"The Benefits of the Sovereign Wealth Fund"
Chief Kingsley Ikpe is a former bank chief and chairman of Ithoki Energy Resource. In this interview, the economic consultant speaks on why government can’t shy away from taking concrete steps that would help the economy. Excerpts:
Do you share the view that Nigeria’s economic backwardness is largely due to external forces which reap from its underdevelopment?
Many people, when they are unable to achieve their expectations, they look for something to say is the reason . We are the architects of our own problems. We want to consume before we produce. We allowed our own misleading of what should be political power and took it to mean the ability to get the largest possible share of the national cake, not the respect you get from being the baker of that cake. That is the problem of Nigeria and the economy.
What is your assessment of the steps taken so far by the present administration to revive the economy?
Wonderful, they are taking correct steps. There are so many critics in the papers blaming them for everything but it is unfortunate. This administration is building institutions. It takes time for you to begin to see the results of the institutions that they are trying to put in place. Mind you, this economy was wrecked by the long years of military intervention.
They had a bunch of young men that knew nothing about managing the economy. Under the military regime, it was not easy to distinguish the difference between the private pocket and the national treasury. So, this is the consequence and, if you look at the countries that got their independence at the same time with us, those that succeeded did not had military intervention. Such countries include Singapore, Malaysia and Indonesia.
We are still operating a mono-economy. Do you have confidence that this administration would diversify it?
You can see what the present Minister of Agriculture is doing by trying to create a process whereby the nation would be able to feed itself and ensure that there would be value added industries to replace some of the things that we import and also to export.
However, there is the need for states to understand the need to create necessary infrastructure that would stimulate more economic activities that would help the country’s GDP to grow. So, they are moving in the right direction and it is necessary that we provide the support and encouragement and not criticizing all the time.
A lot of people think that when you criticize, you are intelligent but it is not necessarily so. You achieve a lot when you encourage people and, when you do that, you increase their level of self-confidence and they would get better.
The issue of Sovereign Wealth Fund has generated so much controversy. What is your view on that?
It not to be controversial. The governors understand the need to take as much as they can get from the centre but we all grew up understanding the lesson to save for the rainy day. That is the whole thing concerning the concept of the Sovereign Wealth Fund. We cannot say that oil price would go up.
It is unrealistic. If it plunges maybe below the budget level we should have something that we can fall back on and your Sovereign Wealth Fund gives you enormous respect and increases your credibility and power in negotiation internationally.
It also increases the value of your currency because you are not talking about your current accounts and asset base. So it is a good thing and I hope the governors would start laying more emphasis on how to internally increase their own revenue generation and not always looking at the centre and by so doing making it seen that these political units are economically strong and viable.
Recently, it was alleged that the country might go broke as the Excess Crude Oil account was fast depleting. Do you think it is now wise for government to borrow to finance key projects?
I have said that infrastructure would help the growth of the economy, increase the country’s GDP and smoothen the running of the economy . So, if you are borrowing for infrastructural development which would now help increase the economic base or borrow to build entities that would produce income or profit, it makes sense because it would be self-liquidating borrowing .
So, the projects from which you are borrowing would generate the kind of income to repay those loans. Many have criticized the country over the poor railway system but the present government is working towards its revitalization as there is no modern economy that would function most effectively without a good transportation sector . So, I think whatever they borrow should be at low interest rate.
The government also plans to scrap some of its agencies. Don’t you think it should rather strengthen them?
Well, if the agencies have not outlived their usefulness, you don’t kill them but if they have functions that are duplicated, what is required is to streamline them and the personnel that would be relieved would be redeployed to areas where they could be more useful to the economy.
If you redeploy the people, you are not necessarily creating unemployment. You are simply moving people around for greater performance. We can’t shy away from taking concrete steps that would help the economy to be on a proper level even if it means people losing their jobs.
Do you think Nigerians should pay higher tariff for power when government cannot guarantee stable power supply?
There is nothing like free lunch. If you want good service, you have to pay for it. If it is our expectation that PHCN should function efficiently and effectively, then we should be ready to pay. We cannot have things always on welfare basis. Welfarism does not confer respect on people.
If it means paying a little more and that a little more when you add up whatever it is, it becomes much in terms of investing capital . If that’s what it takes to do it for PHCN to be well funded or for the private investors that we want to attract into the energy sector to come in so that their investment would be able to give us the kind of quality service we want, we should do so.
I know all these are coming at the same time particularly at a time of withdrawal of subsidy but these are inefficiencies that have been in the system and they have to be gotten rid off for us to move to where we want to be. In 1980/81, the projections we did was that in three years, the Nigerian economy would overtake the South Africa’s
but then, when the military guys struck, they took us back many decades and here we are way behind South Africa when we should have been way ahead. So, if you need to get something good, you need to grow your economy, you must make the right investment and the right investment must come from aggregation of savings and part of these savings comes from incremental rate that you pay.
Now PHCN put all these together to be able to buy more equipment. If new people want to now come into PHCN either as distribution companies or people selling meters or whatever, it should be profitable otherwise they won’t come and, if they don’t come, the sector would not be efficient and, if the sector is not efficient, we would still be staying backwards in the 21st century.
As a banker, would you say the existing banks in the country are strong enough to play active roles in the growth of the economy or do they require further recapitalization?
Strictly speaking, they do not need further recapitalization but my worry is that the manpower component in the banks may not be strong enough to handle the previous capitalization. This is why we saw the problems as they put money where they ought not to put money and that’s why some banks now failed .
So, we need more money to be able to compete on a global basis so that when a bank in South Africa is participating in an international financing school, it would be good for a Nigerian bank or when we are inviting major investors to come in and invest in our economy and they are using international finance, our bankers should be participating.
But then, we don’t want a situation where they are having so much money but don’t know what to do with it. It becomes a question of having more money than brains . That ruined us in the past. So, maybe, strictly speaking, yes we can do with more capital but no let us do a little bit to make sure that the manpower is sufficiently knowledgeable because banking today is a knowledge-based-business and, if you don’t have the people that have the kind of knowledge to operate in the 21st century banking, we have problems.