John Nwokocha
16 November 2008
interview
Two-time Finance Minister, Dr Kalu Idika Kalu, who, at different times, also served as minister of national planning and minister of transport, penultimate week in Abuja, spoke to Sunday Vanguard on the global economic meltdown and sundry economic issues on the domestic front.
The BGL chairman and member, Presidential Technical Committee on Niger-Delta, also spoke on the Niger Bridge even as he gave insight into what Nigerians should expect from his committee.
How would you assess the Federal Government's declaration that it is prepared to weather the effects of the global economic crisis if eventually it impacts on the nation's economy?
Well, the first thing is to make it very clear that it doesn't help when we do not take a good look at the facts of the case, when we just join the chorus because we see it in the international media. Global downturns are not a new phenomena, they are in fact regular occurrences. Of course, the whole import of physical and monetary managements - the whole thing that led to the setting up of the IMF in particular, if not the World Bank - is to make sure that trade and payments, exchange rates and interest rates are sustained by member-countries in a way to cushion the potential for deep trust in economic activity and, therefore, general crisis in payments.
So, there is nothing new in the global payment situation.
Now, therefore, what I am driving at is that before we even begin to talk about joining America, Europe and the rest of them, we should define just how we are involved in the system. Our involving in the system is very very limited because we are still labouring with structural imbalances. We are still trying to produce food, we are still trying to produce building materials, furniture, housing, so on and so forth. We are still dealing with basic decision of how to produce efficiently, so, we don't have to import everything.
We had quite a bit of setback in some of these, as, you know, some of our industries are closing down. The steel industry that we started 30 years ago has not materialised, our aluminum smelter is high priced and we are not even sure whether it is producing or not, our refineries are all closed down. We don't have petrochemicals to speak of, so our plastics are rudimentary.
So, in essence, what kicked off the current crisis in the world's economies is that there was so much credits in response to demands by mortgage seekers in USA and, of course, it overflowed to Europe because Europe and America are integrated economies. So, the extent to which we are not feeling it is not something we would be so happy about.
It shows that we are not really integrated in the first place. So, all these show and there is a lot of noise over the preparations as if we are really so integrated. How are we not integrated? We are exporting the approximation of about three to four per cent of total US import, only three per cent, it might even get smaller with the push to drill in the continental shelf of the US, that could reduce Nigeria's share of US imports. They constituted an AGOA programme, which they directed at encouraging African countries to produce for the US market, but we never organised enough to take advantage compared to some other African countries.
So, what I'm driving at is almost as if we are behind a big wall and just hearing noises on the other side and we are making all kinds of preparations to ward off all the effects that really would not come to us. This is not to say that the effects would not be, but in terms of credit flow of funds to Nigeria from America or Europe, this is so minimised.
You know we have got into this psyche of 'we don't want to draw credit, we don't want to borrow,' we are in fact paying them off substantially down to $2bn which we are now proliferating and DMO office is all over the place to manage. Those are the things in trying to grow your economy you look for credit locally and outside your shores. You look for the management, technology and so on, that is how you get integrated. You are producing efficiently enough and you can be seen as a source of raw materials or intermediate goods; so that when the market to which you export these things begins to soften, of course, you will feel it. India, for instance, is a major supplier to IT and other software industries.
They are also producing some vehicles, they are producing chemicals and all sorts of things. So, naturally, when there is a recession that will impact on the demand for those products, of course, they would be affected. So, when you are not efficiently organised to even supply, what is all the preparations for? We are still trying to organise to valuarise our raw materials to produce efficiently, so we can be a supplier, so that when there is any bump in the demands, slow down, then we see how we can manoeuvre. These are things that led to new technology, new products, and, in the bid to adjust to these things, the economy continues to deepen its structure.
So, we must not overplay the international financial crisis. You see how Europe, from Germany to Britain and France, if you hear the kind of funds they are mobilising to keep up demand for credit so that producers would not suffer, bank shares would not drop because producers suffer. For us, this is totally a different kettle of fish and to the extent that it is similar, is so marginal. So, all these efforts to prepare for the implications, well, what we are worried about are basic things - water supply for our cities, for our farmers, power supply for the economy. We are worried about housing, we are worried about roads, we are worried about utilising our gas effectively, we are worried about our ports, we are worried about getting our refineries working.
Is it then correct to say that you are cautioning the government to stop whatever preparations towards managing the implications of the crisis?
I didn't say that. I'm saying we should stop this panic measure giving the impression that we also belong. We don't belong to the extent that we are coming out with all these sounds. I think that people are just trying to show that they are busy doing something. But we should watch it, we have enough to watch, in the domestic economy. I am describing relative order of magnitude. I am saying we should be reacting to the extent that we are affected. We can't be making more motions than is required by the impacts. There has to be a proper study and understanding. The language is just to make sure that we are not over-reacting. If we over-react, something must be missing, maybe we are not paying enough attention so that in future you too can be counted as a player in the market. Right now, we are not a significant player no matter the things you read on newspaper front pages, this bank did that, that bank did this.
Some say that what has happened to the US economy would cause it to lose its dominance as driver of world economy. Do you agree?
We are hardly in the position to make such statements. There are ways out there. Economic downturn, as I said earlier, is not a new phenomenon. The economic slowdown is part of what already has been studied. There are long slowdowns, these are fields of studies in economics and businesses.
The number one economy is still the U.S. Number two economy is still Japan. Number three economy is still China. So, this is not a signal of a decline of U.S. economy. And I think the last people to be making comments should be us. If we are going to go through the stages of growth, we are going to go through the same thing. The lesson is that we have to go through it carefully.
We must try to keep an eye on speculation, we have to make sure we are producing the real sector. We are not just talking about financial flows. Now the question we should ask is, which economy is taking U.S.'s place? All the G7 countries, even Russia is probably not so affected because Russia is still relatively insular. They have large volume of reserves, China the same thing. But because of the interwoven nature of their trade and the dependence on the supply of goods and services, it could be affected. They are all trying to make adjustments. When they make these adjustments, whether that would not now place new economies, already China is surging before this, they've also been hit by this crisis.
So, I cannot categorically begin to worry about the relative position of the U.S. economy. Look at the oil sector, just by additional drilling, they can tell everybody else to go to hell. It's a question of their choosing environmental concern and other things. Look at us, our incomes are still very low, we don't get to that fine-tuning, we can produce more yam, cassava, rice. The relative positions of the countries may not change very soon.
The distances between them may alter a little bit. But that should not be exciting people. What should be exciting people is how a whole U.S. economy allowed the housing sector to go out there, they so liberalised credit, they forgot that the economy cannot provide the incomes to sustain the mortgage values they opened at the extent they are already blaming Greenspalm for lowering interest rate to just keep the economy from going down. Now, lowering interest rate didn't do it, so they now have to pump money to sustain those economies.
But people will borrow, it is not going to be free money, you only borrow when it makes sense. If you don't borrow, you pump all the money that you can, the whole thing will still get to a level from where it could now start to come up again.
In America, the structure is there, that is why if you provide credit, then people would produce. But in our own situation, we don't have power, we don't have roads, we don't have water, putting credit there is not going to change anything. Until you address these issues - technology, manpower, management capacity - these are problems you have to overcome before this fine-tuning of monetary and fiscal policies and make the kind of changes we are envisaging.
To what extent would you say that what is happening to the strong economies is a fatal blow on the principle of free market enterprise? In other words, U.S. Government's intervention in the situation is believed to have rubbished this economic principle. So, how will free market enterprise suffer for this?
I don't think it's going to suffer in any way. A good manager or economist knows that there are certain decisions because of the subtle nature in terms of what we call lumpy capital and the term associated with lumpy capital, there is always a regulatory role for government to create a situation in which the market can then operate best to allocate.
But nobody ever expects the government to be absent. Free market doesn't mean you don't have to make decisions on lumpy market which applies to large credit, large investments. Because there is time gestation with capital, the role of the regulatory agency, government will always be essential. I wrote a paper on privatisation.
But privatisation doesn't mean you privatise overnight. When you privatise, you are trying to reduce the burden on the public sector so that the public sector, at a given point in time, concentrates on those areas it can do better. When you privatise, you make sure that those people you are selling to have the resources to pay the value. You don't under-sell, because it is people's money. You sell at the market rate, so that you can use that resource to do the other thing that the private sector would not get involved in.
In order for the industry to grow after you privatised, they must show they know what to do with it. You don't sell it to somebody who runs around for one or two years looking for partners. Like we were talking about infrastructure, yes, the private sector should get more involved. But the assumption is that the private sector we are defining has the resources, management experience, technical experience, has the kind of lumpy investment capital, otherwise government still has to bring infrastructure to the level where you are talking about incremental investment that can be handled by the local private sector.
One of the problems we may be having now is that we are resting on our private sector lumpy investments that they cannot yet undertake. So, privatising in that sense is not just domestic, it defines the whole global community. In a global situation, you don't really care so much and I'm talking in terms of efficiency in production. It doesn't matter where the guy comes from. The average housewife wants to see better clothing, steady water supply, reliable power, etc.
Of course, you begin to worry where it may have political implications where there are certain controls that can be exercised over supplying these goods to your people. But, by and large, we are still at a level where we are still so low in terms of total output, where potential growth should have been so large that we shouldn't be worrying about these things; that we should really be moving into the global market to improve the cost effectiveness of investments, to improve the quality of service, to improve the affordability of the goods that we produce.
And I think there is a mistake we are making. Of course, if we had taken this route more openly in the last 25 years, we would be more affected by what is happening now. When we are more affected, we would be in a position to weather it. Because, we would have developed our infrastructure, our raw materials, various linkages. As you grow, you also enlarge your degrees of freedom, your ability to absorb. So, the last thing we should be clapping about is to say we are not affected, prices have not changed, interest rates have not changed.
That should not be a source of joy, it should give us a worry that we are so barely involved. We are not producing car parts, aeroplane parts, ship parts. No matter the noise we make about local content, until you go to your human capital, produce your raw materials, produce your solid minerals and begin to make these things, it is just so much noise. You have to go back to how you are developing your manpower, your resources incontrovertibly, you see where proportion of domestic value added is going.
On the issue of privatisation, in the last one year, we have seen reversals of sales since this government came into power. Would you say we are moving in the right direction, in reversing the sales of Transcorp Hilton, NITEL Plc., Aluminum Smelting Company, to mention a few?
Well, the first thing is that if you stick to the principles as outlined, you really never need to reverse anything. But, you see, this is talking economies, this is talking business. Perhaps, we are doing more of politics. Because we are just beginning in many of these areas, we have to get it right.
The struggle for ownership which makes you sell to somebody or company you are associated with and so on, why would you sell NITEL to a group that has no history? You might as well sell it to those who have the history of the growth that you will bring about and will give opportunity for others who are just starting to see how they make in-roads as the thing is growing.
In the meantime, the consumer is better off, there would be more employment and you are achieving your objective of delivering so much in terms of communication. For instance, we make a lot of song and dance about our GSM. I always caution that some of these things are sources of growth. With the volume of registered subscribers, we should have a sizeable communications industry producing spare parts. So, I don't get carried away by about ten million subscribers in Nigeria. Okay, this is great, this is a source of growth we have not utilised well.
If our aluminum was working, if our steel was working, if our plastics were working, we could have simultaneously signed agreements, government would supervise, create the enabling environment for our human capital to be developed so that by now, the offshoot of the high growth in GSM would be seen in many other ancillary products. And that means we are growing with the hitech and for GSM. We know that the priority should have been to have a reliable land line that is available in all parts of the country. GSM is not the most cost effective way of doing small business. It's too expensive. Even in the advanced countries, they don't use it the way we use it here.
And this could have been achieved by privatising NITEL the right way. You lay down your criteria, you sell it to people who can do it, giving them the blueprint to maximise the offshoot from the growth considering our large population. GSM is now the only line. You can see in terms of resource mis-allocation and we are clapping for ourselves.
The 2008 budget is still being worked on in the National Assembly, whereas we are running the last quarter of the year. What implication does this have on the economy?
Well, I think Nigerians have a reason to be very disappointed. We are a big country, we have great potentials, we have a great future, but there is a measure of frustration. And the question is, at what point do you start to make changes? At this time, we should really be in the third phase to the last phase of the finalisation of the 2009 budget.
So, naturally, I wasn't happy and I know most Nigerians were not happy, and were curious when we saw the headline as to how N400 million had not been spent on the capital budget. In a country where we are raising issues, major trunk roads are in disrepair, in power supply, we haven't seen much for what was committed.
So, I think that it's very disappointing but at times one would be unfair to make a broad final comments without getting all the details. Well, the onus is on the other side to tell us what the facts are. And that's why we are also pushing for the passage of the Freedom of Information Bill. That's a very important Bill, not because anybody wants to be preying on unnecessarily, but the fact that it brings a regular scrutiny where you and I can telephone and ask questions - what does this mean?, and there is an obligation to explain.
That is part of the real flesh and bone of democracy where the private person feels that he's being taken along and that also douses rumours. So, if we are still about 2008 budget, even supplementary appropriation at this stage is almost too late. You see, we are a lucky nation in terms of resources endowment, we are operating within the frontiers of our revenue potentials so that the things we decide to do, we can leverage on resources to make sure that those things we do, so that we don't have to be in preparations of the budget, release of funds, supervision and things should be moving quite well.
And when the funds are not coming, we have the wherewithal to make sure that the budgets are not stalled. But this is a situation where so many capital needs are there and we're not able to spend because there's a lot of clog in the wheel - inefficiency. Of course, some people, in their own myopic view, think it is something we should be clapping for, that by mid-October, that sum is to be returned unspent. But what about the needs of the country? What is the use of the budget if you don't meet the needs of schools, roads, power, credit to farmers, everything?
The issue of lack of infrastructure could be described as a recurring decimal. How can the country overcome this, move to the next level and achieve even distribution of infrastructure across the country?
In answering your previous questions, we have already addressed some of the problems. We have talked about timely and complete implementation of the capital budget, we have talked about leveraging our funds so that we can make the funds go as far as they can. We have talked about giving jobs and that's a very major area, to those who can do the job.
When the people who can do the job get it, they are in the best position to know whether what they have to do the job is what they got, the whole electoral process, leadership process are what this administration has to grapple with. We like to cajole ourselves that Rome was not built in a day. But I think most people feel sorry for us when they see how little we have made of the fortunes that we have - the advantages we could not take of our resource base. Even Abuja could have been better done. No matter what we did in Abuja, we could still have done as well in at least most of our major cities.
People say Vision 2020 is a paper work that is unrealisable, therefore, it is dead on arrival.
I chaired the power session at the Economic Summit today (Wednesday, October 22), and there were very interesting philosophical questions raised. This was a metaphor to emphasise that we should start properly. And I have always believed that if all that does for us is to force us to start setting for ourselves, if we start properly, it is obvious that we are going to overtake many countries because not many countries have the potentials for economics of scale derived from the share size, implicit demand of the economy, population, etc. Therefore, you don't have to be scratching your head to decipher what economic of scale would make profit.
If you bring the largest scale here, the lowest cost and the most profit, it will still be optimum and efficient. So we have all kinds of advantages if we start properly to do it right and education has a lot to do with it, attitude has a lot to do with it. All of these things have to change and it's not going to be easy. So, shall we then say because these things cannot change overnight, we should not vision?
I think we should vision, but we must focus on the fact that this thing will only work if we start properly. So much has to be done to get there. By the time you realise the sheer enormity of all the little things you have to do right, then you know that it's better not to be thinking of it as a terminal thing, that it's just a matter of 13 per cent growth rate.
As a member of the Presidential Technical Committee on Niger-Delta, you have been working towards finding peace in the region, but kidnapping is almost intractable as the phenomenon is spreading to other parts of the country?
(Cuts in) You know I can't talk much on Niger-Delta now, because we are still working. But kidnapping is not Niger-Delta crisis. This is a very unfortunate by-product of the crisis when you talk about the issue of criminality. For instance, we met with the governor of Rivers State, he emphasised that point and that got really to me. The only point, of course, as Nigerians, we have to ask ourselves, it is like when you see young men and now a few ladies joining as armed robbers, it is not enough to shake your fist at these robbers who should be doing something better.
Society has to have some claim, now we got to that position. Even though nobody will reward criminality, we should then say because of our failure to address this problem all this while, and not realising one's commitments to the basic needs of these people; we certainly would have made a difference if we had done it in time and not create a situation where criminals are now getting involved. It is a fact that the phenomenon is spreading fast, but for people who get involved in kidnapping, there is increased in security to their lives.
As criminals, they can be shot, arrested. To some extent, there's something that compels people to do it while you are addressing those reasons that compel them by making the rest of the economy to work better, at least to stem the tide of recruits into their ranks. You must be firm in administering law and order, you must address the root problems that provide the environment for this to happen.
What should Nigerians expect from your committee?
What we are doing is to examine every aspect of this problem, from the standpoints of all the stakeholders; we should come out with concrete suggestions and show how they can be implemented and the wherewithal to implement them, not just to throw it at government.
Organisational changes:
We should also specify alternative sources of funds to implement. So we have to have a fair estimate of what we project can be implemented and who will be responsible for the implementation, whether it's the presidency/executive, the legislature. Of course, it is the government we are dealing with here and essentially, we are addressing some organisational and administrative changes. So the state governments to local governments, even the communities themselves, to the families because of lives that are being affected because of explorations of oil in the region. Families are moving out from their original homes.
So we are discussing what we should do in terms of training, building schools, creating better infrastructure. What could be done quickly to avert the threat to the Niger Bridge?
Well, I remember that as far back as 1994, this was brought to my attention as minister of finance and I had approved the budget to start the 2nd Niger Bridge. This is now 14 years later; that also illustrates what I have been talking about, when you approve the budget, fund has to be allocated to it.
Did you say you approved fund for the 2nd Niger Bridge?
Absolutely, in 1994. I approved the budget and when you approve the budget, the fund has to be allocated to it. I didn't last very long in that administration. But I just recall that was the case.
How do you feel that 14 years after, we are still worrying about the bridge especially with this latest danger signals?
Well, there is no reason it should not have been built. There is no reason we should not even be considering a third bridge from different angles that will go into the Niger-Delta area. We should be talking about a fourth bridge in Lagos, for instance; we have the wherewithal to do it.
I mean we have the resources and the leverage power to do it even if we didn't have the cash. That is how a lot of big projects are funded. But somebody has to be careful to make sure the way it's appraised, the way it's implemented is the way it is. Because other countries can do it, we must learn how to do it ourselves.
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