Mr Bismack Rewane is the CEO of Financial Derivatives, reputable financial firm, based in Lagos. In this interview with Channels TV monitored in Lagos on Tuesday 1, 2019, he gives in-depth and realistic analyses of the performance of the Nigerian economy in 2018 and indicates what policies and investments should be undertaken fast to sustain the slow but steady economic recovery from recession. Nonetheless, with the 2019 election and the attendant post election issues that may take a chunk of the New Year, things may be far from rosy. Excerpts:
General Overview of the Economy in 2018
I would say the year 2019 would be a year of anxiety, fear and uncertainty after a tumultuous and turbulent year in 2018. But what is important is that we have game-changing personalities in the global, regional and domestic fronts. But most importantly, we take five of them: you have persons like Aliko Dangote, richest man in Africa, investing across sectors such as refinery, cement, petrochemicals and sugar.
He is employing many people and generating power. You cannot ignorer him. You have Suleiman, young technologist, programmer and other coders moving in that direction. If you take the global picture, you have Amazon. Then politically, you have Chinese President and Vladimir Putin of Russia controlling the Organization of Petroleum Exporting Countries, OPEC, differently; the Chinese have demands for oil, almost 7 per cent of all output, and it is the second largest economy in the world. You do not know where they are headed, but you cannot ignore them. The there is Russia, now controlling OPEC, as it were, in addition to its gas imports into Europe through Gazpron.
Then you have Theresa May, (PM of UK) functioning or not functioning with the Brexit thing. In Nigeria, we have three political persons who are very important personalities; Mrs. Obiageli Ezekwesili, (Presidential candidate of the Allied Congress Party of Nigeria, ACPN) is doing the right thing. She addresses issues. What are her chances now we do not know. Then you have Professor Yemi Osinbajo (Vice-President of Nigeria) handling policies dealing with Ease of Doing Business in Nigeria. And then you have Mr. Peter Obi (Vice-Presidential candidate of the Peoples Democratic Party, PDP), a data guru. Then you come back to financial services where you have Suleiman Abubakar of Sterling Bank, going very far with technology and agriculture, is the guy to watch in 2019. You have Mrs. Pat Oniha (Federal Permanent Secretary, Debt Management Office, Ministry of Finance) How she manages of our debt services would have great impact on our future as a country because debt servicing and management will be tough. In the entertainment area, you have the Ojuelegba guy, Wiz Kid, moving very fast as ambassadors of many organizations. So basically we have personalities in the government, business, financial, technology and social worlds to make things change. If you have not heard of these persons you will hear of them and they will affect your life in one way or the other.
Putting it all together for the Nigeria economy in 2018.
The flagship story for me in 2018 is that it was the year of recovery from the economic recession of 2017. It was a year of sub-optimal growth; a year in which there were highs and lows. But most importantly, for me is this: 2017 we were the second best performing stock in the world and in 2018, we are down to almost 18 per cent, so we went from a hero to a zero, from the best to the worst. Of global stock market was also turbulent. But then we had investment going up, we had a fairly stable currency going up, with mild volatility. It was an interesting year, turbulent but also positive on some levels.
Major economic milestones of 2018.
The GDP was $447b. Big, but growing at 1.8 per cent at the last quarter. It even went down to 1.5 per cent at a point. And our population is growing at 2.6 per cent. Population minus GDP growth gives you -7-9 per cent growth. Sub-optimal. So everything that passes, you are producing less food than people: More people and less food, which means more hunger for the people. That means more hungry people, more unhappy people, more miserable people in Nigeria.
Now our power generation per capita is .20 kilowatt. Which means you can hardly light a candle if we shared it around. The rule is to have one million people for 1000 megawatts, so we should be having 180,000 megawatts, but we have 4,000 megawatts. Yesterday, it dropped to 3,500. Of course, I have heard about the upgrade and alternative sources solutions and such things that Babatunde Fashola talks about (Minister of Power, Housing and Works). But the truth is that with 4,000 megawatts, you are not going anywhere.
Then you have structurally rigidities and dysfunctional policies, for example, look at the Apapa Port with its vehicular gridlock, look at the forex markets which should be more flexible, cost effective tariffs, look at the banking system, look at petroleum subsidy. These have to be dealt with.
Troubling signals from unemployment figures
Our unemployment rate is 23.1 per cent, and unemployment defined as anybody who has not done anything gainfully in the next twenty-four hours. But there is also the underemployed, which is 20 per cent. The underemployed guy is more dangerous because he/ she has enough food to eat and carry out a crime at night. So he/she is employed in the day- time but negatively unemployed at night. The unemployed guy is wiped out anyway because he/ she has no energy to carry out any crime. But when you add the unemployment and the underemployment figures to the inflation, you have the misery index, which is about 60 per cent and this is very dangerous.
Money supply growth is going at 6.25 per. Typically, money supply can be going up at 16 per cent so that you do not have an inflation gap. Our target was 10.4 per cent—but you have the VAT and credit to the private sector. Credit to the private sector is actually not doing anything. You have about 1 per cent or even negative. So people are not lending. All we are relying on is intervention money from Bank of Industry, BOI, Nexim and all that. No country lives on interventions. Interventions are exceptions. The banking system should be able to intermediate and provide credit for everybody. I mean, if you have taken 22 and half- per cent of my deposits as cash reserves and you are returning the ones with you, so effectively you have deprived me of 30 per cent of my liquidity in terms of borrowing. So the guys are risk averse. Lending now is price inelastic, they do not care, even if you leave interest at 100 per cent, they would not lend. So we have got to deal with that. That is what I meant by structural rigidities and dysfunctional policies.
Telecommuncations and Electricity Sectors Doing Well, but not the financial service sectors
Well telecoms and electricity sector doing well. 18.2 per cent in electricity because of solar energy like in Ariara and Aba Market, some upgrading going on. But financial services sector and Insurance, had minus 4.81 per cent and real estate are in trouble. The vacancy factor in Ikoyi, Victoria Island, Lekki in Lagos as well as Abuja and parts of Port Harcourt is as high as 29 per cent to 30 per cent. In other words, 30 per cent of houses in those areas are not occupied. The other ones that are occupied, about 20 per cent are delinquents, that is tenants have refused to pay and to evict your tenants you have to go to court and engage a lawyer. So, in the end you are still under water. The owners probably burrowed money to build the houses, so both the owners and the delinquent tenants are in deep waters. So you have a sector that is not creating jobs and this is suicidal. So you are having GDP growth in an economy that is not creating jobs. So it tells you, you have to restructure or re-orientate you economic thinking because there is difference between an economist and an economic thinker. And economist that is not an economic thinker is an elegant illiterate.
Why Banking Sector is contracting so rapidly.
The reason is innovation. Every time you come up with an innovation, it takes away people: Branches are being closed, people are being fired. The new millenniums do not use cheques; they are making payments electronically. So what is the traffic in the branches; it is declining. So you do not need cashiers, bullion vans. Even the guys who were selling recharge cards have been wiped out by technology of online recharge and other innovations. But we have not started to build massive railways, roads that would provide jobs for such displaced persons. Those who have been displaced are now criminals.
The policy environment is riddled with contradictions and conflict of Interest
Here you have one step forward and two step backwards. What you find here is conflict of interest and contradictions. Some policies contradict themselves because the people who make the policies are benefitting from them; they have interest. So when personal interests are higher than national interest, there is bound to be contradictions. The Nigerian policy makers have been compromised all along and then this makes for sub-optimal growth. Look at African Trade Agreement, which we have not signed. We were the champions of it. It is in our interests and I think we should sign it. The African Development Bank President is a Nigeria, the OPEC Secretary-General is a Nigerian, so what are we afraid of? The thing to fear is fear itself. You see, vested interest have take place over national interests.
The question of tax payment by Nigerians
People have to have the willingness and the ability to pay taxes. An economy that is not growing means the taxable population is not growing. That is one. Two, people would not pay if the people do not trust the government. The personal income tax is Ok. Look, tax compliance and the culture of paying tax has a history. The United States itself was built from a resistance against what the people called ‘no tax without representation’. So if the people believe they are not getting a fair deal, they will not pay. There must be value for money. It is a good thing but we should factor in the value component. N5trillion that FIRS made for the government is good. But the question is what have you done with it and what impact has it had on my life in 2018.?
How the Nigerian consumers market fair in 2018 and the prospects in 2019.
Two things happened here. The GDP is $447b, buy if you divide one by the other you have 2084 but the currency value, it appreciated technically from N520 to N700. Then there is the minimum wage issue. The thing with it is that you can negotiate on the implementation stage for long time. You could still negotiate starting from effective date of September and pay some arrears. But lets look at it. N30,000 means what with the exchange rate? The minimum wage in South Africa is N146,480 and that is the economy that is second to our economy. That is an economy that went into recession and came out in one quarter. Life expectancy in Nigeria, which is what you use your money to keep, is 54.1 years, one of the lowest in the world; Sierra Leone has the lowest with 52.3 years. In Ghana, life expectancy is 64 years. So if you have persons born in Nigeria and born in Ghana, the Ghanaian guy has ten years longer than his Nigerian counterpart and that is what you use your money for; healthcare, education, feeding. What we have found is that consumer confidence in Nigeria is down to 60.8 per cent because the consumer feels desperate, he/ she is under pressure in terms of security. So banding growth numbers without talking about the quality of life is dangerous. Consumer indicators are absolutely non-existent. But again come back to average price of petrol for the consumers, it is about N156 per liter, while the official price is N145. But for diesel, the national average in N219 but the price is N216 in Lagos. So the consumer in 2018 had a raw deal.
Looking at 2019 as turbulent economically.
The campaigns have started for the elections in February and March. In January, there is presidential debate. You have minimum wage issue, the posters are being put up and down. But it is an election year in which people are not being engaged. People are indifferent; they are unenthusiastic and they are uninterested because they are disillusioned. And the minimum wage increase is going to impact the economy badly. If you increase wage without productivity, you are increasing money supply and inflation will eat it all up. You got to pay anyway, because it there in the book that you must review wages every five years, so there is no running away from it. That is what happens in January. In February you have the elections the election, the inflation reports like you had in January. In March you are likely to have protest and demonstrations and going to the electoral tribunal. So that is the first quarter for you. No much would happen in the economy. Then there would be congratulations, appointments taking the next quarters. So we are going to be gasping at the end of 2019 because we spent all the times electing ourselves and doing nothing else.
What happens to the economy.?
Let me say, GDP growth would be 1.9 per cent or 2 per cent if we were lucky, while the global rate is 6 per cent. We are going to be investing $6b, which is about 1.1 per cent of our GDP, where we should be doing 11 percent. Our revenue is going to be sharply lower, already we have $53bpd, less than $60bpb that was the budget benchmark. But this would be the time to invest in the stock market because some big companies are coming for listing in the market and there is going to be post election rally. In the budget you had N305b for subsidy, while in fact we have spent N1.36trillion last year, which means that it is clear whoever comes into government, no matter who wins, the price of petro is going to go up by 25 percent. Nigerians should prepare for petrol price that is between N156 and N200 per liter. We cannot hide it. The currency would come under pressure, the worst case scenario is that we have a 10 per cent depreciation. There would be a supplementary budget because the current budget is going nowhere. Price of oil is going to come down. That is the raw truth. How would it affect you.? There would be wage relief but more pain. Price of rice, beans, garri would go up by at least 10 per cent. But for household utensils and appliances; that is refrigerator, cooker, TV, all will go up by 15 per cent. Transport fares, both road and air, would increase.
Rents would also go up by 10 per cent. School fees to would go up too. Things that would not change are that Nigeria would remain an oil dependent nation no matter the rhetoric of government officials and politicians. Large population growth and over 40 per cent of Nigerians would remain below the poverty. Things that could change are the banking competition because of mobile transactions. When we talk of change we are talking of positive change, accelerated change and things that would make our economy competitive.
What all these mean for the 2020 development goals, just a year away.
2020 is when you wake up from the dream. We have been dreaming about 2020 since. Sani Abacha (late military head of state) dreamt of it. President Buhari dreams about 2020, President Obasanjo dreamt of it. President Goodluck Jonathan dreamt of it.
Now we will wake up in 2020 and see if their dreams have worked or not. We should be dreaming of 2030 by now, given the debt we have to pay. And I can tell you that the dream that we would be the economic hub in Africa, the one of the 20 largest economy of the world, would not happen. So it is a failed dream. We did not do what we had to do at least since 2010. Now if OPEC breaks down and oil crashes we are in trouble, if there is increased protectionism from the rest of the world, between China and the others, we are in trouble, If there is massive inflation from minimum wage, we are in trouble, if there is an election deadlock, we are in trouble. If Boko Haram blows up airports in Abuja and anywhere, we are in trouble.