‘Oil marketers receiving subsidy payments are virtually defrauding Nigerians, government’

Pat Utomi is the founder/CEO of Centre for Values in Leadership. In this interview with EDOZIE IFEBI and a few other journalists recently, he speaks on how Nigeria can attract investments, the fiscal and currency crises, the tough business environment for Nigerian companies and current penchant for regulatory imposed hardships. Excerpts:

 

How can Nigeria attract and retain foreign investors, amid the current tough business environment and lack of movement on important reforms

Nigeria can attract and retain foreign investors in so many ways. There has to be a concerted effort to come to terms that government is not just job for the boys. That in critical area, only the best professionals in the world are given charge and that they are not accountable to some politicians manipulating things because everything is not about politics.

Get the right people in the area of doing business, empower them, things will turn around immediately.

You are all witnesses to the embarrassment of the poorest airports report. Nigeria’s three flagship airports, Lagos, Port Harcourt and Abuja were among the worst 10 airports in Africa not in the world.

Who is going to do a business in a country where the airport is obsolete, where Custom officials begin with a view that you are a target for extortion

Government can change the Customs attitude by putting cameras at the airport with a stern warning to all of them that anybody found wanting is out of the service. They are supposed to be Nigeria’s first contact with foreigners and its public relation officer.

What is your take on the recent selloff in oil prices and Nigerian assets as well as the government’s response to the looming fiscal crises

Well, I’m not so sure that I am in complete agreement with the way that whole matter has been managed, for a simple reason: oil prices have traditionally been volatile. In the 1980s and 90s, the spikes in oil prices were fairly frequent.

I recall in 1980, I was on my way to Nigeria from the US where I was in graduate school, and I got into John F. Kennedy Airport and I saw both editions of Newsweek and Time magazine – it was the first time in living memory; I could remember the cover of both magazines having the same headline, “World Over a Barrel.” That was when oil prices hit $40 as a result of the Iranian revolution. People were aghast, oil prices hitting $40?

But by 1982, when I was returning home, Nigeria did not sell one barrel for two weeks – oil prices had crashed.

Now, how can a people experience this for so long and still get caught by surprise over such a thing

The only thing that happened is that we experienced extraordinary “good fortune” as a result of China and India rising and the voracious appetite for fossil fuels and so the usual cycle in oil pricing became broadened and we all relaxed – which is very wrong.

Now with that history in mind, we should never escalate the amount of money that goes into the distributable pool fund now known as the FAAC account beyond numbers like $40 or $50 a barrel – our budgets should not be above $40 a barrel. Even when oil prices go up so high, we can raise it to say okay, $50.

If revenues rise past something like $70, all the revenues between $40 or $50 – depending on how we choose to move, should go into what is called a stabilisation fund. In that account, we invest the money to be yielding something but it is going to be near-money instruments, so if oil prices crash to $20 or $10 dollars, as happened in 1998, we will immediately be able to draw from the stabilisation fund and ensure that the budget is always funded at that $40 or $50, no matter what the oil price is– that is the purpose of the stabilisation fund and then thirdly, if it was above that $75, the excess should go into a future fund.

But we have set up a small one called the Sovereign Wealth Fund

The logic of it is very simple; you see mineral resources or mineral revenue are a gift from God for all generations.

If one generation should finish and do not invest in something that future generations can profit from, it is a criminal offence – it is the only moral law I know of in economics. Through such instrumentalities the Kuwaitis have done a pretty good job of it over the years through the Kuwaiti Investment Corporation.

Even the Malaysians and all of these Asian countries have done well with such instrumentality. Norway is another great example – they have built up all these sovereign wealth funds.

In fact, Ngozi acknowledged that day that I was right but she’s even struggling to get the small excess crude account, that she was having so much trouble.
My attitude to that, with all respect to her, the reason why we’re professionals or technocrats is that when politicians are behaving inappropriately, we quit, or generate a national debate on how politicians should behave because this is the correct thing in the interest of the country.

But because our political class – let me use the word and I have no apologies – has been irresponsible, all they want is “let’s get this money!”

One excuse that they make is that, “They say it is for the ‘rainy day’? – it’s raining already! Torrents are coming down, floods everywhere”

Flooding over what, flooding to where? Paying salaries, going to Dubai with girlfriends – that’s flood!

In 1998, General Sani Abacha ran Nigeria with crude oil prices at less than $10 a barrel – why can’t we run Nigeria with $50 a barrel of oil. But, today, what do governors do – do they create the atmosphere to attract investment?

No. What are our subnational governments doing. They have become totally ineffective; they are just places for money to be shared and are the major crisis of the Nigerian Economy today. So, we need different kinds of people serving as governors – that’s why I look at some this primaries and I just feel sad for Nigeria because many of the characters who are emerging as candidates can’t run households and you’re asking them to run states.

Talking about the attitude of the subnational governments or state government as we call it in our clime, a former minister of state for finance once alleged that as soon as the monthly federal allocation is shared, the value of green back goes up.

The CBN has spent billions of dollars defending the naira, now it has as a result of the declining oil prices devalued the naira. What purpose, in your opinion, does this devaluation serve?

I think we, first of all, need to define currency value. There is a certain discussion of currency value in Nigeria that is difficult because of misunderstanding of exchange rates. Many years ago, in the when Japan was growing and expanding rapidly in the 70s as an Economy, the value of the Yen was 200 plus to a dollar. When it began to appreciate and strengthen, the Japanese people will get worried because they know that the cheaper the yen was, the more they are likely to export because the goods will be cheaper for consumers abroad.

So, when a people begin to be obsessed with keeping their currency strong, it means they don’t have a productive economy, they don’t produce things that others want to buy. Therein lies the fundamental problem of the Nigerian economy, we are not a producing economy. Then it becomes a rationalisation for us, “when we are not producing anything why should we make the exchange rate high and just make life difficult for people.” That is the truth. But it makes life more difficult for the consumption class. Unfortunately, because we have mismanaged the economy everybody is now in the consumption class.

For so many years, we have been talking about petroleum subsidy, who is subsidising who

I don’t agree that there should be subsidy on anything except the government is trying to use it as a strategy to achieve growth in the economy.

What are they really paying for They are paying for the games between the Nigerian National Petroleum Corporation (NNPC) and the marketers.

Those who have studied the value chains in fusil fuels know the basic logics. When crude oil prices are high the production companies makes a lot of money, the refining companies get into trouble because the margins they can pass on is very limited.