As Nigeria’s currency plumbed new lows, the nation’s minister for investment, trade and industry has rebuked those obsessing over the chances of a pending devaluation.
In an interview with Frontera News, Okechukwu Enelamah said the government wants to increase the supply of foreign currency and create some “flexibility” in the exchange-rate system.
“We shouldn’t fall into the trap that I think a number of journalists are falling into, which is getting obsessed, because the President said ‘I don’t like devaluation,’” Enelamah said in an interview at a conference in Washington last week. “It’s almost like trying to play a game to see who blinks first, and I think that’s actually not wise.”
Enelamah carries more weight with investors than many in President Muhammadu Buhari’s Cabinet. The former Goldman Sachs banker founded Nigeria’s biggest private equity firm, African Capital Alliance, with $750 million in assets. He was also one of the first Nigerians to earn the coveted Chartered Financial Analyst (CFA) designation
This week the naira approached its all-time weakest level against the dollar as investors anticipated that the government will be forced to devalue. Nigeria’s existing monetary policy restricts the supply of dollar, which is crippling Africa’s biggest economy amid shortages of fuel and other imports. The scramble for hard currency drove the black market to 324 naira per dollar, compared with an official rate of around 198 – a difference of 39%.
“What will come out of our policies, the market will respond well to,” said Enelamah. “Unfortunately, when the market doesn’t know this, it’s extremely short term.”
While most other emerging-market currencies have slumped against the dollar this year as a result of plunging commodity prices, Nigeria has resisted market pressure to depreciate its currency. Instead, says Enelamah, the government is working to address the “fundamental problem” of its economy by encouraging a diversification of resources away from oil.
“We’re working on a foreign-exchange system that will increase supply and create some more flexibility,” said Enelamah. For some in the market, “it’s like, give me the fix now – but if you’re a parent, you know that you have to cook the food properly and then feed the child.”
The following is an edited transcript of Frontera’s interview with Enelamah:
Serkin: People have complained particularly about the naira policy, the restriction of dollars, which is causing difficulties for producers to get the imports that they need. Is this really a policy that you can support?
Enelamah: We had no illusions coming into government. The oil price had come all the way down when Buhari took over. Now this has serious implications. It is like a person who has a portfolio where one stock makes up 90% of their portfolio, and then that stock crashes 70%. You don’t need to be a genius to know that the economy needs to be adjusted.
We must be realistic about what we face. These are very tough times. They say tough times don’t last, but tough people do. What we want to do is to make sure that whatever solutions we come up with, our economy diversifies away from oil. We must deal with the fundamental problem. What you’re talking about is a symptom and we’re trying to deal with it.
Serkin: So how exactly are you doing to deal with it?
Enelamah: In order to solve this problem, you have to have a long-term view about the diversification of the economy, which means the economy needs to be broadened to manufacturing, industrial, and other productive sectors.
In doing that, we’ve had to do some things about the environment – to create an enabling environment. We’re working on a foreign exchange system that will increase supply and create some more flexibility for our currency.
We’re working crucially for people to have infrastructure for businesses to succeed.
Serkin: Tell us more about the policy of increasing foreign exchange supply. How would that work?
Enelamah: In order to increase the supply, you have to take a long-term view. It’s not rocket science. You have to construct exports, construct investments.
Now, each of them requires a program, right? A strategy. And some of them have some immediate impact – for instance, for exports, anything that boosts export proceeds is good for the economy.
We have to look for ways to do that, including looking at the foreign exchange achieved around export receipts. For investment, same thing.
Serkin: Which is a long-term ambition, which I understand. But what about in the shorter term? Producers are struggling. They can’t get enough foreign currency. How can the government help? Do you see some sort of depreciation?
Enelamah: We shouldn’t fall into the trap that I think a number of journalists are falling into, which is getting obsessed because the President said ‘I don’t like devaluation.’ It’s almost like trying to play a game to see who blinks first, and I think that’s actually not wise.
The real question is around the foreign exchange management policy. Remember, the President is not an economist, so it’s really about those who are economists, who are standing behind him.
So, I’m not falling into the trap of, ‘are you going to depreciate the currency or not,’ because that argument is frankly somewhat academic. I suspect in foreign-exchange policies, we’ll eventually create some flexibility in the system. The concern the government actually has, including the President of Nigeria, is to make sure that whatever flexibility scheme we introduce, that it will have the right result.
This is a simplistic point, but if you don’t push exports, for whatever reason, never mind why, and you depreciate your currency, net-net you lose.
An enabling environment is important. The policies to encourage industrialization are important. And thirdly, the things we are doing to boost the investment. And I think it’s that package that will create the result.
I’m confident that what will come out of our policies, the market will respond well to. Unfortunately, when the market doesn’t know this, it’s extremely short-term.
It’s like, give me the fix now. But if you’re a parent, you know that you have to cook the food properly and then feed the child
Serkin: I want to pick up on your investment theme, because one of the headlines that we have been running as journalists is all about Buhari and your trip to China just recently, where, beyond the billions of dollars that were discussed in deals, you also expressed personally your admiration for China for what had been achieved in bringing hundreds of millions out of poverty in the space of a generation, and I want to quote you, because you said, ‘China has done it. Nigeria can do it.’
Enelamah: It’s exactly that. If you look at China, they did it by creating the right incentives ultimately for industry, and ultimately for export. Those incentives were brilliant. They come down to creating the enabling environment around special economic zones.
They do this by being an enabler, providing funding and other things people needed to do their business. Nigeria needs to do all of that.
My ministry is playing a fairly important role in all that.
No. 1 is the enabling environment, and it is very key to move up vis-à-vis the Ease of Doing Business Index. So, we’re working through that process.
No. 2 is creating the infrastructure. You need special economic zones for industry to thrive. The other thing we need to do is to compete in sectors where we’re going to have an advantage and give them the incentives to be productive.
The third thing we’re doing is to partner with capital – partnership capital as someone called it – and know-how, just like China did. That’s why China is so important, because China views Nigeria as an important economy in Africa.
We’re well received at a state level, business-to-business as well. Over 200 Nigerian businesses were there, multiple Chinese businesses. These were tangible things. We even went as far as saying, given that the renminbi, or yuan, is not a convertible currency, maybe the imports coming from China or the trade with China need not be through dollars, which was well received back home.
Serkin: What do you expect from the agreements that have been initiated with China?
Enelamah: The point to make about the relationship with China is that it’s multi-faceted. There are agreements that the private sector players signed, which were about $6 billion – but you have to realize that there’s a pipeline, because many Nigerian and Chinese businesses are shaking hands and saying hello to each other.
And that pipeline is really going into tens of billions of investment with China. It’s a bigger connection. What the government is doing in infrastructure is also tens of billions of dollars, and the discussions between the Nigerian Central Bank and the Chinese Central Bank and the Chinese financial institutions also run into billions.
So, while I can’t give you a specific number, I think it’s very material.
Serkin: You talked about opening up Nigeria, and one of the things you mentioned just now was the World Bank Ease of Doing Business Survey. And let’s be honest: Nigeria over the past decade has done abysmally there. It’s dropped 75 places to rank 169th out of 189 countries. You’ve got your work cut out.
Enelamah: 169 out of 189 is not good. The most important thing is to start a positive trend of moving down those rankings in a positive way.
So what we want to do is to actually look at these 10 or 11 parameters they look at and start working on them, and get very good feedback from the World Bank. Frankly, my experience tells me that if people are committed to a cause and they go for it, logically, they’ll get the results. Life is very principle centered, principle based. So, I’m not actually concerned that we will not improve in Nigeria. I just want to be sure that we mean what we say, we take our time to plan.
Serkin: Another statement that you’ve made is that you want to create an industrial revolution in Nigeria. How do you achieve that?
Enelamah: The previous government had a plan called the Nigeria Industrial Revolution Plan, which is actually a good plan on paper.
A lot of things are not so difficult to do. It’s just you need to focus on these things. So, our commitment is that we will do those things.
If you look up what was happening in cement and sugar, there was a commitment to pursue industrialization.
It’s not something you do half-heartedly, then you stop, and you restart. And that’s the commitment we are making to our people and to the international community –that we will be focused.
The Nigeria Industrial Revolution Plan will be implemented on our watch. It won’t all be done in one day because it’s a five-year plan.
Serkin: We’re just about a year since Buhari’s surprise election victory — a huge, momentous occasion for Nigeria in the democratic transfer of power. With your investor hat on, give Buhari a scorecard a year on. How would you rank his performance?
Enelamah: I would say, so far so good.
In some respects, things could have been faster. He was deliberate in appointing his ministers, it took six months, but most people accepted the cabinet when they saw it.
He has said that fixing the economy will take time. You may call that delayed gratification.
But you know investors, and you work with them. People when they are going through it, they say, ‘Why can’t you fix? Give me a fix today? I can’t wait till tomorrow.’