Nigeria made a big mistake not taking IMF loan – Dr Idika Kalu

By UDEME CLEMENT

Dr Kalu Idika Kalu is no  stranger to economic issues.  Having been a minister of finance two times, he is well acquainted with issues relating to the nation’s economy. He stills feels it was a mistake that Nigeria did not take the IMF loan under the Babangida regime. To him, borrowing should not be a problem as long as the project the money is to be spent on viable.  Kalu also speaks on the power sector in this interview.

Excerpts:

Experts are of the opinion that Nigeria’s economy is at the cross-roads, as over 30million people are unemployed. What is your take on this?

The first thing is that the issues in the economy are not separate subjects, rather they are inter-related and multi-dimensional. What the nation should do is to know it priorities and how to tackle the issues systematically. For instance, the late President Umaru Musa Yar’Adua, on assumption of office on May 29, 2007,  talked about Seven-point agenda.

This became necessary because he discovered that the vital infrastructure of the country such as roads, power, water, among many others, were in a state of comatose, even as the key sectors like manufacturing, agriculture, education and transportation were floundering. He knew that we needed to intensify effort at rebuilding the physical infrastructure and human capital in order to move the economy forward for robust growth.

Yar’Adua’s Seven-point agenda, as he enumerated, included power, food security, agriculture, wealth creation, employment, mass transportation, land reforms, security, qualitative as well as functional academic system and,  ultimately, the rule of law.

He assured that that his administration would focus on accelerating economic and other reforms needed to stimulate tangible growth and development. These identified priorities formed part of his economic blueprint before President Goodluck Jonathan took over. He came up with a transformation agenda anchored on major issues that are similar to what Yar’Adua identified, but the issue now is that government needs to be proactive in approach.

Why do we still have increasing rate of unemployment despite that kind of economic blueprint?

When talking about employment in Nigeria , we are looking at a  labour force of about 80milllion. We must realise that employment issue is not about gimmick  for graduates to be employed under other graduates. Employment comes from developing agriculture, revamping industries, the housing sector, building bridges and growing small and medium enterprises (SMEs).

To achieve this, a lot of money must go into savings and investments. Also, the nation must go beyond savings to get credit. This also implies identifying your needs as a nation and mobilising funds to accelerate economic growth and development.

Here, we are talking about optimal resources mobilisation for important projects with maximum economic benefits now and in the long-run expectation. That is why we have big import banks, lending institutions, commercial banks and bilateral agreements.

That is why we have lending institutions like KFW Group of Germany, UK Export Finance Bank, Coface Bank in France, World Bank and other financial institutions with the capacity to give long term loans for capital projects.  For instance, KFW Group of Germany is one of the leading and most experienced promotional banks in the world that finances long term investments and capital projects in developing and transition countries to enhance economic prosperity and improve standard of living of the people.

Coface Bank of France is also a world leader in trade-risk management – credit insurance, export and expert in commercial risks supports for companies, no matter the size or your nationality. It commercialises credit insurance solution aimed at protecting businesses against the risk of customer default.

If you are talking about government borrowing more money, do you also consider the fact that Nigeria’s external debt stands at $6.5billion while domestic is about N6.5trillion?

What I am saying here is not just about borrowing money to invest in ventures that are not viable, but borrowing prudently. You cannot expand the capacity of the economy cheaply without massive investments in various sectors. This implies borrowing to invest in projects that outweigh  the cost like what obtains in developed countries.

When you borrow and invest in viable projects, you will be able to grow your economy, expand capacity and pay back your debt. For example, investing in the housing sub-sector, which is a job generating venture with the capacity to absorb a large work force and agriculture.

40 to 60million labour force is needed in mining, refining, processing, manufacturing and industry. We made this mistake many years back when we had debates on IMF loan, because we did not take the loan at the end of the whole exercise.

What was responsible for that?

The reality is that you do not debate on getting funds, rather you identify your priorities and mobilise resources to tackle them. So, the debate was mis-directed. We did not take it and we never took sufficient funds to meet our needs because we were afraid to borrow.

Why is the power sector still in comatose despite the amount of money pumped into  this sector by successive governments?

To start with, revamping the power sector requires getting the whole concept right. For instance, building power plant fast requires getting the right people to build and sufficient money to implement. If not, it will not allow you to achieve your objectives.

Investment in this sector needs a template for developing the sector. Some years ago, I wrote a paper on deregulation, privatisation and moving into global economy in 1995, during the administration of the former Head of State, Ibrahim Babangida.

It  contained  all the elements like micro economic stability, increasing savings, improving trades, productivity, medium term development goals, reduction in infant mortality, increase in life expectancy and land management system. This calls for the total land decree system overhaul in the country.

I feel strongly that we are moving away too quickly from the power sector. Government should move gradually away from the sector after generating over 10, 000 mega watts of electricity. We have thermal, hydro, gas and other sources of power generation.

These require long time capital and very high level of technology. If you unbundle so quickly to smaller private firms, they cannot handle it efficiently due to lack of technical-know-how, because of the peculiar nature of the sector. When we start to disaggregate telling people to generate 10,000 mega watts, it will be slow and relatively inefficient.

We needed the mega firms to manage major plants while we stay with these firms and get funds from the capital market, but we did not listen. Without constant power supply, the economy cannot experience increase in productivity, because every sector needs electricity. The steel plants require considerable amount of power, SME operators need power to do their businesses, and everyone needs power for domestic and industrial consumption. This means we need to generate enough power to have reserve.

Government started Ajaokuta Steel Company many years ago, till now, nothing reasonable is coming from that investment. Does it make economic sense to have investment that is consuming billions of naira without any tangible output?

The problem with Ajaokuta is that we did not follow expert advice for siting the project for easy accessibility to raw materials. It was after installing that we started building rails to link up. That plant ought to have been  completed in three years but now it is obsolete.

The steel making technology has changed totally since we started this plant. In terms of size, Ajaokuta Steel Company is the largest integrated steel company in West Africa and has cost the Federal Government an estimated sum of about $7 billion (N1.1 trillion) since it was commissioned by the Shehu Shagari government in 1979. But, unfortunately, the plant has suffered serious set back.

The economic implication is that the cost has increased. So, after finishing, the products may not be competitive again. It means the products will not be sold at the market price that will allow them to make profits, or a reasonable marginal increase.

What is the difference between Ajaokuta  Steel Company in Nigeria and Pohany Steel in South Korea ?

There are a lot of differences, but the major difference is viability. For instance, Ajaokuta project started over 30 years ago; up till now, no tangible output is realised from the project. Pohany Steel is the third latest in the world and they finished the first plant in just two years. Pohany Steel started with about 300,000 capacity but now has over 8.6million tonnes capacity, showing that the investment is yielding maximum outputs.

(This is the first part of  ihis interview. The second aspect on banking reforms next week)

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