Naira Devaluation Suicidal At This Time – Atenaga

Principal Consultant, Henates & Associates, Mr. Henry Atenaga, is a financial analysts and heads a network of professionals that is into Financial PR, editorial consultancy and scripting and training. In this interview he speaks on topical financial issues and backs the Central Bank of Nigeria (CBN)’s stance on the naira. Excerpts:

The debate over the naira is intensifying. Despite growing calls for devaluation, the Central Bank of Nigeria (CBN) insists it won’t take such a step at this time. What is your position?

If you have to import in order to produce, to add value, then whenever you devalue, the cost of those things that you produce locally will be higher. So devaluation will be of more benefit to those people who are in areas where we produce things for export such as agriculture and co. But given the Nigerian population that is growing, it will take a long time to export most of these things that we produce.

For instance, it will take a long time before we can export rice because there is strong demand here. Same goes for palm kernel and other agricultural produce. So I think that to devalue will be suicidal especially now that we don’t earn so much. We should be managing; allocating better.

That is why I appreciate what the Central Bank of Nigeria (CBN) is doing.

But former CBN Governor, Lamido Sanusi argues that the CBN’s restrictive forex policy is hurting economic growth and that the naira should be devalued to spur growth because that is what the country needs at this time. You disagree?

Sanusi’s position is actually based on the fact that he anticipates that with devaluation, people will be tempted to export which will ginger business activity here. That is his perception. He also believes that theoretically, devaluation will make people want to come here to invest because when they bring the hard currency, it will have a lot of value in Nigeria.

He has a strong point. But like I said, you must have a base to manufacture for exports for you to take advantage of any of those things so that the growth will really occur. If not, what will happen is that you are going to start importing inflation and you are not still in a position to produce to satisfy local needs. So the real thing is for us to think of how to stimulate production through other means.

For example the average banker is not bothered by the interest rate he should charge; it is the spread. If it is high or low it does not bother him but give him a good spread, he makes his money. If we lower interest rates, the only harm we might cause is that it could discourage people from saving. In any case, these days only few people have enough earnings to actually save- expenditure takes most of it.

So the interest rate angle might stimulate business better than devaluation. If they can lower interest rates and maintain a spread for banks to still survive, that would be okay. Then later we can address the issue of deposits at the right time. That might have a greater impact.

We have to find ways of reducing cost component of producers here not adding to their costs by devaluation. There are so many other things that you can do to reduce production costs of manufacturers.

How would you react to the complaints of real sector operators that their businesses are suffering because they can’t access forex to import inputs as a result of CBN’s policy?

It is the allocation of forex that decides that. If the CBN really wants to enjoy the benefits of its policy, it must identify those sectors that must be given priority. There is another aspect of this issue that people have not noticed. When your currency is down, people will attempt to do capital flight- that is already taking place.

For instance, there was this blue chip firm with a weak liquidity position yet it still had to pay substantial interim dividends. What they were only trying to do was to please their foreign investors. Because the naira is weak, they want the books there to look better. You pay more and when it is converted, you have more naira here. That is how capital flight begins.

What will be the likely long term impact of Treasury Single Account (TSA) implementation on banks?

The banks’ figures for the full year are not out yet but some are already showing a gradual drop in deposits. The worst could be over-I don’t know. But it depends on how dependent they were on those government agencies’ deposits. If they were very dependent, you can imagine, some of these banks will now go to the streets, send marketers out to go bring in the money because it is money they play with.

But the CBN, of course, did give them some succour when it relaxed Cash Reserve Requirements (CRR) which was a good move. Now you have to note that what the President wanted to achieve with the TSA is accountability. If you have so many accounts all over the place who monitors them? So it will really have long term positive impact on the country.

But whether or not it would be easy for some of the affected agencies, that is the issue. Some of them and their customers may have problems. But I still notice that some of them are coming up with Information Technology (IT) solutions that will allow you to process some of these things online before you go and pay in the bank. If they can develop this more effectively, then I don’t think there is a problem.

So how would you react to speculations that some agencies are finding it difficult coping with the TSA and that government might exempt them?

That is one thing about policy: It goes both ways. The negative about this policy is that people would have to find a way to adjust. They were used to walking into the next bank to get the money. But the CBN does not have branches like the commercial banks, so people would have to find another way of accessing their money.

Also, because the money is not being paid directly into the agency’s account, there has to be separation, at a point, between what is due to government and what is due to the agency. That separation process will take place and it will take time. Those are the issues that will affect the agencies now. But the important thing is that they must adjust.

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When policy decisions are taken, you have to stand by them and that is when you can reap the benefits. But when you start adjusting each time anybody complains then it means that you were not focused from day one and you did not consider the implications of that decision before you took it.

You have seen the third quarter results of the banks. What is your assessment especially against the backdrop of predictions by international investors that Non-Performing Loans (NPLs) are rising again in the industry?

The figures for NPLs don’t come with interim figures, they come with audited figures-that is full year figures. I think it is possible that those who have predicted growth in NPLs could be right because I have personally noticed that many of the banks are now increasing their provisions for bad debts.

In fact, for some of the big banks, they increased by over a hundred per cent. But I concede too that they could be coming from a low level of provisioning. For some of the smaller banks that recorded a drop, their level of provisioning was already high. So we have to consider all that. But it is actually obvious that they are making more provisions and when they are making more provisions, it is because they anticipate more bad debts.

What is your reaction to the growing concern in some quarters that the Nigerian banking industry is overregulated?

I don’t think there is an issue of overregulation. There has to be responsibility. Let us take the issue of provision for loan loss as an example. With all the guidelines that were established since 2008, if as at today the banks start finding themselves providing for loan loss again, then something must be wrong somewhere.

This is because the judgment over the loans still remains with the executives. Now if you say such a man who was asked to declare non performing loans publicly is over regulated and he is still falling into the same trap, I wonder. What we should emphasise more is that if there is enough expertise and enough corporate responsibility in the system, regulation will just fall through the window.

Do you agree with some analysts’ forecasts that the industry is headed for more consolidation with the first tier banks set to increase their dominance over smaller lenders?

Let us recognize that we wanted competition to be there in the industry and competition does not come cheap. Competition allows a lot of waste but at the end of the day, when you say competition, it is a test of strength, a test of customers, a test of capital base and the rest of it. All these come to play in the banking industry.

The more money a bank has to play with the more it will dictate the pace of things in the industry. You have such banks even giving loans to smaller banks; if you look at their books, you will find some banks financing other banks. So if I’m able to finance you, of course we are not on the same level.

Let’s face it; that is the reality on the ground. So what a good bank should do is, have a niche for yourself. There is a bank that deliberately targeted the youths of today. They go to universities and find different ways of exciting them, giving them free wi-fi and all those things that the youths very much identify with.

That is a good niche. Even a small bank can identify a niche for itself; it depends on you. Everybody does not have to be big; at the end of the day you can still make your money if you have the ability. When you carve a niche for yourself, even the big banks cannot compete with you within that niche.

Most Microfinance Banks (MFBs) in the country are passing through tough times. What can be done to make them perform their role in the economy?

Principally, I thought they were expected to provide money for small scale operators. But the problem is the rate at which they do it and the risk they carry in doing it. The potential for default is higher; the potential of abuse of the loan given is higher and so many other things. However, the point is to find a way to provide succour for them.

For instance, the banks survived 2008 because the CBN and the Nigeria Deposit Insurance Corporation (NDIC) came up with the idea of buying back toxic loans and the rest of them. If the NDIC was not there you can imagine what would happen today. I think in the same way if we can come up with a policy that will help these MFBs; take some of their risks or insure some of their risks, it might be better off for both the finance companies and for their customers.

If not, let’s face it, in the Nigerian setting, the average man on the street is more inclined to spend his money on entertainment and frivolous things so that when you give him a loan he will push it to other areas. Its only a few that would use the loan for the purpose for which it was obtained. Some may not give themselves salaries; they spend out of their pocket-company’s money. Many of them don’t have good books.

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The last administration planned to establish a development bank as a panacea to the commercial banks’ not lending adequately to businesses. How effective do you think this solution will be?

I believe that we have had enough of interventionist policies in this industry to know exactly what we should do. We had the National Economic and Reconstruction Fund (NERFUND), we have Bank of Industry (BOI), we have Bank of Agriculture and some many others like that targeting different areas.

How well have they been able to rescue or come to the aid of the operators they were supposed to help? That is the key question. Now how much of their ineffectiveness is due to inadequate funding or duplication? For instance, the BOI has offices all over the place. Same with Bank of Agriculture and the rest of them.

Who is paying the cost of all these duplications- the economy. So is it really worth the duplication? Is it a situation where we need to come out with more policies, more intervention institutions? The Federal Mortgage Bank is also there, how many have really gone there to get loans for real estate development.

Yes some people have obtained loans but how many of them? Are we not still short of housing units? For me, the real fundamental problem is that the Nigerian economy is undersupplying; it is not meeting the demands of the populace in very many sectors. If you want to tackle any particular issue it is then your attention would be drawn to another one.

Then at the same time, you have insecurity adding to the problem. The rate at which we are growing is also another issue. Perhaps it might be time for us to look at our population growth rate and then develop policies to ensure that we reduce it. Now that may not be popular with certain groups of people because to them, children represent wealth but whereas for the nation, the more we grow, the more there is a problem.

And we have just started because Nigeria is still basically made up of young people so the growth has just started. We are not able to cope in all facets whether agriculture, anything you can think about at all, we are not able to supply it- that is the issue. If you look at it as an institution you would be saved from looking at it from different pockets. Look at it in a holistic way and develop policies for your approach.

How do I stimulate development across different sectors of the economy? It should not be a case of today, I celebrate vehicle manufacturing, and then tomorrow, agriculture, rice, tomato, production and so on. Tomorrow, it will decline. But if you take a holistic approach, you will decide which areas you should deliberately encourage people to go into because competition is the best way to get people to increase production.

You know why? Because the average human being is greedy. So if you allow them to make profit, instead of the greed making people to take to toutingarea boy kind of behaviour- it should be guided towards production, service provision and value addition to the economy.

How do you view plans by the new administration to set up a $25 billion infrastructure fund as a way of stimulating the economy?

How much has government been able to give to the Nigerian National Petroleum Corporation (NNPC) for its matching funds for exploration? How well is exploration going now with NNPC owing exploration money? Is that not slowing down our own production? Where will government continue to be able to generate the money to be doing all these interventions?

That is why I said, look at the problem holistically and develop policies that will encourage people, stimulate their greed -it is there-from the bottom to the top, to go into production so they go into different directions and at the end of the day they see the business growing. Science is still underutilised.

You have to come up with a policy that will encourage people to create something and market it; exploit their own ability to come up with them. So many other areas need attention. So it is broad policy as against specific interventions. Oftentimes, most of the interventions end up with corrupt institutions.

For instance, you give somebody scholarship you expect that person to come back to you; you give somebody loan, you expect part of the loan to go back to you. But if you can develop policy that will encourage people as individuals, people like to do something for themselves even in the village- so that they make gain; that could be a better way to do these things.

It may look stupid, it may be anti socialism, it may mean that you are trying to create disparity in income and all that, but ultimately, the man who is able to use his brain or use his power, use his energy-not his connection- but energy to do something for himself, will be the one who will succeed. Lets us have a reward system that will encourage them.

We have a new finance minister. What should be her immediate focus, especially as regards the naira?

As I said before, what the CBN is doing is not too bad. It is a matter of finding out whether or not they want to continue disbursing the available foreign exchange judiciously? If it is not, if there are sectors that are being undermined, or not being given opportunity to access, such sectors should be given.

But it should be a matter of what is in the interest of the Nigerian economy, not the interest of political interests.