External reserves not savings, its money already spent – Chike-Obi - BLUEPRINT
The former Managing Director, Assets Management Corporation of Nigeria (AMCON), Mr Mustapha Chike-Obi has cautioned that external reserves was not savings but money already spent. During an interactive section with journalists, he proffers solution on how to reposition the economy for sustainable growth. AMAKA IFEAKANDU was there.
Apart from borrowing what else can Nigeria do to raise funds to finance infrastructure and increase revenue?
Nigeria’s ability to borrow more money is limited because it is not the quantum of money you borrow, it is how you service the debt. Do you have enough revenue to service the debt? It is far more important than some one lending you more money. Somebody who can service his/her debt can borrow $1 billion. Dangote can borrow $1 billion because he can service the fund, I cannot borrow $1 million because they will ask me how I can service it? The reason why we should not be using debt to GDP ratio which everybody want to mention is that it is not high, because debt to GDP in Nigeria is low. The thing to look at – tax revenue to GDP is lowest in the world, revenue to GDP is the lowest in the world. If you look at all those things they are loans. We should start looking at how much loan we can service. We have passed maximum mark, 35 per cent is the number but we are close to 70 per cent. One thing that worries and annoys me is that, the former finance minister, Kemi Adeosun went out telling the world that she was saving money by borrowing in dollar and by borrowing in dollars she has save X billion naira. My take is this, the people that are lending you money at 8 per cent are not stupid, they know they can lend to you at 16 per cent in naira. But they want to lend to you at eight per cent, don’t they like 16 per cent. When somebody is lending you money at 8 per cent instead of 16 per cent, then you know something is not right. The reason why they lend money to you at eight per cent instead of 16 per cent, they dont want to take risk, they know that before the debt matures the naira will not worth N360 because every five years in Nigeria’s history since the 1970s, am not sure, the naira depreciates approximately 60 per cent. So, when she tells you she is saving money and her dollar debt has reached horrible levels, they are assuming that the naira will remain at N360 but the naira depreciates by 50 per cents, so that equivalent to eight per cent then will be equivalent to 16 per cent. when we borrow in dollar we are not saving money. There is no savings in borrowing in dollar. However, there are two ways for us to get money.
First is the savings we have by removing subsidies. The N4 trillion we save annually through removal of subsidies is not insignificant, it is about $10 billion. The second way is by using government guarantees instead of debt. So, if you want to build a road, you go to federal government and they tell you bring 20 per cent of your money I’ll give you guarantee of the other 80 percent. Go and borrow from somebody else but if the project fails, you loose the 20 per cent but we will pay off the guarantee.
What type of policy do you initiate to encourage foreign investors to invest in the country.
Let me tell you something, Donald Trump is not worried for one second that Nigeria will compete with United States of America, he is more worried that Nigeria will fail and a lot of people from Nigeria will come to settle in the US. If you go to Donald Trump and you say I have plans to make Nigeria economy more viable I can guarantee you, Trump will give you $100 billion. But his concern and fear is that if he gives you $1 billion you will waste it, steal it and squander the money. It does not also help matters when our leaders say we are useless and corrupt. But if you go to Trump and tell him here is a plan and i have been canvassing it for a long time. Tell him we will give you a naval base in Warri, Trump will bring ships and 2000 sailors and spend $20 billion in Nigeria. But we won’t do it because we are arrogant. But these are things we need to do to bring foreign investors to invest in Nigeria. This road show Nigeria are doing saying that America will get VISA before coming to Nigeria is silly. Am an American, I don’t need visa to go to England, I don’t need Visa to go to Hong Kong. Why can’t American passport work in Nigeria? Americans are coming to Nigeria to spend money, they do not come for investment. we have a lot of things we will do for foreigner to come and invest in the country.
You did say if we remove subsidies Nigeria will have free flow of pricing. What do we need to do to have stability in the power sector?
If you give power to local industries at N160 per Kilo Wyatt per hour they will be happy and employ more people that is how an economy grow. Ultimately, like I said GSM was introduced in Nigeria, it was for the rich, today everybody has phone. So the way it works is to allow the rich pay the bills first as they are making more money they build more capacity and there will be stable power. As they make money they build more mega wyatts at a stage they will do some calculation and feel oh, we can make more money if we give power at N140 per kilo Wyatt, they will come down to 140 per kilo Wyatt and yet there will be steady light. It will come down gradually until it gets to 60 per kilo wyatt, every body will have light and it will be stable. But now nobody has light, everybody is facing the same challenges. I have told the government though they did not like it.
What place is the external reserve and productivity in Nigeria?
Let me tell you what reserves are. Reserve are not savings, reserves are monies that have been spent. See how it works, you buy dollar from NNPC and you give NNPC naira, the naira are money shared among three tiers of government and they spent it. If you look at the Central Bank of Nigeria balance sheet there are long reserve and short reserve equivalent to naira. The only way you can get reserve is for you to bring naira equivalent to the dollar you need. So the reserve we have today is money that has already being spent. The only value is that we can use it to buy foreign goods in dollar value but must bring naira before CBN gives you dollar. Reserve is not what government can spend and use it to build roads, power or any capital projects, it is not something that one can put in a bank and go back and spend it. Reserve with CBN have naira equivalent and it has already been shared by the three tiers of government. If they need dollars back, they have to bring naira equivalent, so it is not what government can save and use letter, it is not savings but money already spent. Every reserve held by CBN has corresponding naira equivalent. Having reserve is very important and useful when you want to buy goods in foreign currency but CBN must demand for naira before it gives you dollar.