Former Finance Minister, Dr. Kalu Idika Kalu, concludes his engaging dialogue with Managing Director, IKECHUKWU AMAECHI, and Editor, Politics/Features, EMEKA ALEX DURU, addressing such issues as power sector privatisation, CBN ban on importation of certain items and Nigeria’s exit from Paris Club debt, among others.
You were the Vice Chairman of the former President Olusegun Obasanjo’s Think Tank that did a recommendation to President Muhammadu Buhari shortly after his election. What informed that move?
From my interactions with President Olusegun Obasanjo, I don’t think it was as formal as it has come to sound. That Committee was not like a formal Think Tank. Definitely, not! These were his initiatives to assist the incoming government or whoever was to win the election. From listening to him, it was not really targeted to a new government. It could also have been targeted to the existing government, coming into office, again. But I think we can fairly assume that the presumption was that, given the radical nature of some of his proposals, it had to be something that would be addressed to a new government, rather than an incumbent.
The recommendations were quite extensive and I don’t think I can enumerate like that. And perhaps, that is something we can take up as a different story. Don’t forget that those things were submitted to Mr. President. I think they were about two volumes and four different committees. We dealt with macro-economy, power, infrastructure and just about every economic policy area.
The Governor of the Central Bank, the other day, listed some items that would no longer be funded by the bank. What is your take on the pronouncement and how do you think that can guard against further devaluation of the naira?
That is still a current policy that government is still considering. That is a current policy that the Central Bank and ostensibly, supporters of the Central Bank Governor, are, in very organised way, trying to justify. So, it is a little bit, controversial. But let’s leave all that aside. Like I said, we are supposed to be one of the Big Boys now. The Big Boys are those whose economies have matured enough to a certain level of self-confidence. As a developing country, a lot of these have so many theoretical depths and implications that it is always difficult to be presented properly. We should have passed the stage where we are talking about to prevent the continued devaluation of the Naira. Those things already show that we are still below the Big Boys. At the level of analysis, we shouldn’t be in the position now where we are banning things like that. This is because it may sound nice, positive, obvious and correct. In terms of conventional wisdom, it could be said, oh, this is the way to prevent our foreign reserves from depleting and our Naira from devaluating and to encourage our people to produce those things. But beneath all of these things, the question is, why do you need to take such actions? Are these the fundamental changes that you need to make?
If they are not, then what are?
The fundamental changes are; you are organised, you are mobilising, you are allocating resources, you are producing. When you do that, it is not everything that you have to produce. Even if you produce those things, it is not every quality that you can produce. You can produce lower quality or higher quality. As long as you are producing you are able to exchange what you produce with what others produce. That is why we have the World Trade Organisation (WTO) to make sure that there are no restraints on production and trade so that there should be improvement in general welfare.
I am talking theory, now. Yes, if you ban certain things, that will induce scarcity and should encourage domestic production. But really, the only way the domestic economy can react is that you are able to do so. It is not the banning that makes you immediately, able to do so. The reason why some of them may be unable to do so now, is because they don’t have power, they don’t have water, they don’t have transportation, they don’t have access to markets, they don’t have credits, they don’t have the personnel. So, at times, we need to address the fundamental problems, rather than saying you want to ban items and assume that if you do so, certain things will happen. All those things cannot happen unless you address all the problems.
We can’t achieve this by shutting our market. What if other people also shut their markets? How do you sell? So, you address the fundamental problems while you are import-dependent. The answer may not be, in any medium term, to shut the market but to address the problem. So, it is conventional wisdom to say we cannot open our borders, we will go from zero to 180 degrees. But the issue is not opening your borders. You have to take care of the consumers’ interest as well. When you do what you did, the chances are that you restrict supply and the consumer will suffer because he has to pay higher. So, you have to take the interest of the consumer into consideration, you have to encourage the production you want to do locally.
Perhaps, there are some objectives of raising revenue. Of course, if you are banning, you are not raising revenue but if you are raising tariff, maybe, you are raising revenue by increasing the tariff just enough to give a little advantage to the domestic producers. So, there are so many fine-tunings you have to do before you can talk of outright ban.
How optimistic are you that Nigeria will ultimately get it right?
Let’s stop the language of getting it right. It is too absolutist. We have to continue to improve our policies. It takes a lot of sustaining of the right policies before you can talk of getting it right.
Are we improving on any policy?
Well, we have a new government, now. We can’t pass judgement but definitely, they are determined to do so.
You are on record to have opposed the Paris Club debt relief. Why?
I wrote a paper to this effect. I was in the U.S. One of my colleagues here, also a former minister, did a paper, independently on the issue. He also opposed it. The reason is this; yes, we were facing a big inflow of income from a higher demand for oil, high price for oil. But as we can see from what we are discussing, you know this was in 2005; tell me one sector that we don’t have a problem. Is there any sector that we don’t have a problem? Education, health, agriculture, industry, power, sanitation, housing, name it! Yes, we needed debt relief as other countries. But given the enormity of the problems we had, by the time we would have addressed those problems, that money we paid, would have vanished. In fact, we would have needed more. So, the astute choice was to say ‘we were getting more money, we were more buoyant but look at our problems. Indeed we need more money to add to what we have, not to take what we have to go and pay off our debts. Give us more time’. We could ask for 10 years grace and 20 years for repayment. They might shout, then you come to an agreement. They could give you seven years grace and 15 years for repayment. That would be 22 years. Within that period, you plough those funds you had to fixing your power, your rail and so on. You could even ask them to bring more money, on one condition that you would be absolutely transparent in implementing the whole thing because that is really their problem. Their problem is not your debt, their problem is your transparency and your commitment to develop and to provide better condition for your people. That’s their interest and not $12 billion or whatever. It is large by our own term but small by their own requirement.
That was why I opposed it. I argued that you were better off applying the funds to address the problems of human, physical capacity, improving quality, growing our farms, growing our industries, growing our manpower and infrastructure. By applying those funds, we would even need more money from them and we would be more likely to get the money because we were more buoyant. They would be happy to give us, provided we would confess that we made mistakes in the past and pledge that once they gave us the money, we would use it to do what we said we would do. Now, even if you default in some way, maybe due to change in the demand or price of oil and they can see it, you can even defer the payment. They would understand. So, we had every opportunity to make use of the resources we had to build the Nigerian economy. That was what I felt.
Some people in government got that and they knew that was the right thing to do but others did not admit the propriety of the idea.
You were also said to have argued that Nigeria should not have missed the International Monetary Fund (IMF) loan during the General Ibrahim Babangida administration. You were in government then. Why couldn’t you persuade the government to take the loan?
By the time I start writing my memoirs, I think this is one of the most important chapters because, perhaps, no other incidence, illustrates the misinformation and misunderstanding as this issue. Why? There was no loan on offer to Nigeria. There was no such thing as an IMF loan on offer to Nigeria. Secondly, I was never talking about an IMF Loan. It was not as concrete as I had talked about the Chinese Loans to fund refineries.
Babangida had just come into government. You can understand his predilection to be popular and he felt he would let the public decide on this issue that had been lingering from the time of former President Shehu Shagari. I never talked about IMF Loan because there was no loan on offer. The primary issue I talked about was, how do we fix our economy? It is after you decide what you are going to do to fix the economy then the question will be, if what you are going to require in financial terms is, let’s say $10 billion, how are you going to mobilise the $10 billion? Possibly, it is only at that stage that you can say, IMF financing could be a part of it because it is the cheapest fund and usually member countries would go and get whatever they can. It is cheaper than the other funds and it is very limited. And IMF, contrary to the conventional wisdom, hardly ever wants to push any fund to anybody because it is cheap. They want to make sure that it is available for those that really need it. You understand?
IMF loan?
Yes!
Why then do people cry about the conditionality?
You see what is happening in Greece now? It is like somebody saying, “hey, instead of giving credits to your farmers, you are building apartments and nobody is buying your apartments; we are going to assist you to change the pattern of your expenditure. These are the things you would do. If you do those things, then we can give you this cheap credit”. Those are not the terms of the financing. Those are the conditions of giving you the Loan. The condition is that you will implement the right policies. But you know politicians. Many of them don’t like to be given directives as to what they want to do for reasons, you perhaps, know better than I do. So, it’s a whole lot of misunderstanding about conditionality. The conditions are the things that will bring about the recovery of the economy concerned. It has nothing to do with the IMF. You come to them with your problems like your education is going down, your professional standards are falling, your farms are not producing and so on. Then, they give you policy advice on what to do. If you agree to do those things, they can then supplement your own resources by giving you the Fund which is cheap. From there, you can go to the harder World Bank, African Development Bank (ADB), European Union (EU) to borrow the rest and then to commercial banks to complement what you have.
These conditions have nothing to do with the IMF. They have to do with how the economy can now recover from where they came to ask for the Fund’s advice and possible funding. If they give you the advice and they don’t think you need the money, probably you have a way of getting the funds, they don’t need to give you any funds. It is stupid and wrong to think that they are coming to force a loan on you. How can they force on you a loan that is so cheap that every member country wants a bit of it, if it can? They have to decide how to ration it. And they are rationing it because it is cheap.
Do you mean there was no IMF loan offer to Nigeria?
About a month ago, there was a back-page article in one of the newspapers (The Nation), entitled “The return of Imo Formula”. The writer talked about what I did in Imo State. It was supposed to be praising me for how I solved the issue of salary arrears and the rest of them. But do you know what he just added? He said it was a brilliant success and from there I came to Lagos where I now signed the loan with IMF. He tried to say how they could use it to solve the Kogi problem. I wrote to thank him and explain to him what exactly the structure of the Imo Formula was. I also told him that I never came to Lagos to sign any IMF loan. He never replied till today.
I have never signed any IMF Loan, whether for Nigeria or any country for that matter. I wrote it to him. If Nigeria took any IMF loan, it must be a recent development. We never borrowed any IMF loan. I don’t know what Nigerians think IMF loan is all about. They probably think it is like a wet paint that sticks on you unknowingly when you pass by. This is something you have to negotiate, formally before you sign. And it takes quite a while. It is rigorous. As I said, they try to ration it, far from this idea that they are going around looking to give IMF Loan. Nonsense! There is no such thing. If they don’t need to give you the money, they won’t give you. You have to negotiate to get it.
What then, was the essence of that debate?
The debate should have been to discuss how to get our economy back. That was the debate and not about IMF Loan.
You are saying “the debate should have been”. But was it so?
That’s the stupidity I am talking about. I was in Owerri, packing my clothes when I heard it on radio. Some people even said I ordered it. So, when I came here, I would go on a mission as Minister of Finance, a few weeks after and would be confronted with the allegation that I had ordered the IMF Loan. Nigerians were excited and threatening – “we are going to deal with the IMF loan”. Combative posture that was totally unnecessary! People with confidence don’t do like that. There was no Loan on offer for us to sign. There was no IMF Loan issue in that debate. It was a wrong posturing. The debate should have properly been on, what do we do to get the economy back? It is after you may have decided, then, the policies you want to implement, then the financial aspect of the implementation might, well, involve IMF. It may also not have to involve IMF.
Let us look at the power sector, specifically. Why are we not getting it right, even with the privatisation and huge amount of money said to have been pumped in there?
I think the proper context is the rationale for privatisation. Privatisation means, in order to improve the efficiency of a productive enterprise, which is domiciled in the public sector, you want to move it from the public sector to the private sector, where the stringent rules of commercial viability, profit-loss calculus and competition would apply, as distinct from the public sector that does not automatically, exert such conditions. The first thing that needs to be noted is that, that private sector in the context of the power sector, and for that matter, most of the big lumpen capital investment areas like railway, refineries and so on, constitute the global community. In other words, you are moving it from the official sector to the private sector, located in Nigeria, quite okay. But you are giving a chance for it to be run on commercial and profitable bases. So, the first mistake we made is that we misread that as meaning that it has to be some Nigerian entities as such. It does not have to be. A Nigerian entity could be part of a consortium that could come and take over that erstwhile public sector and turn it around to be a very viable enterprise.
There are four conditions that need to be applied simultaneously. It is not just a matter of who bids the highest price. You should shortlist the final bidders on the basis of four criteria. One, that they have the ability to pay the bid price as set by the seller. Two, that consortium must understand the technology of the enterprise. Already, that implies that they are able to do, not just the financial diligence, but also the technical diligence to know the state of the equipment and its potential. The third criterion is that they must demonstrate familiarity with managing that kind of business. You don’t sell something to people who don’t know how to manage it. The last very important criterion is that the final bidders must be shortlisted on the basis of their presentation of their business plan. What do they want to do after they get it? So, this question of privatising and for weeks, months and years, in some cases, the consumer is at a loss, no production, no employment, no product, and the price of the service or product is rising because of the withdrawal of the enterprise from the public sector or the inability to provide the product or the service, will be eliminated.
People always protest when I raise this issue. And I had raised it from the beginning, back in the early 1980s when we did some of the earliest privatisations. Some of the protests have always been from the misperception that it has to be a Nigerian company. If you cannot get the right people who can turn it around, that means you have not advertised or made it attractive for those who know the business to join. It doesn’t matter where they come from, as long as they can run it. Nigerians who have interest in it can always buy into it over time as it is producing or growing. You can prevail on the company to put the stock on the stock exchange and Nigerians can buy. As they buy, they can take over one-quarter, 50 percent or eventually the whole of the company. In any case, they will have the opportunity to learn about the technology and the management. But you go and sell it to people who cannot do it. So, what happens?
We do that because there is so much emphasis on owning the assets. And when you talk about owning the asset, you start the usual federal character and all those non-issues. Yet, these are companies that are only a fraction of their ultimate sizes. When they grow as they should, everybody will benefit.
For something like power, as you mentioned, is pivotal. We need power to even produce water. And water is a basic need. You can privatise at any time but I think, for the purpose of Nigerian power sector, we should probably have waited a little bit longer before we privatised. However, if you privatise properly, it is okay. But if we are doing what we are doing now when we are already at 9,000 or 10,000 megawatts, when we are able to meet the needs of the households and certain industrial sector, if there are mistakes, we won’t come to a situation where we are generating 1000, 1,500 megawatts or even less because we would have already moved it that far. Of course how you move it that far is to mobilise the capital and personnel from where ever, as we used to do in the 1960s when the Chinese were running the enterprise.
Another aspect is that if you are going to privatise power so as to deliver power to the consumers, it is not after you privatise, you start talking about gas supply shortage, credit shortage and the rest. All of that should be taken into account in tandem at the privatisation exercise. When you bring in those who know the business, they will not overlook the gas, the availability of credit and the rest of it.
The government may need to take another look at the whole process. If we privatised improperly how do we correct it? Government is government. Those that do not have the capacity may need to be weeded out and re-privatise what had been allocated to them. If it is capital, technology or management that is their problem, then you have to find a way to assist them to remedy it, at their own cost, of course. If it is beyond their cost, government may come in. But then, you have to adjust so that the government is not losing the money and all.
If you are given appointment by Buhari, would you accept?
I don’t see why I would not accept because the problems are still there to be solved. At whatever capacity that is commensurate with my experience, of course, I will serve. We still have to resolve the problems.
