Don’t expect naira to strengthen too soon, says The SunBanker of the Year–Onasanya, FBN GMD

Group Managing Director of First Bank Plc, who is also The
Sun Banker of the Year for 2014, Mr Bisi Onasanya, has ruled
out quick fixes for Nigeria’s economy at this period of
downturn.
Speaking in an interview with the newspaper, the astute
banker examines what led Nigeria into the cul-de-sac she has
found herself, and the possible ways out.
Excerpts below:
How do you react to FG’s recognition of First Bank as one of
the top 100 companies contributing to Nigeria’s economic
and industrial development?
Well, I would say I was not surprised that First Bank was
named as one of the top 100 companies in Nigeria. I would
rather say it is a reaffirmation of what FBN has been doing in
the Nigerian economy. If you recall, it is one of the oldest
institutions in Nigeria at 125. At certain point in time, it also
served as the central bank for the whole of West Africa. We
always pioneered developmental roles, including support for
various governments and organisations. So, for me, the
message that came out from the Federal Government
recognition is that for you to be as old as First Bank and yet
seen to be very relevant, indeed, I would say the most
relevant because First Bank is the only financial institution in
the top 10 of the 100 companies in Nigeria, and this simply
means that there are certain things we have learnt to do in
the economy and not just that but that we have been able to
pass it from generation to generation. And that also puts a lot
of burden on me as the managing director, and it cascades
down to the entire management team of the bank as
Nigerians expect a lot from us because you can’t appear
today and disappear tomorrow and expect to be relevant to
the nation’s socio- economic development.
If we have not been consistently on top of our game, we
would not be where we are today. Therefore, we owe it to the
present generation and future generations that we pass the
baton to the future generation, so that in the next 100 years,
First Bank would remain the topmost institution in Nigeria.
And I would also say we shouldn’t be complacent about being
in the top 10 but our objective should be to rise to the
topmost of the Nigerian corporate ladder and by extension the
rest of Africa. That is the objective we have set for ourselves.
Worrisome trend of oil price drop, and naira devaluation
We would be in denial if we say there is no cause for alarm
and the reason is very simple, because it is very similar to a
pregnant lady who after nine months delivers a baby boy or a
baby girl. We should have expected that if you carry a
pregnancy for that long, that at some point you would deliver
a baby. All the time, the signs were there that oil price would
come down some day because it’s a cycle that would always
come.
We also had all the warnings that you can’t be a mono-
product economy for too long and expect to be unaffected by
global crisis. So, I don’t think we are short of knowledge of
what will happen. I don’t also think we are short of knowledge
in terms of what to do because we all know the solution to
that kind of economic structure would be diversification, less
reliance on imports, reduction on government spending on
recurrent expenditure and building capacity and infrastructure
for industries, so that when the unexpected happens in terms
of drop in oil prices, we have something to fall back upon.
Nigeria is an economy that depends so much on oil and we
knew it would be like this someday, so I am not surprised at
what is happening at the moment and I would be surprised if
any knowledgeable Nigerian would say otherwise.
However, do we have hope?
Yes. I believe that having seen the eventual impact of
declining oil price so far, we all have a responsibility now to
make sure we correct the situation. We can no longer continue
to live as if oil is an inexhaustible commodity. We can no
longer continue to expect that OPEC would continue to
determine the price of oil due to the various adjustments they
used to fall back on. We have now seen that we cannot
decouple global politics from the business of oil price, and if
you are not strong in that, your economy would be highly
susceptible to the vagaries of the changes in the price of that
commodity.
My challenge therefore to our leaders is that we need to
accept that this not a short term impact on our economy.
We need to accept that we owe the next generation the right
to live by building a strong foundation for the new economy of
Nigeria, which can no longer be benchmarked or be dependent
on oil. We have to build capacity, we have to build
infrastructure, develop businesses, develop the manufacturing
sector, provide education for the masses such that at the end
of the day, we have much more business that would
contribute more to the economy of Nigeria, provide
employment to a lot more people so that you have ancillary
from taxes and other sectors of the economy, thereby forming
a basis for further diversification of the economy. There are
therefore no quick fixes to achieving all these targets than to
diversify our economy and make it less dependent on oil.
What are the short-term options to overcome the shocks?
Unfortunately there are limited options at our disposal to
manage the challenges in the short term. For instance, I don’t
see how you can fix the exchange rate in the short term when
you know that we depend a lot on revenue from oil to defend
the naira.
We must, however, be willing to encourage production of local
items, defend local industries and in the process reduce the
amount of goods imported into the country, which then
compete with Nigerian products. If we continue to import all
manner of goods to come into the country in such a way that
such goods become much cheaper than locally produced
goods, then you are killing your own industries. I would say
there are not many quick fixes you can put on the table today
but more of medium to long term. We need to encourage local
manufacturing and reduce imports. We spend a lot of money
importing rice into Nigeria. We spend a lot of money importing
steel and several other manufactured goods, including the
things we don’t need. We have iron ore in Nigeria and from it
we can develop our steel industry. We encourage the
production of rice locally and encourage the agricultural sector
through a guaranteed off-take arrangement for farmers to
encourage more people to go back to the farm.
These are some of the things we should not spend money on
importing because we have the capacity to produce them.
We should try to evaluate how much we spend on things that
are not important to us and government expenditure needs to
be reduced drastically.
It also affords us an opportunity to know how much subsidy
government is providing on refined petroleum products today
and reduce government expenditure in 2015.
You have an opportunity to use the 2015 budget and take the
very hard decisions that are necessary for the time,
particularly reducing government recurrent expenditure. We
also need to reduce the cost of doing business and divert
such savings into providing real infrastructure, and things that
would support the real sector of the economy.
Government needs to provide things that will help the real
sector to grow, things that will encourage small and medium
enterprises rise up in Nigeria and provide employment in the
economy. Those are the kind of policies I expect in 2015.
We should encourage local production of goods and services
so that within a shortest possible time, the incentives that are
required for these industries to produce efficiently should be
put on the table.
Tap resources from spending to providing infrastructure and
supporting those who would be the foundation for
development.
Naira devaluation
I would say that we would not be able to see a stronger naira
in the short term. I don’t expect anybody to think that naira
would strengthen in the next three months. Unfortunately, it
would not be so in the short term. If it appears to be so in
the short run, it would be because we are trying to manage
the situation in certain directions and if we allow a free flow of
the currency as it is today it will cross N200 by the end of
this year. Is there any magic? No. Because I don’t see any
The fixing of the exchange rate at the last MPC meeting was
done at a time oil price was at $70 per barrel. But it has
declined further to under $50 per barrel, so there is no magic
wand.
We have to accept that the increase in the cost of imported
goods is the reason for the present challenge and the lesson
is that we have to be less dependent on importation and
encourage local manufacturing of goods and focus more on
building capacity and removing all the impediments to real
sector growth and local production of goods, food and
services.
In summary, what I said is that we should not be surprised at
what is happening, because we saw the signals, but we did
not do the right things when we had the opportunity to do so.
But I also said that we should not panic because there is
opportunity for us to take some corrective measures.
Given the fact that we depend a lot on the sale of oil to
defend the naira and given the fact that we have seen
declining fuel price, we should not expect the price to firm up
higher than they are today. If ever there is a trajectory, it
would be to go down further.
However, we have an opportunity to wake up and take the
corrective measures that would ensure we depend less on
crude oil going forward and also stop using crude oil price to
defend the naira. We need to wake up our industries.
Whatever be the impediments that are not allowing our local
industries to work should be removed so that we encourage
more Nigerians to go into agriculture. Right now, we all
believe it is not a profitable business.
This is because between the farms site and the market, a lot
of wastages occur, but these can be managed to reduce those
wastages if we have the right incentives in place.
Agriculture is the bedrock of the Nigerian economy and once it
is properly managed, even the graduates would willingly go
back to farming.
Similarly SMEs contribute a lot to the economy but we are not
doing enough to make them more productive. If you are able
to do most of the things I have listed, unfortunately they are
not things that can be done in one month or before the
general elections, but what we are saying is that 2015 should
be used to lay a solid foundation for local production and
change our orientation from a consuming economy to a
manufacturing economy.