Edeh: Nigeria’s Human Capital Key in Unlocking Economy’s Strength

The Group Managing Director of Norrenberger, an independent financial services group that provides bespoke financial solutions, Mr. Tony Edeh, speaks to Goddy Egene on the Nigeria’s budget, foreign exchange and other sundry financial and economic issues. Excerpts:

What is your take on the 2022 Budget that was presented by the President to the National Assembly?

The presentation of the 2022 budget proposal to the National Assembly by the President more than two months prior to the start of the next fiscal year is laudable. This would give the National Assembly sufficient time to conduct the required legislative review of the budget. Most importantly, it will also allow for public consultation and citizen inputs into the budget prior to its passage into the appropriation act, however, a review of the proposed fiscal parameters shows that the budget proposal reflects the future of past years’ budgets. The budget seems replete with some of the mistakes of the past budgets in terms of structure and character. Revenue forecasts and budget parameters are somewhat overly optimistic, so the usual credibility problems of previous budgets are likely to shadow the 2022 budget. Clearly as a nation, we still have an incremental fiscal structure, regardless of the state of the economy.

Normally, the challenge has been implementation. Given the budget outline, do you think it has potential to meet expectations of all?

The 2021 budget, which was called the budget of stabilisation and economic growth, has so far been unable to meet up to 30 per cent of the government’s fiscal policy objectives. According to the government’s half-year report, the economy is yet to witness the desired growth outside the Gross Domestic Product(GDP) growth statistics. According to the half year budget implementation report, as of June 2021, only 27 per cent (N1.34trillion) of the money from total public debt of N4.9 trillion was released to fund capital expenditures (including additional capital expenditures). This implies that all the revenue of the government and about 73 per cent of the accumulated public debt in the first half of 2021 was used for debt servicing and recurrent expenditure funding. The usual expectations are to fund capital projects, especially projects with the ability to repay costs, support existing revenue sources and stimulate economic growth.

The year is fast running to an end, how would you describe the performance of the economy. Are you satisfied with the performance?

The 2021 budget has so far delivered mixed results. There are some commendable positive results, as well as negative results. There is a considerable improvement in the non-oil revenue. Nonetheless, economic growth and stabilisation seems very weak, with an attendant depletion of accrued savings (external reserves) and other State resources. Unlike the 2020 half-year, when the government made a transfer of U$ 250 million to the Nigerian Sovereign Wealth Investment Authority (NSWIA) has received no transfer in 2021. External reserves decreased by 10.6 per cent, from $36.48 billion in December 2020 to $32.99 billion in June 2021, followed by a gradual positive reversal to US$40 billion by third quarter in October 2021 thanks to the successful Eurobond raise. Trade deficit also increased sharply, reaching around $4.23 billion.

Import growth remains very high relative to our export growth rate. Relative to 2020, Nigeria’s trade deficit in the first half of 2021 rose by N3.56 trillion and stood at N5.81 trillion in June 2021. With an import growth rate of 60.67 per cent in the first half of 2021, Nigeria’s export growth rate of 26.18 per cent had little or no impact to stabilize or grow the economy. In the first half of 2021, the federal government accumulated an additional public debt of around N2.51 trillion (foreign debt – N897 billion, domestic debt – N1.61 trillion).Additionally, N2.40 trillion loan was received from the Central Bank of Nigeria (CBN) via Ways and Means Advance bringing total borrowings t0 N4.91 trillion outweighing at half year, full year 2020 budget deficit figure of N4.70 trillion. It is important to note that the value of the Ways and Means provided to the federal government by the CBN violates applicable laws. External debt increased by 8.5 per cent, from N10.95 trillion in December 2020 to N13.711 trillion in June 2021.In the same vein, domestic debt increased by 10 per cent, from N16.02 trillion in December 2020 to N21.754 trillion in June 2021 bringing total debt size to $N35.465 trillion as at June, 2021.

Given your projections as an operator in the financial services sector, how much of your expectations were met?

We had predicted that federal government borrowings from domestic, foreign revenue sources, multilateral and bilateral groups to finance budget deficit of N5.2 trillion in the 2021 and corporate borrowers’ activities would help to absorb some of the excess liquidity from the system, we forecasted corporate instruments issuance within the region of N1.5 trillion to N2 trillion to drive meaningful impact in the direction of yields. We did predict liquidity crunch for the banks to spark sale of bills in the secondary market, thereby triggering an uptrend in yields in the money market, with attendant support for funds mobilisation from investors. In line with our expectation, the 7-year and 15-year bond yields settled at 11.20 per cent and 12.15 per cent respectively, while the 30-year bond inched higher to close at 13.0 per cent. Similarly, NTB auction printed at 7.5 per cent, 3.5 per cent, and 2.5 per cent respectively for the 364-day, 182-day, and 91-day bills respectively. Despite the weak macroeconomic situation, the federal government and corporate organisations in the country raised over N4.58 trillion from the capital market via the fixed income segment between January to June 3, 2021. Our prediction of low yields in the equities market, and the portfolio recommendation/strategy of dividend aristocrats paid off as dividend yields recorded as low as 1.08 per cent amongst the top tier banks.

Ede: Nigeria’s Human Capital Key in Unlocking Economy’s Strength

The eNaira is a CBN-issued digital currency that provides a unique form of money denominated in Naira. The digital currency serves as both a medium of exchange and a store of value, offering better payment prospects in retail transactions when compared to cash payments. The CBDC has an exclusive operational structure that is both remarkable and nothing like other forms of central bank money. It is expected that the implementation would not only ensure cheaper transactions but would take banking services to the poorest and most vulnerable in the society, it will prevent counterfeiting, cut the cost of printing, movement and destruction of cash, especially dirty notes. It will reduce the problems associated with the use of current electronic forms of transactions.

When you access the impact of being able to transfer value at low or no cost, the ability of people to do things without having to worry about any change (balance), the ability to transfer money to Nigerians as part of social programmes, the impact on Diaspora remittances, l will say that the impact on the financial system and the GDP will be much larger than the President’s prediction of US$29 billion dollar addition to the nation’s GDP in the next 10 years.

What is your reaction to the exchange rate and what do you think could be done to stabilize the Naira?

The free-fall of the naira is a hydra-headed monster that requires diverse and intensive intervention otherwise the currency will continue to devalue. I already suspect that the gap in FX supply will push the exchange rate to almost N600 by December 2022 as demand increases. One of the major troubles of the Naira is that the CBN managers believe they can use a duct tape strategy to prop up its value using income from oil. They don’t want market forces to determine the Naira value because it would reveal that the Naira is much weaker than they want us to believe. Amid the various monetary policies already or currently being implemented by the Central Bank of Nigeria,(CBN), and the Naira exchanging at N570/$1, it has recorded its poorest run in the history of the foreign exchange policy administration in Nigeria.

In reaction to this, the apex bank recently took the battle to the footsteps of “currency manipulators” after barring bureau de change operators from its official window. The way out of this foreign exchange conundrum is for the CBN to allow the market to function. It is also imperative for the apex bank to de-emphasise demand management and focus on strategies to stimulate forex inflows. A fixed exchange rate regime is a major disincentive to inflows and creates enormous pressure of demand for forex. The CBN needs to give the market a chance.

Its current approach would continue to deepen distortions in the economy, perpetuate round tripping, fuel speculation, suppress forex supply and boost underground economy. The exchange rate challenge stems from the fact that the country is deteriorating to a net importer of all it consumes which incidentally has become the tragedy of the economy. To solve this problem, there must be a retooling of the nation’s production infrastructure to reduce importation of manufactured goods and raw materials to conserve forex. We need to improve Nigeria’s production particularly in agriculture. If the country produce, the lesser we import and that is the better.

We really need to reduce our imports and export more. In the past few years, some manufacturing companies have closed shop and relocated to nearby West African countries. If we produce more and export more the GDP will grow, and the value of the naira will improve. If we import less, we will be in a better position. One of the problems of the country’s economic management strategy clearly is policy summersault. In the past few years, the CBN governor has done a lot. I think the person handling the macro-economic side or the monetary sector of the country has not been finding things easy. What is worrisome is that devaluation of currencies does not help in anyway. We are still a mono economy, which is the oil that is fading. We have not done much to encourage export. The ease of doing business is diminishing, the hurdles faced by exporters are numerous. These include: corruption, infrastructural decay, multiple taxes and other obstacles that are discouraging and killing businesses.

Nigerian has a very huge population but the financial system has not really taken advantage of the human mass to transform the economy. Why do you think this is so?

Nigeria has an estimated population of about 206 million, making it the seventh most populous country in the world. The country’s population is projected to increase to 263 million in 2030 and 401 million in 2050 when it will become the third most populous country in the world. This is because the country’s population continues to grow at a high rate of 2.6 per cent , while global population growth is 1.05 per cent per year. Nigeria, as the most populous country in Africa must be the envy of many other countries. This human capital is not only a blessing of immense proportions, but also a huge economic strength, especially if put to productive use. Nigeria’s population is not a problem per se, but its poor management is. An example of a country that skillfully and productively manages her high population density is Singapore, which is reputed to have 25 times greater population density than even India.

Other countries like The Netherlands, South Korea, Bahrain, Israel, and Taiwan have also done well with their large number of citizens. A large population increases the demand for goods and services in the economy, which stimulates investment and production, leading to creation of more jobs and better incomes. With more taxes from a large population that is productively engaged, enough money can be sourced to improve benefits for those in the dependent age group, thus creating a happier society. In addition, with a large population there is greater demand and supply in the economy, leading to large economies of scale. A large population, when properly managed or built as productive capital, is sure to be a source of security against external aggression. In addition, given that Nigeria has a large expanse of rich land, channelling the human resource to agriculture to improve the nation’s food security is one benefit of its huge population.

With the right environment for investors, a large pool of workforce is already guaranteed for inexpensive labour and large-scale production for export at competitive prices. Specifically, a large youth population means that a maximum number is in the working age, with dynamic and innovative qualities. This generally implies a better workforce. Another associated benefit is a lower dependent population, that is, the number of people dependent on other citizens’ income would be less, leading to comparatively better living standards. So, good management of the nations’ human capital, especially the youth population is the way to go. Therefore, a large population is not a problem. How it is managed or mismanaged as economic resource is. It is therefore imperative that Nigerian manages her population and other resources well and reap the demographic dividend of having a large citizen base.

You came into the industry years ago, what has been the experience?

The Nigerian asset management industry is an industry under pressure due to margin squeeze, an ever-increasing regulatory burden, macro-economic and political changes and new disruptive business models. The expectations of clients in this environment changes quickly and places even greater pressure on the industry to respond to their evolving needs. As asset managers positioned as order-takers, we are at the start of our customer experience journey. We recognize that there are opportunities and much needs to be done. We are having to transform to become client centric, driven not just by our clients’ needs, but also by regulatory change such as the recently introduced regulations under privately managed portfolio by the Securities and Exchange Commission (SEC). These have also created increased pressure and new competition.

Our experience at the heart of the future is understanding who the client is and what their needs are so that experiences can be personalised and cover the wealth management ecosystem end-to-end. We have had to change the role of the relationship manager with evolving landscape from a sale to a consultative relationship based on need and solutions delivery. Our experience has also paved the way for our IT estate that is supporting our rapid adoption of new digital approaches. At the heart of this plan is the delivery of well-defined customer experience to get right across the lifecycle of the relationship to be clear on the client ‘outside-in’ and to place the client at the heart of everything we do in an ever-competitive industry.

What sets your organization apart that will make one patronises you instead of the many others out there?

Norrenberger treats every portfolio the same: that is, differently. Where most firms will go through a process of determining essential factors of the client such as their time horizon, tolerance for risk, we will construct a portfolio unique to the client because of the belief that every client is different. Our portfolios are customised to fit the needs and goals of each client. We do not follow a model where one size fits all or follow an asset allocation approach that does not consider individual return requirements. We communicate with our clients throughout the year to ensure that the current investment strategy is aligned with their lives—something that can change due to a new job, retirement, or any other life event. We do our own investment research of traditional and alternative assets and do not rely on others or use middlemen. At Norrenberger, our underlying tenet is that diligent research is fundamental to prudent investment decisions.

Our board and management are directly accountable to clients for the investments. A call to us regarding any portfolio investment security will get a knowledgeable response. Our background in education and training is asset management. This provides us with an excellent understanding of corporate finances and a leg up in investment research. Our executive and management investment experience going back over thirty years provides an invaluable perspective and knowledgeable insights for our clients. We are independently owned by entities and individuals with strong community ties. Our independence means flexibility to do what is always right for our clients without an out-of-town owner setting conditions. Our community ties reflect our values and of giving back. Everyone is team focused. All the members of the investment team incorporate the same philosophy and process. Clients are not assigned to a portfolio manager who may not share the same investment discipline that is Norrenberger’s hallmark. We seek and take feedbacks for system and process improvements to better serve our clients. We are open and honest, and our clients enjoy working with us.