Mr.Tunde Popoola is the Managing Director, CRC Credit Bureau Limited. In this interview with COMFORT EKELEME, Popoola maintains that the nation’s econmy is gradually exiting from recession. Excerpts:
What is your view on the recently launched FGN Bond
The retail bond that the Federal Government floated is a good thought and it is capable of enhancing savings culture among the targetted populations which are the low-income earners. When you look at the interest rate, it is double digit interest rate they want to pay on the small savings that they are mobilizing from the people. I guess that is good to enhance savings and inculcate the culture of savings in sophisticated instruments like bond. This is like the Federal Government is going directly to the public to mop up fund for the purpose of investment, infrastructure and all the other things they want to do in the economy. So, it is good and I believe the interest rate would also be successful because the rate is very attractive.
But for me, I have some challenges with the concept. First of all, I see it as competing for fund mobilization with the financial institutions, because the financial institutions in the last few years had focused exclusively on how to enhance financial inclusion, quite a lot of other banks have put structures in place to attract savings and banking culture from this same targetted population. Now when you give such targetted population direct access to loans to the government at 13, 14 per cent, there is no way they would do savings of two per cent, three per cent that the commercial banks are giving to them. Savings in bond is not the same thing as having a banking culture. So, am not sure whether that is not going to affect the promotion of financial inclusion that we have been trying to do all these while. Before now, I think the banking penetration used to be very low and there are appreciable progresses that have been made because of the focus on financial inclusion. I don’t see how these would go together; it would have been good to come up with something that would make them to mobilize the fund through the banking sector rather than directly through the micro investors. I see that as a challenge, I don’t see it as complementing the principle of financial inclusion and am not sure it would promote banking and savings habit.
The other issue I have is the interest rate, because the government is borrowing money from the public at 14 per cent; yes it is better than foreign borrowings which are subjected to fluctuation in exchange rate. This one, if you are borrowing in local currency, you are going to repay in local currency, so you are very sure of the amount you are borrowing and how much you are going to pay, unlike when you borrow in dollars and the exchange rate changes and you are paying something completely different from what you borrowed. So, it is good. But when you are borrowing at double digits, it automatically triggers interest rate pricing to go up and that may discourage lending by the banking sector, because they now have to adjust their interest rate to be able to still be in business and attract deposit. I don’t think this would help the banking system, I don’t think it would help bring down the interest rate which all of us are yearning for so that businesses can borrow and be able to be productive. So, that for me, it is something we need to think through before we go on with the full implementation of the project.
I believe it would hamper the gains the country have made in financial inclusion, in bringing as many as possible into the banking system, I think that is likely to happen, I also think, it may negatively impact pricing of financial assets because interest rate is likely to go up even on normal bank products like fixed deposits, savings accounts and others because they may need to adjust their interest rate to what government is paying individuals. And when you do that, the cost of fund will generally go up and the cost of fund goes up like that, the cost of loans will equally go up because interest rate is a price for money. It may create liquidity challenges.
Are there opportunities for the masses?
There are lots of opportunities. First of all, it is going to increase the savings culture and that is good for the economy on one hand. More people will cultivate the habit of savings even with the small amount of money that could have been kept under the pillow that could have been wasted away by habitual consumption; maybe it is a way to transfer wealth back to the people. Maybe it can put more money in the hand of individuals. So, it has its pros and cons, that’s the way to look at it. But overall, let’s see how it would impact the life of ordinary Nigerians and we are of the opinion that there is need to channel the resource to infrastructure.
How has the economy fared so far?
I think there have been some improvements. If you look at the last quarter result released by the National Bureau of Statistics (NBS), we are still in recession but the negative growth was -.3 per cent which is the smallest in the last five quarters. The whole of 2016 was -2; we are gradually exiting from recession. Government has done some things that give hope that we would be out of recession soon. One, they have sustainability around the FX rate, even though multiple rates are still there, but at least it is available to a large extent now and reasonable. Nobody is talking about N500 per dollar anymore, people are talking about N300, N350, N360 and you can see that convergence is gradually coming between the black market and the official market. So, because of the availability of the FX, businesses are being stimulated; we are beginning to see and we will see it more in this second half.
There is also stability around oil production, the quantity has stabilized, there are no issues about militants bombing causing issues in production in Niger Delta anymore, and then the international rate for oil is also around 50-55 dollar per barrel. So, all of these are working for government. Government also has launched its economic recovery program and that is a fantastic document, it is just like most other fantastic documents we have had in the past. So the implementation, the execution, the arrow head, these are the issues we have to make sure we do very well. Nigeria has never had problem with planning, we always have fantastic plans but it is the implementation that is always the issue, guess this government will have to focus on the diversification of the economy which is the corner stone, irrespective of what happen to oil production and oil prices.
If government can focus on the diversification of the economy which they have started, if they can focus on addressing the issues around the ease of doing business, taxation, getting clearance and permits, issues around registration of businesses, issues around construction permit, clearing of goods at the ports, including what we do with our borders, quite a lot of people have gone into farming and it is working. The reliance on importation of rice has come down and the projection is that by next year, we won’t be importing rice again, that is good for the economy. So, there are two ways to earn FX, it is either you do export and you earn or you reduce your importation. I think that we are in the right path and that is part of the things that would take us out of recession. So recession, yes but short term, but building an economy that is sustainable that would lead to growth require long term plan and decisions, so decisions around boosting agriculture are good, the decision around enabling businesses to have easy access to finance, registration, immigration issues, these are things that would add up to make up being a friendly country for doing business and will attract foreign direct investment into the country. We have serious infrastructure gap which we need to address and we need funding for that.
Improvement in the FX market and prices in the market
The kind of inflation we have is cost push inflation and they came from the devaluation of the naira. Quite a lot of items were purchased with the old rate, if somebody had purchased dollar at N500 to import something into the country, until he/she finish selling those goods and buys at the new rate, we won’t have reduction in the commodity.
The economy is one, if you say some goods are produced locally but same person will pay school fees which have gone up and buy some other things and he has to use what he has to buy what he needs. So it is a circle, it is a complete system. You cannot say because I produce something in naira it would not affect the price. The second issue for me is that there is still some level of confidence that we need to do on the FX issue, people still believe it there is solution, so they are waiting to see the stability, once they see the stability .
The third one is the interest rate. Because the interest rate have not come down, we need to also address the interest rate issue, we need to address the FX rate issue, we need to address the supply of FX to the market before we can talk about inflation coming down. Once inflation comes down, that is the only way price level can come down.
For a better society
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