A former Vice-chancellor of the Federal University of Uyo, Professor Ekpo is respected nationally and internationally based on fact that he is a strong-willed, highly focused and deeply principled personality. From 1996-1998, he was Visiting Scholar to the World Bank and the International Monetary Fund.
Professor Ekpo has advised all levels of government and held several government appointments in Nigeria: He was Non-Executive Director of the Central Bank of Nigeria (CBN) 2005-2009; CBN’s Monetary Policy Committee, 2005-2009; National Economic Management Team 2008-2009; Steering Committee of both Vision 2010 and 2020 among others. In 2001, he was honoured with the National Productivity Merit Award by the President of Nigeria. He also received the Kwame Nkrumah Africa Leadership Award in Accra, Ghana in 2003. He is currently a member of the Board of Economists in the Office of the Chief Economic Adviser of the Federal Government, Abuja.
In the ensuing interview with our Editor-in-Chief (Mr Kelechi Anyanwu), Professor Ekpo bares his mind on the state of the Nigerian economy, the prospects of the Economic Recovery and Growth Plan (ERGP) and why the 2019 general elections may impede its implementation. Excerpts:
How would you assess the state of the economy?
The economy is still at a sub-optimal state especially when you look at the macro fundamentals. Unemployment is still very high. Inflation has declined slightly but it is still double-digit at about 11.61 per cent. Food inflation is still very high and interest rate is very high too. We still have a severe infrastructure deficit. Power supply which is very important for growth is still very erratic. So, if you take a critical look at the macro fundamentals, they are not moving in the right direction. If you look at political economic issues such as the extent to which the treasury was looted and the impact those stolen monies would have made, then you know we have not done well.
The government says it is making progress in consolidating economic recovery following Nigeria’s exit from recession last year. Do you think the
Economic Recovery and Growth Plan (ERGP) will help achieve this?
Yes, we have exited the recession technically but we are still in a stagflation state. In terms of positive growth of the gross domestic product (GDP), we are out of recession, but like I said, the macro fundamentals are not very good. Unemployment and inflation figures are still high, productivity has not improved, and the growth rate of GDP is less than the growth rate of population. So in a sense, we are still not out of danger.
The ERGP was put in place to take us out of the recession and put the economy on a positive trajectory. But it is a medium-term plan. For Nigeria to make progress, we must have a long-term plan. If the ERGP is fully implemented it will put us on a recovery path, but it will be difficult to sustain. I don’t think it would be fully implemented because this government has just about a year before the next elections.
One of the challenges bedevilling the economy is the issue of resource allocation. The Excess Crude Account (ECA) which was created to serve as a buffer in lean times is being violated. What is your take on our fiscal federalism?
We are not really practising fiscal federalism. What we should be doing is what I call comparative federalism. The Federal Government is too powerful and we have to truly decentralise and stop waiting to get allocation from Abuja. What we need is to free the states and let them be independent to generate revenue and contribute to the centre to run monetary policy, foreign policy and defence. But we don’t have that. For me, I expect the centre to be weakened and have a confederation. Confederation is not new to us because we used to have regionalism and it worked better. I think we should get back to that because waiting for resource allocation every month is a bad idea. Each part of this country has a resource and the main resource of development is labour whether skilled or unskilled. Each state of the country has human beings and that should be the focus of development.
Allocation is not properly placed because the formula is in the context of going to Abuja once every month.
I did a study for the United Nations Development Programme (UNDP) a few years ago and from the study I found out that, just two states — Lagos and Kano — would be viable if federal allocation is stopped. Of course, I don’t think that has changed. Federal allocation is an area we have to revise if we are honest about building this country. Do we continue to allocate resources the way we are doing or do we free the states to be independent in terms of economic activities? A lot of times some states have innovative ideas but they are frustrated by federal rules, regulations and waivers.
Diversification has become a recurring issue with every government. But there have not been efforts to diversify revenue sources. What is your take?
The Nigerian story is the oil story which is very sad. That is why anytime I see oil price rising, I get concerned because government forgets about what it should do. As you rightly said, we have made intentions to diversify the economy; meaning that we ought to generate revenue from other sources than oil and we have not done anything except just talk about it. When the oil price drops sharply we get concerned but immediately it starts rising and we are building external reserves we forget about diversifying. That’s the way to go and we have all it takes to achieve it, but I cannot understand why we are not doing it.
Even the oil revenue, we can make it project specific. For example, using it to build hard and soft infrastructure and then we will have a multiplier effect. But we have not done that. The oil sector is not linked to agriculture, chemical industry and others. So, until we truly diversify the economy we will be in serious problem. Again, we forget that oil is a wasting asset and whether we like it or not it will be exhausted someday. Of course, we have other resources such as agriculture that is renewable; we should focus on that area. We only pay lip service to it. Even Nigeria’s exit from recession is the oil story. Oil price went up, the Organisation of Petroleum Exporting Countries (OPEC) increased Nigeria’s quota, we had relative calm in the Niger-Delta region and we exited the recession. It is sad because there are countries that used their oil revenue better. The ECA is being hampered by legal issues, and we don’t have much money in the ECA. In fact there are a lot of problems but the sooner they get committed to solving the challenges the better. But so far it’s just lip service.
The Nigeria Natural Resource Charter (NNRC) recently released the 2017 Benchmark Exercise Report (BER). What is your take on that report?
The report has brought to light our fears. Yes, there has been marginal improvement, but in concrete terms we have not made much progress. That report has shown that Nigeria’s economy is still very much dependent on oil; the Nigeria National Petroleum Corporation (NNPC) is still very inefficient and also highlighted inefficiencies in government parastatals. The report, if taken seriously by the government, should alert policy makers to demystify the oil sector so that we can make progress. There have been previous reports that have not been taken seriously by government and I don’t see them taking this one serious.
The Nigeria Natural Resource Charter (NNRC) benchmark report has come with more empirical evidence about what we really know of the oil sector and the economy as well as the fact that oil receipts are not properly managed, and that the NNPC is very inefficient, among others.
How come such reports don’t get the deserved attention from government?
There is a lot of disconnect between reports like that produced by stakeholders and policy makers. For example, such a report should be forwarded to the Office of the Vice President who is in charge of the economy. He chairs an economic management board and such a report should be discussed at that board and recommendations forwarded to Mr President. Even the National Economic Council (NEC) should have that report and I would not be surprised they don’t know about such report. So, this is one of the challenges affecting policy formulation in the country. There are people doing good work regarding policies but their results are either not known by the government or if they are known, they are not taken seriously. Until we start doing that we would not make progress because the other countries we admire their progress don’t have that disconnect.
In the developed countries, whatever research taking place in academia, people in ministries are aware because they read the same journals. So there is synergy and this informs policy that gets government’s priority. But there has been disconnect over the years in Nigeria. Either they tell you that a paper is too academic or theoretical and they dismiss it. That is the big problem and the situation is very serious that even branches of government are all doing their own thing. With this attitude, the report just stays on the shelf and nobody knows about it. I hope that going forward, we will change that approach. For example, I am a member of the board of economists advising government and each time we meet, we ask how our suggestions are received up there. Really, it is up to government to accept a position we put forward. Our job is to give government alternatives and even if they are aware, there could be administrative and operational lags which amplify the disconnect.
After 17 years, the Petroleum Industry Bill (PIB) received attention through the passage of the PIGB. Many still believe that without the fiscals, not much would be achieved. What do you think?
I will be disappointing some people by saying the PIB will not solve our problems because we are focusing only on the oil sector. Other mineral resources should also receive similar attention. For me, I think the moment we demystify the oil sector it will do a lot for Nigeria. Yes, the bill itself may not address fiscal issues but even if it does, so what? It doesn’t address how the community will benefit from oil proceeds. They should debate on that. So, I am not a big fan of the PIB because I don’t think passing the bill into law will solve the problem in that sector. The problem of that sector will be solved when you commercialise the NNPC and make sure that is more efficient and plug leakages in the oil sector. It should not be privatized but commercialised so that everyone can buy shares in it, but the number of shares an individual can own should be limited so that we can all have a voice in the affairs of the NNPC. This is a better approach instead of passing the bill into law that is not adequately implemented and we have many of such laws.
According to the CBN, the government has reaped huge gains in forex conserved from the ban on 41 items from accessing forex from official sources. Is this policy vindicated?
I think the ban was in order. It was done to encourage local production and to some extent it has worked because we see a lot of attempts to buy made-in-Nigeria goods although I don’t have the exact figure of how much government has earned from that effort. Every country does that if you have to move forward. But we cannot do it forever because at some point you have to allow your local industries to compete globally. So as a short term gap it is okay. Indeed, the policy was a step in the right direction and I think the private sector should take the opportunity to diversify the economy which is the aim of the policy. Instead of going to import toothpick, fish and others, we should strive to produce them here in Nigeria.
However, the major item eating into our reserves is the importation of petroleum products. If we can get our refineries working and encourage the building of more refineries, we won’t see a lot forex coming in.
Recently the Minister of Finance said the Federal Government would double the ratio of tax to GDP in two years. Do you think this is feasible?
I know there is this craving to mobilize domestic resources. However, the tax to GDP ratio in Nigeria is low for several reasons. One is that most tax comes from oil, Secondly, tax has a feedback mechanism; in that, people will be willing to pay tax if there is service delivery. You cannot just force people to pay tax; this is not a colonial government. What are people getting in return for the taxes they pay. Besides, incomes are very low and there is high unemployment. It is only when people earn incomes they will pay tax. To increase the tax to GDP ratio, you have to create employment and there should be improved service delivery.
Looking at the states, Lagos is collecting a lot of taxes because there is service delivery. I am not a fan of just increasing tax to GDP ratio for the sake of it. Produce efficient services and people will pay tax. Even for those who are working, there is an income bracket that is exempted from tax. So, those on minimum wages are exempted, for example. Looking at the civil service pay structure, a lot of people are not paying taxes because of low income.
Except the government is ready and willing to tax luxury goods, it may not be quite feasible to double the ratio of tax to GDP in two years. Of course, what the government does with the money matters for future tax collection.
What government should do is to put in place policies where people will want to save. But people are discouraged by the low returns on savings. The interest rate spread does not make sense. If people save, it will generate investment. Banks are only willing to give reasonable interest on time deposits. In Asia, people save a lot and that’s why they are able to invest more. But here in Nigeria, it is not like that. The Voluntary Asset and Income Declaration Scheme (VAIDS) is a good idea but we should be careful not to burden companies with excessive taxes so that they don’t take their business elsewhere. So, we have to approach carefully this need to mobilise resources because there is a lot of hardship in the land. Poverty level has increased and we need to take a look at that before we talk about increasing taxes. If we don’t, people will look for a way to circumvent the system.
My take is that the resources we have already, if well managed, can grow the economy and further generate more resources. Tax to GDP ratio depends on the level of development of an economy. For now, ours is low because oil brings in most revenue and we are still a resource-dependent economy. But as the economy grows, it will improve. The ratio set for low income countries such as Nigeria is about 12 per cent and we are doing about eight per cent which is commensurate with the level of our development.