Nigerian government authorities say their intention is to spend the economy out of recession. Kemi Adeosun, finance minister, speaking at the weekend to some selected journalists, said government’s key immediate strategies were to begin to build massive infrastructure, particularly mass housing to create jobs and rebound growth. The minister, who also talked on some other issues, was however uncertain on when the economy would likely come out of recession, but was quite optimistic of a growth in near term, considering presents efforts. Excerpt:
Now that the monetary policy committee of the central bank of Nigeria (CBN) has decided to retain the interest rate, what are the options available to the fiscal authorities to stem the tide of recession?
We are looking at a range of options, and one of the biggest issues for us was the cost borrowing. Of course, Government is the biggest borrower. So, what we have said from the beginning was that we would look for cheaper borrowing to bring down our cost of borrowing.
Currently, it is cheaper to borrow internationally than to borrow locally. What we are doing now and we are working with the Debt Management Office to try to refinance some of the existing debts into external to get lower interest rate and to structure it over the medium term. So that we will reduce our cost of debt service and increase the amount of money available for capital projects, which is really our focus. Investment capital is really our focus and our strategy to get the economy moving.
That is our strategy to get our country out of recession, to spend, a stimulus from government but to spend on capital projects. That is our priority.
You advocated for a lower interest rate, why?
We have moved on from that. MPC are independent and they have econometrics and said that’s what we need to do, so that’s great and we have just moved on. But that’s one factor. Not the only factor and I have explained to you how we are going to get that by moving unto external borrowing.
The country has been trying to get loans from the World Bank, the China EXIM Bank and other external sources, but making just little success, is it that Nigeria is no longer attractive?
Those loans have a process. If you remember at the last Federal Executive Council meeting, we got the external borrowing plan approved by FEC, which now has to be approved by the National Assembly. Once the National Assembly has approved that, we can access the loans. That is why we rushed it to FEC very quickly and now it is with the National Assembly. so once they finish their oversight function, we will be able to draw down some of those facilities. They are already approved and agreed.
So, when are we expecting the others?
The African Development Bank president comes in on Monday, so he should be able to give us update on where we are on that one.
The China EXIM is in process at the moment especially for the rail. Some of the China EXIM projects are already running like the airport projects. But the new big one is the rail one and that is the one we are hopeful before the end of the year that one will definitely be approved and we kick off. Then the Eurobond, we are just finalizing the appointment of the parties and we are confident that we will close that one before the end of the year.
On the Eurobond incidentally, even before we opened the offer, we already had commitments from them. “Look, whenever Nigeria is ready, please we are committed to what you are doing”. They can see we are very serious. When we went to London for the non-deal roadshow, the feedback was extremely positive and we already have commitments from people that are calling and saying when are you ready? So we are very confident that we will get that money. It is not an indication that Nigeria is not attractive; Nigeria is very attractive, extremely attractive.
What are the measures government needs to attract these foreign investors, considering the fact that we are in recession and they are not willing to come?
One thing we need to understand in Nigeria is that the majority of the investments in Nigeria are by Nigerians. If I can’t persuade you to invest, then I can’t persuade a foreigner to invest. Our focus is to get the environment right. Once the environment is right and we there is an opportunity to make profit, foreigners will come, Nigerians will come. But the most important thing is: “What is that environment; what are those things investors want to see for them to invest, both Nigerian and foreign investors?
I think sometimes we focus so much on foreign investors and ignore the people that are really putting in money to rescue Nigeria. Look at the press, how many of your organizations are owned by foreign people? Few. These are indigenous investments. So what I think we should focus on is putting things in place that Nigeria attractive as an investment destination for both local and international.
That is what we are currently doing to try and sort out the infrastructure that the investors have been complaining of that are limiting them. Corruption has also frustrated a lot of investors even Nigerians. Investors go from one ministry to another, trying to get a payment and after a while, you say, oh forget it. Those are the things we are trying to correct. To create an environment where business can flow, people can just wake up in the morning and decide I want to do this business; as long as the enabling environment is in place.
Talking about infrastructural development. Can you tell us what has been the impact of the capital votes released so far?
The second N350 billion has just gone out. Of course, we have to wait for the impact. But for the first one, I am quite satisfied with what has happened so far because many of those contractors have not been paid since 2012, so when we gave the first one, they were not sure of us. They were like, are you people going to be able to sustain this thing? So the second one for us is far more significant because a lot of them came and said they haven’t been paid since 2012, the tendency is, hold on to that money rather than working.
Now we have done the second one and I think that confidence in government’s ability to meet up to its obligations is being restored and we are seeing the movement. So I am sure that with this second release, you will see a lot more activities on our roads, rails and those key big infrastructure projects.
Another area of infrastructure, which was approved by the NEC is our Housing Fund. That, for us is one of the most radical changes that this government wants to bring. We have asked, what are the problems to the Nigerian workforce, yes infrastructure, roads, power etc. But for the average man on the street, after food is housing. It is the thing that is sucking away peoples income, making cost of living high.
Then on the mortgage side, we have come up with a solution on how we will intervene. One, the Fund will provide funds to Real Estate developers, to develop affordable housing, standard housing. Not a house where you will still have to go and sink your borehole. You still have to go and build your own transformer. No. we have power; running water, drainages and roads in the estates will be tarred.
In order words, you can just bring in your mattress and move in. so we are cp-funding the developers. The houses start from as cheap as N2.5 million and goes up to a ceiling of N18 million. But 40 percent will be N7 million or less because that is where our assessment is, because that is what the average man can afford and then you put down 10 percent and pay the balance over 20 years at single digit. 9.99 percent will be the rate of interest. We presented it to the Governors Friday and we met a lot of excitements because this is something everybody recognizes we need to do. We are planning to do 100,000 next year, but we are raising about 400,000 a year because our housing deficit is about 17 million and every year it increases by 900,000. So if you put down 10 percent and you a have salary Retirement Savings Account, you move in. you will be paying smoothly.
That is okay, my salary is not going too far, if I see a two bedroom flat for N4.5 million and I am able to pay N450,000, I can move in and pay installmentally for the next 20 years. It is going to change things for us, it is going to move people from this annual problem of “oh, my landlord! oh, my landlord!!
The other thing we are doing is that we recognize diasporan remittances into Nigeria about $20 billion, a lot of that comes into families. Maybe you have a brother and sister abroad perhaps a family member who wants to help you, let him help you buy a house.
What we are saying is, if your income could afford a N2 million house but really for the size of your family, you need a N4 million house. If you have somebody who is ready to co-support the mortgage, they can help from abroad, maybe $50 a month to supplement their family member here in Nigeria. If you help somebody to acquire a house, you have helped him solve a great problem. So we think this is also an innovative way of recognizing the Diaspora power. Nigerian families support each other. Couples could do this that they don’t want a big wedding. Help us to pay our deposit at 10 percent so that we can start our marriage life, we start as house owners rather than tenants. We think this is going to bring a radical change in Nigeria.
It is part of our fight to reflate the economy. It is really going to create a lot of activities and jobs across the country. So we already have sites in Delta, Nasarawa, Abuja, Lagos, Ogun and Oyo. Within the next 3-4 weeks, the developers will move to the site. We are not building houses, this is private sector. You will see that this is a reality for Nigerians. I think it is going to be a fulfillment of one of the big promises of this government and that is really going to address the cost of living for a lot of Nigerians.
We already have NMRC, is there no kind of duplication?
No, NMRC refinances mortgages. That is after a PMI has credited the mortgage, NMRC refinances it, gives them the money back so that they can create more mortgages.
The problem we had was that the there was no mortgages been credited so NMRC has nothing to refinance. So what we have done is to fill that missing gap. Mortgage starts from house building; you credit the mortgage, and then refinance the mortgage, what we had done was: we have house building, we have who is going to refinance, but there was no creation of mortgages. You have to have a mass-housing programme to create mortgages en masse.
If you are looking at every country that has developed, that is how they did it. That is why if you move down the streets of London all the houses look the same. They were built with government support. Go down the streets of Nigeria, every house is different. A country as big as Nigeria needs an intervention to provide mass housing. It is when you now for example provide 500 houses together, then all those mortgages will be created together, then NMRC will refinance those mortgages. The problem we have was that everybody was just building little by little. This New Fund is that missing link.
Another real challenge I think is that houses are expensive, which also has to do with high cost of building. I don’t know if anything is been done about that?
Very much so. One of the things the governors have committed to. We have told them, we can’t pay for land. Once you remove land cost because we said we are providing infrastructure, we don’t want to create slums. We don’t want an estate where there is no drainage, where you have to do your own. So since we are going to provide the infrastructure, you have to supply the land. So that is already bringing down the cost because land and infrastructure is about 40 percent of the house.
Secondly, you know by building mass, the cost goes down. When you are building 500 houses together, the cost comes down. So we have done a lot of work around how we bring down the cost. The tag is N2.5 million and it is a house you can move into. So we are bringing down the cost. By doing mass housing, One, the cost is lower because you have the economies of scale. Secondly, where possible we are using modern building techniques rather than so much concrete that we can actually provide the Housing in an affordable price. It has to be standard. Because, there is no point something being cheap and it is not good. It has to be good. That is why we are not saying cheap, but affordable.
What measures are you putting in place to ensure that those who are connected don’t take advantage of the scheme to short-change those it was meant for?
These are affordable houses for Nigerians; it is going to be linked with BVN. One house per person, so you cannot buy the house and rent it to somebody.
Also, we are having what we call the cooperative structure, so we create housing cooperatives because when you have services in common, you must have cooperative structure facilitates it and for us, that is the strongest group of community in Nigeria. We all have our cooperatives that we belong to, so they would be the ones managing the waste, security, have the meetings; this is what we want to do.
We have gone to Kenya, we have studied it, and the model has been successful. We think by using BVN, it will not be possible for one person to possess 10 houses and enslave everybody. The point is for individual houses for Nigerians, and the idea of that you should live there yourself. And remember that the mortgage payment is directly coming from your salary account, or linked to whatever your bank is, so it is very difficult for anybody to come and hijack it.
This is the government trying to sort out a problem for the people, so that is why we say BVN and because you cannot have two BVNs. So if you book a house, you can demand for another because you can only live in one place at a time.
Do you include non-salary income earners?
Yes, for the salary earners, they only put down 10 percent, we recognize that a lot of Nigerians are self employed, they have to put down a bit more of deposit, and they have to put down up to 25 percent because the risk is higher as their income is not predictable. And also, husband and wife can join together. So, the self-employed definitely can be part of it.
Where is the fund going to be domiciled?
Right now, we are working with the Sovereign Wealth Investment Authority. That is where we put it, because it is an investment in our future. We don’t have to necessarily create another entity, because there are so many, as you know, we already have the National Housing Fund, Federal Mortgage Bank. I am not that great believer in creating structure for the sake structure, and that is why we say it has to be private sector driven, because it is a financing solution.
Developer comes, has an approval, want to build, and may be 500 houses in Lagos. The company comes in to check and we say, bring in your deposit, let us see what you are doing. It is not a question of take the money and go.
There is another point I wanted to make and it’s on local content. There are so many things we can make here like doors. If there is a mass programme, that is an opportunity for someone to go into that. They are going to build a hundred thousand doors and we think those are the things that will help us grow the economy.
You seem to be concentrating more on Eurobonds, what of the Diaspora bond that is not yet explored?
It is part of this. I just explained how we have brought Diaspora into this funding programme. Yes, and I’m part of the Diaspora. I think there is a big appetite to come into Nigeria. We are working on structures to finance infrastructure. We think that is where Diaspora will support our mission to do more infrastructures.
Right now, we are just consulting on tax status because when you do things with the Diasporas, tax is a big issue. We are just doing some final consultations on what the tax status of those infrastructure bonds would be and would be opened up as part of the Diaspora bond programme, but specific to infrastructure.
Do we have any specific time yet for Diaspora bond issue?
The Debt Management Organisation (DMO) has actually started that process of the Diaspora bond. It started before we came in and we are going to continue on that because we think it’s important. India did a very successful one, and we think they are committed to what we are doing. People want to see the country improve, and I think if Diasporas are able to invest profitably in dollars and know that their monies are guaranteed it is something we are pushing.
The IMF, World Bank meeting next month, what agenda would you be pushing?
We talk of the IMF and World Bank everyday. We are in contact with them. Infact, I had a long discussion with the Executive Director of the World Bank yesterday. We are just telling them our plan is for the Nigerian economy going forward, which is different type of economy from the one we had in the past. We are committed to inclusive growth. We are confident around the plan that we are pursuing. We are looking for them to support us. They are already supporting us, in fairness to the multilateral community in so many areas.
They are supporting us heavily from education, polio. If you look at the external borrowing plan, rebuilding of the North-East, they have been really supportive to this country and we want to just continue to deepen those relationships, so that we can continue to get the concession funding that we need for these key projects, and giving them the assurance that the reforms that we are pursing are working.
The present administration said the release of the capital project would be tied to performance. So far, it has released about N770 billion, how do you measure performance in this case?
What has happened is that because the budget has been split from finance, budget monitoring is actually with the Ministry of Budget and Planning. There are some agencies that made a request for funding and budget planning have gone looked and said based on the last one, no. it either you didn’t spend the money, it’s still in your account and you are requesting for more, so no, or you didn’t actually achieve those milestones.
Before we release the first money, the permanent secretary actually signed off and said this was what we are going to achieve. So, budget and planning then go to actually physically monitored whether they actually did what they said they would do. In some cases, people have excusable delays, maybe am waiting for public procurement, fine. You don’t need more money because you haven’t actually used the one you signed off. I think that monitoring procedures kept everybody on their toes. And it’s a big deal around how you spend public money. You know this money belongs to all of us. So when we give money, its tied to something, so let’s see that something and I think we will continue to do that and we will continue.
People will be asking questions on what government is spending money on. I think that is one of the frustrations that people express, but I think that having better monitoring, we should be able to see the impact of the released fund.
On the economic diversification efforts of the government, how soon do you think that this economy can be diversified?
My answer to that will be that, see this economy is already diversified to an extent because oil is now only 9 percent of the GDP. 91 percent is mainly real estate, services, banking telecoms, and so on. The problem is that the government relies on that 9 percent oil for its revenue. The issue is not whether the economy is diversified; the issue is that we don’t want to rely on oil as our source of revenue. Those other areas of the GDP, why are they not contributing more to the government’s revenue, because that would have gotten us out of this problem.
Let’s take real estate for example is about 8 percent of the GDP but does it contribute to government revenue? That is what we are looking at. Are there leakages there? Are there taxes they should be paying but they are not? Are they paying to some agencies and the money is not coming in? So the diversification agenda as far as government revenues is concerned, we are driving.
Now the diversification, I think you are talking about is the other areas of the economy that really have great potential, as alongside oil, when are we going to see them. I think that’s the real question you are asking.
Now for those areas that have potential to really take off, there are some things that have to be put in place, and that is our infrastructure.
Take agriculture for example. If you go to Benue not too far from here, you see oranges rotten as if it’s a carpet, that’s money. The problem is to get those oranges from there to maybe export, maybe processing it to orange juice; we just allow those oranges to rot. That’s what we are trying to focus on, the infrastructure. And that is the missing link in our economy. Once you have that infrastructure, other things will fit input place.
You want to make orange juice and you are competing with somebody who has light twenty four-seven, you cannot be competitive. Nigerians need real competitiveness and I would say we are handicapped by lack of infrastructure, and Thai is what this government is trying to go on us. So everything we are doing, whether we are doing , cutting cost, stopping people from printing, not just because we don’t want people to print but because we need that money to be spent on infrastructure, because it is that infrastructure that will unlock the economy.
We don’t need to have our goods wasting, we don’t need to have our young people without jobs, and the economy will begin to grow. The other thing is that we are in a big population- 170 million people, and we are growing. We have to do things that will create jobs for the future, so this infrastructure is very important. It is a very difficult time, but we have to do it.
By Onyinye Nwachukwu