In this interview with EDIDIONG IKPOTONigerian Confederation of Chambers of Commerce, Industry, Mines and Agriculture Director General Olusola Obadimu talks about the challenges facing businesses and why the government should reorient some of its economic policies
The Nigerian economy recorded growth of 3.54 percent in the second quarter of 2022. Do you think these numbers reflect the current state of the Nigerian economy?
The problem with gross domestic product is that it should be viewed in context. You can relate it to population growth. It is expected to be higher than population growth to have any significance. Our population growth is usually estimated at around 2.5 percent. So if we actually see 3.5 percent growth, that’s fine. But the other leg of the argument is distribution.
If you have a population and the growth you’re recording is reflected in all strata, that’s fine. But if it’s not evenly distributed, it doesn’t necessarily have an impact on people’s lives. That means nobody will see it. The common man sees no growth, so it becomes just a character that is churned out.
The perception is that authority figures have come up with numbers again, to fool us, to tell us that when there is nothing to see, we grow, especially when, as you said, you see it in the context of current realities, in we are seeing is currently experiencing something of runaway inflation. If I may say so, where you go to a store today and buy something today only to go there next week and it’s 20 percent more expensive.
So that’s what the common man sees every day. So to tell him that there is growth when his income falls will surprise him.
When almost everything you buy is priced up every week and your income is flat or even falling and someone tells you that something is growing somewhere, be it GDP or whatever economic data you like to say, it becomes just another sham Presentation. It may be factual, but the point is that any growth recorded that is not reflected in all strata can never be appreciated. It is just churning out numbers.
Inflation figures have continued to rise month by month. What can be done to cauterize this problem?
Let me put it this way, the price of a TV made outside of this country is in dollars. The TV price goes up or our own naira goes down in value.
The currency is depreciating faster than anything else and economic managers have done their best to stabilize the value of the naira in recent years, causing our foreign exchange reserves to keep falling in CBN’s efforts to stabilize it the value artificially high.
I think it was N300 to N400+ until we couldn’t hold it any longer and then we had a situation where it’s now fluctuating between N700 and N730 per dollar.
That means it’s about double what we had three or four years ago.
Organized businesses are struggling with energy costs this year. What can be done to address this problem?
Some things are cyclical, and that is the fear fed by those who fear the consequences of any attempt to scrap fuel subsidies.
Fuel subsidies removal is economically best. It is the best step to fundamentally free us from the shackles of this fuel subsidy budget overload. As it stands, there may be no money to invest in 2023 due to the growing burden of debt servicing and fuel subsidies. So there is an overwhelming pressure to cut the subsidies so that our budget can be freed up as soon as possible so that some money can go into development.
However, if you do, it will again have a monumental effect on the naira. This is because this will reignite inflation as most activity is related in one way or another to the cost of petroleum and basically gasoline.
Diesel has been able to liberalize prices because its consumption effect is not quite as profound as that of petrol, which almost everyone uses in one form or another.
The petrol consumption thus far exceeds the diesel consumption. Anything that happens to the price of gasoline will have a huge multiplier effect, which in turn will fuel prices and further weaken the naira.
Then it will weaken the naira again and there will be higher oil prices again. You know that prices are fixed relative to the dollar because we currently import all of these things. Even if Dangote gets going, there’s a chance it will want to sell at a globally competitive price and need to recoup its investment.
If you remove the subsidies and gasoline prices go up, the naira will continue to weaken, and because the naira continues to weaken and the prices of these petroleum products are normally all converted to dollars, they will continue to rise again.
Access to foreign exchange remains a major problem for many companies. How can the government fix this problem?
Basically, it’s really a matter of supply and demand. How do we generate our forex? We export our products and earn foreign exchange, but now our export ability is low. There are so many factors, for example the oil theft. We used to export about two million barrels of crude oil a day. There was a time when it crashed to over 800,000 a day and now it’s climbed to 1.1 million a day. So we’re losing revenue and our cost components are growing. Gradually there is a huge demand for everything.
If you analyze the elements of this ASUU strike, it all boils down to demanding money in one form or another, whether from the faculty themselves or for the institutions they represent. There is a growing demand for government to spend money on various things e.g. But where does the state get its revenue from?
Government revenues are falling due to the impact of oil theft and we are not increasing non-oil exports in any way. We don’t add value to anything, and that’s the bedrock of our economy. It’s severely weakened, and if you add the effects of insecurity to all these factors, you will see that they have weakened our ability to produce for consumption, let alone export.
When you have produced enough for consumption, you can export the surplus. So all these things affect inflation.
It’s a matter of supply and demand. When food is scarce, prices go up. So it’s a web of complications, but the basics are there. We haven’t really made a concerted effort to fundamentally increase our exports, increase the value of everything we export, and increase both the quality and quantity of our exports. There is a growing demand for spending.
The agricultural sector has fared relatively poorly despite huge government investments in the sector. Why has this sector not lived up to expectations?
We are below average because we have not recognized the potential that lies in agriculture. The basic industries are farmed and everything else grows from there.
All of the processing we do starts with either a mineral product or an agricultural product, which is why we call them basic industries. So it’s an area that has tremendous potential to employ so many people because of the value-adding processes that we don’t use. We only farm to eat.
Our production capacity, which could be based on agricultural products, is small. So what do we do with these agricultural products anyway? we only eat Depending on the season, we eat oranges at one time of year and at another time of year we don’t see oranges anymore. In stable economies you can find oranges at a stable price level all year round. We have no capacity to receive anything because there is no power supply. So people who produce off-farm are less likely to process their produce.
We only produce to eat and we don’t produce enough. The effects of uncertainty have reduced the capacity of what we used to produce. We produce less now and getting the produce to market or to other sales areas has a higher cost effect than the actual cost of producing the primary products themselves. So the people who transport these goods to market earn far more than the simple farmers , and due to problems such as uncertainty, they get to the market to the final buyer at a higher cost. But basically if we are able to increase our preservation and processing capacity, more people will be employed in this sector and we will be able to have a higher export capacity, which we don’t have now because we only have this produce basic things to eat and we don’t focus entirely on the development of the sector.
If we’re able to process the logistics aspect of the agribusiness, canning it and making sure it’s managed well, we would benefit, but we’re just focused on oil.
Recently, the federal government proposed a ban on mining activities for safety reasons. Do you think miners’ activities should be halted?
This sector urgently needs to be reformed as it is not really aligned anyway. Activities in this sector are not yet fully coordinated and the procedures, systems and policies are not yet clear enough for the government itself to capitalize on the fiscal prospects or potential that it could achieve in this sector. If it’s done the way it’s done now, where does the government get the taxes on the activities?
Let’s focus more on value creation and not just mine and take it elsewhere in its raw form. What have we done to process these things further?
Companies complain that the state overtaxes them. How will the government generate revenue without overwhelming businesses?
I’ve always felt that the lazy way to increase government revenue is to think that once you have a revenue shortfall, you want to go back to the people to collect taxes on whatever you want. It doesn’t work very well.
The government must be disciplined in its activities and in its spending. You can’t be reckless with your spending, go over your budget, and go back to people to raise more money. Meanwhile, the services for which taxes should be paid are non-existent.
Are you looking at what is happening along the Lagos-Ibadan expressway every day and you want people to pay more taxes? So people are wondering what they are really paying for.