INTERVIEW: ‘HOW TO REVIVE THE NIGERIAN ECONOMY’
Malam Suleiman Yahyah, a Cambridge University trained economist, currently chairs the boards of AshakaCem Plc, NAHCO Aviance Plc, The Rosehill Group and Asokoro Island Holdings P lc. He is also a director of several corporate organisations. In this interview, Mr. Yahyah speaks on how to revive the Nigerian economy, and how the companies which he heads are faring. He says Nigeria must enlarge its tax base and simultaneously cut the tax rate to remain competitive.
AshakaCem which you chair held its Annual General Meeting (AGM) recently and you said that electricity has been a challenge. How does that affect profitability, productivity and price of cement in the market?
Electricity impacts us in a significant way. Let me give you an example. Last year, the price of electricity was about N24 per Kilo watt to industries, including AshakaCem. Suddenly, without negotiations Discos increased it to N36 per unit. Every N1 increase impacts negatively on us by N60 million per month!
So, you can imagine how N12 increase will hurt us. AshakaCem requires 22megawatts per day to run efficiently. This is a company that is operating in an insurgency ravaged North East. This is a company that has been challenged by its history and environment. This is a company that was attacked twice by insurgents. These attacks cost us N2.5 billion and we are still counting the losses from that attack. So if you add the electricity cost in billions then you will appreciate the impact on our profitability, our sustainability and on the price of cement to the consumers and why it impedes our progress.
But one of your competitors reduced its price…
Yes they did reduce prices but quickly reversed to status quo because it was not sustainable. We are at different levels of capital expenditures- renewing our plants, building new plants and renewing our production capabilities, and don’t enjoy the same level of waivers others do. We need sustainable policies to achieve long-term development. The price of cement is greatly impacted by energy cost and distribution cost. So, the problem is not at the production side but on the transportation and distribution side. A trailer cost (transportation) from Lagos to Abuja is almost as expensive as the cost of the cement it will carry! Shipping a container from China to Lagos will cost you 60percent less than transporting it from Lagos to Abuja! That is to tell you how difficult it is to operate and succeed in Nigeria. If we have a railway infrastructure, the price of cement will be low.
AshakaCem used to be the star of the North. What has gone wrong?
No, I don’t agree. We are still the Northern star up till now. We are the largest employer of labour in the entire Northeast. We have over 700 people in employment. There is no company in those six north eastern states that is comparable to AshakaCem. Ninety eight per cent of the businesses that you know in the north east have collapsed and wiped off- Ashaka by the special grace of God and the ingenuity of its managers is still standing. That yes, our contribution to the Nigerian cement economy has shrunk from about 45 percentage. The 1980s to only 4 percent now is as a result of not only ferocious competition but because of historical problems the company had had and its inability to respond to opportunities in the past by not expanding its capacity. Sadly AshakaCem is still operating at its name plate commissioned capacity of 1million metric tons for 40 years. This you will agree is lethargic. That is why Lafarge-AshakaCem last year embarked on a massive expansion of capacity that will hit 4.5 million metric tons by 2018. Ashaka will then employ more than 1500 Nigerians and create and add more than N180 billion in wealth every year to Nigeria. The foundation stone for that expansion was laid last year by the President. It will Include: An embedded power plant of 64 megawatts that will use our abundant coal reserves, and achieve 95percent coal substitution in our energy mix.
Ashaka will be producing roughly 4.5 million metric tons in 2018 but don’t forget that this noble target had been punctured and temporarily delayed by the two insurgency attacks of November and December 2014.We were about moving large number men and materials to our plant sites when the insurgents attacked us. We were forced to delay the expansion programme because we do not understand the intentions of the attackers and we are not able to plan for the large number of people that will be in Gombe State . We needed full security first to restore confidence.
Am happy to say that security is getting better now thanks to the Nigerian Army, civil defense, The police and NSA and the leadership of the Marshal Badeh who moved swiftly and decisively to secure our people and the investments. We will soon revisit our timelines and go on with the expansion.
NAHCO Aviance is one of the companies that you chair. What are your expansion plans?
Yes, we are doing relatively well. NAHCO was the most complex turnaround that I and my team have been engaged in the last six years because of culture-the culture of corruption; significantly decayed infrastructure, and manpower challenge. There was no expansion of Nigerian airports since the 1970s. Our airports were designed to handle 3million passengers nationwide. Now we have 17 million people flying in and out Nigeria on literary same infrastructure. So It’s right to say Nigerian government is a poor manager of business.
Our airports experience has been very complicated, amongst the worst worldwide. Travellers including our staff have collapsed and died for all kinds of challenges in our airports. We recently had to donate defibrillators to rescue heart failures. Our airport charges are amongst the highest in the world- another paradox Nigerians pay more for the lowest quality of service to the government (the airport owners and managers). It was against this difficult background that we operate and yet were able to transform our business , realigned our business and realign our operations to achieve what you have seen. We won several corporate governance awards, industry excellence awards etc as Nahco grew over 400 percent in less than seven years.
We are succeeding we have just been granted a free trade zone licence-the first free trade zone that will happen in any airport in Africa- So, we will run a new platform which will be called the NAHCO FTZ – Free Trade Zone.
We are also establishing businesses in Senegal, Ivory Coast and other African countries to further de risk the business under our Africanization program launched two years ago.
At what level is the project now?
The project is at the critical implementation stage. We are at the point of execution.
The aviation sector is a quick win for Nigeria’s diversification strategy and jobs creation. Let me assure you that as soon as we see clarity in policies and governance improvement, we shall rally massive international investment in the aviation industry.
How far have you gone with the Asokoro Island Limited (AIL)?
Asokoro Island projects is an international collaboration of Nigerian, Spanish, French and American investment that will certainly change the global conversation about Abuja, and that of Nigeria- that we have class and talents and are ready to invest in our country. We felt challenged that instead of Nigerians investing in properties in places like Dubai or even, Australia, seeking both returns and safe escape for capital. It will reduce the huge capital flight on offshore property investment which is running over $10billion annually. We have apartments that are affordable .
The business environment in Nigeria last year was unfavourable to many investors. How did you manage to survive it?
Of recent doing business in Nigeria has been extremely difficult. The energy crises, we are relying on generators eighty percent, the increasing level of low quality managers- good people with talents are migrating or not returning, the huge macro-economic shock devaluation, insurgency and the conversation about the huge corruption going on makes it very difficult to do business last year. Nigeria was just fighting itself and destroying business platforms and confidence.
Our overall performance is that of relative success! we can do much much better if the conditions I listed can be reversed because our business mantra is driven by high level of corporate governance and ethics. We have to hire experts and best talents every time to just remain competitive. We are focused on value creation and those businesses that have flexibility and capability to deliver services to our customers. So, what we do is that we deliver customer values first , then employee values and then shareholder value in that order. When you combine these three, you will be successful wherever you operate, anywhere in the world.
The exception is what we economists call externality, by which we mean the quality of public sector governance, effectiveness of Regulation and Security and these outside our control! That’s why our trajectory is rough and bumpy. The whole graph is not a smooth rising graph. It is a fluctuating graph but when you measure it in time you see that it is a rising graph hiding the imperfections in our journey thus far. We are successful because you just see the final output but we have series of significant challenges but we have been able to ride through the challenges or by re-strategize and moving on. Excellence is process of continuous trial seeking perfection.
Some businessmen believe that if you don’t cut corners in Nigeria you cannot succeed. What is your take on this?
Certainly not! If you cut corners, you fail because cutting corners is like digging a ditch and one day you will fall in the ditch. It depends on how much corners you cut- that is how hard you fail. We believe in our God given talent and our expertise. We believe in the golden transparency rule that if you cannot say and celebrate publicly it because it will be embarrassing then do don’t do it; We believe in best practices and good governance and fight for it, we hate un just practices. We believe in obeying the rules and the laws of any country we want to do business.
We believe that the ultimate reason why we are in business is to make legitimate profits and we will remain sustainable only if we are socially responsible.
How has the devaluation of the naira affected the Nigerian economy?
Devaluation is worse than inflation. It reduces consumption which reduces production and ultimately reduces output. It is also inflationary.
It destroyed values and valuations. Devaluation reduces our capacity to make investments and renew our businesses. It reduces consumers’ ability to make choices. So, devaluation is a harmful poison to the Nigerian economy. It was the most painful impact last year that wiped out the gains that were achieved in the last four years. We are now poorer by 30 or 40 percent relative to rest of world.
Do you see Nigeria getting out of this in the next few months?
Yes. Change is here! Am optimistic but it’s going to be a robust journey and must be well thought out and modelled. Difficult choices must be made.
And I think oil prices have slightly rebounded which will help. You remember that the crude oil price collapse was the announced reason for the devaluation-I don’t believe that’s the only and main reasons; but it was a good excuse for inferior strategy.
I think other reason for the devaluation was the grand conversation about the mismanagement of the fiscal surplus accumulated by Nigeria started by the former CBN governor and the wrong application of monetary tools and weakness in the financial system and what some people say square pegs in round holes masquerading as global experts handling the Nigerian economy.
The result will of course be the devaluation of the Naira which was like an escape route. So, if you ask me whether we have seen the worst, I’m not sure as we still very prone to more mistakes and policy errors and the data doesn’t provide any comfort.Let’s look at the data. Corporate profits all over have shrunk. Strong corporates in most sectors have nearly 50 per cent reduction in profits in the first quarter of 2015 that means low output and eventually low taxes and employment and aggregate demand. If you look at the federal revenue data, you see continuous weakness and wasteful expenditure even in the approved 2015 budget and very tiny investment and the actors are calling for belt tightening .If you look at the interest rates, they are still very high and a big bubble. Our public sector borrowing and the compounding of the double digit interest rate has created over $60 billion dollars .public debt .and much more has not been recorded and announced – the correct figure will be around $150billion if you dig deeply in the ministries and aggregate their committed contractual liabilities- that’s over 35 percent of the country’s wealth-So the answer to the question is we must get out fast and quickly.
We pray that when the new administration comes in we will begin to see major re-alignments in both the fiscal space to launch an interventionist fiscal strategy backed by a massive fiscal stimulus package ,easing of credits and re writing our financial system strategy and reinventing the monetary policy framework that will give confidence to the Nigerian capital market in the first instance, the money market and the international financial and monetary system that Nigeria is not only ready for business but it’s the bride of Africa! Government should intervene and must intervene massively. Without a stimulus package, we will continue to diminish Nigeria’s ability to rise responsibly because there is no strength in our disposable income to support consumption, production and live normal lives.
Some of the issues you raised may affect the new government; what advice do you have for them?
It is a very difficult task for a new government . The first advice is to avoid the austerity trap. Secondly, the government should rewrite our monetary and fiscal policies. Third, there should be a deliberate strategy for expanding, renewing and developing infrastructure. That is what I call the stimulus package.
They should focus on massive government interventions in several billions of dollars with focus on infrastructure, welfare and strengthening of markets. They should re-align domestic economic policies in favor of the local domestic economy and in favor of Nigerians- align and respond to global trend in such a way that Nigeria is repositioned to play an active role, not only in domestic space but also competing. Domestic Energy prices have gone up and just don’t make any sense to produce in Nigeria if energy prices are not moderated it would result in another round of deindustrialization. Interest rates are very high. Nigeria is not the cost of doing business is very high. There is no incentive for business. The quality of regulation is very weak- Our tax system has become decayed and needs a lot of revision of the tax code to make it simple and clear. You also need to create a social welfare strategy for the Nigerian people in dire need for both our sustainability and for enlightened self interest of all of us, as our size matters and it only matters to business if there’s large enough effective aggregate demand for goods and services. That’s why the business community is happy that change is coming and we hope that the change will be fair change for everyone.
The relationship between the private and public sectors has not been smooth of recent. Waivers given recently ended in a mess. In what ways do you think this relationship can be enhanced?
Let me start with waivers. These are market constraints and create huge imperfections and a source of corruption. Waivers do not help transparency and productivity so it is not good for the country.
It complicates our competitiveness and creates a class that’s favored versus the rest. It creates bias and a lack of clarity in taxation. I’m not in favour of waivers.
Rather, we will like to have a simple tax code that is also lower.
Nigeria has to remain competitive. Where there’s a special constraint or some kind of market failure like the north east or in power give incentive for trade and investments.
Remember, Singapore has a tax rate that does not exceed 25 percent.
Tax collection is almost 100percent. We have such a high tax rate that’s cumulatively nearing 48 percent and yet less than 20percent is collected. So, the challenge and paradox of taxation is not the tax rate, but the tax base and at our rate of development, taxation should be a tool to attract investment and capital formation. We have over 1 million registered businesses in Nigeria, how many of them are paying taxes?
In fact, if you are to have a minimum tax rate based on share capital only majority of the businesses registered without considering operating turnover, government can generate more than three trillion naira in taxes today.
This is achieved only by enlarging the tax base and paying minimum tax rate therefore it’s only logical that by reducing the tax rate and enlarging the base governments will garner more taxes that’s why am an advocate!
As Nigeria swiftly restructures and reform its taxation, emphasis must be placed on lowering the tax rate. So, the first challenge of government is to decide. If you lower the tax rate for a number of years businesses to increase investment, output, employment and enhance our international competitiveness and efficiency so that we can increase the creations of Nigerian champions. We have only a few champions.
We need to create a framework where business champions will emerge out of this country so that we can justify our number one status in the continent. Government strategy must help to ensure that more businesses are created. The surest solution for new jobs is for more businesses to be created. To create more businesses, you must make the conditions right for businesses to invest with ease from retained earnings.