21 February 2016, Lagos- An economist and Managing Director, Bristol Investments Limited, a banking, mortgage and economic consulting firm, Dr. Chijioke Ekechukwu, in this interview with James Emejo argues that the recent increase in electricity tariff has the potential to spark inflation. He also addresses other economic issues currently in the front burner. Excerpts:
The recent increase in electricity tariff has been marred by controversies. Is the adjustment in the interest of the economy?
The real sector of Nigeria’s economy is hinged on the availability of power. For many years, Nigerians have clamoured for steady electricity generation. That is why the manufacturing sector is not doing well.
A good number of international companies shut down businesses in Nigeria because the cost of production is higher compared to their counterparts manufacturing outside the country and importing the products to Nigeria. Now that government is increasing capacity in electricity supply, I expected government to stabilise the supply of electricity in order for the manufacturing sector to start growing gradually before the tariff is increased. The reaction is because factories that shut down because of energy have not even started business, yet the tariff is being increased.
This means that it will be difficult for local manufacturers to start production. I recommend that the tariff should not be increased now because it will increase inflation in the economy. Owners of various electricity firms should not seek profiteering right now; they should have the interest of growing the economy at heart. That should be regulated for now until the economy stabilises. Even though the operators have a very heavy investment outlay, profit is not made in a day.
For the size of the business they have put in, the breakeven point is not in the short run. They should rather look at the kind of engagement they will have in the long run by creating job opportunities, adding to the gross domestic products, and producing enough capacity for the manufacturing sector to grow. Government may not subsidise any payment for the household, but government can regulate the increases in tariffs.
The 2016 budget currently appears to be in limbo, partly as a result of the falling oil price. Is there a way out?
The budget is not headed for waterloo. What we have is a budget that cannot fund itself. The revenue projections cannot fund the expenditure size of the budget. When you have a deficit budget, you look for external avenues to fund it. It can come in the form of sale of bonds by the government, or borrowing from international lending communities. My concern is how the funds from the lending sources will be optimally utilised to grow the economy. If we run a deficit budget for two years, what are we going to use the inflow to do to be able to fund the budget in the subsequent years? Countries all over the world usually run deficit budgets and borrow, but they use the inflow to recover some aspects of their economies to replace the hitherto declining sector. So if we get our funding to develop other sectors aside oil, more revenue will be generated, so borrowing is not the issue.
There has been mixed reactions to the recent implementation of the Treasury Single Account (TSA) by the presently administration. Do you think this has been effective in curbing corruption?
TSA is a successful government decision. You and I know that TSA has removed all forms of corruption in the system. Before now funds will be idle in the banks of ministries, departments and agencies that will not be known by government. Many revenue generation agencies will receive funds into their accounts, and will not remit same to the CBN. TSA has ensured that such funds are accounted for, thus making them accessible to the government. But streamlining the TSA payment has reduced available funds for funding various projects by banks. Banks do not have the liquidity to fund projects because they no longer have idle funds like before. That means banks will not have enough to lend and the main sector of the economy will suffer.
What is your opinion on the recent stoppage of foreign exchange to bureau de change operators by the Central Bank of Nigeria (CBN) among other forex restrictions?
I rather see it as a policy that will reduce pressure on the country’s foreign reserves. It is not just bureaux de change that is bringing pressure to Nigeria’s foreign reserve. The CBN should look into the appropriate areas. What percentage of the foreign reserve will the bureaux de change request in a month? The greatest pressure in the foreign reserve is coming from the importation of petroleum products which runs into billions of dollars. Until government decides to make sure that petroleum products are being processed inside this country, and ensure that we don’t continue to import petroleum products, there will be pressure on our foreign reserves and will reduce the value of naira against other foreign currencies. I don’t think this decision is totally wrong, but the CBN should see that the problem of the naira is not the problem of bureaux de change but the negative balance of payment arising from importation of petroleum products.
The FG plans to spend N5bn to alleviate poverty in the country. How will this play out?
I get worried not because government does not have a good plan. Every government may have one programme or the other for the masses but my worry is implementation. We had the National Poverty Eradication Programme which was geared towards eradicating poverty, but what we ended up seeing was that the people running it flooded Nigerian markets with tricycles. That is not poverty eradication, rather it is increasing the nuisance level of this country. I do not think this country is a Keke NAPEP country. In alleviating poverty which should rather be called wealth creation, we shouldn’t be looking at dashing people money or buying tricycles. People need to be empowered at the grass roots. Unfortunately you see that a greater percentage of this funding will go to rich people. If the entire money will go to the coffers of the active poor by providing them with self-reliant skills, then we can say wealth is being created. The funds should be deployed in skills acquisition and empowerment.
Some state governments are currently in a dilemma amid revenue shortfall. What would you proffer as way forward for them?
The system of government that we run made states lazy – funding is generated from the federal and every month it is distributed to states. Because of this, states will not see the opportunities in their various localities to generate revenue. Every state has a natural resource. But these avenues are under tapped. That is why the internally generated revenue is not utilised maximally. It was when the federal government denied Lagos state of allocations that the state government went inwards to generate funds locally. Today Lagos is the richest state in the country because they uncovered these revenue generating avenues. That is what every state should do.
How best can the federal government utilise the significant recoveries being made from looted funds?
Every aspect of governance requires planning. The federal government and her economic team should sit down and allocate these funds to ensure that certain percentage of these funds is used for developmental programmes. If the planning is not done, it will be difficult for them to know what to do with the funds. I expect the economic think tank of the government to plan the utilisation of these funds, otherwise the money will grow wings and may never be useful to us.