Nigeria, like every other developing economy, needs quantum of funds for investment, economic growth and industrial development. The way it is, we welcome foreign direct investment (FDI). Every developing country does that. It is a welcome development for a country that wants to grow and grow speedily. But it has other complexities which are not always visible and noticeable to observers.
Of course, when they want to come in, they ask for tax holidays which countries are willing to give. But how about dangers they face in local economy in the long run? Take the problem we face now, that is nearly impossible for any Nigerian investor to have access to substantial credit to make any major investment, say in the agro-industrial sector where we operate now.
At interest rates of between 25 and 32 per cent, what – on God’s green earth – can you do? You can’t do much. But these foreigners can borrow at two per cent, bringing a hundred or two hundred million dollars to invest. Of course they will create some jobs but essentially low level jobs – for outgrowers and others. In a sense, they are jobs. But the way we are heading, what it means is that if these interest rates persist for much longer, the only people who will dominate agro-industry, and indeed major industrialisation, in this country are foreigners.
Is that necessarily a good thing? It’s good in some ways. But if they take absolute control, then we are in danger. This is the complexity. And I keep complaining, for instance, about the interest rates, although many people don’t seem to agree with me. Where in the world have interest rates remained at over 25 per cent for 30 years and that country still claims the economy is growing? How does it grow?
Or how does it develop its industries? Where in the world is the MSME industry flourishing when it is impossible to access credit? So, young people are reluctant. Retiring civil servants who want to create something can’t do anything. Those within the productive bracket who want to create and do things can’t do anything. We are facing a problem, and something has to be done very quickly about the entire interest rate regime.
A massive nationwide debate has to take place between the bankers, the CBN, businessmen, manufacturers’ association, agricultural engineers, input producers and suppliers, policy economists and others. Questions on FDIs and interest rates need to be pondered upon. Are we doing the right thing? Or, why is it then necessary to have preferential interest rate for agriculture at nine per cent? We seem to agree that if it hadn’t happened, some of the progress made in the last two years would have been impossible.
Even the nine per cent is still too high. The highest in the world today is India, at 3.5 per cent. In the rest of the world, it is two per cent, or 2.5 per cent. So these are very serious problems, although people may skip over them and pretend that all is fine, but all is not really fine. All is not fine; especially as our population is growing and our credit is still a crucial issue. We thank God power seems to be stabilizing. That is a very good news for us. But credit is a crucial part of the effort we want to make to stabilize the economy.
Leaving everything to only foreign direct investments is also not safe because they come with certain strings which are not always very easy. They will have to repatriate their profits. The other issue is, if agriculture doesn’t grow as fast as it should and agro-industrial exports and raw materials don’t happen as quickly as they should, when the oil and gas era is gone, what will be our source of foreign exchange? Again, that is something we need to deal with. And it’s all very complicated.
The costs of production, processing, and export make us uncompetitive outside, in the international markets. If you’re going to set up a food processing outfit, all your machinery must be of food-grade stainless steel. And food-grade stainless steel is always very expensive. You don’t make them here in Nigeria; you import them. You pay the duties. You install them. Then you go for your standby generators and you pay local taxes of all kinds, such as local government tax, corporate tax, and so on. By the time you add these to your production cost; you can’t compete with the man in China or Brazil.
If you go into the world market, you would hear them saying no! We are getting it cheaper from other people. On the other hand, you know what happened in India. If you build a brand new factory, and they commission it for you, the Indian government writes you a cheque of 35 per cent to help you stabilise your business, knowing that they will recover their money eventually from tax. That is the kind of support they give. We need to have such a scheme here.
With the massive population, the jobs have to come in millions. Two hundred jobs here and there are not enough; or, we are locked down. An outrageous exchange rate and an impossible interest rate are major obstacles to economic growth. You can’t borrow. And if you borrow and you need a million dollars, then you have to go and look for N360 million. Within Nigeria, that is a lot of money!
Then think of long term tenure loans which are not available. No bank has money to give you for three or four years. They want repayment in maximum of one year as is the case with one of the federal government’s intervention ready facilities. They want their money back in a year, which is our pain. So, it takes more than a year to build a factory in this country except your funds are coming from outside. Then, you ship your goods. You bring them in and you move as fast as you can. Here are the areas the local investors struggle to stay afloat in an economy that renders them less competitive. The policy responses of government have started to addresses these. A case in point is the Ease of Doing Business that is now attracting global attention.
Chief Ogbeh is the Minister of Agriculture and Rural Development