New Telegraph

Onyebu: CBN Should Continue Its Forex Market Reforms With Intense Discipline

What is your assessment of the current actions taken by the government on the economy?

I do believe that the government has taken some very tough, maybe, even harsh decisions on the economy. Some of these decisions, though painful, are deemed necessary due to the level of deterioration of the economy at the inauguration of the new administration. However one would expect an equally tough stance on the issue of cost of governance. Unfortunately, we are seeing an expansion of decadence and profligacy. This is not good for this government and the image it is trying to create.

Is it fair to apportion all the blames for the current level of poverty and hardship in the country on the current government?

I think it would be rather unfair to blame the new administration for the current level of poverty and hardship in the country as they are about to celebrate one year in office. The rot, which evidently resulted from the failures of the previous administrations, cannot be corrected with just a snap of the fingers.

It certainly would take some time. So we need to give the President Bola Ahmed Tinubu-led administration time to fix the rot committed by past administrations in the country, if not, we will just be seeing recycling of past policies and that is not what we need in Nigeria now.

What are the challenges facing the manufacturing sector in Nigeria?

One of the greatest challenges facing Nigerian manufacturers is the issue of dilapidated or, in some cases, complete absence of basic infrastructure. We are all conversant with the state of our road infrastructure throughout the country. The terrible state of our roads makes it difficult for many manufacturers to access their factories, source raw materials and sell their products.

We are all aware of the unstable nature of our electricity supply. On the average, majority of manufacturers get less than 40 per cent of their energy mix from the grid. And, unfortunately, the alternative energy sources are quite expensive. There’s no way any manufacturer can be competitive with the current level of power supply to industries. Another problem is multiple taxation. Various levels of government come up with all manner of taxes, unmindful of the effects of these taxes on productive sector.

The consequences of these heavy tax burdens can only be imagined. This only compounds the already dire business environment in Nigeria. Then there’s the issue of foreign exchange (forex). Most manufacturers need forex to purchase machineries, equipment and raw materials, but are unable to access it because it’s simply not there. The foreign exchange market itself is in turmoil.

The rates change everyday. This makes planning very difficult. We also have the issue of policy somersault. It is actually difficult to plan when you can’t rely on some level of consistency in government policies. There’s nothing that scares investors more than inconsistencies in government policies. The obvious implication of all these is that our cost of production is very high.

Unfortunately, the poor state of the economy cannot support an appropriate increase in the prices of their products. So manufacturers are stuck with a large stock of finished products, which they cannot sell. This obviously affects the bottom line. It is no wonder then that a lot of manufacturers are going under while others are relocating to countries with less uncertainty.

Do you think the situation would have been different if the past governments had taken the issue of diversifying the economy more seriously?

Certainly. Past governments have, unfortunately, mostly paid lip service to the issue of diversification of the economy from the petroleum sector. I expect that, after so many years of inaction, this government would have realised that there is absolutely no alternative to embracing diversification of the economy. I expect that the new government fully understands the role of the manufacturing sector in this regards.

I expect the manufacturing sector to be given the required prioritisation by the government. I expect the government to relate with the fact that the manufacturing sector has the capacity to pull the Nigerian economy out of the woods and the fact that this sector could go into extinction if the right policies are not put in place.

What is your take on the unification of exchange rate and its multiplier effects on naira?

The unification of the exchange rate of the naira is a good policy which, though may now seem unpleasant, will ultimately benefit the economy. The multiple exchange rate regime was riddled with a lot of corruption and benefited only a few privileged individuals. Majority of businesses, especially the SMEs, were excluded. So it was only fair that the policy was scrapped.

The challenges being encountered presently are due to the inability of the CBN to properly fund the FX market. You can see how the recent action being taken by the CBN has had a positive effect on the market. You can see how the market has been reacting to the liquidation of some of the outstanding FX backlog. We should expect some stability if this is sustained. So on the way forward, I urge the CBN to continue with its forex market reforms with intense discipline, as the high exchange rate against the naira is a major driver of the skyrocketing inflation rates.

On the fiscal side, the government needs to subsidise some productive sectors like agriculture, transport, and healthcare while keeping a keen eye on enhancing the country’s security profile. Other areas of intervention could be the adoption of a cheaper and more predictable method of duty rate for imports and investment in building agro-industrial hubs across the country.

What is your advice to the government on the economy?

The economic reality unraveling everyday in Nigeria is harsh, and everyone is feeling the heat. The government has taken some very hard, and sometimes, very harsh decisions. I doubt if there’s anyone living in this country who doesn’t feel the pinch of the present moment. There is a need to look into the cost of governance.

It’s not enough to tell everyone else to brace up for the hard times. The government has to take the lead. The government has to lead by example. There’s need to drastically cut the cost of governance. There’s no way the people will fully understand what the government is saying until the government takes certain actions to curtail all sorts of extravagance.

There’s no way people will be happy to put up with suffering when the government is appointing thousands of non-essential officials while appropriating billions of naira for their welfare. The amount of money being allotted for the renovation of certain government facilities is more than enough to construct highways, schools and mega hospitals. It doesn’t make sense. I expect every official, from the National Assembly to the Executive, to realise the precarious situation this country is currently in.

What should be occupying their minds right now should be how to get this country out of the current mess. We should all be thinking about employment creation initiatives, because with the present level of unemployment, I have to warn that this country is almost at the edge of the precipice.

Is there need for government to support strategic industries contributing to Nigeria’s economy currently?

Yes. As Nigeria strives towards stabilising prices, boosting forex inflows, and attracting Foreign Direct Investments (FDIs), i think it is imperative to recognise the pivotal role that certain enterprises play in driving growth, fostering innovation, and creating employment opportunities.

These strategic entities, often operating in key sectors such as manufacturing, agriculture, technology, and infrastructure, serve as the backbone of the economy, contributing significantly to its stability and resilience. For instance, the significant impact that the Dangote Refinery is beginning to make on Nigeria’s economy cannot be overemphasised.

The 650,000 barrels per day refinery, a project of monumental scale, has started to fulfil its promise by addressing critical issues in the Nigerian energy sector. It was reported that with 100 million litres of diesel pumped into the market recently, the Dangote Refinery helped crashed the price of diesel from about N1,800 to N1,225 per litre. With another tranche of supply, the price of diesel has dropped to a low of about N1,000 per litre. MAN recognises the refinery’s contribution to enhancing energy security and reducing the country’s reliance on imported fuel.

The availability of locally produced diesel signifies a significant step towards achieving self-sufficiency in energy production, ultimately bolstering Nigeria’s economic resilience. I think Dangote and some other enterprises, notwithstanding their strategic importance, are not immune to the adverse impacts of economic downturns, market uncertain ties, and global disruptions.

For instance, the ongoing challenges, exacerbated by the rising cost of doing business and other socio-economic factors like threatening insecurity conditions, have intensified the need for targeted interventions and support from the government. Therefore, I call upon the Federal Government to implement measures aimed at providing special support to these strategic companies. This support package would be tailored to needs of the relevant with clearly defined objectives and time frame.

What specific advice do you have with regard to the productive sector?

I was coming to that. I have to say that we have no choice but to industrialise. We need to build hundreds of thousands of factories all over the country. We need to build micro, small, medium and large scale industries. Mind you, I’m by no means saying that the government should build these factories. No. What the government needs to do is create the right policies as well as provide the enabling environment.

This country has potential to become a major industrial power. We have the capacity. We have the people. We have the resources. What we lack is government support. We have lost so much opportunities as a result of this lack of government support. There was a time, in the recent past, when lots of Chinese, Indian and other Asian companies were reaching out to us, making inquiries about investing in Nigeria.

Not anymore! Why? Our harsh environment. What does the government need to do? The government needs to create a favourable environment for manufacturing to thrive; the government needs to invest in infrastructure, invest in power, fight insecurity, fight corruption, enact policies that would make manufacturing more attractive than importation of finished products.

These may appear far fetched because of the paucity of resources, but I assure you that they are doable if we set our minds to it. The government doesn’t have to invest its own direct resources. It could accomplish much via the public private partnerships route. The Federal Government can stimulate economic growth, foster job creation, and promote inclusive development in many other economic sectors in the value chain of the target enterprise.

Furthermore, these measures will contribute to enhancing the country’s competitiveness on the global stage, accelerating investment inflows, and positioning Nigeria as a key player in regional and international markets. I can assure you that with our large population, Nigeria would be irresistible to investors from all over the world if we do the right thing. Nigeria could become a major industrial hub. Nigeria could become the next big thing. China did it.Nigeria could become the next China.

What is your intake on the new capital requirement for banks in the country?

For me, I think the proposed recapitalisation of our banks is expected to significantly impact our economy if successfully executed. The project is aimed at enhancing the banks’ resilience and solvency to support the growth of the Nigerian economy With a target of having a GDP size of $1 trillion, we need a bigger, stronger, and more diversified banking industry to offer the required financial intermediary support to the economy.

The policy is likely to spur mergers, acquisitions, and capital injections, leading to a restructuring of the banking industry. While tier one banks may navigate the requirements more smoothly, tier two and tier three banks might face challenges raising capital, potentially resulting in consolidation and operational adjustments. Furthermore, it may accelerate the exit from the merchant banking segment and stimulate new opportunities and sectors, potentially leading to industry-wide innovation and expansion.

The apex bank is expected to implement robust measures to ensure transparency, accountability, and governance in the recapitalisation process. This includes stringent monitoring of capital inflows, thorough assessment of governance structures, and enforcement of antimoney laundering regulations to prevent misuse of funds and uphold the integrity of the financial system.


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