In this interview with EDIDIONG IKPOTO, Olusola Obadimu, Director-General of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, discusses the challenges that businesses face and why the government should reconsider some of its economic policies.
In the second quarter of 2022, the Nigerian economy grew by 3.54 percent. Do you believe these figures accurately reflect the current state of Nigeria’s economy?
The problem with the Gross Domestic Product is that it must be interpreted in context. It is related to population growth. It must be greater than population growth to be meaningful. Our population growth is usually estimated to be around 2.5%. So, if we record 3.5 per cent growth indeed in truth, that’s fine. But the other leg to the argument is distribution.
If you have a population and whatever growth you’re recording is reflected across all strata, fine. But if it is not evenly distributed, it may not necessarily impact the lives of the people. That is, nobody will see it. The common man doesn’t see any growth so it becomes just a figure being churned out.
The perception is that the people in authority have come again with figures to bamboozle us, to tell us that we are growing when there is nothing to see, especially when you take it in the context, like you said, of current realities where we are currently experiencing something like a runaway inflation. If I can put it that way, where you go to a shop today and buy something today, only to go there next week and it’s 20 per cent higher in price.
So, that is what the common man sees on a daily basis. So, to tell him that there is any growth when his income is declining will be surprising to him.
If for almost everything you purchase, the prices are going up every week and your income is static or even going down and somebody tells you that something is growing somewhere, be it GDP or whatever economic data that you might say, it becomes just another deceptive presentation. It may be factual but the point is, any growth recorded, which is not reflecting across all strata, can never be appreciated. It becomes just churning out of figures.
Inflation figures have continued to increase on a month-on-month basis. What can be done to cauterise this problem?
Let me put it this way, the price of a TV set that was manufactured outside this country is in dollars terms. The price of TV is going up or our own naira is losing value.
The currency is losing value faster than anything and the managers of the economy have tried their best in recent years to stabilise the value of naira, which has resulted in a case where our foreign reserves are going down in an effort by CBN to stabilize it and artificially hold the value up.
For so long, I think it was N300 to N400+ for so long and until we could no longer hold it down and then we had a situation where it is now floating between N700 and N730 per dollar.
This means that’s about double of whatever value we had three or four years ago.
Organised businesses have struggled to cope with energy costs this year. What can be done to address this problem?
Some things are cyclical and that is the fear being nurtured by those who fear the consequences of any attempt to remove fuel subsidy.
Fuel subsidy removal is the best economically. It’s the best step to take fundamentally to free ourselves from the shackles of this over-burdening of the budget by fuel subsidy. As it is, there are rumours that there may be no money for capital expenditure in 2023 because of the growing burden of debt servicing and fuel subsidy. So, there is an overbearing pressure to remove the subsidy so that it can free our budget as quickly as possible so that some money can go into development.
However, if you do that, it will have a monumental effect on the naira again. This is because it will spark inflation again, as most of the activities are in one way or the other related to petroleum cost and basically petrol.
Diesel was able to liberalise in terms of prices because its effect on consumption is not quite as deep as that of petrol which almost everybody uses in one form or the other.
So, the consumption of petrol far outweighs the consumption of diesel. Anything that happens to the price of petrol will have a huge multiplier effect which, again, will spark prices and further weaken the naira.
Then, it will weaken the naira again and there will be higher prices of petroleum again. You know the prices are fixed relative to the dollar as we are importing all these things presently. Even if Dangote goes on steam, the chances are he wants to sell at a globally competitive rate and he needs to recoup his investment.
When you remove the subsidy and the prices of petrol goes up, the naira weakens further and because the naira weakens further and the prices of these petroleum products are all usually dollarised, they go up again further.
Access to foreign exchange has remained a big problem for many businesses. In what ways can the government fix this issue?
Basically, it’s a matter of demand and supply really. How do we generate our forex? We export our products and generate foreign exchange, but now, our export capability is low. There are so many factors, for example, the oil theft. We used to export about two million barrels of crude oil per day. There was a time it crashed to about 800,000 plus per day and it has climbed to 1.1 million per day now. So, we are losing revenue and our cost components are growing. Gradually, there’s a huge demand for everything.
If you analyse the elements of this ASUU strike, everything comes to demand for money in one form or the other, whether by the lecturers themselves or for the institutions that they represent.There’s a growing demand for the government to spend money on various things, but where’s the government getting revenue from?
The government revenue is declining due to the effects of oil theft and we are not growing non-oil exports in any way. We are not adding value to anything and that’s the bedrock of our economy. It is greatly weakened and when you add the impact of insecurity to all these factors, you will see they have weakened our ability to produce for consumption, let alone exports.
It is when you have produced enough for consumption that you can export the excess. So, all these things have an impact on inflation.
It’s a matter of supply and demand. If food is scarce, the price will go up. So, it’s a web of complications, but the fundamentals are there. We have not truly made any concerted effort to grow our exports fundamentally, to add value to whatever we export and to increase both the quality and the quantity of our exports. There is a growing demand for expenditure.
The agricultural sector has performed relatively poorly, despite huge investments by the government in the sector. Why has this sector failed to live up to expectations?
We are underperforming because we have not realised the kind of potential that lies in agriculture. The primary industries are agriculturally managed and it is from there that everything else grows from.
In terms of all the processing we do, it’s either you start from a mineral product or agricultural product, which is why we call them primary industries. So, it’s an area that has a huge potential to employ so many people because of the value-adding processes that we are not taking advantage of. We are just farming to eat.
Our manufacturing capacity that could be based on agric products is low. So, what do we do with these agric products anyway? We just eat. On a seasonal basis, we eat oranges at a season and another season we don’t see oranges again. In stable economies you find oranges throughout the year at a stable price level. We have no capacity to preserve anything because of the lack of electricity supply. So, people who produce out of the farms have a lower tendency to process their products.
We just produce to eat and we are not producing enough. The impact of insecurity has lowered the capacity of what we used to produce. We produce less now and getting the produce into the market or other areas to sell has a higher cost effect than the actual cost of producing the primary products themselves. So, the people who transport these goods to the market make far more than the basic farmers and because of issues such as insecurity, it gets to the market to the end buyer at a higher cost. But, basically, if we are able to raise our preservation and our processing capacity, more people will be employed by that sector and we will be able to have a higher export capability which we don’t have now because we just produce these basic things to eat and we are not quite focused on developing the sector.
If we are able to process, preserve and make sure that the logistics aspect of agric business is well-managed, we would take advantage of it, but we are just focused on oil.
Recently, the Federal Government proposed a ban on mining activities due to security concerns. Do you think the activities of miners should be halted?
There is an urgent need to reform that sector because, as it is, it is not really aligned. The activities in that sector are not quite aligned and the procedures, the systems and policies are not yet clear enough for the government itself to take advantage of the tax prospects or potential that it could earn from that sector. If it is being done with the way it is done now, where does the government get the tax on the activities from?
Let’s concentrate more on adding value and not just mine and take them to somewhere else in their raw forms. What have we done to process these things further?
Businesses complain being over-taxed by the government. How will the government generate revenues without over-taxing businesses?
I have always felt that the lazy way out to increase government revenue is to think that you want to come back to people to raise taxes for everything you want once you have a shortfall in revenue. It doesn’t quite work out well.
Government has to be disciplined in its activities, in its spending. You cannot be reckless with your spending, overshoot your budget and come back to people to raise more money. Meanwhile, the services for which taxes should be paid are non-existent.
Look at what is happening along the Lagos-Ibadan expressway on a daily basis, and you want people to pay more taxes? So, people ask themselves what they are really paying for.