The Minister of Finance, Mrs Kemi Adeosun at an interactive session with business editors of some national dailies in Abuja, over the weekend, spoke on the various stimulus packages by the federal government especially spending on infrastructure development, as the way out of the current economic recession, among other issues. BAYO AMODU was there.
Now that the Monetary Policy Committee of the Central Bank of Nigeria (CBN) has decided to retain the interest rate, what are the options available to the fiscal authorities to stem the tide of recession?
We are looking at a range of options and one of the biggest issues for us was the cost of borrowing because government is the biggest borrower. So what we said from the beginning was that we will look for cheaper borrowing to bring down our cost of borrowing. Currently, it’s cheaper to borrow internationally than borrow locally. So what we are looking at and we are working with the Debt Management Office is to try and refinance existing debts into external to get lower interest rate and to structure it over the medium term.
That will reduce the cost of our debt service and increase the amount of money available for capital expenditure which is really our focus to get the economy moving out of recession. The strategy for getting us out of recession is to spend on capital projects and that is our priority.
What are the measures by the federal government to attract foreign investors into the country considering the fact that we are now in recession when most of them are unwilling to come?
One thing we need to understand in Nigeria is that majority of the investments in the country are by Nigerians. If I can’t persuade Nigerians to invest in their country, then I cannot persuade a foreigner to invest. So our focus is let’s get the environment right. Once the environment is right and there is an opportunity to make profit, foreign investors will come. The most important thing is those things that investors want to see in order for them to invest in the country.
Sometimes we focus more on foreign investors and ignore the people that are really putting money in the country. We need to sort out the problem of infrastructure. That is what investors have been saying is a limiting factor; the corruption in the system because people get frustrated by going from one ministry to another trying to get a permit and afterward they will just say let’s forget it. These are the things we are trying to correct so we can have an environment where business can flow.
The current administration said the release of capital funds for the Ministries Department and Agencies (MDAs) would be tied to performance. So far you have released about N770billion, how do you measure performance in this case?
The budget and planning has been split from the ministry of finance. The monitoring is in the ministry of budget and planning and they have actually done some monitoring. Those that made request for funding, budget and planning have gone there and see that based on the last one, you have not achieved the milestone because before we release money, the permanent secretary actually signed off based on the milestone they are to achieve. In some cases, people have excusable delay of waiting for the public procurement and we said they don’t need more money because they have not actually used the one given to them before. So I think monitoring actually kept everyone on their toes. This money actually belong to all of us and so we are not just given them without it being tied to something and the more we continue to do that and improve, people will be able to see what government is spending money on.
r?The second N350billion has just gone out and so we have to wait for its impact. We are quite satisfied with what has happened with the first one because many of the contractors have not been paid since 2012. So when we released the first N350 billion, they were not sure of us if we are going to sustain the releases. The second one for us is far more significant because they haven’t been paid since 2012 there is the tendency to hold on to that money rather than working. But now that we have done the second one I think that confidence in government’s ability to meet up with its obligation is being restored. So, I’m sure that with this second release, you are going to see a whole lot of activities on our roads, rail and those big infrastructure projects.
Another area of infrastructure which was approved by the National Economic Council (NEC) is our housing fund and that for us is one of the most radical changes that this government wants to bring. We have examined the problems being encountered by the Nigerian workforce apart from road and power. For the average man on the street, after food is housing. It is what is sucking away people’s income and making cost of living very high.
You pay rent a year in advance and that one is like a burden because rent is so high, you can’t afford to save to buy your own house. It’s never done like that in developed countries. In any developed country, you pay for your house little by little over 20 years.
So NEC approved a programme which is called the Family Home Fund, an affordable housing. We have raised a fund and we are starting with N500 billion but we are hoping to get to N1trillion. What that fund will do is it’s a financing solution for housing. We have looked at the reasons why Nigerians cannot afford to buy their houses little by little like in other countries and the problems are high cost of land, no infrastructure, and high cost of financing as high as 22 per cent for the developer. By the time the developer finishes building the house, it is no longer affordable. On the mortgage side, when you tell somebody to come and do mortgage and you are charging him 22 per cent, there is no way he can pay.
So we have come up with solutions. One, the Fund will be made available to the real estate developers to develop affordable standard housing and not the house where you still have to go and sink your own borehole or buy your own transformer. It will have power, running water and drainage in the estate that we will create; the roads in the estates would be tarred.
The houses start from N2.5 million and it will go to a ceiling of N18 million but 40 per cent of the houses will be N7 million or less because that is what our assessment shows that the average man can afford. So you put down 1o per cent and pay the balance over 20 years at single digit of 9.99 per cent rate of interest.
We have presented it to the state governors and we are trying to build 100,000 houses next year which we expect it would rise to about 400,000 per year later because our housing deficit is 17 million and it increases every year by 900,000.
So if you can put down 10 per cent as a salary earner and you have RSA (Retirement Savings Account), you can move in and pay the rest on monthly. The smallest house of N2.5m is like a studio and that is in areas where land is in abundance but in areas where land is not abundance, we have to do flats in high-rise buildings. This is one of the things that will drive us out of recession because for every house you build, you create about seven jobs-builder, plumber, carpenter and the rest.
The other thing we are doing is that we recognize Diaspora remittances which are about $20billion and a lot of that money comes into families. If your brother or sister wants to help you, then let him/her help you to buy a house. If you can help me buy a house, then I will be free of my problems and that is the innovative way to recognize the power of diaspora and the way our family operates. We already have sites in Delta, Nasarawa, Abuja, Lagos, Ogun and Oyo. Within the next three or four weeks, the developers will move to site and you will see that this is a reality for Nigerians and it will be a fulfillment of one of the promises of this government and it will really address the cost of building for many Nigerians.
In Nigeria, we have the lowest rate of mortgage penetration which is 0.3 per cent of our GDP, In Kenya it is 1.2 per cent, in Zimbabwe it is 1.5 per cent and in South Africa it is five per cent. So we don’t have mortgages at all in Nigerian.
Won’t the National Housing Fund intervention clash with the roles of the Nigerian Mortgage Refinancing Company?
The NMRC finances mortgages after the Primary Mortgage Bank has created the mortgage. The problem we had was that there were no mortgages being created and so NMRC had nothing to refinance. What we have done is to fill that missing gap. You have to have a mass housing programme to create mortgages. That is how countries that have developed did it and that is why when you walk down the street of London all the houses are the same because they were built with government support. If you go down the street of Nigeria, every house is different and a country as big as Nigeria needs mass housing.
Another challenge is that houses are expensive which has to do with high cost of building. Is there anything being done in that direction?
One of the things the governors will be doing is to provide the land while we provide the infrastructure because land and infrastructure is about 40 per cent of the cost of the house. Secondly, by building in mass, the cost goes down and so we have done a lot of work around how we will bring down the cost of houses by doing mass housing projects.
We are also using modern building techniques rather than so much concrete so that we can provide housing at an affordable price and it has to be standard.
It is quite easy to build these houses but another thing is issue of corruption. What measures have you put in place to ensure that those who are connected to the corridors of power don’t come through the back door to buy the houses at the end of the day?
These are affordable houses for Nigerians and it’s going to be linked to Bank Verification Number, its one house per person and so you cannot buy the house and rent it to somebody. We are also having this cooperative structure and for us that is the strongest group of community in Nigeria and they will be the ones managing wastes, security and others. We have been to Kenya and we have studied it and it was successful. So we think by using BVN, it will be difficult for anyone to come and hijack it because you can’t have two BVNs.
The country has been trying to get loans from the IMF/World Bank, China Export-Import Bank and other external sources but little or no result has come from that endeavour. Is Nigeria no longer attractive to foreign creditors?
Those loans have a very long process. If you remember that at the last Federal Executive Council meeting, we got the borrowing plan approved and that has to be approved by the National Assembly. Once it’s approved by the National Assembly, we can begin to access those loans. That is why we rushed it at FEC very quickly and now it’s with the National Assembly and once they finish their oversight functions, we will be able to draw down on some of those facilities.
When will the funds from the loan start coming in?
The African Development Bank President will be in Nigeria on Monday (today) and I’m sure he will give us an update on where we are on that one. The China-EXIM loan is in process at the moment especially for the rail. Some of the China-EXIM loans are currently running like the one for the airport project, but the big one is the rail one. That is the one we are hoping will come in before the end of the year. And then the Eurobond, we are just finalizing the appointments of the parties and we are confident that we will close that one before the end of the year. We are confident on the Eurobond because we already had commitments even before we open the offer. They can see we are serious. We went to London and the feedback was positive; we are confident we will get the money. So it’s not an indication that Nigeria is not attractive. Nigeria is extremely attractive foreign creditors.
The annual meetings of the IMF/World Bank will hold in Washington DC next month, what agenda will you be taking there and what in concrete terms do you expect to bring back to Nigeria from the meetings?
We talk to the World Bank and the IMF every day; I think we will be telling them what plans we have for the Nigerian economy and how we see the Nigerian economy going forward that we are committed to inclusive growth. We will also tell them we are confident around the plan we are pursuing and that we are willing for them to support us.
They are already supporting us in fairness to them heavily in so many areas such as education, polio and rebuilding of the North East. They are very supportive for this country and we want to continue to deepen the relationship so that we can get concessional funding that we need for these projects and giving them the assurance that the reforms we are pursuing are working.
The diversification agenda of the government has been seen by some people as mere rhetoric, how soon are we going to start seeing actions in this area?
The economy is already diversified to an extent because oil now contributes only nine per cent to the GDP. The remaining 91 per cent contributions are from the real estate, services, banking, telecoms and other sectors. The problem is that government relies on that nine per cent for its revenue and so the issue is not whether the economy is diversified but we don’t want to rely on oil as our source of revenue.
Why are the other sectors of the economy not contributing more to the GDP?
Real estate is about eight per cent of our GDP and so what does real estate contribute to government revenue that is what we want to be looking at. Are there leakages there, are there taxes they are supposed to be paying and they are not paying? Are they paying to some agencies and the money is not coming in. For those areas that have potential that are yet to take off, there are some things we need to put in place such as infrastructure. Take agriculture for example, if you go to Benue for example, you will see oranges rotten and that is money. The problem is how to get those oranges from there to where to export or process them into orange juice since we don’t have the infrastructure and that is the missing link in any economy.
The other problem is power. Even if you have those oranges and you want to process them, you are handicapped because there is no power and as such you cannot compete.
That was why we looked at the economy and say if we can fix the problem of infrastructure, different areas of the economy will be moving and as soon as we can do that consistently, you will see great progress. It’s a very difficult time but we have to do it.
Can we be out of recession in this quarter?
I don’t want to predict when we will get out of recession but let me tell you that we would get into growth and that is how you get out of recession because of the stimulus that we are providing and it may take longer than we would like but we would definitely get out of it. We are already seeing some positive signs around agriculture and solid minerals and with what we are trying to do in other sectors, I’m sure we will get out of it.