Saraki: Our major challenge is how to shore up our foreign reserves
Senate President, Bukola Saraki shared his thoughts on the economy with the media last week. GBENGA SALAU reports.
It appears difficult selling the idea of assets sales to Nigerians, why is it so?
I said this with all sincerity; I have nothing to buy. What is the problem with the economy, everybody needs to understand it, which is when you begin to understand the solution.
We are in a situation where the forex inflow into the country, which comes from different sources: government, sales of crude oil; export proceeds; foreigners and Nigerians investing in companies in Nigeria; hedge fund and even Nigerians that have money abroad bringing it in.
Out of these five sources, only one is functioning today; that is government source, the others have dried out. So, the forex inflow has gone down, reserve is low, but demand is still high. There is no confidence in the economy that will encourage these four sectors to bring in money for obvious reasons, either they believed that the naira has not yet found its bottom, so, ‘if I bring in my forex, I am going to loose straight away’. And as long as that continues, we are not going to see inflow. And then you have the Niger-Delta problem on top of that.
So the forex inflow is low, the reserve is depleted, unfortunately, the period we should have saved, we did not. For example, if the reserve had been like 60 billion dollars and it goes down to 40 billion dollars, we would not have gone into recession, that is the blunt truth. At the same time, even if oil price went below 40, we still could not have gone into recession, if we had the confidence of those four sectors, if they continue to believe in the Nigeria economy and were putting money in. So the naira started coming down. The naira started coming down and a dollar is exchanged for about N430, and still going down further, because anybody who is looking at it can predict the direction. I look at your balance sheet and see that you only have 20 billion dollars there and I see your demand and money is not coming in. And speculators are saying that by this month, it is going to over N500. Everybody is demanding and there is only one way to go. The complicated part of it is that because of the situation, CBN is facing two things; first, it is trying to save the naira, preventing excessive liquidity, because of that, the CBN is mopping up, and that is why they cannot reduce the interest rate, as they are concerned. The other problem is that all that liquidity is likely to be chasing the dollars. So, at the end of the day, you cannot bring interest rate down.
It is my humble opinion that we can build our foreign reserves and that is why government says it was going to borrow externally, that has not worked, though promises are coming. Even if you do that, the government can raise 5, 6 billion, that can help government to fund projects, but it is not enough to give that confidence. Now, my take is that if you build the foreign reserve with $15 to $20 billion, you now have foreign reserve of about $45 billion, then the guy sitting outside with its portfolio knows that the economy is strong. If you decide to defend your currency, you have the capacity to do it, which will likely stimulate the economy and people will be saying, lets go to Nigeria.
What has happened is that everybody is putting their hands off Nigeria and that is why we did not get value when we devalued. As people still believe that naira is still going to go further down, you have the capacity to say naira is going to stay at N400, you have the capacity to do that. So I can project as a hedge fund manager that I am going to invest in Nigeria, the interest rate is good. I am bringing my dollar in, change it to naira to buy my instrument. In six months time, I will go out plus 400 minus ten per cent, but I know that my margin on the yield of my instrument will cover whatever I may have lost. But now, if you make 16 per cent on the instrument, you can get devaluation of 20 to 30 per cent, nobody is going to come in. So if you do not address the foreign exchange issue, it is impossible for the CBN to also address the interest issue, because it is also mopping up the naira.
To me, we have to look at what to do to increase our foreign reserves. It is like a company, you go round to banks to say, can you borrow me money? And you cannot get money, but you have 100 shares with Guinness, which you are keeping for your children. To raise fund, you can decide to sell 20 shares, because of the need of today. Nobody is saying sell the hundred, no. I am not even advocating sell to Nigerians. Some of these national assets already have existing shareholders that are multinationals and non-Nigerians. I am saying, am holding 60, you are holding 20, and I say I want to come down from 60 to 55 or 45, let me sell to existing shareholders and the money comes into your foreign reserves, that is the concept I have. I am not saying Yussuf, Isiaka come to buy because what are we going to achieve with that? Bringing in Nigerians to buy with naira, I do not see value added in that. Two, because of the skepticism that exist, that is why people shouted they want to buy our collective assets, that is not the premise. You already have existing shareholders, they are not Nigerians but multinationals shareholders, you can sell to them with option to buy back and that gives you the liquidity. The moment the foreign reserve is there, the CBN can now address the issue of interest rate. But it cannot address the two at the same time.
And then you got the Niger Delta issue, with all these going on. It is not an easy decision. I have learnt something; you govern the people; you try as much to sell your ideas to the people you govern. You do not rule. A lot of these are based on mistrust; they believe that there is a game here. We owe it to those that have understanding to explain and take the concerns of Nigerians and adjust what needs to be adjusted in the principle. If we do not sell any asset and we continue like this, what is the alternative? One of the alternatives is to go to IMF because you need that money, that is the fact.
You talk about confidence, was your government showing the right attitude from the beginning in terms of economic policies?
You have a global recession happening, you could not predict the Niger Delta issue and even people who are going to deal with you are looking at your cash flow.
When you never had anticipated the Niger Delta issue, so it caught us unaware and that is why efforts are being made to engage them. In the senate, one of our recommendations is that there should be dialogue, ensure stability in the Niger Delta. I believe that there is no cost that is too much to ensure peace in the region and that cost could be that we only have one option, which is dialogue. So, are saying you need to show force, I do not believe in that. We must dialogue and restore the production to the level when there was peace. This is because, the amount that we are loosing is huge.
Again, on the sustainability of borrowing, already borrowing is accounting to 40 per cent of expected revenue. If you say you don’t want to sell assets, you go to borrow. It is like an individual, you are not selling what you have, instead go to borrow, but do you have the capacity to finance your borrowing, when you start looking at what percentage of your borrowing, is your total revenue, and is it sustainable? And because of your borrowing, at the local level, you are now crowding out the private sector. I am sure if any of us go to the bank, they will not give us any money, why, because they can lend to government and collect 18 to 19 per cent with zero risk, so why would they lend to individuals. So, even the private sectors are being crowded out because government is borrowing so much money to stay afloat.
Our target should be diversification and even better than that, our private sector should be so strong that government efex is just a percentage of the total inflow. When things are good, you will see people investing in telecommunications, see the last licensing they did, nobody participated. None of the major companies within and outside participated. Look at the construction industry, people were not buying stock exchange, nobody is bringing in money. We need to adjust and bring back those good eras
Looking at the trend of debate in the National Assembly, some of the laws would be amended to sell off the assets?
I do not think there would be an amendment to the laws when we want to sell five percent of the stake in NNLG, especially if you are selling to existing shareholders. On the joint venture, I do not think so. I must emphasis that, this is not being thought out as a first resort. You should know that we have ran almost a year and we have tried options and all of them are closing up, local borrowing, we are getting to the tail, external borrowing is low, investors are not coming and people are suffering. As leaders, you think out of the box to consider what to do next. As I have always said, you can decide to take the easy option.
The way to get out of this is to do more borrowing, get our crude oil production to go up there. And time too plays a role in confidence, after a while, lets watch and begin to do the right thing. But the other one with the reserve will stimulate it quicker because when you do the country risk, all of a sudden, it will jump up a lot of steps.
The executive and the legislature are both thinking of solutions and the executive may come to the national assembly for endorsement of some of the decisions, which might include giving the president emergency powers; how are you going to rally round your colleagues for this?
I do not want to base my comment on speculations, especially on an issue that is critical like this. When you preside over colleagues who are first among equals, you should respect their views, just like I gave my view, I respect people’s views, I am not in the executive, so I do not expect whatever I say to become law. I cannot speak on their behalf, so if there is anything coming in, we would wait till when it comes, look at how it applies to the constitution, the principles and the values and effect and then open it for debate among colleagues. But for that to happen, there must be a very good working relationship between the two arms of government. Some of us, we have been saying it that in a democratic system, the two arms must work closely together and it is not a case where it is only one arm of government that is working and the other is seen as just there to slow us down. It must be seen that they must collaborate and harmonise to be on the same page.
And the executive must play a lead in that. We are ready to work with the executive, there are things even we did, that they did not ask us for. One of the things they talk about now is the public procurement law, if you noticed way back in June, some of us had foreseen this, amended the law in two areas; amended the law on the down payment from 15 to 25 per cent, anticipating that we needed to release money and jump-start the economy. Two, we shortened the process of contract awards. What I am saying is that even before they come to us, we have already started taking steps. And the talk about buying made in Nigeria and that government should look inwards when they are buying goods and the advantage of that is to reduce forex demand. You should understand that by the time government starts releasing money now, most of them have dollar component, that is going to put further pressure on the naira, but if government can as much as possible source locally, there would be less pressure on the naira. So we already have shown that we are ready to work with the executive, but it has a big role to play in that, to show that it is ready for collaboration and I think there is a lot of improvement that needed to be done in that area.
Do you have confidence in the economic management team of the president?
That is a difficult question; I do not believe that it is the team that is only responsible for driving the economy. I think we all have a role to play. I think they are working in a difficult time and it would be unfair to lay all the blames on them, because they were meant to go for external borrowing, are you saying World Bank did not give us the loan because they did not like Adeosun. We are not seeing the bigger picture. I think where they can play more roles is that they need to push hard at some of the policies, there are inconsistencies, you see one minister talking about free market, sometimes another goes somewhere and say something different. And all these are creating signals to the investors. So, there is need for more cohesion in what government says. Sometimes, these sensational comments are not part of the solutions. The solution is a basket of many things, not just saying change the economic team, does doing that just make things work. Sometimes, you never know where the weak link is, until you have taken this and that decision and things are not working, you then know this is the reason things are not working. So I think it is too early.
Capital budget is still very low, people think the bureaucracy is still too top heavy, a lot of wastage, people are asking for fiscal restructuring; on whose side are you?
Every government all over the world is trying to reduce cost. The issues before us, it is not the cost per se, productivity is important. That means that if you have efficiency, you block the leakages, you might be able to see another 20 to 30 per cent savings. Even if you reduced that to even 15 per cent through laying off people, how realistic is that too under the environment we are. I am a practical person and what I believe is holding us back, when we prioritise, you can list five reasons: one, low revenue; two, diversification; three, cost of governance. It is there, it is one of the reasons. What I am saying is that we would continue to do reduce cost, even if we do that, will it deliver us, unless we do the things we talked earlier. But unfortunately, because people like to play politics, they try to blame the National Assembly. The problem of increasing your foreign reserve and revenue, expanding and creating a good environment for business has nothing to do with that cost. Our goal as a country is such that government becomes a small percentage of our GDP, it gets to a point that government exists but the economy goes on despite government. In India too, the government is not efficient, look at the infrastructure, but their private sector is so strong that it grows despite government. Even if we get to that stage because of our demographics, because we have been blessed with so many things, the country should grow despite government. I am not saying we cannot be more efficient, but let us focus energy where it should be and not give dog a bad name.
You talked about addressing the Niger Delta to save the economy. How involved is the NASS?
I have said that there is a certain aspect that requires legislative and executive collaboration, and for this to happen, the executive needs to take the lead. We have offered ourselves, we are available anytime, if we are needed for collaboration. And everybody by the constitution has a responsibility, but with legislative collaboration, a lot could be achieved. But I do not think there is any request, seeking members’ collaboration that we have denied. At a time like this, everybody is important, including the media, because some of the things we are trying to sell, we need you to get it across. Poverty does not know party, so we must all be seen to be working a way out. The discussion of the issues by both the legislature and executive is giving hope and sends a strong signal as opposed to when both parties are apart and no communication.
Also, all these recommendations, it is not one only, because if you do one and leave the rest, we would not succeed, it is a package. If there is stability in the Niger Delta, not only will it bring up production, and with that, government will cease to borrow, because selling those assets is not for government to spend, it is for us to move away from that equity and liquid assets for us to have capacity to defend our naira, not for spending. Except, if government is spending in the Niger Delta, and this is good because if all is well in the Niger Delta, government too will reduce its level of borrowing and CBN can starts bringing rates down, banks will start looking at lending to the private sector, but as for today, if you go round, you will see that banks are not creating any assets, and if they are not, how is the manufacturing sector going to grow.
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