other interested actors, we are going to get together early in 2012 to launch this process of reviewing how we as a government can help launch this sector.
How are some of the specific initiatives already launched like the Sovereign Wealth Fund and You Win shaping up?
The Sovereign Wealth Fund is a key instrument of our macroeconomic management. It helps us manage the volatility of the economy. It helps us also save for the future of our children. And it helps us develop a fund for infrastructure. In the SWF we have three windows. A savings window for the future, stabilisation window to help us manage fluctuations in oil price; when it is low we can draw on that to maintain our expenditures, when it is high we can save. And it has an infrastructure and investment window so that we can provide co-financing to the private sector for infrastructure investment. We have now launched this instrument with a billion dollars equivalent. We have discussed extensively with the state governors to give their support for us to move on this issue. And God willing, they have agreed. And we are now in the process of launching it. As we go on, we will see how we augment the resources. At least, the federal government has the will to put its savings into the fund, and we will be doing more and more of that. And I’m sure many of the states will also want to do the same. So the SWF will be a key instrument of economic management and a key way of saving for our children’s future. Just like a household, you don’t spend everything you earn; you put aside a little something to help you manage the future. A country also needs to do the same.
And how is the You Win programme winning?
The You Win programme is a very exciting programme that was launched by President Goodluck Jonathan about two months ago (October 11, 2011). The idea there is that you find young entrepreneurs who are running a business, or who have very good ideas to start one, and you help them to expand these businesses. We have a panel of independent judges from Pan African Business School, from Plymouth Business School. We have donor supporters, the World Bank and DFID. You run this competition, select the best and you support them to actually implement their ideas.
You have just been on the job for three months and we are getting positive ratings from international agencies that previously downgraded us. How did we get there?
Well, we got there through a lot of hard work. The team, since the past three months that I came on the job, worked really hard as a team – the economic team and the ministry of finance team – to try and put in place all those things that they will be looking for, all the questions that they will be asking for them to see that we are changing. The big part of it was during this budget; they were really looking at the budget and we maintained all the parameters we told them. They wanted to see what prices we put, whether we were going to have expansionary budget or the right type of budget? It’s a fiscally prudent budget; that’s what Mr President wanted. They saw that the budget is a very sensible one, that we are doing some structural reforms. We are doing port reforms, trying to reduce bottlenecks so that business people can go in and come out easily, and you can see the impact. They saw that we meant business there. They’ve seen the efforts we are making in agriculture and power. And they took all of that into account. The budget played a big part in convincing them that we are going in the right direction. So they upgraded us. It is a very big endorsement and I’m proud of that. Our business community was delighted because it makes it easier for them to access resources.
