Omoniyi Salaudeen

The effect of COVID-19 on the global economy is not in any way ebbing despite all measures put in place to mitigate its negative impact. 

In Nigeria, where the economy is more dependent on the world crude oil price, concerns and apprehensions are even very much higher.

In this interview, a renowned economist at the Babcock University, Illishan, Ogun State, who is also the immediate past President of the Chartered Institute of Bankers of Nigeria (CIBN), Prof Segun Ajibola, examined the various dimensions of the current situation and painted a gloomy picture of higher poverty index, especially among the workers.

The Central Bank of Nigeria (CBN) in its recent release urged the banks not to lay off their workers. Is such a directive enforceable in the present circumstance?

One of the tools the Central Bank of any country has in managing the affairs of banking and finance industry is what is referred to as moral suasion.  In Nigeria, moral suasion comes through the meetings of bankers’ committee. There are things that are not strictly legal issues, not strictly within the confine of the law, but are desirable. Like the Bible says, “not all that is lawful is expedient.” So, there are things that come up that you just have to resolve through dialogue by way of give and take.  This is one of such examples where somebody is taking a decision that is helpful to the majority, but not necessarily within the confine of any legal provision. Before the Central Bank issued the statement urging banks not to lay off staff, there must have been some dialogue, discussions and compromises between the bank operators and the regulator, which is the Central Bank. So, what we have seen as pronouncement is mere outcome of the dialogue that must have taken place. However, talking strictly in terms of business, we know definitely that COVID-19 has reduced the level of economic activities which will bounce on banks because banks thrive when the economy thrives. It would have ordinarily made economic sense for banks to cut their costs and a major aspect of that cost is personnel cost. But it is not everything that makes sense that will be helpful to the overall economy. And I think that is the position of government and the Central Bank. It is like asking the banks to play some certain roles that are more or less socially desirable, but not based on any economic fundamental to save the people from the problem of unemployment and to save the economy from further shrinking.

Then, is this enough to allay the fears of the workers who are already apprehensive?

There is a limit to what any profit-oriented institution can go to absorb costs that cannot be recovered from the volume and profitability of its business. What everybody is praying for is that the problem will be over sooner than later so that the economy can bounce back to normalcy. But if the pandemic lingers, then there is a problem because banks are profit-making institutions. They have shareholders, they have stakeholders, they have investors and they have obligations to meet. So, they must operate to remain profitable to be able to cover their costs and make some returns to the shareholders. If this problem stretches beyond what anybody can imagine, the banks will not have any option than to start looking at reconsidering some of these decisions. Nobody can pretend to say otherwise. There is a limit to how long banks can carry social costs on behalf of the generality of the people. Banks will not push themselves to a level where they will start recording losses all because they want to play some social roles.

Looking at the appeal of NECA for government’s intervention, what role do you think the Federal Government can play at this critical time to stave off the looming threat of collapse of some industries?

Let us also not forget that government as an institution also has its own limitations. All government can do is to look at policy issues. And I think the government is already doing that by looking at incentives they can roll out for economy to remain afloat. These include stimulus package for the SMEs, tax incentive, and some other policy dimensions that will encourage and sustain businesses. But we must appreciate that government itself is highly challenged under this COVID-19 era.  And, of course, if companies are not operating at optimum capacity, it will affect government’s revenue. Likewise, individuals whose employment is threatened will not be able to meet their tax obligations to their states. So, everyone has his own fair share of the devastating effects of the pandemic. What government can do in the present circumstance is to roll out policies for ease of doing business, provide intervention funds  and also appeal to global institutions like the World Bank, IMF, EU and others to help our fragile economy in the midst of the challenged global oil market.

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It appears that much of intervention funds are focused on the SMEs. What happens if the small scale businesses remain afloat and the big industries go under?

You need to understand the configuration of different categories of businesses. The major challenge of small scale is that of funding. If government can fix other things like infrastructure and provide funding for the small businesses, then they will be able to contribute to the economy. For those at the upper echelon of large business corporation, what they need is a suitable environment for ease of doing business. They need an environment where business is easy to be conducted, they need favourable conditions for import and export. Those are the things they need at that level. And the government is trying to balance these by looking at ease of doing business on a regular basis. Besides, the economic stimulus package being put in place has provision to encourage all the tiers. So, it is not that they are neglected.

What do you make of the advice of Asiwaju Bola Tinubu, who urged the CBN to use the opportunity of the current situation to reduce the interest rate?

The issue of interest rate has always been a controversial one. But sometimes interest rate is not the most significant cost of doing business in Nigeria. What they spend on energy, security and other infrastructure compared with interest rate they pay on loans is much higher. The cost of borrowing from the intervention funds we have today is very minimal and at a single digit. If we look at the ruling rate of interest in our economy today, it is still considerably lower than it used to be the case.

And is it sustainable?

What is obtainable now is a matter of guess work. Until we are out of this state of disequilibrium, we cannot say it is sustainable or not sustainable. For something to be sustainable, it must be institutionalised. We must have institutions that are ready to promote that policy. There are so many factors that determine sustainability of interest rate. So, it is difficult to control by fiat. If you control it by fiat and the market reality does not support it, then you end up having black-marketeering.

What will be the plight of the workers who have to contend with salary cut in the face of increasing cost of living? 

The answer is obvious. Poverty index will go up and the number of those in extreme poverty will rise. That is why we are praying God to help us end this pandemic as soon as possible because the more it lingers the more will be the effect on everybody.

The latest release by the National Bureau of Statistics (NBS) put the figure of poverty in Nigeria at 82.6 million. Do you agree with the figure? 

To me, the figure is grossly understated. We all know; World Bank has said it, IMF has said it, we know ourselves by casual observation that between 60 and 70 per cent of Nigerians cannot make a living on their own.  They live on less than two dollars a day. I don’t think the analysis is complete. The reality is that about 70 per cent of Nigerians are poor. If we talk of appropriate poverty indicator as we know it in economic fundamental, between 60 and 70 per cent are below poverty line. And it may likely get worse if the situation continues. There may be new entrant into that range of poverty.