Vanguard (Lagos)

27 January 2013

Nigeria: Strange Projects Mar Nigeria's Budgets - John Chukwu

interview

*'The Chinese devt model can help us'

With the appreciable growth the economy recorded in 2012, many analysts hope Nigeria would see higher growth, higher equity valuations, robust reserves, firm oil prices and slightly lower inflation this year. Mr. John Chukwu, the managing director/founder, Cowry Asset Management Limited, is a leading investment banker and a multi-dealing operator in the capital market. In this interview, he speaks on why the country needs to evolve policies that will lead to re-emergence of the manufacturing sector. Excerpts:

How would you assess the performance of the country economy in 2012 and what are your expectations for 2013?

I believe that Nigeria's economy fared relatively well in 2012 particularly when compared with the performance of other economies during the year. With a quarter-on-quarter Gross Domestic Product (GDP) growth rate that averaged over 6%, foreign exchange reserve appreciation of over 34%, strong foreign direct/portfolio investment inflows, stable exchange rate, moderate inflation rate, etc, the economy recorded appreciable growth during the year. However, due to the structure of the economy - crude oil dependent - this growth was largely without commensurate growth in employment hence there was little or no improvement in the general income level/living standard of Nigerian citizens.

Over the years, poor budget implementation by government at all levels has sabotaged key public infrastructures. What do you think should be done to check the trend which has led to a steady increase in the cost of doing business in the country?

Poor budget performance in Nigeria can be attributed to two major factors. The first one is the quality of supervision by the relevant heads of the Ministries, Agencies and Departments (MDA), particularly the Ministers and Commissioners at the federal and state levels respectively. The second factor is the introduction of strange projects in proposed budgets by members of the legislatures in the course of approving the budget. Such projects are at times difficult for the executives to implement since they don't pass through the project initiation and defence process and may not fit into the ministries' medium term development plan.

Based on the above factors, to improve on the rate of budget implementation, the chief executives at the federal and state levels should populate their cabinet with competent individuals who can initiate, drive and supervise programs and projects to successful completion. On the other hand, members of legislatures should desist from imposing projects on the executives by inserting projects not previously included in the draft budgets. Such projects if they are desirable should be introduced to the relevant ministries at the point of input collection so that they can go through proper costing and evaluation.

The Nigerian Stock Market is beginning to show signs of recovery after months of decline. What further measures do you think should be adopted by the government to ensure speedy recovery of the market?

The additional measures that need to be taken to sustain the recovery of the capital market as well as improve on the market's viability include encouraging some of the successful multinational companies operating in the country to quote their shares on the floor of the Nigerian Stock Exchange. This can be done by creating listing incentives for such companies. Incentives such as discriminatory tax rates on corporate profit and dividends for quoted companies may encourage companies that are reluctant to list their shares to consider being quoted on the Exchange. Other factors that should help strengthen the capital market are, the achievement of single digit inflation and interest rates, sustenance of current strong financial performance by quoted companies, maintenance of exchange rate stability and political stability.

The market is currently dominated by foreign investors. What happens if they decide to exit from the market?

It is an obvious fact that where a market is dominated by foreign investors, a sudden exit by such investors will destabilize the market and possibly create a market crash. With the current dominance of market activities by foreign portfolio investors (which interestingly is already correcting), our economic managers should focus on managing those economic variables whose negative indicator could trigger adverse reaction from foreign portfolio investors. Such economic variables include the country's foreign exchange reserve, exchange rate stability and policy on foreign exchange controls. Other factors that may unnerve foreign portfolio investors is if there are indications that the country's economic policy direction may shift from a free-market system to a command and control economic system.

It is an open secret that most businesses in the country often bribe the government to remain in business. How does this impact on the economy in the long run?

While it may be true that many businesses operating in Nigeria pay government officials what may be called bribe either to gain undue advantage or to avoid a sanction, there are actually two strands of payment, which most people fail to differentiate. One strand, which is the most endemic, involves business managers inducing public officials to compromise the tenets of their office by granting such businesses unmerited favours or waiving penalties incurred by them for infringement of the law. The second strand involves the public officials intentionally frustrating or delaying the release of well merited project awards or payments for already executed jobs, until they compel the business managers to part with some cash.

While the first instance is a case of bribery, the second instance can be termed as extortion. Although both instances have the effect of increasing the cost of doing business in Nigeria, the cases of bribe have the additional effect of project failure as incompetent businesses are given projects which they lack the skill to execute. In some instances, these abuses lead to the execution of white elephant projects, which are not required in the economy. In the long run, both bribe and extortion lead to higher cost of doing business in Nigeria compared to other economies and make the country's economy less competitive as well as less productive.

High unemployment rate has caused a lot of distress in the country's economy. How can the country adequately tackle poverty and the menace of unemployment which has assumed a dangerous dimension?

The solution to Nigeria's high unemployment has to be multifaceted. The starting point in the orientation and quality of education that the country's youngsters are getting. Our policy makers need to restructure the education curriculum to focus more on technical skills as well as development of entrepreneurial skills. We also need to evolve policies that will lead to re-emergence of the manufacturing sector, which is naturally the sector that creates more jobs in an economy.

In addition to the above, government can create immediate jobs by embarking on infrastructure developments such as roads, rails, housing, etc, construction. An enabling macro-economic environment such as low interest and inflation rates, stable exchange rate, etc that encourages the private sector to strive will also help create more employments for the teaming unemployed. Finally better physical infrastructure such as good transport system, reliable power supply, etc will act as stimulus for employment generation.

Nigeria has painfully missed several opportunities of being the preferred country of destination for international investors. What lessons can we learn from a country like China which has successful transform its economy?

Interestingly, several of the policy measures used by China to transform its economy can easily be adopted by Nigeria with very little modifications. Among the policies which Nigeria can adopt is the Chinese policy on qualitative and quantitative education, which enabled the country's huge population to be turned into an effective workforce, hence China's emergence as the global manufacturing centre. Nigeria can also learn from Chinese policy of constructing world class physical infrastructure, which contributed to that country's lower cost of production as well as China's zero tolerance for corruption (which is punished by death sentence).

Experts have expressed the fear that the country's banking sector still lacks the needed manpower to ensure economic explosion. What is your view on that?

While it may be true that many experienced persons may have exited the banking industry, I don't think that there is any major skill gap in the Nigerian banking sector. I think that the industry is still one of the groomers of quality human capital in Nigeria given the career development policies of most of the banks. Above all, these banks have the potential to scale up the professional skills of their staff whenever the need arises.

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