Henry Boyo

Henry Boyo, economist and industrialist, tells Funsho Balogun in this interview that import restriction of some products by government, while other necessary policies are not in place, will not move the real sector forward.

Q: As an economist and a manufacturer, what gains do you expect from the import restriction placed on some products by government?

A: Let us assume that some people think there is a gain. Whatever gain comes out of that should be sustainable to be worthwhile. But if as a result of placing a ban on something, you think an opportunity has been created for a local manufacturer, that local manufacturer sources for fund at 25 percent or 35 percent interest rate as the case may be. And he has to fend off all kinds of government agencies that come to fleece him just because he has opened up a factory. There is also the fact that the diesel he also has to buy and what he uses to power his factory are also bought with dollars. To grab this opportunity by government, he is confronted by how to evacuate whatever he has to sell, so there is a need for him to make his own road. He provides his own water.

Not only that, because of the depreciation of the Naira and the high rate of inflation, if he is making bread for example, the number of people who can buy bread starts to dwindle. Eventually, that kind of person will be forced to close shop and will begin to mourn his fate as a Nigerian who must suffer to do business.

People think when they say diversification, they can wish it into being. But diversification can never become real as long as inflation is not at best practice rate of two percent. Go and find out about places in the world where the economy is successful. If the inflation is more than 2 per cent they would be worried. You can also find out how much the real sector is paying for loans in such economies. If it is more than 7 per cent, they know there is a problem. Then you can find out what the monetary policy rate in those areas are. If the monetary policy rate-like the Bank of England rate, or the Federal Reserve Rate- is more than two per cent, then there is chaos. Our own monetary policy rate is between 11 and 13 percent and cost of funds in the real sector is about 25 per cent.

Henry Boyo

Q: So you mean import restriction alone will not encourage local manufacturing?

A: For the people they think will find these new opportunities, the money will not drop from heaven. Ultimately, if they want to expand their businesses, they have to go to the banks. But the banks have no time for them because they, the government, have given the banks enough places to invest their money in treasury bills and bonds. Why would the banks then want to look at the manufacturers or the real sector with all the risks they are carrying. Never mind that the manufacturers are trying to cover a gap in the market. The pillars that are needed for those new ideas or new entrants to succeed are still not there. And those pillars will never be there as long as we continue to sustain a culture where excess Naira is always suffocating everything else. And excess Naira supply is primarily derived from the substitution of Dollar with new freshly printed Naira. That is where excess Naira starts from, and that affects the rate of inflation, the cost of funds and the exchange rate. This is because at each point, in terms of inflation, you have so much Naira in the system chasing too few goods. In terms of cost of funds, it remains at 25 per cent because the government is willing to borrow at 16 or 17 per cent. And the exchange rate becomes weak because you have so much Naira from the excess produced chasing rations of Dollars.

People think when they say diversification, they can wish it into being. But diversification can never become real as long as inflation is not at best practice rate of two percent. Go and find out about places in the world where the economy is successful. If the inflation is more than 2 per cent they would be worried. You can also find out how much the real sector is paying for loans in such economies. If it is more than 7 per cent, they know there is a problem. Then you can find out what the monetary policy rate in those areas are. If the monetary policy rate-like the Bank of England rate, or the Federal Reserve Rate- is more than two per cent, then there is chaos. Our own monetary policy rate is between 11 and 13 percent and cost of funds in the real sector is about 25 per cent.

Q: What do these observations and evaluations portend for the economy?

A: One thing I see very clearly is that we have come to the cross-roads. The gap between the black market and the official rate is unusual. If you now say let us bridge the gap, the least you can do is move the gap from N200 to N300 to a dollar and hope that the black market rate would still stay at N340 or N350 to a dollar. But will it? The answer is no. The Black market rate will shoot up to 400 or 500 Naira to a dollar. But let’s assume that they take the first step and they say devalue to N300 to move it closer to black market rate. What immediately happens? The price of fuel that they are applauding that we are not paying subsidy on, will suddenly shoot up to N130 or N140 per litre. Do you think Nigerians will sit down and say ‘things are bad, let us accept it as it is’? Just because of the exchange rate.

And then there is the stock market which is over N8 trillion-only about $40 billion. If it goes N300 to a dollar, the stock market will fall in value from over $40 billion dollars to a little more than $20 billion dollars. This will also be just because of the exchange rate. And if the official rate still continues to chase the black market rate and it goes to N400 or N500 a dollar, eventually the stock market would be reduced to less than $2 billion dollars, even though the buildings are still standing and people are still trying to produce. It is a serious issue. And if you owed any money in dollars, you are in trouble. If you owed $1 million you would now be looking for not N200 million, but N300 million to pay. Where would you get the N100 million extra? A lot of people would commit suicide.

Q:What would you suggest as a realistic policy thrust to boost indigenous manufacturing?

A: People must understand the structure of how we spend or disburse the foreign exchange we earn. The fact is that 40 per cent of all foreign exchange is spent on importation of petrol. Another 40 per cent is spent for repatriation of corporate dividends and technical fees. It is only 20 per cent that is allocated for the real sector. If you want to improve the situation you won’t reduce the real sector allocation. You would look for ways of either reducing from the 20 per cent from petrol and the 40 per cent from the technical fees and things like that that you remit. They hide all kinds of things under these technical fees. What do they actually define as technical fees? The looting from this angle is unchecked. Immediately you reduce this by 50 per-cent, you have more for the real sector. But instead, they are trying to keep those ones intact. And the real sector with their raw materials, whether it is finished products or the materials that they need for production which would help are all under 20 per cent forex allocation and has remained there. This structure will never help in boosting the real sector.