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Naira crisis may lead to mass sacking –Ex-BoI GM - PUNCH

MARCH 20, 2023

A former General Manager in charge of Large Scale Industry at the Bank of Industry, Mr Joseph Babatunde, tells DANIEL AYANTOYE about the impact of the naira scarcity on the economy and how government can help businesses to grow

The scarcity of the naira has led to a series of issues in the country, what are your thoughts about the outcome?

The policy on the cashless economy and redesign of naira is no doubt a good one and in line with global best practice given its merits, which include reduced inflation, reduction in the risk involved in cash transactions and it can help to check crimes like kidnapping, among others. However, it has led to a serious uproar because there is an acute shortage of new currency notes in banks and through Point of Sale terminals and other channels. There is no adequate consultation with the various stakeholders in the planning and implementation of the policy. It also seems that the CBN grossly underestimated the demand for the new naira notes. It has virtually crippled the informal sector where most of the operators have no access to mobile banking. Even those with access to mobile banking are grappling with network issues among other things causing delays or outright inability to make fund transfers.

Some analysts have faulted the timing of the policy while some feel the implementation is the problem. What do you think?

The issue with the timing which some commentators have also reviewed has a lot to do with the inadequacy of the new currency as opposed to the three months window for the return of the old notes. The new naira notes were expected to be in circulation from mid-December 2022 but the notes were not available until early January 2023 and unfortunately, it’s not just available in sufficient quantities. It seems as if the demand for the new naira notes was grossly underestimated or the capacity to print the new notes in sufficient quantity was not just there. You can imagine, I have been trying to raise just N10,000 for the past one week but to no avail. The bulk of the available new notes is being sold at exorbitant costs as high as N200 on every N1,000. The risk is even further aggravated because what it means is that if you have access to the limited new currency, you don’t want to spend immediately in case of any eventuality. There could have been better ways of curbing corruption and monetisation of elections rather than this draconian approach that has virtually crippled the economy and made life very unbearable for innocent citizens.

Many people could not understand the reason for the hasty implementation, were you also concerned about that?

I am seriously concerned because if at my level I am facing this kind of challenge, you can imagine what it will be for the vast majority of Nigerians in the low-income bracket.

Initially, there were suspicions that some bank workers were hoarding the new notes and selling them to people but it was later realised that there was a shortage, who do we blame for that?

You only hoard an item that is scarce. If an item is available in abundance, the urge to want to hoard will not be there. It is simply because it is in short supply and that is why you find the PoS operators and even the banks rationing the limited new currency notes in circulation. Yes, we heard cases of some commercial banks making the new naira notes available to some very important people but the issue here is that will you blame the masses for this type of thing? It comes back to the desk of the Central Bank of Nigeria because they know the amount they released to each of the banks and they should have a way of monitoring how the banks disbursed what has been allocated to them.

Do you think Nigeria is ready for the new naira policy?

The truth is that there are so many things that are supposed to have been on the ground before the implementation of this type of policy. In Nigeria today, you still have a very large part of the informal sector where people live on daily income and most of them don’t have bank accounts. Some are in very remote locations where they don’t have access to a good network. We have had some state governments saying they have for example about 20 local governments with a few banks in just two of the local governments with the remaining 18 having no banks. I believe there would have been a comprehensive needs analysis before this kind of policy is introduced.  There is no doubt about the fact that the best way to go is a cashless economy and of course, there is nothing wrong in redesigning the currency which has not been done for several years. But the issue here is that the planning and execution of the policy have been rather poor.

The crisis caused by the naira scarcity is having its toll on manufacturing companies, what do you think should be done to salvage the situation?

We have a situation whereby because of the shortage of the new naira notes, the demand for a lot of products has reduced. So, we find ourselves in a situation whereby if care is not taken, we will enter into another recession. The manufacturers that are contending with serious cost-push inflation due to the high cost of production resulting from the high exchange rate and high cost of diesel now have to contend with low demand for their products. It is a very serious issue as manufacturers may soon start downsizing.

Do you have fears that things like this could make companies to want to leave the country?

There is such a possibility. I mean, in a situation where you have to contend with very inconsistent policies that cannot make you to guarantee good returns on your investment, there is a likelihood that you would have to begin to think about alternative locations where you can enjoy the policies that will make you to produce, sell and grow your investment. It is a possibility that some investors and entrepreneurs will be thinking of finding another location in the medium and long terms.

Provision of basic infrastructure is a key requirement to boost private investments, what areas do you think the government needs to do more?

We have been talking about this issue of infrastructural deficit for a very long time and that is why small and medium enterprises have not thrived in Nigeria. If you want to set up a very small project, you have to get a generator, you have to sink your own borehole, there might be no good access road to the place, maybe you have to arrange to level the place; these are facilities that ordinarily should be provided by the government. So, amid a serious infrastructure deficit, you find out that the operational environment is relatively difficult. There is no doubt that the Federal Government has done a lot, particularly in terms of roads, rail, airports, etc. in the face of paucity of funds and competing budgetary issues, but one area of great concern is that of electricity supply which is very critical because there is hardly any production process that you won’t need electricity. It has been a big challenge for several years. You are talking of about 6,000 megawatts of electricity for a population of over 200 million people, while South Africa with about 70 million people generates over 50,000 megawatts and recently declared an emergency in the sector. Until we resolve these infrastructural issues, it will be difficult for our manufacturing sector to thrive because it will be very difficult to have a reasonable return on investment.

The recently published report by the Manufacturers Association of Nigeria shows that Manufacturer’s CEO’s confidence in Nigeria’s economy has dropped, and this is believed to portend a great danger to the industry, what do you think?

Their confidence will drop because the cost of production is too high in Nigeria. To start with, the exchange rate policy has not been favourable to the manufacturers due to limited forex earning potentials of the various sectors of the economy. The CBN is running two or more exchange rate windows which results in round tripping among other vices.

You spent 35 years with the Bank of Industry, what stood out in your experience in the bank?

It is true that I worked for 35 years precisely in the Nigerian Industrial Development Bank which later transformed into the Bank of Industry where essentially what we do is financing industry and providing business support services. The provision of capital is just one out of the other critical factors required by the manufacturing sector. There are so many other complementary factors apart from capital in form of loans and equity. Other factors such as the enabling environment, in terms of government policies and provision of infrastructure, the capacity of the manufacturers to effectively manage the projects, and effective demand for products being produced amongst others are quite critical.

Many people believe that it is rigorous to access loans from the BoI, why is it so?

When people say things like this, we always want to break it down. The truth is that, if you want to borrow, the bank will only lend to a legal entity that can sue and be sued. So, the starting point is that you must have registered a business or incorporated a business. In the process of seeking financial support, there are some basic documents that are required. If you want to buy some equipment and raw materials, the bank will ask for the quotation or pro forma invoice of what you want to buy. Then, if you have been in operation for some time, that means you must have had some financial reports prepared by an accredited auditor that we can use to review your past operations. There must also be evidence of the promoter’s ability to provide a guarantee or collateral for the loan in line with the CBN Prudential Guidelines. So, most of these documents are just normal, and we have had to contend with these issues but we always break everything down. Out of these documents that I have mentioned, which ones are not important? So, if you want to do business and you want to get a loan facility for it, you must be prepared to provide information except you just want to collect loan and use it for other purposes. If you are genuinely interested in business, the procedure is not rigorous.

Loan recovery is also a concern, how does the bank handle debtors that are unwilling to pay?

The truth is that by giving the best of processes and procedures, you will still experience some default in terms of loan repayment, and it comes in various categories. Some borrowers, even right from the outset, don’t have the plan to repay the loan and we have had cases like that where they diverted funds for equipment. But on the average, we had set a target of non-performing loan ratio in relation to the total risk assets portfolio, and at a time we said it should not be more than five per cent. So, if you can achieve that, it will be great.

The unemployment rate in the country has continued to rise amid huge budgetary allocation, what do you think can be done to address that problem?

The unemployment rate cannot but rise and this is because every year you have a lot of graduates from colleges of education, polytechnics and universities across the federation and there are no commensurate opportunities for them to secure employment. The government can hardly employ so many people. They are just supposed to provide an enabling environment for the private sector to operate and be able to employ people, but unfortunately the environment has not been so conducive for private establishments that would have absolved most of the unemployed. It has nothing to do with huge budgetary allocations per se because the government is supposed to invest in infrastructure, then put in place policy incentives that will encourage private sectors to thrive. Also, our educational curriculum is a big issue. You can’t be preparing people to just acquire certificates with little or no skill. It will take a lot of efforts and very creative imagination before we can get out of this unemployment issue.

Absence of jobs is one of the reasons many young people are leaving the country and there are concerns that Nigeria is losing some of its best to other countries, what’s your take on this?

The issue of people moving outside the country is neither here nor there, because if you look at the percentage of people traveling relative to those on the ground, you will discover that it is a very small proportion and then you will know that even traveling itself is very expensive and that is the reality. Ideally, there is nothing bad in going outside there. In most cases, when they go there to work, they repatriate a reasonable portion of their income for purposes of investment in Nigeria. So, we should not just be looking at the aspect of brain drain, we should also look at the positive impact such would have on the economy.

As an expert in the large scale arm of the business environment, how would you rate the current government’s investment in the manufacturing sector?

Ordinarily, what the Federal Government is supposed to be doing is to provide an enabling environment, infrastructure and policy incentives that will encourage people to invest. Then you look at major drivers of the manufacturing sector in an economy that is heavily import-dependent, you want to bring the machines from abroad, you want to get your spare parts and some raw materials. If you look at the way the CBN has handled the foreign exchange, I think it could have been better.

The current led by the President, Major General Muhammadu Buhari (retd.), introduced the Social Investment Programme but some said that will not end poverty, neither will it impact the economy significantly, what is your view on this?

You know the perception of the beneficiaries of the scheme is part of the problem. The government has a good intention; to empower people at the bottom of the pyramid, talking about people in the informal sector where with as little as N10,000, they can do some good business. But you know anything that has to do with government, people will always see it as national cake. The schemes like school feeding, N-Power, etc., have empowered a good number of participants. The Trader and Market Moni too are supposed to be in form of micro-credit facilities to be repaid so that it can recycle overtime. I think a lot was done in terms of providing the needed resources for the programme but one of the problems they had to contend with is the typical Nigerian nature and attitude in things like this.


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