Adeosun: Spending on Capital Projects, Our Strategy to Get Out of Recession

The Finance Minister, Mrs. Kemi Adeosun, while side-stepping questions on the controversy that arose last week after her call on the Central Bank of Nigeria (CBN) to reduce the policy rate at its last Monetary Policy Committee (MPC) meeting, stated at the weekend that the federal government was painstakingly fashioning out appropriate measures to reflate the economy, affirming that it had adopted a potent strategy to stem the economic recession through spending on capital projects.

Adeosun said investing in capital projects, including roads, railway projects, housing and education, among others, would trigger a ripple effect on the economy and impact potentially on the populace, stressing that infrastructure was not only the fulcrum, but the superstructure on which development revolves.

She said the quest to inject massive spending on capital projects had ignited government’s move for external borrowing because of the cheap interest rate potential inherent in foreign loans.

The minister, who spoke in an interview in Abuja with select journalists, said one of the biggest issues for the government was the cost of borrowing, being the biggest borrower, adding that in resolving the issue, her ministry was working with the Debt Management Office (DMO) to restructure and refinance some of the existing debt.

“One of the biggest issues for us is the cost of borrowing because, of course, government is the biggest borrower.  So, what we had said from the beginning was that we look for cheaper borrowing to bring down our cost of borrowing.

“Currently, it’s cheaper to borrow internationally than to borrow locally.

“So, what we are looking at doing is working with the DMO to try and refinance some of the existing debt, not just the new debt… over the medium term to get lower interest rates. Restructuring will reduce the cost of our debt service, and increase the amount of money available for capital projects.

“That’s just really a strategy of getting us out of recession. It’s not just to spend the stimulus from government, but to spend on capital projects. That’s our priority,” she said.

On why she had for advocated a lower monetary policy rate (MPR) as against the CBN’s option to retain the existing rate, Adeosun said: “We have moved on from that because the CBN is independent, they have looked at the metrics and they have said, look, this is what we have to do. We’ve moved on. It’s only one factor; it’s not the only factor.  I have explained to you how we are going to get around that.”

Explaining why the country was yet to secure some of the loans it is seeking from offshore sources, the minister said the delay had nothing to do with Nigeria no longer being attractive to foreign creditors.

According to her, the process of securing the loans from all relevant bodies had commenced and would be consummated before the end of year.

“You know it’s a long process; if you remember at the last FEC (Federal Executive Council), we got the external borrowing plan approved by FEC. Once it’s approved by the National Assembly, we need to access those loans.

“That’s why we rushed it to FEC very quickly and now, it’s going to the National Assembly. Once they finish their oversight function, we will now draw down on some of the loan facilities. But already, the approval has been done,” the minister stated.

On the proposed loan from the African Development Bank (AfDB), the minister said the bank’s president, Dr. Akinwunmi Adesina, was expected in the country today.

“I believe he will give us an update. The China Exim Bank loan is in the process at the moment, specifically for the railway projects. Some of the China Exim Bank loans are already running, like for the airports. But the big one is for the railway projects and that’s the one that we are hopeful that before the end of the year, it would have been approved.

“Then the Eurobond, we are just finalising the appointment of the parties (advisers), and are confident on that one also. On the Eurobond, we already have commitments; even before we opened the offer, we already had four commitments from investors stating that whenever Nigeria is ready, they will be committed to what we are doing because they could see that we are very serious.

“We went to London and we had a non-deal road show that was extremely successful and people were saying they are ready…” she added.

Speaking on the impact of the N770 billion so far released for capital projects, the minister said after the first N420 billion was released, the second tranche of N350 billion had just been released, promising that the impact would be felt soon.

“The second N350 billion has just gone out and so we have to wait for that impact. But the first one, we are quite satisfied with what has happened, because many of these contractors had not been paid since 2012.

“When we did the first one, they were not sure as to if we were going to sustain the releases and so the second one for us is far more significant, and a lot of them came and said ‘we had not been paid since 2012’, so the tendency was to hold on to that money rather than get to work.

“But now, we have done the second tranche, I think that confidence in government’s ability to meet its obligation is being restored. As a result, I’m sure that with this second release, you are going to see a whole lot of activity on our roads, railways and those big infrastructure projects,” the minister stated.

On what the government was doing to attract foreign investors in a season of recession, Adeosun explained that the majority of investments in the country are by Nigerians, adding that the focus of the government was to provide the right environment, which would ultimately attract not only local but foreign investors.

“One thing we need to understand is that majority of the investments in Nigeria are by Nigerians. If I can’t persuade you to invest then I cannot persuade a foreigner to invest. So, our focus is to get the environment right.

“Once the environment is right and there is an opportunity to make profit, foreign investors will come but the most important thing is the environment and those things that investors want to see in order for them to invest – both Nigerian and foreign investors.

“Sometimes we focus more on foreign investors and ignore the fact that the people that are really putting money in Nigeria are mainly local investors. As such, we need to sort out the infrastructure.

“That is what investors have been saying is a limiting factor – the corruption because people get frustrated by going from one ministry to another trying to get a permit and afterwards they will just say let’s forget it. So these are the things we are trying to do, so we can have an environment where business can thrive,” she explained.

On the forthcoming annual meetings of the International Monetary Fund (IMF) and World Bank, the minister said: “We are in talks with the World Bank and IMF everyday and I think we will be telling them what plans we have for the Nigerian economy, how we see the Nigerian economy going forward, that we are committed to inclusive growth, that we are confident of the plans that we are pursuing, and we are willing for them to support us.

“They are already supporting us considerably in so many areas such as education, polio and rebuilding of the North-east. They are very supportive of this country and we want to continue to deepen the relationship so that we can get concessionary funding that we need for these projects and give them the assurance that the reforms we are pursuing are working.”

The minister also addressed the issue of the federal government’s consideration of the sale of national assets, stating: “I think there are a lot of assets that are being considered. There are some unused assets that are just lying idle and people have come and said these things you are not using, can we lease it from you?

“I think when you are looking for money, some things that government is sitting on and we don’t have money to rehabilitate them, it makes sense for us to unlock those things as it will bring money to the economy during these difficult times so that we can move forward.

“I don’t think we have gotten to the stage where we say it’s this or that asset.  I think the conversation now is should we just continue borrowing or now that things have gotten to this stage, should we start to dislodge some under-utilised assets.

“And this debate is not limited to us alone: Saudi Arabia is selling some of its oil assets. So if you sell assets and use that to finance other assets, which we are going to give you more, then I don’t have problem with that.”

Adeosun added that deciding on whether to lease or concession the assets, or their outright sale would depend on the nature of the assets in question.

“There are some assets that you can lease and there are some which you may need to divest from. Investors will need to look at the risks and pricing accordingly. We can sell to the Nigerian people or the Pension Fund and you can also list these assets on the Nigerian Stock Exchange (NSE).

“So there are different methodologies for disposing of the assets and raising funds,” the minister explained.

Adeosun also spoke on whether or not the sale of some national assets would determine the size of government borrowings, saying: “Yes, we have done a Medium Term Expenditure Framework and Debt Strategy Plan, but we feel that the infrastructure challenges that we face are very serious.

“Accordingly, the kind of money that we need, we can’t borrow because when you have an accumulated deficit, you need to look for the money that will sustain what you are doing for the next three to four years.

“So that is what we are looking at and adopting a more strategic approach so that over time, we will borrow less and which of course is good in the long run.”

In response to a question as to whether the country would begin to get out of the recession by the next quarter, the minister said although she might not predict if the timeline was realistic, she was confident that the economy would start to grow soon.

“I don’t want to predict when we will get out of recession, but let me tell you that we would start to grow and that is how you get out of a recession because of the stimulus that we are providing.

“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,” she assured her interviewers.

On the heels of the minister’s interview at the weekend, state governors, ministers and policy wonks from the federal, states and local governments across the country, among others, will tomorrow converge on Abeokuta, the Ogun State capital, to examine available options on shoring up government revenue streams, especially in an environment of dwindling earnings from crude oil.

The gathering, which will take place under the auspices of  the National Council on Finance and Economic Development (NACOFED) 2016 Conference, will be hosted by the finance minister.

The conference, according to a statement from the Ministry of Finance, will attract a diverse group of participants, including ministers, governors, state commissioners for finance and budget, as well as captains of industry from the private sector.

NACOFED was created as a forum for members to discuss current socio-economic issues, and proffer a way forward for the Nigerian economy on fiscal and monetary policies.

The statement issued by the media aide to the minister, Mr. Festus Akanbi, disclosed that the conference would be declared open by the Ogun State Governor, Senator Ibikunle Amosun.

The statement also quoted Adeosun as stating that the policy thrust of the current administration informed the theme of this year’s conference.

She said her ministry has continued to discharge its numerous functions through well-articulated initiatives and policies to improve revenue generation, blocking leakages, tackling wastage, and obtaining best value for money in government expenditure.

Some of the topics to be discussed include: “The non-oil sector as a sustainable alternative in enhancing revenue generation” to be delivered by the Minister of Mines and Steel Development, Dr. Kayode Fayemi.

Others include: “Harnessing Customs and Excise Duties for Improved Revenue Generation” to be delivered by the Comptroller General of Customs, Col. Hammed Ali (rtd); and “Tax as a Source of Improved Revenue to the Federation Account” to be led by the Chairman of the Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler.

Business executives and economic analysts expected at the event include Managing Director, Guaranty Trust Bank, Mr. Segun Agbaje; Group General Manager, Nigerian National Petroleum Corporation, Dr. M.K. Baru; Managing Director, Financial Derivatives Limited, Mr. Bismarck Rewane; and a former Director General, Budget Office, Mr. Bode Augusto, among others.

Meanwhile, the President of AfDB, Adesina, will arrive Abuja today for a three-day official visit to discuss measures on stimulating for the Nigerian economy.

During his time in the country, he will meet with President Muhammadu Buhari, Adeosun and the Governor of the CBN, Mr. Godwin Emefiele, to chart ways to turn around the economy.

A statement obtained on AfDB’s website yesterday, said Adesina would be in Nigeria on his first official visit to the country since his appointment in 2015.

According to the statement, the AfDB president will meet government/policy makers, the private sector, and development partners to discuss the challenges facing Nigeria and highlight AfDB’s commitment to further strengthen its partnership with the country.

He said: “I am very much looking forward to my first official visit to Nigeria as President of the AfDB. Nigeria is a vital shareholder and partner for the Bank.

“The Nigerian economy is in a critical phase and in these difficult times, we have to make sure we all work together to tackle the challenges facing Africa’s largest economy.”

Adesina added: “The visit aims to advance cooperation across a wide range of areas, including how best Nigeria can respond to its current challenges.”

In Abuja, Adesina will hold series of meetings with the leadership of Nigeria, including the president, the Minister of Finance, and CBN governor.

The statement added that the AfDB president would take part in roundtable discussions with philanthropic leaders and hold discussions with the private sector, as well as development partners.

Adesina will also receive an award from the Nigerian Economic Society (NSE).

“The AfDB has a robust partnership with Nigeria, which is one of the Bank’s founders. Nigeria, the biggest shareholder, is also one of the largest beneficiaries of AfDB’s assistance.

“In 2016, the Bank has so far lent US$524,969 million to Nigeria. As of September 2016, the Bank had invested about US$7 billion in the Nigerian economy since it began its operations in the country in 1967,” the statement said.

AfDB is working closely with Nigeria to support its various sectors, including agriculture, infrastructure, energy, transport, water and sanitation, the Bank added.