Investment is not driven by patriotism but by value benefits

Johnson Chukwu is the Managing Director/CEO of Cowry Assets Management. In this interview with the Sustainable Economy Managing Editor, Clara Nwachukwu, he insists that the Federal Government should simply focus on providing the enabling environment that will attract the private sector to execute its economic plans, as he scores the National Economic Sustainability Plan low in achievements. Excerpts:

The National Economic Sustainability Plan put together by the Federal Government last year has just expired since it was meant to last for only one year. What are your thoughts concerning the plan in terms of achieving set targets?

It is difficult to see which of those targets have been achieved. For instance, the government said they will engage in a mass agriculture programme, but if you look at the first quarter GDP of 2021 compared to the fourth quarter GDP of 2020, you will observe that the agricultural sector grew at a slower rate of about 2.4% compared to about 3.48% the preceding quarter.

Beyond that, we saw food inflation rate 22.38% at the end of June year-on-year. These are indications that the expected mass agricultural programme has not been effective to the extent that whatever plans the government may have had must have been distorted by the insecurity in the country.

The government also said it will engage in extensive public works and road construction programmes, and we know that because of paucity of funds since the Federal Government really does not have money for major infrastructure development. They spent about N1.6trillion last year on infrastructure, which was entirely borrowed.

Beyond the constructions that are funded by China or from any of the bilateral loans, the government does not really have so much money to engage in these extensive public work programmes.

Government said it will build 300 housing units annually; I’m not aware that any construction has taken place. They also said they will install 5 million solar systems in 5 million homes, I need to point at the homes where they have been installed.

Furthermore, the government said it will strengthen the social network system – N-Power, Market Money and TraderMoni. Even the Survival Fund that was supposed to be the tool to pay salary for employees of companies who were finding it difficult to pay their employees. I am yet to see a company whose employees’ salaries were paid by the Federal Government.

The reality is that most of these intended objectives of the National Economic Sustainability Plan (NESP), don’t seem to have been achieved. So based on all these, I doubt if the plan will be scored highly.

In the light of your narrative, do you think the NESP should then be discarded or carried over for instance in the proposed MTEF of ERPG?

My take is that the government should come up with an implementable plan; I mentioned earlier that the government does not have the resources. If you want to understand and appreciate the severity of Nigeria’s fiscal challenges, consider that in 2020 that total Federal Government revenue was only N3.478trillion at the end of November, whereas debt service/ interest payment on existing loans as at 2020 November was N3.1trillion. Government spent additional N4trillion on recurrent expenditure, non-debt, and of that N4trillion you can assume that about N3.7trillion was borrowed. If you add that to the fact that the government had to spend about N1.6trillion and that’s how we ended up with about N5trillion on borrowing last year.

This year doesn’t seem to deviate from that and there’s no improvement because as at the end of May, the government had incurred expenditures of about N4.8trillion but had only generated about N1.8trillion in revenue, leaving a deficit of about N3trillion. You can then appreciate the fact that the government doesn’t have the economic resources to engage in some of the objectives that were mapped out in the Sustainability Plan.

Therefore, carrying them over to the next Plan simply does not solve the problem, because we need to solve the fundamental problem first – where is the government’s revenue coming from, how is the government spending the revenue?

Also, we still have to contend with the issue of subsidies – fuel, power, which is projected to consume about N3trillion this year; that is about twice the amount spent on capital expenditure.

The key thing is that we need to completely recalibrate our fiscal framework and rejig what the government is spending money on and how it is generating revenue.

 How then do you think we will fare as the IMF says the achievement of Nigeria’s Sustainable Development Goals (SDGs) has been pushed back by six years on account of prevailing economic conditions?

The key thing is that we need to recognise that given the current economic conditions, unless there is a drastic change, it will not allow us to continue to fund infrastructure from budgetary allocation, which is why I said we need to recalibrate our fiscal framework. It is an altruism that if you continue to do the same thing time and time again, you will still end up with the same result. The structure of our government revenue will not support a lot of the things the government plans to do.

Government then needs to pull back; and we need to have a smaller government system and then push out a lot of what the government intends to do to the private sector. Take for instance the issue of agriculture, the government should focus on providing the enabling environment by securing the country so that farmers can go back to their farming activities. They should also review the Land Use Act so that you have large holders’ farm land, commercial farms; the Central Bank is already giving a lot of support to agriculture. Providing such an enabling environment will allow the private sector to engage in agriculture on a commercial basis. Government should also pull back from fertiliser subsidies as well as power and fuel and allow the private sector to set up the refineries.

Government has no business talking about mass housing when all they just need to do is to deal with the land issues and infrastructure, the private sector will build those houses. The government can subsidise those private sector houses by providing the land free and it then becomes its equity contribution, and the houses would be sold at highly subsidised rates to the average Nigerians.

The issue of TraderMoni and Market Money were trade-away money because if you give anybody N10,000, the first thing they will do is to go and buy food items; in fact it is difficult to buy a bunch of plantain today at N10,000. So why would you give someone N10,000 and say you are lending to the person? Certainly you are just giving the person a stipend.

We need to review some of these schemes and come up with schemes that are sustainable, that can actually create wealth and enable the beneficiaries to have enough resources to engage in business activities and be in a position to pay back. I think we need to have a holistic review of government economic programmes.

Are you sure the government is willing to have this review, because we have a high-powered economic team, but Nigerians still wonder whether they are actually active?

The essence of this conversation is with the hope that the government will hear it, so you can’t continue to do the same thing time and time again and expect to get something different. The truth is, Nigerians are the ultimate beneficiaries of any economic programme and if the programmes are not impacting on the people they are intended to, then the government needs to review them.

Oil prices are now beginning to rise even above the budget benchmark. Do you think that will give us some comfort?

Ordinarily, it should give us some relief, but unfortunately we are also spending a lot on importation of finished goods, and oil prices are rising so also the prices of refined petroleum products are also going up, and because of fuel subsidy whatever we gain from the right hand, we lose a significant part of it with the left hand.

…it then means Nigeria will still continue to borrow to execute our budget?

If you look at the Medium Term Expenditure Framework (MTEF) for the fiscal year 2022 for the fiscal year 2023, the government is planning to spend about N6.2 trillion on recurrent expenditure not debt recurrent expenditure, up from about N4trillion spent in 2010. In two years we want to increase expenditure by more than 50%, and with such a level of increase it cannot be compensated by increase in crude price or increase in production, so we will certainly continue to borrow unless we restructure the governance system in the country.

You also talked about the government letting go of some things, and the private sector coming in, and the much-touted diversification does not appear to be yielding the desired results in terms of diversified revenue base. Is it that the private sector is indifferent to what the government is preaching?

The key thing as you know is that in the economic space, what you preach may not necessarily be what you do and investors are not looking at what you are preaching but what is on the ground. Investment is not about patriotism, but patriotism could be a component, but not largely dependent on patriotism. Investment is driven by value, benefits, value creation and value beneficiation – are you going to make an investment in where you will get good return on investment, where the investment is safe, where it is not under any threats of insecurity, expropriation or changes in government policies? These are factors that drive investment. It’s not driven by a feel-good altruistic attitude.

How then can we change the narrative?

We need to address the infrastructural gaps, we need to bring in private capital for infrastructure development, create a regulatory framework that is difficult for any government to upturn, such that investors are rest assured that when they come in here they won’t be cheated of their money. We need to strengthen our legal system, we need to strengthen our border controls, as well as our logistics supply particularly the seaports and the airports; improve on their efficiency. Most importantly, we need to address the issue of insecurity in the country. 

We need to review some of these schemes and come up with schemes that are sustainable, that can actually create wealth and enable the beneficiaries to have enough resources to engage in business activities and be in a position to pay back. I think we need to have a holistic review of government economic programmes.   

Power supply is a critical issue, so also is transport infrastructure, our seaports are nightmares compared to anywhere else in the world. Again, insecurity is a major issue and I can continue to say that a million and one times.

You also talked about the fiscal authorities pulling their weight; do you think increasing VAT to about 15% would help?

If they did it could help, but remember also that you’re dealing with a very weak consumer spending in the country. You may end up increasing the percentage of the VAT without increasing the revenue and people will cut back on their consumption because they don’t have the income.

Lastly, people are losing their jobs on a daily basis and the World Bank recently said Nigeria is facing its worst unemployment crisis in history, where will the buffers come from?

Employment is created by the private sector and not the public sector. There is a high limit of the amount of employment that can be created by the public sector. Besides, the public sector employment is deficient and basically done to meet political patronage. The emphasis should then be how do we make the private sector vibrant and viable, how do we make our country the first point of destination for anyone who wants to invest in Africa given the size of our market. How do we make it easy for Nigerians to run their businesses effectively and efficiently at lower cost, how do we make it easy for people to move around the country without the fear of being kidnapped and transact normal economic activities.

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