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Kalu Aja to Tinubu: Give families cash to spend, waive taxes, import food

MR Kalu Aja is a Certified Financial Education Instructor and an expert at capital market operations, investment, asset management, and economics. He worked at UAC of Nigeria as a brand manager, BGL Limited on the institutional pension desk, and Fidelity Bank Plc as head of the asset management desk. Aja was part of the team that set up FCMB Pensions PFA. He has an MBA from the University of Nigeria Nsukka and is an alumnus of the Lagos Business School. He is also an alumnus of the West African Capital Market School and the New York Institute of Finance. In this interview with ODINAKA ANUDU, the financial expert says President Bola Tinubu must work to regain the economic momentum of the first month of his administration. Read on and enjoy yourself!

It appeared that President Bola Tinubu came with some momentum. He first removed petrol subsidy and then floated the foreign exchange market. However, he seems to be losing that traction at the moment. How can he regain the momentum, or was there even momentum in the first place?

Yes, there was momentum. As we know, President Tinubu came to office and he immediately removed the fuel subsidy. So, the subsidy was gone. He also removed the peg on the dollar. That was done very, very quickly and you can see there was an immediate impact on the market. Also, there was an international commendation on the speed of the reforms. However, they then slowed down with the palliatives. They probably thought they could increase prices without palliatives.

The issues in the economy became too much and they had to go back to the subsidy.  Now, petrol subsidy is back, and the float has not worked because they have not done a full float. So, yes, the reforms have been pulled back and it has affected basically their plan. Right now, they seem rudderless. They seem not to know what to do next. It seems that their plan was to remove subsidies, get this money and spend. You know, it is a progressive government, so it is tax and spend. That seemed to be the plan. Right now, I think they are struggling with how to raise revenues but also to continue these reforms.

To your question, what they can do right now is to just get a plan and implement that plan with speed and certainty. There are many things they can do to raise money. There are asset sales, and they may even borrow. There is also cutting down of expenditures, but they need to get a plan on the table, communicate that plan and move with speed.

A lot of people criticise Tinubu’s planned handouts to the poor in the form of palliatives. If you were President Tinubu, what palliative would you give to poor Nigerians?

It is very easy to link the fall in household consumption with the situation we are seeing now. In 2020, the National Bureau of Statistics (NBS) said the Nigerian consumption was negative, meaning there was no spending. So, if you then increase costs in the economy by almost 300 percent, clearly, what you should have done was to have some palliatives that would boost household consumption. This was what they did not do. The palliatives now have to be very bold to give families some cash to spend. The government now needs to waive the value added tax (VAT), waive the income tax, and waive all fees. If possible, waive payment of school fees in primary schools at federal and state levels. Pay for the states, if possible. Take away as much cash that should go to the Federal Government and give it to families. Then, recover the deficit from increases in prices from the subsidy. The biggest palliative is going to be reduction in inflation, and the government has not done that. The way to go is to import food over a limited period. Let food come in so that food inflation can come down.

This is what they can do. Remove these taxes and levies from Nigerian households and do an import of food.

Are you suggesting handouts? Didn’t former President Buhari give handouts to families yet failed?

There have to be different levels of handouts. If you are poor, you will get a handout. It might not be cash, it might be eNaira or something. What Buhari did was not properly done. The most important thing is the suspension of taxes, VAT, income taxes, customs duties and all taxes that would have gone to the Federal Government or the federation purse. If possible, pay for the states.  For the larger economy, reduce inflation and taxes. If I am not paying taxes, you are giving me a salary increase because I am keeping more of my cash.

Some economists argue that the NBS inflation metrics are outdated, claiming that the headline inflation rate is far higher than 25.80 percent (in August 2023). Do you agree with them?

Inflation is the consumer price index. We take inflation, we put it in a basket and measure the rate of increases. If you do that yourself, you will have a figure higher than 25 percent. If you simply look at a bottle of coke you bought last year, you will see the rate of change. If you check how much you bought gala or bread, you will see the rate of change. I do not think number is the problem. The problem is the trend, which is going up. If I am businessman and I am doing a replacement costing, I am anticipating that the inflation will be higher tomorrow than today. Hence, I will increase my price to cover for the expected inflation that has not happened. Everybody expects that inflation will go up. So, the number is  not the problem but the expectation of price increases.

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If people believe that inflation will not go up again, then it starts to taper off and you can now have the monetary policy take effect. But as long as people believe that the price of coke or gala will go up next month, that is the real problem.  So, we have to tackle that expectation of inflation going up, not the number per se. 

Some analysts have criticised the immediate past Central Bank of Nigeria (CBN) governor, Mr Godwin Emefiele, for moving away from his core functions and playing the role of an interventionist. Now, the new CBN governor says he will stop those intervention programmes. Is that a good direction? Will that have positive or negative impact on the economy?

In a developing economy, the central bank has to play a development role. Even in America, the Fed is intervening in the market with quantitative easing to bring down the cost of credit so that businesses and consumers can spend. In our economy, the central bank is doing low-cost credit to farmers, small businesses and all that. I do not think I can fault them on that. Where I can call them to account is that they were a bit siloed. They were doing their own thing without speaking to the executive. You are giving farmers some money, but there also has to be a handholding with the Federal Government to build the logistics in that value chain, maybe a rail or road. So, you have monetary plus the logistics and the effect is multiplied. If a company gets a loan at zero percent, it still has to buy diesel. It still has to cater for security and move the goods round Nigeria, which the CBN cannot handle. So, for not talking to the executive, those things became suboptimal. The solution has to be a connection between the executive and the CBN. If the CBN is giving out loans to textiles, they must find out what the executive and states will do? That is where I feel they got it amiss.

The CBN has been raising interest rates with a view to taming inflation. However, inflation has been jumping. So, can increases in interest rates tame inflation in Nigeria at some point?

There is inflation in Nigeria because food is expensive. Food is expensive because bandits occupy the food producing areas of Nigeria. Even if you take interest rate to zero or 100 percent, it is not going to affect the supply of food. There has to be security operation to take away those non-state actors and then you begin to plan. That is why I talk about short-term imports.  In medium-term, you need to do the security, and long-term, you invest in the agricultural value chain. That is what brings down inflation. It is not going to be increasing the interest rates.

The Nigerian National Petroleum Company Limited (NNPCL) is repairing its refineries in Warri, Kaduna and Port Harcourt at almost $3 billion. However, the government seems to be more interested in Dangote Refinery, which is a personal facility. What do you make of this situation?

 We have lost the luxury of choosing which is the best. The fact is that we need PMS. We need PMS and it should be local. We need PMS not just locally but also to export and get some foreign exchange. The luxury of choosing where the PMS will come from is gone. If Dangote is ready tomorrow, we will take it. If the NNPC says it is ready tomorrow, we will take it. The problem is going to be, at what cost? If Dangote can export, that helps the deficit in the economy overall. I don’t know if the refineries will impact the price of PMS more at the local level. We are not going to see a N100 drop in the price, but the economy will get better.

As for the NNPC, those refineries seem to be a bit old and have not been well managed over the years. I think it is a good opportunity to call folks and ask, what can we do? Can we sell them? I think those refineries have been so mismanaged that even if they run for one or two years, they will run into problems down the road that will cost of more to maintain them than just build brand new modular refineries across the nation.  That is going to be a decision point for the experts.

The southeastern Nigeria is hard hit by insecurity and poor infrastructure. To what extent are all these affecting the region’s economy?

I think Nigeria’s gross domestic product (GDP) is agriculture, trade and telecoms. Trade is one of the largest blocks of the GDP, and the South-East does a lot of trade inside Nigeria, in West Africa, Africa and globally. So, whatever affects trade affects them. If you cannot get dollars to import, if you do not have power to produce, you have an insurgency in the region, trade will suffer. And once trade is affected, the output and GDP of those states are affected. That is what we are seeing.

If you look at the poverty report that was released recently, all the South-East states seem to have been doing well. The last GDP report I saw, the richest middle-class Nigerians were from the South-East. Overall, they seem to be doing well, considering that they have infrastructural deficit. They have only one free trade zone in Enugu, and it is not even functioning well. For the railway, the standard gauges that go from Port Harcourt to Maiduguri should connect the South-East. There is an infrastructure deficit there, but that is not an excuse. The main problem is that trade is suffering, and that is affecting the South-East’s ability to do more. I think they are doing okay, but they can do more.

Some people suggest that, perhaps, Nigeria should think of economic regionalisation in terms of each region developing what it has at its backyard. Is this model going to work?

You do not need to be a regional body to develop cocoa or palm oil. It is already happening now. Edo is developing palm oil, and Akwa Ibom has lot of cocoa. When they say regionalisation, they mean creation of a bigger market so that it becomes attractive to investors. A good example is railways. States can do railways, but it does not make economic sense for Abia to build a railway. If you bring all the five South-East states together, you then have a larger land mass. Investors will see a large scale. Imagine if you add Ondo, Edo, Lagos and other states, you will get scale and the cost will come down. That is the regional scale we are talking about. If you think of yourself as an intra-state commerce, you create a bigger market. That scale drops the per kilometre cost of doing the project.

The same thing is applicable to roads. If you call Julius Berger to build a road inside Abia, they will bill you per kilometre. But if you say you are building all the major roads in the South-East, that will be a larger project and will cost you less per kilometre.  That is what we are not getting right. In America, they do the same thing. To get it more practical, your secondary schools in Edo, Enugu and other states can come together and import books. If you place a book order of five states, you get a discount, which is cheaper for your budget.   

What is your position on the recent NBS unemployment figure, which suddenly came down from 33.3 percent to 4.1 percent?

I think it is a question of hiding behind data. To hide behind data and say that unemployment rate is 4 percent is wrong. Can you imagine someone coming to sell goods to you and tells you there is only 4 percent unemployment rate in Nigeria. No bank can take a proposal from anybody saying that there is only 4 percent unemployment rate in Nigeria. You have to ask yourself, can we plan with this result? The whole essence of statistics is to plan with it. Can a governor plan with this number?  What you are telling a governor in Yobe is that he has no unemployment problem, and that is the problem. That is not true. They could have had three numbers that said pessimistic, optional and best case like the US has household and BHS.

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Economic histories of many nations have one central theme: Industrialisation. Speak to us on how you think the manufacturing sector can begin to perform better. I saw a document saying that the average interest rate at which the Manufacturers Association of Nigeria (MAN) members got loans in the first half of 2023 was 24 percent. How can we change this narrative?

It is a simple but a complex question. Nigeria has got a number of issues going on at the same time. If you look at the United States or Europe, you might say their problem is growth or inflation. They do not have issues with consumption.  When you come to Nigeria, all economic problems are happening here at the same time. You have high inflation and high unemployment, which means stagflation. You have low consumption, insecurity and challenges with your foreign exchange. So, you have lots of problems. But we need to ask, which one should we address first? Should we go for power supply or to borrow more? Should we ignore inflation and give people money to spend to reflate the economy? There are many options and you have to sit down and find out what you want to achieve in the next four years. Do you want to build consumption or an export-led economy? Do you want to expand education? What is the basis of the economy going to be?

Are we going to produce locally, give money to manufacturers, or print money to spend and reflate the economy? Do we ignore the dollar, or weaken the naira and export? If we do import-substitution, where is the power? There are too many problems. Get smart guys in the room and find out what we can do. Consumption is not all bad, but you need to have a plan. If you want to export, you will earn dollars but you need a plan. Right now, nothing is happening. We do not know what is happening and that is the problem. We do not know what is going to happen to the government tomorrow. The market does not like uncertainty.

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